e497
GMO Trust
Prospectus
September 13, 2011
n GMO International Intrinsic Value Extended Markets Fund
Class II:
Class III:
Class IV:
n Information about other funds
offered by GMO Trust is contained in
separate prospectuses.
n Shares of the Fund described in this
Prospectus may not be available for
purchase in all states. This
Prospectus does not offer shares in
any state where they may not lawfully
be offered.
Grantham, Mayo, Van Otterloo & Co. LLC
40 Rowes Wharf Boston, Massachusetts 02110
The Securities and Exchange Commission has not approved or disapproved these securities or
passed upon the adequacy of this Prospectus. Any representation to the contrary is a criminal
offense.
TABLE OF CONTENTS
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back cover |
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back cover |
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back cover |
i
GMO International Intrinsic Value Extended Markets Fund
FUND SUMMARY
Investment objective
High total return.
Fees and expenses
The tables below describe the fees and expenses that you may pay for each class of shares if
you buy and hold shares of the Fund.
Annual Fund operating expenses
(expenses that you pay each year as a percentage of the value of your investment)
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Class II |
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Class III |
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Class IV |
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Management fee |
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0.50 |
% |
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0.50 |
% |
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0.50 |
% |
Shareholder service fee |
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0.22 |
% |
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0.15 |
% |
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0.09 |
% |
Other expenses |
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0.27 |
%1 |
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0.27 |
%1 |
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0.27 |
%1 |
Total annual operating expenses |
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0.99 |
%1 |
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0.92 |
%1 |
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0.86 |
%1 |
Expense reimbursement |
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(0.27 |
%)1,2 |
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(0.27 |
%)1,2 |
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(0.27 |
%)1,2 |
Total annual operating
expenses after expense
reimbursement |
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0.72 |
%1 |
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0.65 |
%1 |
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0.59 |
%1 |
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1 |
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The amounts represent an annualized estimate of the Funds operating expenses for
its initial fiscal year. |
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Subject to certain exclusions (Excluded Fund Fees and Expenses), Grantham, Mayo, Van
Otterloo & Co. LLC (the Manager or GMO) has contractually agreed to reimburse the Fund to the
extent the Funds total annual operating expenses exceed 0.50% of the Funds average daily net
assets. Excluded Fund Fees and Expenses include shareholder service fees, underlying fund expenses,
independent Trustee expenses, certain legal costs, investment-related costs (e.g., brokerage
commissions and securities lending fees), extraordinary expenses, and other expenses described
under Expense Reimbursement in this Prospectus. This expense limitation will continue through at
least September 13, 2012, and may not be terminated prior to this date without the consent of the
Funds Board of Trustees. |
-2-
Example
This example is intended to help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund
for the time periods indicated, regardless of whether or not you redeem your shares at the end of
such periods. The example also assumes that your investment has a 5% return each year and that the
Funds operating expenses remain the same as those shown in the table. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
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1 Year |
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3 Years |
Class II |
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$ |
74 |
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$ |
288 |
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Class III |
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$ |
66 |
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$ |
266 |
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Class IV |
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$ |
60 |
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$ |
247 |
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Portfolio turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities. A
higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes
when Fund shares are held in a taxable account. These costs, which are not reflected in Annual Fund
operating expenses or in the Example, affect the Funds performance. Because the Fund commenced
operations on or following the date of this Prospectus, the Funds portfolio turnover rate is not
available.
Principal investment strategies
The Manager seeks to achieve the Funds investment objective by investing in equities or
groups of equities that the Manager believes will provide higher returns than the MSCI ACWI ex-U.S.
Index.
The Manager uses active investment management methods, which means that equities are bought
and sold according to the Managers evaluation of companies published financial information,
securities prices, equity and bond markets, and the overall economy.
In selecting equities for the Fund, the Manager may use a combination of quantitative and
qualitative investment methods to identify equities that the Manager believes present positive
return potential relative to other equities. Some of these methods evaluate individual equities or
a group of equities (e.g., equities of companies in a particular industry) based on the ratio of
their price to historical financial information, including book value, cash flow and earnings, and
forecasted financial information provided by industry analysts. The Manager may compare these
ratios to industry or market averages in assessing the relative attractiveness of an equity or a
group of equities. Other methods used by the Manager focus on evaluating patterns of price movement
or volatility of an equity or group of equities relative to the Funds investment universe. The
Manager also may adjust the Funds portfolio for factors such as position size, market
capitalization, and exposure to groups such as industry, sector, country or currency. The Fund may
invest in companies of any market capitalization.
As a substitute for direct investments in equities, the Manager may use exchange-traded and
over-the-counter (OTC) derivatives. The Manager also may use derivatives: (i) in an attempt to
reduce investment exposures (which may result in a reduction below zero); (ii) in an attempt to
adjust elements of the Funds investment exposure; and (iii) to effect transactions intended as
substitutes for securities lending. Derivatives used may include futures, options, forward currency
contracts and swap contracts. In addition, the Fund may lend its portfolio securities.
The Fund typically invests directly and indirectly (e.g., through underlying funds or
derivatives) in equities of companies tied economically to countries other than the U.S., including
both developed and
-3-
emerging countries. The term equities refers to direct and indirect investments in common
stocks and other stock-related securities, such as preferred stocks, convertible securities,
depositary receipts, and exchange-traded equity REITs and equity income trusts. For purposes of
this Prospectus, an investment is tied economically to a particular country or region if: (i) it
is an investment in an issuer that is organized under the laws of that country or of a country
within that region or in an issuer that maintains its principal place of business in that country
or region; (ii) it is traded principally in that country or region; or (iii) it is an investment in
an issuer that derived at least 50% of its revenues or profits from goods produced or sold,
investments made, or services performed in that country or region, or has at least 50% of its
assets in that country or region.
For cash management purposes, the Fund may invest in U.S. Treasury Fund and unaffiliated money
market funds.
Principal risks of investing in the Fund
The value of the Funds shares changes with the value of the Funds investments.
Many factors can affect this value, and you may lose money by investing in the Fund. The Fund is a
non-diversified investment company under the Investment Company Act of 1940, as amended (the 1940
Act), and therefore a decline in the market value of a particular security held by the Fund may
affect the Funds performance more than if the Fund were diversified. The principal risks of
investing in the Fund are summarized below. For a more complete discussion of these risks, see
Description of Principal Risks.
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Market Risk Equity Securities The market value of equity investments may decline due
to factors affecting the issuing companies, their industries, or the economy and equity
markets generally. If the Fund purchases equity investments at a discount from their value as
determined by the Manager, the Fund runs the risk that the market prices of these investments
will not increase to that value for a variety of reasons, one of which may be the Managers
overestimation of the value of those investments. The Fund also may purchase equity
investments that typically trade at higher multiples of current earnings than other
securities, and the market values of these investments often are more sensitive to changes in
future earnings expectations than those other securities. Because the Fund normally does not
take temporary defensive positions, declines in stock market prices generally are likely to
reduce the net asset value of the Funds shares. |
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Management and Operational Risk The Fund relies on GMOs ability to achieve its
investment objective by effectively implementing its investment approach. The Fund runs the
risk that GMOs proprietary investment techniques will fail to produce the desired results.
The Funds portfolio managers may use quantitative analyses and/or models and any
imperfections or limitations in such analyses and/or models could affect the ability of the
portfolio managers to implement strategies. By necessity, these analyses and models make
simplifying assumptions that limit their efficacy. Models that appear to explain prior market
data can fail to predict future market events. Further, the data used in models may be
inaccurate and/or it may not include the most recent information about a company or a
security. The Fund is also subject to the risk that deficiencies in the Managers or another
service providers internal systems or controls will cause losses for the Fund or impair Fund
operations. |
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Foreign Investment Risk The market prices of many foreign securities fluctuate more than
those of U.S. securities. Many foreign markets are less stable, smaller, less liquid and less
regulated than U.S. markets, and the cost of trading in those markets often is higher than in
U.S. markets. Foreign portfolio transactions generally involve higher commission rates,
transfer taxes and custodial costs than similar transactions in the U.S. In addition, the Fund
may be subject to foreign taxes on capital gains or other income payable on foreign
securities, on transactions in those securities and on the repatriation of proceeds generated
from those securities. Also, many foreign markets require a license |
-4-
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for the Fund to invest directly in those markets, and the Fund is subject to the risk that it
could not invest if its license were terminated or suspended. In some foreign markets,
prevailing custody and trade settlement practices (e.g., the requirement to pay for securities
prior to receipt) expose the Fund to credit and other risks with respect to participating
brokers, custodians, clearing banks or other clearing agents, escrow agents and issuers.
Further, adverse changes in investment regulations, capital requirements or exchange controls
could adversely affect the value of the Funds investments. These and other risks (e.g.,
nationalization, expropriation or other confiscation of assets of foreign issuers) tend to be
greater for investments in companies tied economically to emerging countries, the economies of
which tend to be more volatile than the economies of developed countries. |
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Currency Risk Fluctuations in exchange rates can adversely affect the market value of
the Funds foreign currency holdings and investments denominated in foreign currencies. |
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Derivatives Risk The use of derivatives involves the risk that their value may not move
as expected relative to the value of the relevant underlying assets, rates or indices.
Derivatives also present other Fund risks, including market risk, liquidity risk, currency
risk and counterparty risk. |
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Counterparty Risk The Fund runs the risk that the counterparty to an OTC derivatives
contract or a borrower of the Funds securities will be unable or unwilling to make timely
settlement payments or otherwise honor its obligations. |
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Leveraging Risk The Funds use of derivatives and securities lending may cause its
portfolio to be leveraged. Leverage increases the Funds portfolio losses when the value of
its investments decline. |
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Liquidity Risk Low trading volume, lack of a market maker, large size of position or
legal restrictions may limit or prevent the Fund from selling particular securities or
unwinding derivative positions at desirable prices. The more less-liquid securities the Fund
holds, the more likely it is to honor a redemption request in-kind. |
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Smaller Company Risk Smaller companies may have limited product lines, markets or
financial resources, may lack the competitive strength of larger companies, or may lack
managers with experience or depend on a few key employees. The securities of small- and
mid-cap companies often are less widely held and trade less frequently and in lesser
quantities, and their market prices often fluctuate more, than the securities of companies
with larger market capitalizations. |
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Focused Investment Risk Focusing investments in countries, regions, sectors or companies
or in industries with high positive correlations to one another creates additional risk. |
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Market Disruption and Geopolitical Risk Geopolitical and other events may disrupt
securities markets and adversely affect global economies and markets. Those events as well as
other changes in foreign and domestic economic and political conditions could adversely affect
the value of the Funds investments. |
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Large Shareholder Risk To the extent that shares of the Fund are held by large
shareholders (e.g., institutional investors, asset allocation funds or other GMO Funds), the
Fund is subject to the risk that these shareholders will disrupt the Funds operations by
purchasing or redeeming Fund shares in large amounts and/or on a frequent basis. |
-5-
Performance
Because the Fund had not yet completed a full calendar year of operations as of the
date of this Prospectus, performance information for the Fund is not included.
Management of the Fund
Investment Adviser: Grantham, Mayo, Van Otterloo & Co. LLC
Investment Division and Senior Members of GMO responsible for day-to-day management of the Fund:
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Senior Members |
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Investment Division |
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(Length of Service) |
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Title |
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Quantitative Equity
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Thomas Hancock
(since 1998)
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Co-Director, Quantitative
Equity Division, GMO. |
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Quantitative Equity
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Sam Wilderman
(since 2005)
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Co-Director, Quantitative
Equity Division, GMO. |
-6-
Purchase and sale of Fund shares
Under ordinary circumstances, you may purchase the Funds shares directly from GMO
Trust (the Trust) when the New York Stock Exchange (NYSE) is open for business. In addition,
certain brokers and agents are authorized to accept purchase and redemption orders on the Funds
behalf.
Eligibility to purchase Fund shares or different classes of Fund shares depends on the
clients meeting either (i) the minimum Total Fund Investment, which includes only a clients
total investment in the Fund, or (ii) the minimum Total GMO Investment, both set forth in the
table below. No minimum additional investment is required to purchase additional shares of the
Fund.
Minimum Investment Criteria for Class Eligibility
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Minimum Total Fund Investment |
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Minimum Total GMO Investment |
Class II Shares |
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N/A |
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$10 million |
Class III Shares |
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N/A |
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$35 million |
Class IV Shares |
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$125 million |
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$250 million |
Fund shares are redeemable and, under ordinary circumstances, you may redeem the Funds shares
when the NYSE is open for business. Redemption requests should be submitted directly to the Trust
unless the Fund shares to be redeemed were purchased through a broker or agent, in which case the
redemption request should be effected through that broker or agent. For instructions on redeeming
shares directly, call the Trust at 1-617-346-7646 or send an e-mail to SHS@GMO.com.
Purchase order forms and redemption requests can be submitted by mail or facsimile (and with
respect to purchase order forms, by other form of communication pre-approved by GMO Shareholder
Services) to the Trust at:
GMO Trust
c/o Grantham, Mayo, Van Otterloo & Co. LLC
40 Rowes Wharf
Boston, Massachusetts 02110
Facsimile: 1-617-439-4192
Attention: Shareholder Services
Tax information
The Fund normally distributes net investment income and net realized capital gains, if any, to
shareholders. These distributions are generally taxable to you as ordinary income or capital gains,
unless you are an entity that is exempt from income tax or are investing through a tax-advantaged
account. If you are investing through a tax-advantaged account, you may be taxed upon withdrawals
from that account.
Financial intermediary compensation
If you purchase shares of the Fund through a broker-dealer, agent or other financial
intermediary (such as a bank), the Fund and its related companies may pay the intermediary for the
sale of Fund shares and related services. These payments may create a conflict of interest by
influencing the broker-dealer or
-7-
other intermediary and your salesperson to recommend the Fund over
another investment. Ask your salesperson or visit your financial intermediarys website for more
information.
ADDITIONAL INFORMATION ABOUT THE FUNDS INVESTMENT STRATEGIES, RISKS, AND EXPENSES
Fund Summary. The preceding section contains a summary of the investment
objective, fees and expenses, principal investment strategies, principal risks, management, and
other important information for the Fund. The summary is not all-inclusive, and the Fund may make
investments, employ strategies, and be exposed to risks that are not described in the summary. More
information about the Funds investments and strategies is contained in the Statement of Additional
Information (SAI). See the back cover of this Prospectus for information about how to receive the
SAI.
Fundamental Investment Objectives/Policies. The Board of Trustees (Trustees) of the Trust
may change the Funds investment objective or policies without shareholder approval or prior notice
unless an objective or policy is identified in this Prospectus or in the SAI as fundamental. The
Fund does not currently have any investment objectives that are fundamental. There is no guarantee
that the Fund will be able to achieve its investment objective.
Tax Consequences and Portfolio Turnover. Unless otherwise specified in this Prospectus or in
the SAI, GMO is not obligated to, and generally will not, consider tax consequences when seeking to
achieve the Funds investment objective (e.g., the Fund may engage in transactions that are not tax
efficient for U.S. federal income or other federal, state, local, or non-U.S. tax purposes).
Portfolio turnover is not a principal consideration when GMO makes investment decisions for the
Fund, and the Fund has not placed any limit on the rate of portfolio turnover and portfolio
securities may be sold without regard to the time they have been held. Based on its assessment of
market conditions and purchase or redemption requests, GMO may cause the Fund to trade more
frequently at some times than at others. High turnover rates may adversely affect the Funds
performance by generating higher transaction costs. Additionally, portfolio turnover may give rise
to additional taxable income for shareholders, including through the realization of capital gains
or other types of income that are taxable to Fund shareholders when distributed to them unless the
shareholders themselves are exempt from taxation or otherwise investing in the Fund through a
tax-advantaged account. If portfolio turnover results in the recognition of short-term capital
gains, those gains typically are taxed to shareholders, when distributed to them, at ordinary
income tax rates. See Distributions and Taxes below for more information about the tax
consequences of these types of income.
Certain Definitions. When used in this Prospectus, the term invest includes both direct
investing and indirect investing and the term investments includes both direct investments and
indirect investments. For example, the Fund may invest indirectly by investing in another GMO Fund
or by investing in derivatives and synthetic instruments. When used in this Prospectus, (i) the
terms equity investments and equities refer to investments (as defined above) in common stocks
and other stock-related securities, such as preferred stocks, convertible securities and depositary
receipts, (ii) the term total return includes capital appreciation and income, and (iii) the term
emerging countries means the worlds less developed countries.
Investments in Unaffiliated Money Market Funds and GMO U.S. Treasury Fund. For cash
management purposes, the Fund may invest in unaffiliated money market funds and also may invest in
GMO U.S. Treasury Fund (U.S. Treasury Fund), another GMO Fund described in Investment in Other
GMO Funds.
-8-
Benchmark. The Funds benchmark, the MSCI ACWI (All Country World Index) ex-U.S. Index (MSCI
Standard Index Series) is an independently maintained and widely published index comprised of
international (excluding U.S. and including emerging) large and mid capitalization stocks. MSCI
data
may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared
or approved this report, and has no liability hereunder.
Fee and Expense Information. The following paragraphs contain additional information about the
fee and expense information included in the Fund Summary.
Annual Fund Operating Expenses Other Expenses and Acquired Fund Fees and Expenses. The
amount listed under Other expenses in the Annual Fund operating expenses table included in the
Fund Summary reflects an annualized estimate of direct expenses associated with an investment in
the Fund for the Funds initial fiscal year. The Fund may invest in certain other funds of the
Trust (each fund of the Trust, including the Fund, a GMO Fund, and collectively, the GMO
Funds), and certain other pooled investment vehicles (underlying funds), and the indirect net
expenses associated with the Funds investment (if any) in underlying funds are reflected in Other
expenses if those expenses are less than 0.01% of the average net assets of the Fund. The indirect
net expenses associated with the Funds investment in underlying funds (i.e., acquired fund fees
and expenses) are estimated to be less than 0.01% for the Funds initial fiscal year. Acquired
fund fees and expenses do not include expenses associated with investments in the securities of
unaffiliated issuers unless those issuers hold themselves out to be investment companies. Actual
indirect expenses will vary depending on the particular underlying funds in which the Fund invests.
Fee and Expense Example. The expense example under Example included in the Fund Summary
assumes that all dividends and distributions are reinvested.
Temporary Defensive Positions. The Fund normally does not take temporary defensive positions.
To the extent the Fund takes a temporary defensive position, or otherwise holds significant amounts
of cash or cash equivalents, it may not achieve its investment objective.
Fund Codes. See Fund Codes on the inside back cover of this Prospectus for information
regarding the Funds ticker, news-media symbol, and CUSIP number.
This Prospectus does not offer shares in any state where they may not lawfully be offered.
-9-
DESCRIPTION OF PRINCIPAL RISKS
Investing in mutual funds involves many risks, and factors that may affect the Funds
portfolio as a whole, called principal risks, are discussed briefly in the Funds summary and are
summarized in additional detail in this section. The risks of investing in the Fund depend on the
types of investments in its portfolio and the investment strategies the Manager employs on its
behalf. This section describes the nature of these principal risks and some related risks, but
does not describe every potential risk of investing in the Fund. The Fund could be subject to
additional risks because of the types of investments it makes and market conditions, which may
change over time. The SAI includes more information about the Fund and its investments.
The Fund is exposed to the risks to which the underlying funds in which it invests are
exposed. Therefore, unless otherwise noted, the principal risks summarized below include both
direct and indirect principal risks of the Fund, and, as indicated in the Additional Information
About the Funds Investment Strategies, Risks, and Expenses section of this Prospectus, references
in this section to investments made by the Fund include those made both directly by the Fund and
indirectly by the Fund through other GMO Funds and other investment companies.
The Fund, by itself, generally is not a complete investment program but rather is intended to
serve as part of a diversified portfolio of investments. An investment in the Fund is not a bank
deposit and, therefore, is not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency.
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MARKET RISK EQUITY SECURITIES |
The Fund runs the risk that the market value of its equity investments will decline. The
market value of an equity investment may decline for reasons that directly relate to the issuing
company, such as management performance, financial leverage and reduced demand for its goods or
services. It also may decline due to factors that affect a particular industry, such as a decline
in demand, labor or raw material shortages, increased production costs, regulation, or competitive
industry conditions. In addition, market value may decline as a result of general market conditions
that 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. Equity investments generally have greater
price volatility than fixed-income and other investments with a scheduled stream of payments, and
the market price of equity investments is more susceptible to moving up or down in a rapid or
unpredictable manner.
The Fund invests a substantial portion of its assets in equities and, as described under
Additional Information About the Funds Investment Strategies, Risks, and Expenses Temporary
Defensive Positions, generally does not take temporary defensive positions. As a result, declines
in stock market prices generally are likely to reduce the net asset values of the Funds shares.
If the Fund purchases equity investments at a discount from their value as determined by the
Manager, the Fund runs the risk that the market prices of these investments will not increase to
that value for a variety of reasons, one of which may be the Managers overestimation of the value
of those investments.
Equity investments trading at higher multiples of current earnings than other securities have
market values that often are more sensitive to changes in future earnings expectations than other
securities. At times when the market is concerned that these expectations may not be met, the
market values of those securities typically fall.
-10-
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MANAGEMENT AND OPERATIONAL RISK |
The Fund is subject to management risk because it relies on the Managers ability to achieve
its investment objective. The Manager uses proprietary investment techniques in making investment
decisions for the Fund, but that does not assure that the Manager will achieve the desired results
and the Fund may incur significant losses. The Manager, for example, may fail to use derivatives
effectively, choosing to hedge or not to hedge positions at disadvantageous times. As described in
the Funds summary, the Managers portfolio managers use quantitative analyses and/or models. Any
imperfections or limitations in such analyses and/or models could affect the ability of the
portfolio managers to implement strategies. By necessity, these analyses and models make
simplifying assumptions that limit their efficacy. Models that appear to explain prior market data
can fail to predict future market events. Further, the data used in models may be inaccurate and/or
it may not include the most recent information about a company or a security. There also can be no
assurance that all of the Managers personnel will continue to be associated with the Manager for
any length of time. The loss of the services of one or more employees of the Manager could have an
adverse impact on the Funds ability to achieve its investment objective.
The Fund generally does not take temporary defensive positions. Instead it usually is fully
invested in the asset class in which it is permitted to invest (e.g., foreign equities). The Fund
may buy securities not included in its benchmark, hold securities in very different proportions
than its benchmark, and/or engage in other strategies that cause the Funds performance to differ
from (and/or be uncorrelated with or negatively correlated with) that of its benchmark. In those
cases, the Funds performance will depend on the ability of the Manager to choose securities that
perform better than securities that are included in the benchmark and/or to utilize those other
strategies in a way that adds value relative to the benchmark.
The Fund also is subject to the risk of loss and impairment of operations from operational
risk as a result of the Managers and other service providers provision of investment management,
administrative, accounting, tax, legal, shareholder and other services to the Fund. Operational
risk can result from inadequate procedures and controls, human error and system failures by a
service provider. For example, trading delays or errors (both human and systematic) could prevent
the Fund from purchasing or selling a security that the Manager expects will appreciate or decline
in value, as the case may be, thus preventing the Fund from benefiting from potential investment
gains or avoiding losses on the security. The Manager is not contractually liable to the Fund for
losses associated with operational risk absent the Managers willful misfeasance, bad faith, gross
negligence or reckless disregard of its contractual obligations to provide services to the Fund.
Other Fund service providers also have limitations on their liability to the Fund for losses
resulting from their errors.
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FOREIGN INVESTMENT RISK |
Because the Fund invests in foreign (non-U.S.) securities, it is subject to additional and
more varied risks than funds whose investments are limited to U.S. securities. The securities
markets of many foreign countries involve securities of only a limited number of companies in a
limited number of industries. As a result, the market prices of many of those securities fluctuate
more than those of U.S. securities. In addition, issuers of foreign securities often are not
subject to the same degree of regulation as U.S. issuers. Reporting, accounting, custody and
auditing standards of foreign countries differ, in some cases significantly, from U.S. standards.
Foreign portfolio transactions generally involve higher commission rates, transfer taxes and
custodial costs. The Fund may be subject to foreign taxation on realized capital gains, dividends
or interest payable on those securities, on transactions in those securities
and on the repatriation of proceeds generated from those securities. Transaction-based
charges are
-11-
generally calculated as a percentage of the transaction amount and are paid upon the
sale or transfer of portfolio securities subject to such taxes. In addition, some jurisdictions may
limit the Funds ability to profit from short term trading (as defined in the relevant
jurisdiction).
Also, investing in foreign countries exposes the Fund to the risk of nationalization,
expropriation or confiscatory taxation of assets of issuers to which the Fund is exposed, adverse
changes in investment regulations, capital requirements or exchange controls (which may include
suspension of the ability to transfer currency from a country), and adverse political and
diplomatic developments that could adversely affect the market value of the Funds investments.
In some foreign markets, custody arrangements for securities provide significantly fewer
protections than custody arrangements in U.S. markets, and prevailing custody and trade settlement
practices (e.g., the requirement to pay for securities prior to receipt) expose the Fund to credit
and other risks with respect to participating brokers, custodians, clearing banks or other clearing
agents, escrow agents and issuers. Fluctuations in foreign currency exchange rates also will affect
the market value of the Funds foreign investments (see Currency Risk below).
U.S. investors are required to maintain a license to invest directly in many foreign markets.
These licenses are often subject to limitations, including maximum investment amounts. Once a
license is obtained, the Funds ability to continue to invest directly is subject to the risk that
the license will be terminated or suspended. If a license is terminated or suspended, the Fund will
be required to obtain exposure to the market through the purchase of American Depositary Receipts,
Global Depositary Receipts, shares of other funds that are licensed to invest directly, or
derivative instruments. The receipt of a foreign license by one of the Managers clients may
preclude other clients, including the Fund, from obtaining a similar license, and this could limit
the Funds investment opportunities. In addition, the activities of another of the Managers
clients could cause the suspension or revocation of a license and thereby limit the Funds
investment opportunities.
Because the Fund invests a significant portion of its assets in securities of issuers tied
economically to emerging countries, it is subject to greater foreign investment risk than funds
investing primarily in more developed foreign countries. The risks of investing in those securities
include: greater fluctuations in currency exchange rates; increased risk of default (by both
government and private issuers); greater social, economic, and political uncertainty and
instability (including the risk of war or natural disaster); increased risk of nationalization,
expropriation, or other confiscation of assets of issuers to which the Fund is exposed; greater
governmental involvement in the economy; less governmental supervision and regulation of the
securities markets and participants in those markets; controls on foreign investment, capital
controls and limitations on repatriation of invested capital, dividends, interest and other income
and on the Funds ability to exchange local currencies for U.S. dollars; inability to purchase and
sell investments or otherwise settle security or derivative transactions (i.e., a market freeze);
unavailability of currency hedging techniques; differences in, or lack of, auditing and financial
reporting standards and resulting unavailability of material information about issuers; slower
clearance and settlement; difficulties in obtaining and/or enforcing legal judgments; and
significantly smaller market capitalizations of issuers.
Currency risk is the risk that fluctuations in exchange rates will adversely affect the market
value of the Funds investments. Currency risk includes the risk that currencies in which the
Funds investments are traded and/or in which the Fund receives income, or currencies in which the
Fund has taken an active investment position, will decline in value relative to other currencies,
in the case of long positions, or increase in value relative to other currencies, in the case of short positions. In the case of
hedging
-12-
positions, currency risk includes the risk that the currency to which the Fund has obtained
exposure through hedging declines in value relative to the foreign currency being hedged. In such
event, the Fund may realize a loss on the hedging instrument at the same time the Fund is realizing
a loss on the currency being hedged. Currency exchange rates can fluctuate significantly for many
reasons, including changes in supply and demand in the currency exchange markets, trade balances,
actual or perceived changes in interest rates, differences in relative values of similar assets in
different currencies, long-term opportunities for investment and capital appreciation, intervention
(or the failure to intervene) by U.S. or foreign governments, central banks or supranational
agencies such as the International Monetary Fund, and currency or exchange controls or other
political and economic developments in the U.S. or abroad. See Market Disruption and Geopolitical
Risk below.
The Fund uses derivatives to acquire positions in currencies whose value the Manager expects
to correlate with the value of currencies the Fund owns, currencies the Manager wants the Fund to
own, or currencies the Fund is exposed to through its investments. The Fund also takes overweighted
or underweighted currency positions and/or alters the currency exposure of the securities in which
it has invested. As a result, its currency exposure may differ (in some cases significantly) from
the currency exposure of its equity investments and/or its benchmark. If the exchange rates of the
currencies involved do not move as expected, the Fund could lose money on its holdings of a
particular currency and also lose money on the derivative. See also Foreign Investment Risk
above.
Because the Fund has foreign currency holdings and/or invests or trades in securities
denominated in foreign currencies or related derivatives, it may be adversely affected by changes
in the exchange rates of foreign currencies. In addition, some currencies are illiquid (e.g., some
emerging country currencies), and the Fund may not be able to convert these currencies into U.S.
dollars, in which case the Manager may decide to purchase U.S. dollars in a parallel market where
the exchange rate is materially and adversely different. Exchange rates for many currencies (e.g.,
some emerging country currencies) are particularly affected by exchange control regulations.
Derivative transactions in foreign currencies (such as futures, forwards, options and swaps)
may involve leveraging risk in addition to currency risk, as described below under Leveraging
Risk. In addition, the obligations of counterparties in currency derivative transactions are often
not secured by collateral, which increases counterparty risk (see Counterparty Risk below).
The Fund may invest in derivatives, which are financial contracts whose value depends on, or
is derived from, the value of underlying assets, reference rates, or indices. Derivatives include
futures, foreign currency contracts, swap contracts, reverse repurchase agreements and other OTC
contracts. Derivatives may relate to securities, interest rates, currencies or currency exchange
rates, inflation rates, commodities and indices. The SAI contains a description of the various
types and uses of derivatives in the Funds investment strategies.
The use of derivatives involves risks that are in addition to, and potentially greater than,
the risks associated with investing directly in securities and other more traditional assets. In
particular, the use of OTC derivatives exposes the Fund to the risk that the counterparty to a
derivatives contract will be unable or unwilling to make timely settlement payments or otherwise
honor its obligations. OTC derivatives contracts typically can be closed only with the other party
to the contract. If the counterparty defaults, the Fund will have contractual remedies but may not
be able to enforce them. Because the contract for each OTC derivative is individually negotiated,
the counterparty may interpret contractual terms (e.g., the definition of default) differently than
the Fund, and if that occurs, the Fund may decide not to pursue its
claims against the counterparty in order to avoid incurring the cost and unpredictability of
legal
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proceedings. The Fund, therefore, may be unable to obtain payments the Manager believes are
owed under OTC derivatives contracts or those payments may be delayed or made only after the Fund
has incurred the costs of litigation.
The Fund may invest in derivatives that do not require the counterparty to post collateral
(e.g., foreign currency forwards), that require collateral but that do not provide for the Funds
security interest in it to be perfected, that require a significant upfront deposit by the Fund
unrelated to the derivatives intrinsic value, or that do not require the collateral to be
regularly marked-to-market (e.g., certain OTC derivatives). Even when obligations are required by
contract to be collateralized, there is usually a lag between the day the collateral is called for
and the day the Fund receives it. When a counterpartys obligations are not fully secured by
collateral, the Fund is exposed to the risk of having limited recourse if the counterparty
defaults. The Fund may invest in derivatives with a limited number of counterparties, and events
affecting the creditworthiness of any of those counterparties may have a pronounced effect on the
Fund. Derivatives risk is particularly acute in environments (like those experienced recently) in
which financial services firms are exposed to systemic risks of the type evidenced by the
insolvency of Lehman Brothers and subsequent market disruptions. During these periods of market
disruptions, the Fund may have a greater need for cash to provide collateral for large swings in
its mark-to-market obligations under the derivatives used by the Fund.
Derivatives also present risks described elsewhere in this Description of Principal Risks
section, including market risk, liquidity risk, currency risk and counterparty risk. Many
derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling
and judgment, which increases the risk of mispricing or improper valuation. The pricing models
used by the Fund or its pricing agents may not produce valuations that are consistent with the
values realized when OTC derivatives are actually closed out or sold. This valuation risk is more
pronounced when the Fund enters into OTC derivatives with specialized terms because the value of
those derivatives in some cases is determined only by reference to similar derivatives with more
standardized terms. As a result, incorrect valuations may result in increased cash payments to
counterparties, undercollateralization and/or errors in the calculation of the Funds net asset
value.
The Funds use of derivatives may not be effective or have the desired results. Moreover,
suitable derivatives will not be available in all circumstances. For example, the economic costs of
taking some derivative positions may be prohibitive, and if a counterparty or its affiliate is
deemed to be an affiliate of the Fund, the Fund will not be permitted to trade with that
counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise
reduce the Funds risk exposures, potentially resulting in losses for the Fund.
Derivatives also involve the risk that changes in their value may not move as expected
relative to the value of the assets, rates or indices they are designed to track. The use of
derivatives also may increase the taxes payable by shareholders.
Swap contracts and other OTC derivatives are highly susceptible to liquidity risk (see
Liquidity Risk below) and counterparty risk (see Counterparty Risk below), and are subject to
documentation risks. Because many derivatives have a leverage component (i.e., a notional value in
excess of the assets needed to establish and/or maintain the derivative position), adverse changes
in the value or level of the underlying asset, rate or index may result in a loss substantially
greater than the amount invested in the derivative itself (see Leveraging Risk below).
The U.S. government recently enacted legislation that provides for new regulation of the
derivatives market, including clearing, margin, reporting and registration requirements. Because
the legislation leaves much to rule making, its ultimate impact remains unclear. New regulations
could,
-14-
among other things, restrict the Funds ability to engage in derivatives transactions (for
example, by making certain types of derivatives transactions no longer available to the Fund)
and/or increase the costs of such derivatives transactions (for example, by increasing margin or
capital requirements), and the Fund may be unable to execute its investment strategy as a result.
It is unclear how the regulatory changes will affect counterparty risk.
This is the risk that the counterparty to a repurchase agreement or reverse repurchase
agreement or other OTC derivatives contract or a borrower of the Funds securities will be unable
or unwilling to make timely settlement payments or otherwise honor its obligations. If a
counterparty fails to meet its contractual obligations, goes bankrupt, or otherwise experiences a
business interruption, the Fund could miss investment opportunities or otherwise hold investments
it would prefer to sell, resulting in losses for the Fund. Counterparty risk is pronounced during
unusually adverse market conditions and is particularly acute in environments (like those
experienced recently) in which financial services firms are exposed to systemic risks of the type
evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disruptions.
Participants in OTC derivatives markets typically are not subject to the same level of credit
evaluation and regulatory oversight as are members of exchange-based markets, and, therefore, OTC
derivatives generally expose the Fund to greater counterparty risk than exchange-traded
derivatives. The Fund is subject to the risk that a counterparty will not settle a transaction in
accordance with its terms and conditions because of a dispute over the terms of the contract
(whether or not bona fide) or because of a credit or liquidity problem, thus causing the Fund to
suffer a loss. If a counterpartys obligation to the Fund is not collateralized, then the Fund is
essentially an unsecured creditor of the counterparty. If the counterparty defaults, the Fund will
have contractual remedies, but the Fund may be unable to enforce them. Counterparty risk is greater
for derivatives with longer maturities where events may intervene to prevent settlement.
Counterparty risk also is greater when the Fund has concentrated its derivatives with a single or
small group of counterparties as it sometimes does as a result of its use of swaps and other OTC
derivatives. To the extent the Fund has significant exposure to a single counterparty, this risk
will be particularly pronounced for the Fund. Funds that use swap contracts are subject, in
particular, to the creditworthiness of the contracts counterparties because some types of swap
contracts used by the funds have durations longer than six months (and, in some cases, a number of
decades). The creditworthiness of a counterparty may be adversely affected by greater than average
volatility in the markets, even if the counterpartys net market exposure is small relative to its
capital. Counterparty risk still exists even if a counterpartys obligations are secured by
collateral because the Funds interest in collateral may not be perfected or additional collateral
may not be promptly posted as required.
The Fund is also subject to counterparty risk because it executes its securities transactions
through brokers and dealers. If a broker or dealer fails to meet its contractual obligations, goes
bankrupt, or otherwise experiences a business interruption, the Fund could miss investment
opportunities or be unable to dispose of investments it would prefer to sell, resulting in losses
for the Fund.
Counterparty risk with respect to OTC derivatives may be further complicated by recently
enacted U.S. financial reform legislation. See Derivatives Risk above for more information.
The Funds use of reverse repurchase agreements and other derivatives and securities lending
may cause its portfolio to be leveraged (i.e., the Funds exposure to underlying securities, assets
or currencies exceeds its net asset value). Leverage increases the Funds portfolio losses when the
value of
-15-
its investments declines. Because many derivatives have a leverage component (i.e., a
notional value in excess of the assets needed to establish and/or maintain the derivative
position), adverse changes in the value or level of the underlying asset, rate or index may result
in a loss substantially greater than the amount invested in the derivative itself. In the case of
swaps, the risk of loss generally is related to a notional principal amount, even if the parties
have not made any initial investment. Some derivatives have the potential for unlimited loss,
regardless of the size of the initial investment. The Funds use of reverse repurchase agreements
also subjects the Fund to interest costs based on the difference between the sale and repurchase
price of a security involved in such a transaction. The Funds portfolio also will be leveraged if
it borrows money to meet redemption requests or settle investment transactions or if it avails
itself of the right to delay payment on a redemption.
The Fund may manage some of its derivative positions by offsetting derivative positions
against one another or against other assets. To the extent offsetting positions do not behave in
relation to one another as expected, the Fund may perform as if it were leveraged.
The effect of liquidity risk is particularly pronounced when low trading volume, lack of a
market maker, large size of position, or legal restrictions (including daily price fluctuation
limits or circuit breakers) limit or prevent the Fund from selling particular securities or
unwinding derivative positions at desirable prices. In addition, the more less-liquid securities
the Fund holds, the more likely it is to honor a redemption request in-kind. Because the Funds
principal investment strategies involve the use of securities of companies with smaller market
capitalizations or smaller total float-adjusted market capitalizations, foreign securities (in
particular emerging market securities), derivatives (in particular over-the-counter (OTC)
derivatives), and/or securities subject to restrictions on resale, it has a greater liquidity risk.
These types of investments can be difficult to value and are more likely to be fair valued (see
Determination of Net Asset Value), resulting in differences between the values realized on the
sale of the investments and the value at which the investments are carried on the books of the
Fund. Less liquid securities are more susceptible than other securities to market value declines
when markets decline generally.
The Fund is also exposed to liquidity risk when it has an obligation to purchase particular
securities (e.g., as a result of entering into reverse repurchase agreements, writing a put, or
closing out a short position). Some of the markets, exchanges or securities in which the Fund
invests may be less liquid and this would affect the price at which, and the time period in which,
the Fund may liquidate positions to meet redemption requests or other funding requirements.
Although U.S. Treasury securities have historically been among the most liquid fixed income
investments, these securities may become less liquid in the future.
The Fund makes (or may make) investments in emerging market securities that are not widely
traded and are sometimes subject to purchase and sale restrictions and/or in securities of
companies with smaller market capitalizations that are not widely held and trade less frequently
and in lesser quantities than securities of companies with larger market capitalizations.
Market risk and liquidity risk are particularly pronounced for securities of companies with
smaller market capitalizations, including small- and mid-cap companies. These companies may have
limited product lines, markets or financial resources, may lack the competitive strength of larger
companies, or may lack managers with experience or depend on a few key employees. In addition,
their
-16-
securities often are less widely held and trade less frequently and in lesser quantities, and
their market prices often fluctuate more, than the securities of companies with larger market
capitalizations.
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FOCUSED INVESTMENT RISK |
Funds whose investments are focused in particular countries, regions, sectors, or companies or
in industries with high positive correlations to one another (e.g., different industries within
broad sectors, such as technology or financial services) are subject to greater overall risk than
funds whose investments are more diversified. A fund that invests in the securities of a limited
number of issuers is particularly exposed to adverse developments affecting those issuers, and a
decline in the market value of a particular security held by the fund may affect the funds
performance more than if the fund invested in the securities of a larger number of issuers.
Because the Fund typically invests a significant portion of its assets in securities of
companies tied economically to countries other than the U.S., it is vulnerable to events affecting
those companies. Companies that share common characteristics are often subject to similar business
risks and regulatory burdens, and often react similarly to specific economic, market, political or
other developments.
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MARKET DISRUPTION AND GEOPOLITICAL RISK |
The Fund is subject to the risk that geopolitical and other events will disrupt securities
markets and adversely affect global economies and markets. The wars in Iraq and Afghanistan have
had a substantial effect on the economies and securities markets of the U.S. and other countries.
Terrorism in the U.S. and around the world has had a similar global impact and has increased
geopolitical risk. The terrorist attacks on September 11, 2001 resulted in the closure of some U.S.
securities markets for four days, and similar attacks are possible in the future. War, terrorism
and related geopolitical events have led, and in the future may lead, to increased short-term
market volatility and may have adverse long-term effects on U.S. and world economies and markets
generally. Likewise, natural and environmental disasters, such as the earthquake and tsunami in
Japan in early 2011, and systemic market dislocations of the kind surrounding the insolvency of
Lehman Brothers in 2008, if repeated, would be highly disruptive to economies and markets. Those
events as well as other changes in foreign and domestic economic and political conditions also
could adversely affect individual issuers or related groups of issuers, securities markets,
interest rates, credit ratings, inflation, investor sentiment and other factors affecting the value
of the Funds investments. During such market disruptions, the Funds exposure to the risks
described elsewhere in this Description of Principal Risks section, including market risk,
liquidity risk, foreign investment risk, currency risk and counterparty risk, will likely increase.
Market disruptions can also prevent the Fund from implementing its investment program for a period
of time and achieving its investment objective. For example, a disruption may cause the Funds
derivatives counterparties to discontinue offering derivatives on some underlying commodities,
securities, reference rates or indices, or to offer such products on a more limited basis, or the
current global economic crisis may strain the U.S. Treasurys ability to satisfy its obligations.
To the extent that shares of the Fund are held by large shareholders (e.g., institutional
investors, asset allocation funds or other GMO Funds), the Fund is subject to the risk that these
shareholders will
purchase or redeem Fund shares in large amounts and/or on a frequent basis. In addition, GMO
Funds and other accounts over which GMO has investment discretion that invest in the Fund are not
subject to restrictions on the frequency of trading of Fund shares. These transactions could
adversely affect the Fund if it sells portfolio securities to raise the cash to satisfy shareholder
redemption requests or purchase portfolio securities to invest cash. This risk is particularly
pronounced when one shareholder owns a
-17-
substantial portion of the Fund. A substantial percentage of
the Fund may be held by other GMO Funds and/or separate accounts managed by the Manager for its
clients. Asset allocation decisions by the Manager may result in substantial redemptions from (or
investments into) the Fund. These transactions may adversely affect the Funds performance to the
extent that the Fund is required to sell investments (or invest cash) at times when it would not
otherwise do so. These transactions also may accelerate the realization of taxable income to
shareholders if such sales of investments result in gains, and also may increase transaction costs.
These transactions potentially limit the use of any capital loss carryforwards and certain other
losses to offset future realized capital gains (if any). To the extent the Fund invests in other
GMO Funds having large shareholders, the Fund is indirectly subject to this risk.
The Fund is not a diversified investment company within the meaning of the 1940 Act. This
means it is allowed to invest in the securities of a relatively small number of issuers and/or
foreign currencies. As a result, it may be subject to greater credit, market and other risks, and
poor performance by a single issuer may have a greater impact on its performance than if it was
diversified.
MANAGEMENT OF THE FUND
GMO, 40 Rowes Wharf, Boston, Massachusetts 02110, provides investment management and
shareholder services to the Fund and other GMO Funds. GMO is a private company, founded in 1977.
As of May 31, 2011, GMO managed on a worldwide basis more than $100 billion of assets for the GMO
Funds and other investors, such as pension plans, endowments, and foundations.
Subject to the approval of the Trustees, the Manager establishes and modifies when it deems
appropriate the investment strategies of the Fund. In addition to its management of the Funds
investment portfolio and the shareholder services it provides to the Fund, the Manager administers
the Funds business affairs.
Each class of shares of the Fund pays the Manager a shareholder service fee for providing
client services and reporting, such as performance information, client account information,
personal and electronic access to Fund information, access to analysis and explanations of Fund
reports, and assistance in maintaining and correcting client-related information.
As of the date of this Prospectus, the Fund had not yet operated for a full fiscal year but
pays the Manager, as compensation for investment management services, an annual fee equal to 0.50%
of the Funds average daily net assets for each class of shares.
A discussion of the basis for the Trustees approval of the Funds initial investment
management contract will be included in the Funds annual or semiannual shareholder report for the
period during which the Trustees approved that contract.
GMOs Quantitative Equity Division is responsible for day-to-day investment management of the
Fund. The Divisions investment professionals work collaboratively to manage the Funds portfolio,
and no one person is primarily responsible for day-to-day management of the Fund.
The following table identifies the senior members of GMOs Quantitative Equity
Division who are responsible for providing investment management services to the Fund and each
senior members length of service as a senior member, title, and business experience during the
past five years. The senior members manage or allocate responsibility for portions of the
portfolios to members of their Division,
-18-
oversee the implementation of trades, review the overall
composition of the portfolios, including compliance with stated investment objectives and
strategies, and monitor cash.
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Title; Business Experience |
Investment Division |
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Senior Members (Length of Service) |
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During Past 5 Years |
Quantitative Equity
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Thomas Hancock
(since 1998)
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Co-Director, Quantitative
Equity Division, GMO. Dr.
Hancock has been
responsible for overseeing
the portfolio management
of GMOs international
developed market and
global quantitative equity
portfolios since 1998. |
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Quantitative Equity
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Sam Wilderman
(since 2005)
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Co-Director, Quantitative
Equity Division, GMO. Mr.
Wilderman has been
responsible for overseeing
the portfolio management
of GMOs U.S. quantitative
equity portfolios since
2005. Previously, Mr.
Wilderman was responsible
for portfolio management
of and research for GMOs
emerging equity portfolios
since 1996. |
The SAI contains information about how GMO determines the compensation of the senior members,
other accounts they manage and related conflicts, and their ownership of the Fund and other GMO
Funds for which they have responsibility.
Custodian and Fund Accounting Agent
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109, serves as the
Funds custodian and fund accounting agent.
Transfer Agent
State Street Bank and Trust Company, One Lincoln Street, Boston, Massachusetts 02111, serves
as the Funds transfer agent.
Expense Reimbursement
The Manager has contractually agreed to reimburse the Fund for the portion of the Funds total
annual operating expenses that exceed 0.50% of the Funds average daily net assets (the Expense
Reimbursement Amount) exclusive of Excluded Fund Fees and Expenses. As used in this Prospectus,
Excluded Fund Fees and Expenses means shareholder service fees, expenses incurred indirectly by
investment in other GMO Funds, fees and expenses of the independent Trustees of the Trust and their
independent counsel, fees and expenses for legal services the Manager for the Trust has not
undertaken to pay, compensation and expenses of Trust officers and agents who are not affiliated
with GMO, brokerage commissions, securities lending fees and expenses, interest expense, transfer
taxes, and other investment-related costs (including expenses associated with investments in any
company that is an investment company (including an exchange-traded fund) or would be an investment
company under the 1940 Act,
but for the exceptions to the definition of investment company provided in Sections 3(c)(1)
and 3(c)(7) of the 1940 Act), hedging transaction fees and extraordinary, non-recurring and certain
other unusual expenses (including taxes).
-19-
In addition to the contractual expense reimbursement described above, the Manager has
contractually agreed to reimburse the Fund for the amount of fees and expenses incurred indirectly
by the Fund through its investment in U.S. Treasury Fund (excluding U.S. Treasury Funds Excluded
Fund Fees and Expenses), subject to a maximum total reimbursement to the Fund of such fees and
expenses equal to the Expense Reimbursement Amount.
The Funds contractual expense limitations will continue through at least September 13, 2012,
and may not be terminated prior to this date without the consent of the Funds Board of Trustees.
DETERMINATION OF NET ASSET VALUE
The net asset value or NAV of each class of shares of the Fund is determined as of the close
of regular trading on the NYSE, generally at 4:00 p.m. Boston time. The NAV per share of a class of
shares of the Fund is determined by dividing the total value of the Funds portfolio investments
and other assets, less any liabilities, allocated to that share class by the total number of
outstanding shares of that class. NAV is not determined on any days when the NYSE is closed for
business. The Fund also may elect not to determine NAV on days during which no share is tendered
for redemption and no order to purchase or sell a share is received by the Fund.
The value of the Funds investments is generally determined as follows:
Exchange-listed securities (other than Exchange-listed options)
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Last sale price or |
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Official closing price or |
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Most recent quoted price published by the exchange (if no reported last sale or
official closing price) or |
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Quoted price provided by a pricing source (if the private market is more
reliable in determining market value than the exchange) |
(Also, see discussion in Fair Value Pricing below regarding foreign equity securities.)
Exchange-listed options
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Exchange-listed options are valued at the last sale price, provided that price
is between the closing bid and ask prices. If the last sale price is not within this
range, then they will be valued at the closing bid price for long positions and the
closing ask price for short positions |
Unlisted securities (if market quotations are readily available)
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Most recent quoted price |
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Note: There can be no assurance that quoted prices will be available. If reliable quotes
are not available, the Fund may seek alternative valuation methodologies (e.g., valuing the
relevant assets at fair value as described below). |
Non-emerging market debt obligations (having sixty days or less to final maturity)
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Amortized cost (unless circumstances dictate otherwise; for example, if the
issuers creditworthiness has become impaired) |
All other fixed income securities (includes bonds, asset-backed securities, loans, structured
notes)
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Most recent quoted price supplied by a single pricing source chosen by the
Manager |
Shares of other GMO Funds and other open-end registered investment companies
Fair Value Pricing
For all other assets and securities, including derivatives, and in cases where market prices
are not readily available or circumstances make an existing methodology or procedure unreliable,
the Funds investments are valued at fair value, as determined in good faith by the Trustees or
pursuant to procedures approved by the Trustees.
With respect to the Funds use of fair value pricing, you should note the following:
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► In some cases, a significant percentage of the Funds assets may be fair valued. The
value of assets that are fair valued is determined by the Trustees or persons acting at
their direction pursuant to procedures approved by the Trustees. Factors that may be
considered in determining fair value include, among others, the value of other financial
instruments traded on other markets, trading volumes, changes in interest rates,
observations from financial institutions, significant events (which may be considered to
include changes in the value of U.S. securities or securities indices) that occur after the
close of the relevant market and before the Funds net asset value is calculated, other news
events, and significant unobservable inputs (including the Funds own assumptions in
determining the fair value of investments). Although the goal of fair valuation is to
determine the amount the owner of the securities might reasonably expect to receive upon
their current sale, because of the uncertainty inherent in fair value pricing, the fair
value determined for a particular security may be materially different from the value
realized upon its sale. |
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► Many foreign equity securities markets and exchanges close prior to the close of the NYSE,
and, therefore, the closing prices for foreign equity securities in those markets or on
those exchanges do not reflect events that occur after that close but before the close of
the NYSE. As a result, the Fund generally values those foreign equity securities (including
those foreign equity securities underlying futures and other derivatives) as of the NYSE
close using fair value prices, which are based on local closing prices adjusted by a factor
supplied by a third party vendor using that vendors proprietary models. |
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► The Funds use of fair value pricing may cause the Funds returns to differ from those of
its benchmark or other comparative index more than would otherwise be the case. For example,
the Fund may fair value its international equity holdings as a result of significant events
that occur after the close of the relevant market and before the time the Funds net asset
value is calculated. In these cases, the benchmark or index may use the local market closing
price, whereas the Fund may use an adjusted fair value price. |
Quoted prices are typically the bid price for securities held long and the ask price for
securities sold short. If the pricing convention for the applicable security does not involve a bid
or an ask,
-21-
the quoted price is the quotation provided by a third party pricing source in accordance
with the convention for that security.
The values of foreign securities quoted in foreign currencies, foreign currency balances and
foreign forward currency contracts are typically translated into U.S. dollars at the close of
regular trading on the NYSE, generally at 4:00 p.m. Boston time, at then current exchange rates or
at such other rates as the Trustees or persons acting at their direction may determine in computing
net asset value.
The Manager evaluates pricing sources on an ongoing basis and may change a pricing source at
any time. The Manager normally does not evaluate the prices supplied by pricing sources on a
day-to-day basis. The Manager monitors erratic or unusual movements (including unusual inactivity)
in the prices supplied for a security and has discretion to override a price supplied by a source
(e.g., by taking a price supplied by another) when it believes that the price supplied is not
reliable. In addition, although alternative prices may be available for securities held by the
Fund, those alternative sources are not typically part of the valuation process and do not
necessarily provide greater certainty about the prices used by the Fund. In addition, because the
Fund may hold portfolio securities listed on foreign exchanges that trade on days on which the NYSE
is closed, the net asset value of the Funds shares may change significantly on days when shares
cannot be redeemed.
DISCLOSURE OF PORTFOLIO HOLDINGS
The Fund has established a policy with respect to disclosure of its portfolio holdings. That
policy is described in the SAI. The largest fifteen portfolio holdings of the Fund are posted
monthly on GMOs website. In addition, from time to time, position attribution information
regarding the Fund may be posted to GMOs website (e.g., best/worst performing positions in the
Fund over a specified time period). Such information is available without a confidentiality
agreement to registered users on GMOs website.
Additional information regarding the Funds portfolio holdings as of each months end is made
available to shareholders of the Trust, qualified potential shareholders as determined by GMO
(potential shareholders), and their consultants or agents through a secured link on GMOs website
approximately five days after month end. Periodically, in response to heightened market interest in
specific issuers, the Funds holdings in one or more issuers may be made available on a more
frequent basis to shareholders of the Trust, potential shareholders, and their consultants or
agents through a secured link on GMOs website. This information may be posted as soon as the
business day following the date to which the information relates.
To access this information on GMOs website (http://www.gmo.com/america/strategies),
shareholders, potential shareholders, and their consultants and agents must contact GMO to obtain a
password and user name (to the extent they do not already have them) and must generally enter into
a confidentiality agreement with GMO and the Trust. GMO may make portfolio holdings information
available in alternate formats and under additional circumstances under the conditions described in
the SAI. Beneficial owners of shares of the Fund who have invested in the Fund through a broker or
agent should contact that broker or agent for information on how to obtain access to information on
the website regarding the Funds portfolio holdings.
The Fund or GMO may suspend the posting of portfolio holdings, and the Fund may modify the
disclosure policy, without notice to shareholders. Once posted, the Funds portfolio holdings will
remain available on the website at least until the Fund files a Form N-CSR (annual/semiannual
report) or Form N-Q (quarterly schedule of portfolio holdings) for the period that includes the
date of those holdings.
-22-
HOW TO PURCHASE SHARES
Under ordinary circumstances, you may purchase the Funds shares directly from the Trust on
days when the NYSE is open for business. In addition, certain brokers and agents are authorized to
accept purchase and redemption orders on the Funds behalf. These brokers and agents may impose
transaction fees and/or other restrictions (in addition to those described in this Prospectus) for
purchasing Fund shares through them. For instructions on purchasing shares, call the Trust at
1-617-346-7646, send an e-mail to SHS@GMO.com, or contact your broker or agent. The Trust will not
accept a purchase request until it has received a GMO Trust Application deemed to be in good order
by the Trust or its designated agent. In addition, the Trust may not accept a purchase request
unless an IRS Form W-9 (for U.S. shareholders) or the appropriate IRS Form W-8 (for foreign
shareholders) with a correct taxpayer identification number (if required) is on file with GMO and
that W-9 or W-8 is deemed to be in good order by the Trusts withholding agent, State Street Bank
and Trust Company. The Trust may require additional tax-related certifications, information or
other documentation from you in order to comply with the reporting and withholding tax provisions
enacted in March 2010 as part of the Hiring Incentives to Restore Employment Act. For more
information on these new rules, see the Taxes section in the SAI. Please consult your tax
adviser to ensure all tax forms provided to the Trust are completed properly and maintained, as
required, in good order. GMO has the right to make final good order assessments.
Purchase Policies. You must submit a purchase request in good order to avoid having it
rejected by the Trust or its designated agent. In general, a purchase request is in good order if
it includes:
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The name of the Fund being purchased; |
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The U.S. dollar amount of the shares to be purchased; |
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The date on which the purchase is to be made (subject to receipt prior to the close
of regular trading on that date); |
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The name and/or the account number (if any) set forth with sufficient clarity to
avoid ambiguity; and |
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The signature of an authorized signatory as identified in the GMO Trust Application
or subsequent authorized signers list. |
If payment in full (by check, wire, or, when approved, securities) is not received prior to
the earlier of the close of the NYSE or 4:00 p.m. Boston time on the intended purchase date, the
request may be rejected or deferred until payment is received unless prior arrangements for later
payment have been approved by GMO.
If the purchase request is received in good order by the Trust or its agent prior to the close
of regular trading on the NYSE (generally 4:00 p.m. Boston time), the purchase price for the Fund
shares to be purchased is the net asset value per share determined on that day (plus any applicable
purchase premium). If that request is received after the close of regular trading on the NYSE, the
purchase price for the Fund shares to be purchased is the net asset value per share determined on
the next business day that the NYSE is open (plus any applicable purchase premium).
To help the U.S. government fight the funding of terrorism and money laundering activities,
federal law requires the Trust to verify identifying information provided by each investor in its
GMO Trust Application. Additional identifying documentation also may be required. If the Trust is
unable to verify the information shortly after your account is opened, the account may be closed
and your shares redeemed at their net asset value at the time of the redemption.
-23-
The Trust or its agents reserve the right to reject any purchase order. In addition, without
notice, the Fund in its sole discretion may temporarily or permanently suspend sales of its shares
to new investors and/or existing shareholders.
Minimum investment amounts (by class) are set forth in the tables on page 28 of this
Prospectus. No minimum additional investment is required to purchase additional shares of the
Fund. The Trust may waive initial minimums for some investors.
Funds advised or sub-advised by GMO (Top Funds) may purchase shares of the Fund after the
close of regular trading on the NYSE (the Cut-off Time) and receive the current days price if
the following conditions are met: (i) the Top Fund received a good order purchase request prior to
the Cut-off Time on that day; and (ii) the purchase(s) by the Top Fund of shares of the Fund are
executed pursuant to an allocation predetermined by GMO prior to that days Cut-off Time.
Submitting Your Purchase Order Form. Completed purchase order forms can be submitted by mail
or by facsimile or other form of communication pre-approved by Shareholder Services to the Trust
at:
GMO Trust
c/o Grantham, Mayo, Van Otterloo & Co. LLC
40 Rowes Wharf
Boston, Massachusetts 02110
Facsimile: 1-617-439-4192
Attention: Shareholder Services
Call the Trust at 1-617-346-7646 or send an e-mail to SHS@GMO.com to confirm that GMO
received, made a good order determination regarding, and accepted your purchase order form. Do not
send cash, checks, or securities directly to the Trust. A purchase request submitted by mail is
received by the Trust when it is actually delivered to the Trust or its designated agent. A
purchase request delivered by facsimile is received by the Trust when it is actually received by
the Trust or its designated agent.
Funding Your Investment. You may purchase shares:
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with cash (via wire transfer or check) |
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By wire. Instruct your bank to wire the amount of your investment to: |
State Street Bank and Trust Company, Boston, Massachusetts
ABA#: 011000028
Attn: Transfer Agent
Credit: GMO Deposit Account 00330902
Further credit: GMO International Intrinsic Value Extended Markets Fund/Account name and number
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By check. All checks must be made payable to the Fund or to GMO
Trust. The Trust will not accept checks payable to a third party that have been
endorsed by the payee to the Trust. Mail checks to: |
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By U.S. Postal Service:
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By Overnight Courier: |
State Street Bank and Trust Company
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State Street Bank and Trust Company |
Transfer Agency/GMO
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Attn: Transfer Agency/GMO |
-24-
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Box 5493
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200 Clarendon Street |
Mail Code JHT1651
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Mail Code JHT1651 |
Boston, MA 02206
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Boston, MA 02116 |
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in exchange for securities acceptable to the Manager |
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securities must be approved by the Manager prior to transfer to the Fund. |
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securities will be valued as set forth under Determination of Net Asset Value |
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by a combination of cash and securities |
A purchase may be made in U.S. dollars or in any other currency deemed acceptable by the
Manager in its sole discretion. Non-U.S. dollar currencies used to purchase Fund shares will
be valued in accordance with the Trusts valuation procedures.
Frequent Trading Activity. As a matter of policy, the Trust will not honor
requests for purchases or exchanges by shareholders identified as engaging in frequent trading
strategies, including market
timing, that GMO determines could be harmful to the Fund and its shareholders. Frequent trading
strategies are generally strategies that involve repeated exchanges and/or purchases and
redemptions (or redemptions and purchases) within a short period of time. Frequent trading
strategies may be disruptive to the efficient management of the Fund, materially increase portfolio
transaction costs and taxes, dilute the value of shares held by long-term investors, or otherwise
be harmful to the Fund and its shareholders.
The Trustees have adopted procedures designed to detect and prevent frequent trading activity
that is harmful to the Fund and its shareholders (the Procedures). The Procedures include the
fair valuation of foreign securities, periodic surveillance of trading in shareholder accounts and
inquiry as to the nature of trading activity. If GMO determines that an account is engaging in
frequent trading that has the potential to be harmful to the Fund or its shareholders, the
Procedures permit GMO to adopt various prevention measures, including suspension of the accounts
exchange and purchase privileges. There is no assurance that the Procedures will be effective in
all instances. The Fund will not automatically redeem shares that are the subject of a rejected
exchange request. The Fund reserves the right to reject any order or terminate the sale of Fund
shares at any time.
Each of the Procedures does not apply to all GMO Funds or all GMO Fund trading activity.
Application of the Procedures is dependent upon: (1) whether a Fund imposes purchase premiums
and/or redemption fees, (2) the nature of a Funds investment program, including its typical cash
positions and/or whether it invests in foreign securities, and (3) whether GMO has investment
discretion over the purchase, exchange, or redemption activity. The GMO Asset Allocation Funds and
other funds and accounts over which GMO has investment discretion are not subject to restrictions
on the frequency with which they purchase Fund shares. Although GMO may not take affirmative steps
to detect frequent trading for certain Funds, GMO will not honor requests for purchases or
exchanges by shareholders identified as engaging in frequent trading strategies that GMO determines
could be harmful to those Funds and their shareholders.
Shares of the Fund may be distributed through financial intermediaries that submit aggregate
or net purchase and redemption orders through omnibus accounts. These omnibus accounts often by
nature engage in frequent transactions due to the daily trading activity of their underlying
investors. Because transactions by omnibus accounts often take place on a net basis, GMOs ability
to detect and prevent frequent trading strategies within those accounts is limited. GMO ordinarily
seeks the agreement of a financial intermediary to monitor for and/or restrict frequent trading in
accordance with the Procedures. In addition, the Fund may rely on a financial intermediary to
monitor for and/or restrict frequent trading in
-25-
accordance with the intermediarys policies and
procedures in lieu of the Procedures if GMO believes that the financial intermediarys policies and
procedures are reasonably designed to detect and prevent frequent trading activity that GMO
considers to be potentially harmful to the Fund and its shareholders. Shareholders who own Fund
shares through an intermediary should consult with that intermediary regarding its frequent trading
policies.
HOW TO REDEEM SHARES
Under ordinary circumstances, you may redeem the Funds shares on days when the NYSE is open
for business. Redemption requests should be submitted directly to the Trust unless the
Fund shares to be redeemed were purchased through a broker or agent, in which case the redemption
request should be effected through that broker or agent. The broker or agent may impose transaction
fees and/or other restrictions (in addition to those described in this Prospectus) for redeeming
Fund shares through it. For instructions on redeeming shares directly, call the Trust at
1-617-346-7646 or send an e-mail to SHS@GMO.com. The Trust may take up to seven days to remit
proceeds.
Redemption Policies. You must submit a redemption request in good order to avoid having it
rejected by the Trust or its designated agent. In general, a redemption request is in good order
if it includes:
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The name of the Fund being redeemed; |
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The number of shares or the dollar amount of the shares to be redeemed or the amount
that the client wants to receive; |
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The date on which the redemption is to be made (subject to receipt prior to the
close of regular trading on the NYSE on that date); |
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The name and/or the account number set forth with sufficient clarity to avoid
ambiguity; |
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The signature of an authorized signatory as identified in the GMO Trust Application
or subsequent authorized signers list; and |
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Wire instructions or registration address that match the wire instructions
or registration address (as applicable) on file at GMO or confirmation from an
authorized signatory that the wire instructions are valid. |
If a redemption request in good order is received by the Trust or its agent prior to the close
of regular trading on the NYSE (generally 4:00 p.m. Boston time), the redemption price for the Fund
shares to be redeemed is the net asset value per share determined on that day (less any applicable
redemption fee). If a redemption request is received after the close of regular trading on the
NYSE, the redemption price for the Fund shares to be redeemed is the net asset value per share
determined on the next business day that the NYSE is open (less any applicable redemption fee)
unless you or another authorized person on your account have instructed GMO Shareholder Services in
writing to defer the redemption to another day. If you or another authorized person on your
account have instructed GMO Shareholder Services to defer the redemption to another day, you or
another authorized person on your account may revoke your redemption request in writing at any time
prior to 4:00 p.m. Boston time or before the close of regular trading on the NYSE (whichever is
earlier) on the redemption date. In the event of a disaster affecting Boston, Massachusetts,
please contact GMO to confirm that your redemption request was received and is in good order.
Failure to provide the Trust with a properly authorized redemption request or otherwise
satisfy the Trust as to the validity of any change to the wire instructions or registration address
may result in a
-26-
delay in processing a redemption request, delay in remittance of redemption
proceeds, or a rejection of the redemption request.
In its sole discretion, GMO may determine to have the Fund pay redemption proceeds wholly or
partly in securities (selected by GMO) instead of cash. In particular, if market conditions
deteriorate and the Manager believes the Funds redemption fee (if any) is not fair compensation
for transaction costs, the Fund may limit cash redemptions (honoring redemptions with portfolio
securities) to protect the interests of all Fund shareholders. Redemptions in-kind may require
shareholders to enter into new custodial arrangements if they do not have accounts available for
holding securities directly.
If a redemption is paid in cash:
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payment will generally be made by means of a federal funds transfer to the
bank account designated in the relevant GMO Trust Application. |
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designation of one or more additional bank accounts or any change
in the bank accounts originally designated in the GMO Trust Application must be
made in a recordable format by an authorized signatory according to the procedures
in the GMO Trust Redemption Order Form |
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if there is ambiguity with wire instructions that cannot be
resolved in a timely manner, GMO may elect to remit redemption proceeds by check |
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upon request, payment will be made by check mailed to the registration address
(unless another address is specified according to the procedures in the GMO Trust
Redemption Order Form). |
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a redemption may, in the Managers sole discretion, be paid in whole or in part in a
currency other than U.S. dollars in cases where the redeeming shareholder has indicated
a willingness or desire to receive the redemption proceeds in that currency. Non-U.S.
dollar currencies used to redeem Fund shares will be valued in accordance with the
Trusts valuation procedures. |
The Trust will not pay redemption proceeds to third-parties and does not offer check-writing
privileges.
The Trust will not typically remit redemption proceeds to multiple bank accounts.
If a redemption is paid with securities, you should note that:
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the securities will be valued as set forth under Determination of Net
Asset Value |
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the securities will be selected by the Manager in light of the Funds
objective and other practical considerations and may not represent a pro rata
distribution of each security held in the Funds portfolio |
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you will likely incur brokerage charges on the sale of the securities |
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redemptions paid in securities are generally treated by shareholders for
tax purposes the same as redemptions paid in cash |
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the securities will be transferred and delivered by the Trust as directed
in writing by an authorized person on your account. |
-27-
The Fund may suspend the right of redemption and may postpone payment for more than seven
days:
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if the NYSE and/or the Federal Reserve Bank are closed on days other than
weekends or holidays |
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during periods when trading on the NYSE is restricted |
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during an emergency that makes it impracticable for the Fund to dispose of
its securities or to fairly determine the net asset value of the Fund |
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during any other period permitted by the SEC for your protection. |
Pursuant to the Trusts Amended and Restated Agreement and Declaration of Trust, the Trust has
the unilateral right to redeem Fund shares held by a shareholder at any time if at that time: (i)
the shares of the Fund or a class held by the shareholder have an aggregate net asset value of less than
an amount determined from time to time by the Trustees; or (ii) the shares of the Fund or class
held by the shareholder exceed a percentage of the outstanding shares of the Fund or the class
determined from time to time by the Trustees. The Trustees have authorized GMO in its sole
discretion to redeem shares to prevent a shareholder from becoming an affiliated person of the
Fund.
Top Funds may redeem shares of the Fund after the Cut-off Time and receive the current days
price if the following conditions are met: (i) the Top Fund received a redemption request prior to
the Cut-off Time on that day; and (ii) the redemption of the shares of the Fund is executed
pursuant to an allocation predetermined by GMO prior to that days Cut-off Time.
Submitting Your Redemption Request. Redemption requests can be submitted by mail or by
facsimile to the Trust at the address/facsimile number set forth under How to Purchase Shares
Submitting Your Purchase Order Form. Redemption requests submitted by mail are received by the
Trust when actually received by the Trust or its designated agent. Call the Trust at
1-617-346-7646 or send an e-mail to SHS@GMO.com to confirm that GMO received, made a good order
determination regarding, and accepted your redemption request.
MULTIPLE CLASSES AND ELIGIBILITY
The Fund currently offers multiple classes of shares. The sole economic difference among the
various classes of shares described in this Prospectus is in their shareholder service fee.
Differences in the fee reflect the fact that, as the size of a client relationship increases, the
cost to service that client decreases as a percentage of the clients assets. Thus, the shareholder
service fee generally is lower for classes requiring greater minimum investments.
Eligibility to purchase Fund shares or different classes of Fund shares depends on the
clients meeting either (i) the minimum Total Fund Investment, which includes only a clients
total investment in the Fund, or (ii) the minimum Total GMO Investment, both set forth in the
table below. No minimum additional investment is required to purchase additional shares of the
Fund.
Minimum Investment Criteria for Class Eligibility
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Shareholder Service Fee |
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Minimum Total Fund |
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Minimum Total GMO |
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(as a % of average daily |
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Investment |
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Investment1 |
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net assets) |
Class II Shares |
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N/A |
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$10 million |
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0.22 |
% |
Class III Shares |
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N/A |
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$35 million |
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0.15 |
% |
Class IV Shares |
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$125 million |
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$250 million |
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0.09 |
% |
-28-
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The eligibility requirements in the table above are subject to exceptions and
special rules for plan investors investing through financial intermediaries. See discussion
immediately following this table for more information about these exceptions and special rules. |
A clients Total GMO Investment equals the Managers estimate of the market value of all
the clients assets managed by GMO and its affiliates (i) at the time of the clients initial
investment, (ii) at the close of business on the last business day of each calendar quarter, or
(iii) at other times as determined by the Manager (including those described below under
Conversions between Classes) (each, a Determination Date). When purchasing shares of the Fund,
investors should consult with the Manager to determine the applicable Determination Date and the
share class for which they are eligible.
Upon request GMO may permit a client to undertake in writing to meet the applicable Total Fund
Investment or Total GMO Investment minimums over a specified period (a Commitment Letter).
You should note:
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No minimum additional investment is required to purchase additional shares of
the Fund for any class of shares. |
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GMO makes all determinations as to the aggregation of client accounts for
purposes of determining eligibility. See the SAI for a discussion of factors GMO
considers relevant when making those determinations. |
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Eligibility requirements for each class of shares are subject to change. |
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The Trust may waive eligibility requirements for certain persons, accounts or
special situations. As of the date of this Prospectus, these waivers include the
waiver of eligibility requirements for (i) GMO Funds and other accounts over which GMO
has investment discretion that invest in other GMO Funds, (ii) GMO partners, employees
and their family members, and (iii) the Trustees of the Trust, each of which may invest
in the least expensive class of those GMO Funds offered at the time of investment
without regard to the amount invested. |
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Investments through an intermediary generally are invested in Class III Shares. |
Conversions between Classes
In determining whether a client is eligible to purchase Fund shares, GMO considers each
clients Total Fund Investment and Total GMO Investment on each Determination Date. Based on this
determination, and subject to the following, each clients shares of the Fund eligible for
conversion will be converted to the class of shares of the Fund with the lowest shareholder service
fee for which the client satisfies all minimum investment requirements (or, to the extent the
client already holds shares of that class, the client will remain in that class). Except as noted
below, with respect to the Fund:
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To the extent a client satisfies all minimum investment requirements for a
class of shares then being offered that bears a lower shareholder service fee than the
class held by the client on the Determination Date (generally at the close of business
on the last business day of each |
-29-
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calendar quarter), the clients shares eligible for
conversion generally will be automatically converted to that class within 45 calendar
days following the Determination Date on a date selected by the Manager. |
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If a client no longer satisfies all minimum investment requirements for the
class of shares of the Fund held by the client on the last Determination Date of a
calendar year (generally at the close of business on the last business day of the
calendar year), the Fund generally will convert the clients shares to the class it is
then offering bearing the lowest shareholder service fee for which the client satisfies
all minimum investment requirements (and which class will typically bear a higher
shareholder service fee than the class then held by the client). If a client no longer
satisfies all minimum investment requirements for any class of the Fund as of the last
Determination Date of a calendar year, the Fund will convert the clients shares to the
class of the Fund then being offered bearing the highest shareholder service fee.
Notwithstanding the foregoing, a clients shares will not be converted to a class
of shares bearing a higher shareholder service fee without at least 15 calendar days
prior notice, and if the client makes an additional investment and/or the value of the
clients shares otherwise increases prior to the end of the notice period so as to
satisfy all minimum investment requirements for the clients current class of shares,
the client will remain in the class of shares then held by the client. Solely for the
purpose of determining whether a client has satisfied the minimum investment
requirements for the clients current class of shares, the value of the clients shares
is considered to be the greater of (i) the value of the clients shares on the relevant
Determination Date or (ii) the value of the clients shares on the date that GMO
reassesses the value of the clients account for the purpose of sending notice of a
proposed conversion. If the client is not able to make an additional investment in the
Fund solely because the Fund is closed to new investment or is capacity constrained, the
class of shares then held by the client will not be converted unless the Manager
approves reopening the Fund to permit the client to make an additional investment. The
conversion of a clients shares to a class of shares bearing a higher shareholder
service fee generally will occur within 60 calendar days following the last
Determination Date of a calendar year or, in the case of conversion due to an abusive
pattern of investments and/or redemptions, on any other date the Manager determines. |
The Fund may at any time without notice convert a clients shares to the class it is then
offering bearing the lowest shareholder service fee for which the client satisfied all minimum
investment requirements (or, if the Fund has no such class, the class of that Fund bearing the
highest shareholder service fee) if the client no longer satisfies all minimum investment
requirements for the class of shares held by the client and: (i) the Manager believes the client
has engaged in an abusive pattern of investments and/or redemptions (e.g., a large investment just
before a Determination Date and a redemption right after the Determination Date), (ii) the client
fails to meet the applicable Total Fund Investment or Total GMO Investment minimums by the time
specified in the clients Commitment Letter, or (iii) the total expense ratio borne by the client
immediately following the conversion is equal to or less than the total expense ratio borne by the
client immediately prior to such conversion (after giving effect to any applicable fee and expense
waivers or reimbursements).
The Fund has been advised by counsel that, for tax purposes, the conversion of a clients
investment from one class of shares of the Fund to another class of shares of the Fund should not
result in the recognition of gain or loss in the shares that are converted. The clients tax basis
in the new class of shares immediately after the conversion should equal the clients 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.
-30-
DISTRIBUTIONS AND TAXES
The Funds policy is to declare and pay distributions of its net investment income, if any,
semi-annually. The Fund also intends to distribute net realized capital gains, whether from the
sale of securities held by the Fund for not more than one year (net short-term capital gains) or
from the sale of securities held by the Fund for more than one year (net long-term capital gains),
if any, at least annually. In addition, the Fund may, from time to time and at its discretion,
make unscheduled distributions in advance of large redemptions by shareholders or as otherwise
deemed appropriate by the Fund. From time to time, distributions by the Fund could constitute, for
U.S. federal income tax purposes, a return of capital to shareholders. Shareholders should read
the description below for information regarding the tax character of distributions from the Fund to
shareholders.
Typically, all dividends and/or distributions are reinvested in additional shares of the Fund,
at net asset value, unless a shareholder elects to receive cash. Shareholders may elect to receive
cash by marking the appropriate boxes on the GMO Trust Application, by writing to the Trust, or by
notifying their broker or agent. No purchase premium is charged on reinvested dividends or
distributions.
It is important for you to note:
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The Fund is treated as a separate taxable entity for U.S. federal income tax
purposes and intends to qualify each year as a regulated investment company (RIC)
under Subchapter M of the Internal Revenue Code of 1986, as amended. |
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For U.S. federal income tax purposes, distributions of investment income are
generally taxable to shareholders as ordinary income. |
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For U.S. federal income tax purposes, taxes on distributions of net realized capital
gains generally are determined by how long the Fund owned the investments that
generated them, rather than by how long a shareholder has owned shares in the Fund.
Distributions of net realized capital gains from the sale of investments that the Fund
owned for more than one year and that are reported by the Fund as capital gain
dividends generally are taxable to shareholders as long-term capital gains.
Distributions of net realized capital gains from the sale of investments that the Fund
owned for one year or less generally are taxable to shareholders as ordinary income. |
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The Fund may make total distributions during a taxable year in an amount that
exceeds the Funds net investment income and net realized capital gains for that year,
in which case the excess generally would be treated as a return of capital, which would
reduce a shareholders tax basis in its shares, with any amounts exceeding such basis
treated as capital gain. A return of capital is not taxable to shareholders to the
extent such amount does not exceed a shareholders tax basis, but it reduces a
shareholders tax basis in its shares, thus reducing any loss or increasing any gain on
a subsequent taxable disposition by the shareholder of its shares. |
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The Fund will carry any net realized capital losses (i.e., realized capital losses
in excess of realized capital gains) from any taxable year forward to one or more
subsequent taxable years to offset capital gains, if any, realized during such
subsequent years without expiration until such losses are fully utilized. The Funds
ability to utilize these and certain other losses to reduce distributable net realized
capital gains in succeeding taxable years may be limited by |
-31-
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reason of direct or
indirect changes in the actual or constructive ownership of the Fund. See Taxes in
the SAI for more information. |
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For taxable years beginning before January 1, 2013, distributions of net investment
income properly reported by the Fund as derived from qualified dividend income will
be taxable to shareholders taxed as individuals at the rates applicable to long-term
capital gain, provided holding period and other requirements are met at both the
shareholder and Fund levels. Long-term capital gain rates applicable to most
individuals have been reduced to 15% (with a 0% rate applying to taxpayers in the 10%
and 15% rate brackets) for taxable years beginning before January 1, 2013. The
qualified dividend income provision and the reduction of long-term capital gain rates
for individuals will expire for taxable years beginning on or after January 1, 2013,
unless Congress enacts legislation providing otherwise. |
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Distributions by the Fund generally are taxable to a shareholder even if they are
paid from income or gains earned by the Fund before that shareholder invested in the
Fund (and accordingly the income or gains were included in the price the shareholder paid for the
Funds shares). Distributions are taxable whether shareholders receive them in cash or
reinvest them in additional shares. |
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Distributions by the Fund to retirement plans that qualify for tax-exempt treatment
under U.S. federal income tax laws generally will not be taxable. Special tax rules
apply to investments through such plans. You should consult your tax advisor to
determine the suitability of the Fund as an investment through such a plan and the tax
treatment of distributions from such a plan. |
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Any gain resulting from a shareholders sale, exchange, or redemption of Fund shares
generally will be taxable to the shareholder as short-term or long-term capital gain,
depending on how long the Fund shares were held by the shareholder. |
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The Funds investment in foreign securities may be subject to foreign withholding or
other taxes on dividends, interest, or capital gains. The Fund may otherwise be subject
to foreign taxation on repatriation proceeds generated from those securities or to
other transaction-based foreign taxes on those securities. Those withholding and other
taxes will reduce the Funds yield on foreign securities. The foreign withholding and
other tax rates applicable to the Funds investments in certain foreign jurisdictions
may be higher if the Fund has a significant number of non-U.S. shareholders than if it
has fewer non-U.S. shareholders. In certain instances, shareholders may be entitled to
claim a credit or deduction (but not both) for foreign taxes paid by the Fund. In
addition, the Funds investments in certain foreign securities, foreign currencies, or
foreign currency derivatives may accelerate Fund distributions to shareholders and
increase the distributions taxed to shareholders as ordinary income. See Taxes in the
SAI for more information. |
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Under the GMO Funds securities lending arrangements, when a dividend is paid to a
fund security out on loan, the borrower is required to pay to that fund a substitute
payment at least equal, on an after-tax basis, to the dividend that the fund would have
received if it had received the dividend directly. Because some borrowers of foreign
securities may be subject to levels of taxation that are lower than the rates
applicable to that fund, some borrowers are likely to be motivated by the ability to
earn a profit on those differential tax rates and to pay that fund for the opportunity
to earn that profit. In the United States, certain swaps and securities lending
transactions designed to enable non-U.S. persons to reduce otherwise |
-32-
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applicable U.S. withholding taxes on U.S. stock dividends have received the attention of U.S.
lawmakers. In response, Congress enacted legislation in March 2010 to limit these
practices. There can be no assurance that similar legislation will not be adopted in
other jurisdictions with respect to foreign securities or that foreign taxing
authorities will not otherwise challenge beneficial tax results arising from swap or
securities lending arrangements. |
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Certain of the Funds investment practices, including derivative transactions,
hedging activities generally, and securities lending activities (if any), as well as
certain of the Funds investments, including those marked to the market for U.S.
federal income tax purposes, will be subject to special and complex U.S. federal income
tax provisions. These special rules may affect the timing, character, and/or amount of
the Funds distributions and, in some cases, may cause the Fund to liquidate
investments at a time when it is not advantageous to do so. See Taxes in the SAI for
more information about the tax consequences of the Funds specific investment practices
and investments. |
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To the extent the Fund invests in GMO U.S. Treasury Fund or other GMO Funds or
investment companies treated as RICs or partnerships for U.S. federal income tax
purposes, the Funds distributions could vary in terms of their timing, character,
and/or amount from what the Funds distributions would have been had the Fund invested
directly in the portfolio securities and other assets held by the underlying investment
companies. See Taxes in the SAI for more information. |
This section provides a general summary of the principal U.S. federal income tax consequences
of investing in the Fund for shareholders who are U.S. citizens, residents, or domestic
corporations. You should consult your own tax advisors about the precise tax consequences of an
investment in the Fund in light of your particular tax situation, including possible foreign,
state, local, or other applicable taxes (including the federal alternative minimum tax). Most
states permit mutual funds, such as the Fund, to pass through to their shareholders the state tax
exemption on income earned from investments in certain direct U.S. Treasury obligations, as well as
some limited types of U.S. government agency securities, so long as a fund meets all applicable
state requirements. Therefore, you may be allowed to exclude from your state taxable income
distributions made to you by the Fund (if any), to the extent attributable to interest the Fund
directly or indirectly earned on such investments. The availability of these exemptions varies by
state. You should consult your tax advisors regarding the applicability of any such exemption to
your situation.
See Taxes in the SAI for more information, including a summary of certain tax consequences
of investing in the Fund for non-U.S. shareholders.
-33-
INVESTMENT IN OTHER GMO FUNDS
GMO U.S. Treasury Fund. U.S. Treasury Fund, a series of the Trust, is offered through a
separate prospectus. U.S. Treasury Fund is managed by GMO.
U.S. Treasury Fund pays an investment management fee to the Manager at the annual rate of
0.08% of U.S. Treasury Funds average daily net assets. Subject to Excluded Fees and Expenses, the
Manager has contractually agreed to reimburse U.S. Treasury Fund to the extent U.S. Treasury Funds
total annual operating expenses exceed 0.08% of U.S. Treasury Funds average daily net assets. This
contractual expense limitation will continue through at least June 30, 2012, and may not be
terminated prior to this date without the consent of U.S. Treasury Funds Board of Trustees. In
addition to this contractual expense limitation, the Manager has voluntarily agreed to waive U.S.
Treasury Funds management fee and to reimburse U.S. Treasury Fund to the extent U.S. Treasury
Funds total annual operating expenses exceed 0.00% of U.S. Treasury Funds average daily net
assets (excluding Excluded Fees and Expenses). The Manager may change or terminate these voluntary
waivers and reimbursements at any time. During any period for which these voluntary waivers and
reimbursements are in effect, U.S. Treasury Fund will incur management fees at an annual rate lower
than 0.08% of U.S. Treasury Funds average daily net assets, and, as a result, net annual operating
expenses for U.S. Treasury Fund will be lower. For these purposes, Excluded Fees and Expenses
means expenses incurred indirectly by investment in other GMO Funds, fees and expenses of the
independent Trustees of the Trust and their independent counsel, fees and expenses for legal
services the Manager for the Trust has not undertaken to pay, compensation and expenses of Trust
Officers and agents who are not affiliated with GMO, brokerage commissions, securities lending fees
and expenses, interest expense, transfer taxes, and other investment-related costs (including
expenses associated with investments in any company that is an investment company (including an
exchange-traded fund) or would be an investment company under the 1940 Act, but for the exceptions
to the definition of investment company provided in Sections 3(c)(1) and 3(c)(7) of the 1940 Act),
hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses
(including taxes).
U.S. Treasury Funds investment objective is liquidity and safety of principal with current
income as a secondary objective.
Under normal circumstances, U.S. Treasury Fund invests at least 80% of its net assets, plus
the amount of any borrowings for investment purposes, in Direct U.S. Treasury Obligations and
repurchase agreements collateralized by these Obligations. Direct U.S. Treasury Obligations
include U.S. Treasury bills, bonds and notes and other securities issued by the U.S. Treasury, as
well as Separately Traded Registered Interest and Principal Securities (STRIPS) and other
zero-coupon securities. The Manager normally seeks to maintain an interest rate duration of one
year or less for U.S. Treasury Funds portfolio.
U.S. Treasury Fund also may enter into repurchase agreements, under which U.S. Treasury Fund
purchases a security backed by the full faith and credit of the U.S. government from a seller who
simultaneously commits to repurchase, on an agreed upon date in the future, the security from U.S.
Treasury Fund at the original purchase price plus an agreed upon amount representing the original
purchase price plus interest. The counterparties in repurchase agreements are typically
broker-dealers and banks, and the safety of the arrangement is dependent on, among other things,
U.S. Treasury Funds having an interest in the security that can be realized in the event of the
insolvency of the counterparty.
In addition to Direct U.S. Treasury Obligations, U.S. Treasury Fund may invest in other
fixed-income securities that are backed by the full faith and credit of the U.S. government, such
as guaranteed securities issued by the Government National Mortgage Association (GNMA) and the
Federal Deposit
-34-
Insurance Corporation (FDIC). For cash management purposes, U.S. Treasury Fund also may invest
in unaffiliated money market funds.
Although the fixed-income securities purchased by U.S. Treasury Fund normally will have a
stated or remaining maturity of one year or less, Direct U.S. Treasury Obligations purchased
pursuant to repurchase agreements may not, and, therefore, if the counterparty to the repurchase
agreement defaults, U.S. Treasury Fund may end up owning a security with a stated or remaining
maturity of more than one year.
U.S. Treasury Fund is not a money market fund and is not subject to the duration, quality,
diversification and other requirements applicable to money market funds.
In selecting U.S. Treasury securities for U.S. Treasury Funds portfolio, the Manager focuses
primarily on the relative attractiveness of different obligations (such as bonds, notes or bills),
which can vary depending on the general level of interest rates as well as supply/demand imbalances
and other market conditions.
Other GMO Funds may invest in U.S. Treasury Fund for cash management purposes.
U.S. Treasury Funds benchmark is the Citigroup 3-Month Treasury Bill Index, an independently
maintained and widely published index comprised of short-term U.S. Treasury bills.
To the extent the Fund invests in U.S. Treasury Fund, it is subject to all of the risks to
which U.S. Treasury Fund is exposed. The principal risks of an investment in U.S. Treasury Fund
include Market Risk Fixed Income Securities, Credit Risk, Focused Investment Risk, Large
Shareholder Risk, Management and Operational Risk and Market Disruption and Geopolitical Risk.
Shareholders of the Fund are indirectly exposed to these risks, in addition to all risks associated
with their investment in the Fund.
FUND CODES
The following chart identifies the ticker, news-media symbol, and CUSIP number for each share class
of the Fund currently being offered (if any).
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Ticker |
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CUSIP |
Class II |
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Class III |
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Class IV |
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-35-
GMO TRUST
ADDITIONAL INFORMATION
The Funds annual and semiannual reports to shareholders (when available) will contain
additional information about the Funds investments. The Funds annual report (when available)
will contain a discussion of the market conditions and investment strategies that significantly
affected the Funds performance during its initial fiscal year. The Funds annual and semiannual
reports (when available) will be, and the Funds SAI is, available free of charge by writing to
Shareholder Services at GMO, 40 Rowes Wharf, Boston, Massachusetts 02110 or by calling collect at
1-617-346-7646. The SAI contains more detailed information about the Fund and is incorporated by
reference into this Prospectus, which means that it is legally considered to be part of this
Prospectus.
You can review and copy the Prospectus, SAI, and reports (when available) at the SECs Public
Reference Room in Washington, D.C. Information regarding the operation of the Public Reference
Room may be obtained by calling the SEC at 1-202-551-8090. Reports and other information about the
Fund are available on the EDGAR database on the SECs Internet site at http://www.sec.gov. Copies
of this information may be obtained, upon payment of a duplicating fee, by electronic request at
the following e-mail address: publicinfo@sec.gov, or by writing the Public Reference Section of the
SEC, Washington, D.C. 20549-1520.
Shareholders who wish to communicate with the Trustees must do so by mailing a written
communication, addressed as follows: To the Attention of the Board of Trustees, c/o GMO Trust Chief
Compliance Officer, 40 Rowes Wharf, Boston, MA 02110. The shareholder communication must (i) be in
writing and be signed by the shareholder, (ii) identify the Fund, and (iii) identify the class and
number of shares held beneficially or of record by the shareholder.
SHAREHOLDER INQUIRIES
Shareholders may request additional
information from and direct inquiries to:
Shareholder Services at
Grantham, Mayo, Van Otterloo & Co. LLC
40 Rowes Wharf, Boston, MA 02110
1-617-346-7646 (call collect)
1-617-439-4192 (fax)
SHS@GMO.com
website: http://www.gmo.com
DISTRIBUTOR
Funds Distributor, LLC
10 High Street
Suite 302
Boston, Massachusetts 02110
Investment Company Act File No. 811-04347
GMO Trust
Prospectus
September 13, 2011
n GMO Global Focused Equity Fund
Class III:
Class IV:
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§ Information about other funds
offered by GMO Trust is contained in
separate prospectuses. |
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§ Shares of the Fund described in this
Prospectus may not be available for
purchase in all states. This
Prospectus does not offer shares in
any state where they may not lawfully
be offered. |
Grantham, Mayo, Van Otterloo & Co. LLC
40 Rowes Wharf Boston, Massachusetts 02110
The Securities and Exchange Commission has not approved or disapproved these securities or
passed upon the adequacy of this Prospectus. Any representation to the contrary is a criminal
offense.
TABLE OF CONTENTS
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31 |
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35 |
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36 |
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back cover |
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back cover |
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back cover |
i
GMO Global Focused Equity Fund
FUND SUMMARY
Investment objective
Total return.
Fees and expenses
The tables below describe the fees and expenses that you may pay for each class of shares if
you buy and hold shares of the Fund.
Annual Fund operating expenses
(expenses that you pay each year as a percentage of the value of your investment)
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Class III |
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Class IV |
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Management fee |
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0.60 |
% |
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0.60 |
% |
Shareholder service fee |
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0.15 |
% |
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0.10 |
% |
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Other expenses |
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0.28 |
%1 |
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0.28 |
%1 |
Total annual operating expenses |
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1.03 |
% 1 |
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0.98 |
% 1 |
Expense reimbursement |
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(0.28 |
%) 1,2 |
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(0.28 |
%) 1,2 |
Total annual operating
expenses after expense
reimbursement |
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0.75 |
% 1 |
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0.70 |
% 1 |
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1 |
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The amounts represent an annualized estimate of the Funds operating expenses for
its initial fiscal year. |
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2 |
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Subject to certain exclusions (Excluded Fund Fees and Expenses), Grantham, Mayo, Van
Otterloo & Co. LLC (the Manager or GMO) has contractually agreed to reimburse the Fund to the
extent the Funds total annual operating expenses exceed 0.60% of the Funds average daily net
assets. Excluded Fund Fees and Expenses include shareholder service fees, underlying fund expenses,
independent Trustee expenses, certain legal costs, investment-related costs (e.g., brokerage
commissions and securities lending fees), extraordinary expenses, and other expenses described
under Expense Reimbursement in this Prospectus. This expense limitation will continue through at
least September 13, 2012, and may not be terminated prior to this date without the consent of the
Funds Board of Trustees. |
-2-
Example
This example is intended to help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund
for the time periods indicated, regardless of whether or not you redeem your shares at the end of
such periods. The example also assumes that your investment has a 5% return each year and that the
Funds operating expenses remain the same as those shown in the table. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
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1 Year |
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3 Years |
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Class III |
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$ |
77 |
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$ |
300 |
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Class IV |
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$ |
72 |
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$ |
284 |
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Portfolio turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities. A
higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes
when Fund shares are held in a taxable account. These costs, which are not reflected in Annual Fund
operating expenses or in the Example, affect the Funds performance. Because the Fund commenced
operations on or following the date of this Prospectus, the Funds portfolio turnover rate is not
available.
Principal investment strategies
The Fund may invest directly and indirectly (e.g., through underlying funds or derivatives) in
equity investments traded in any of the worlds securities markets, including emerging markets.
Under normal circumstances, the Fund invests directly and indirectly at least 80% of its assets in
equity investments (see Name Policy). The term equity investments refers to direct and indirect
investments in common stocks and other stock-related securities, such as preferred stocks,
convertible securities, depositary receipts, and exchange-traded equity REITs and equity income
trusts. The Fund is permitted to make equity investments of all types, including equity investments
issued by foreign and/or U.S. companies, growth and/or value style equities, and equity investments
of companies of any market capitalization. In addition, the Fund is not limited in how much it may
invest in any market or in the types of equity investments it may pursue, and it may often invest
all its assets in a limited number of equity investments of companies in a single country and/or
capitalization range. The Fund could experience material losses from a single investment.
The Manager anticipates that the Fund will focus its investments in a limited number (30-50)
of securities that the Manager believes offer the most attractive investment opportunities across
U.S. and foreign equity markets. The Manager does not seek to manage the Fund to, or control the
Funds risk relative to, any index or benchmark.
The Manager selects investments using fundamental analysis that is informed by a disciplined
quantitative screening process. The Manager analyzes companies for financial, operational and
managerial strength and compares them to their global, regional and local industry peers. As part
of the investment process, the Manager frequently meets with management and/or visits companies.
The Fund may hold up to 20% of its assets in cash or cash equivalents. To the extent the Fund
holds cash or cash equivalents, it may not achieve its investment objective. In pursuing its
investment objective, the Fund may (but is not obligated to) use a wide variety of exchange-traded
and over-the-counter (OTC) derivatives, including, without limitation, futures and options. The
Funds foreign
-3-
currency exposure may differ from the currency exposure of its equity investments. In
addition, the Fund may lend its portfolio securities.
For cash management purposes, the Fund may invest in U.S. Treasury Fund and unaffiliated money
market funds.
Principal risks of investing in the Fund
The value of the Funds shares changes with the value of the Funds investments.
Many factors can affect this value, and you may lose money by investing in the Fund. The Fund is a
non-diversified investment company under the Investment Company Act of 1940, as amended (the 1940
Act), and therefore a decline in the market value of a particular security held by the Fund may
affect the Funds performance more than if the Fund were diversified. The principal risks of
investing in the Fund are summarized below. For a more complete discussion of these risks, see
Description of Principal Risks.
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Management and Operational Risk The Fund relies on GMOs ability to achieve its
investment objective by effectively implementing its investment approach. The Fund runs the
risk that GMOs proprietary investment techniques will fail to produce the desired results.
The Funds portfolio managers may use quantitative analyses and/or models and any
imperfections or limitations in such analyses and/or models could affect the ability of the
portfolio managers to implement strategies. By necessity, these analyses and models make
simplifying assumptions that limit their efficacy. Models that appear to explain prior market
data can fail to predict future market events. Further, the data used in models may be
inaccurate and/or it may not include the most recent information about a company or a
security. The Fund is also subject to the risk that deficiencies in the Managers or another
service providers internal systems or controls will cause losses for the Fund or impair Fund
operations. |
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Market Risk Equity Securities The market value of equity investments may decline due
to factors affecting the issuing companies, their industries, or the economy and equity
markets generally. If the Fund purchases equity investments at a discount from their value as
determined by the Manager, the Fund runs the risk that the market prices of these investments
will not increase to that value for a variety of reasons, one of which may be the Managers
overestimation of the value of those investments. The Fund also may purchase equity
investments that typically trade at higher multiples of current earnings than other
securities, and the market values of these investments often are more sensitive to changes in
future earnings expectations than those other securities. Because the Fund normally does not
take temporary defensive positions, declines in stock market prices generally are likely to
reduce the net asset value of the Funds shares. |
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Focused Investment Risk Focusing investments in countries, regions, sectors or companies
or in industries with high positive correlations to one another creates additional risk. |
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Foreign Investment Risk The market prices of many foreign securities fluctuate more than
those of U.S. securities. Many foreign markets are less stable, smaller, less liquid and less
regulated than U.S. markets, and the cost of trading in those markets often is higher than in
U.S. markets. Foreign portfolio transactions generally involve higher commission rates,
transfer taxes and custodial costs than similar transactions in the U.S. In addition, the Fund
may be subject to foreign taxes on capital gains or other income payable on foreign
securities, on transactions in those securities and on the repatriation of proceeds generated
from those securities. Also, many foreign markets require a license for the Fund to invest
directly in those markets, and the Fund is subject to the risk that it could not invest if its
license were terminated or suspended. In some foreign markets, prevailing custody and trade
settlement practices (e.g., the requirement to pay for securities prior to receipt) expose the
Fund to credit and other risks with respect to participating brokers, custodians, clearing
banks or other |
-4-
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clearing agents, escrow agents and issuers. Further, adverse changes in investment regulations,
capital requirements or exchange controls could adversely affect the value of the Funds
investments. These and other risks (e.g., nationalization, expropriation or other confiscation
of assets of foreign issuers) tend to be greater for investments in companies tied economically
to emerging countries, the economies of which tend to be more volatile than the economies of
developed countries. |
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Currency Risk Fluctuations in exchange rates can adversely affect the market value of
the Funds foreign currency holdings and investments denominated in foreign currencies. |
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Liquidity Risk Low trading volume, lack of a market maker, large size of position or
legal restrictions may limit or prevent the Fund from selling particular securities or
unwinding derivative positions at desirable prices. The more less-liquid securities the Fund
holds, the more likely it is to honor a redemption request in-kind. |
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Large Shareholder Risk To the extent that shares of the Fund are held by large
shareholders (e.g., institutional investors, asset allocation funds or other GMO Funds), the
Fund is subject to the risk that these shareholders will disrupt the Funds operations by
purchasing or redeeming Fund shares in large amounts and/or on a frequent basis. |
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Smaller Company Risk Smaller companies may have limited product lines, markets or
financial resources, may lack the competitive strength of larger companies, or may lack
managers with experience or depend on a few key employees. The securities of small- and
mid-cap companies often are less widely held and trade less frequently and in lesser
quantities, and their market prices often fluctuate more, than the securities of companies
with larger market capitalizations. |
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Market Disruption and Geopolitical Risk Geopolitical and other events may disrupt
securities markets and adversely affect global economies and markets. Those events as well as
other changes in foreign and domestic economic and political conditions could adversely affect
the value of the Funds investments. |
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Derivatives Risk The use of derivatives involves the risk that their value may not move
as expected relative to the value of the relevant underlying assets, rates or indices.
Derivatives also present other Fund risks, including market risk, liquidity risk, currency
risk and counterparty risk. |
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Leveraging Risk The Funds use of derivatives and securities lending may cause its
portfolio to be leveraged. Leverage increases the Funds portfolio losses when the value of
its investments decline. |
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Counterparty Risk The Fund runs the risk that the counterparty to an OTC derivatives
contract or a borrower of the Funds securities will be unable or unwilling to make timely
settlement payments or otherwise honor its obligations. |
Performance
Because the Fund had not yet completed a full calendar year of operations as of the
date of this Prospectus, performance information for the Fund is not included.
Management of the Fund
Investment Adviser: Grantham, Mayo, Van Otterloo & Co. LLC
Investment Division and Senior Members of GMO responsible for day-to-day management of the Fund:
-5-
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Senior Members |
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Investment Division |
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(Length of Service) |
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Title |
International Active
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Drew Spangler (since 2011)
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Director, International Active Division, GMO. |
International Active
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Domenic Esposito (since 1999)
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Portfolio Manager, International Active Division, GMO. |
-6-
Purchase and sale of Fund shares
Under ordinary circumstances, you may purchase the Funds shares directly from GMO
Trust (the Trust) when the New York Stock Exchange (NYSE) is open for business. In addition,
certain brokers and agents are authorized to accept purchase and redemption orders on the Funds
behalf.
Eligibility to purchase Fund shares or different classes of Fund shares depends on the
clients meeting either (i) the minimum Total Fund Investment, which includes only a clients
total investment in the Fund, or (ii) the minimum Total GMO Investment, both set forth in the
table below. No minimum additional investment is required to purchase additional shares of the
Fund.
Minimum Investment Criteria for Class Eligibility
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Minimum Total Fund Investment |
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Minimum Total GMO Investment |
Class III Shares |
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N/A |
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$10 million |
Class IV Shares |
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$125 million |
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$250 million |
Fund shares are redeemable and, under ordinary circumstances, you may redeem the Funds shares
when the NYSE is open for business. Redemption requests should be submitted directly to the Trust
unless the Fund shares to be redeemed were purchased through a broker or agent, in which case the
redemption request should be effected through that broker or agent. For instructions on redeeming
shares directly, call the Trust at 1-617-346-7646 or send an e-mail to SHS@GMO.com.
Purchase order forms and redemption requests can be submitted by mail or facsimile (and with
respect to purchase order forms, by other form of communication pre-approved by GMO Shareholder
Services) to the Trust at:
GMO Trust
c/o Grantham, Mayo, Van Otterloo & Co. LLC
40 Rowes Wharf
Boston, Massachusetts 02110
Facsimile: 1-617-439-4192
Attention: Shareholder Services
Tax information
The Fund normally distributes net investment income and net realized capital gains, if any, to
shareholders. These distributions are generally taxable to you as ordinary income or capital gains,
unless you are an entity that is exempt from income tax or are investing through a tax-advantaged
account. If you are investing through a tax-advantaged account, you may be taxed upon withdrawals
from that account.
Financial intermediary compensation
If you purchase shares of the Fund through a broker-dealer, agent or other financial
intermediary (such as a bank), the Fund and its related companies may pay the intermediary for the
sale of Fund shares and related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over
another investment. Ask your salesperson or visit your financial intermediarys website for more
information.
-7-
ADDITIONAL INFORMATION ABOUT THE FUNDS INVESTMENT
STRATEGIES, RISKS, AND EXPENSES
Fund Summary. The preceding section contains a summary of the investment
objective, fees and expenses, principal investment strategies, principal risks, management, and
other important information for the Fund. The summary is not all-inclusive, and the Fund may make
investments, employ strategies, and be exposed to risks that are not described in the summary. More
information about the Funds investments and strategies is contained in the Statement of Additional
Information (SAI). See the back cover of this Prospectus for information about how to receive the
SAI.
Fundamental Investment Objectives/Policies. The Board of Trustees (Trustees) of the Trust
may change the Funds investment objective or policies without shareholder approval or prior notice
unless an objective or policy is identified in this Prospectus or in the SAI as fundamental. The
Fund does not currently have any investment objectives that are fundamental. There is no guarantee
that the Fund will be able to achieve its investment objective.
Tax Consequences and Portfolio Turnover. Unless otherwise specified in this Prospectus or in
the SAI, GMO is not obligated to, and generally will not, consider tax consequences when seeking to
achieve the Funds investment objective (e.g., the Fund may engage in transactions that are not tax
efficient for U.S. federal income or other federal, state, local, or non-U.S. tax purposes).
Portfolio turnover is not a principal consideration when GMO makes investment decisions for the
Fund, and the Fund has not placed any limit on the rate of portfolio turnover and portfolio
securities may be sold without regard to the time they have been held. Based on its assessment of
market conditions and purchase or redemption requests, GMO may cause the Fund to trade more
frequently at some times than at others. High turnover rates may adversely affect the Funds
performance by generating higher transaction costs. Additionally, portfolio turnover may give rise
to additional taxable income for shareholders, including through the realization of capital gains
or other types of income that are taxable to Fund shareholders when distributed to them unless the
shareholders themselves are exempt from taxation or otherwise investing in the Fund through a
tax-advantaged account. If portfolio turnover results in the recognition of short-term capital
gains, those gains typically are taxed to shareholders, when distributed to them, at ordinary
income tax rates. See Distributions and Taxes below for more information about the tax
consequences of these types of income.
Certain Definitions. When used in this Prospectus, the term invest includes both direct
investing and indirect investing and the term investments includes both direct investments and
indirect investments. For example, the Fund may invest indirectly by investing in another GMO Fund
or by investing in derivatives and synthetic instruments. When used in this Prospectus, (i) the
terms equity investments and equities refer to investments (as defined above) in common stocks
and other stock-related securities, such as preferred stocks, convertible securities and depositary
receipts, (ii) the term total return includes capital appreciation and income, and (iii) the term
emerging countries means the worlds less developed countries.
Investments in Unaffiliated Money Market Funds and GMO U.S. Treasury Fund. For cash
management purposes, the Fund may invest in unaffiliated money market funds and also may invest in
GMO U.S. Treasury Fund (U.S. Treasury Fund), another GMO Fund described in Investment in Other
GMO Funds.
Fee and Expense Information. The following paragraphs contain additional information about the
fee and expense information included in the Fund Summary.
-8-
Annual Fund Operating Expenses Other Expenses and Acquired Fund Fees and Expenses. The
amount listed under Other expenses in the Annual Fund operating expenses table included in the
Fund Summary reflects an annualized estimate of direct expenses associated with an investment in
the Fund for the Funds initial fiscal year. The Fund may invest in certain other funds of the
Trust (each fund of the Trust, including the Fund, a GMO Fund, and collectively, the GMO
Funds), and certain other pooled investment vehicles (underlying funds), and the indirect net
expenses associated with the Funds investment (if any) in underlying funds are reflected in Other
expenses if those expenses are less than 0.01% of the average net assets of the Fund. The indirect
net expenses associated with the Funds investment in underlying funds (i.e., acquired fund fees
and expenses) are estimated to be less than 0.01% for the Funds initial fiscal year. Acquired
fund fees and expenses do not include expenses associated with investments in the securities of
unaffiliated issuers unless those issuers hold themselves out to be investment companies. Actual
indirect expenses will vary depending on the particular underlying funds in which the Fund invests.
Fee and Expense Example. The expense example under Example included in the Fund Summary
assumes that all dividends and distributions are reinvested.
Temporary Defensive Positions. The Fund normally does not take temporary defensive positions.
To the extent the Fund takes a temporary defensive position, or otherwise holds significant amounts
of cash or cash equivalents, it may not achieve its investment objective.
Fund Codes. See Fund Codes on the inside back cover of this Prospectus for information
regarding the Funds ticker, news-media symbol, and CUSIP number.
This Prospectus does not offer shares in any state where they may not lawfully be offered.
-9-
DESCRIPTION OF PRINCIPAL RISKS
Investing in mutual funds involves many risks, and factors that may affect the Funds
portfolio as a whole, called principal risks, are discussed briefly in the Funds summary and are
summarized in additional detail in this section. The risks of investing in the Fund depend on the
types of investments in its portfolio and the investment strategies the Manager employs on its
behalf. This section describes the nature of these principal risks and some related risks, but
does not describe every potential risk of investing in the Fund. The Fund could be subject to
additional risks because of the types of investments it makes and market conditions, which may
change over time. The SAI includes more information about the Fund and its investments.
The Fund is exposed to the risks to which the underlying funds in which it invests are
exposed. Therefore, unless otherwise noted, the principal risks summarized below include both
direct and indirect principal risks of the Fund, and, as indicated in the Additional Information
About the Funds Investment Strategies, Risks, and Expenses section of this Prospectus, references
in this section to investments made by the Fund include those made both directly by the Fund and
indirectly by the Fund through other GMO Funds and other investment companies.
The Fund, by itself, generally is not a complete investment program but rather is intended to
serve as part of a diversified portfolio of investments. An investment in the Fund is not a bank
deposit and, therefore, is not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency.
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MANAGEMENT AND OPERATIONAL RISK |
The Fund is subject to management risk because it relies on the Managers ability to achieve
its investment objective. The Manager uses proprietary investment techniques in making investment
decisions for the Fund, but that does not assure that the Manager will achieve the desired results
and the Fund may incur significant losses. The Manager, for example, may fail to use derivatives
effectively, choosing to hedge or not to hedge positions at disadvantageous times. As described in
the Funds summary, the Managers portfolio managers use quantitative analyses and/or models. Any
imperfections or limitations in such analyses and/or models could affect the ability of the
portfolio managers to implement strategies. By necessity, these analyses and models make
simplifying assumptions that limit their efficacy. Models that appear to explain prior market data
can fail to predict future market events. Further, the data used in models may be inaccurate and/or
it may not include the most recent information about a company or a security. There also can be no
assurance that all of the Managers personnel will continue to be associated with the Manager for
any length of time. The loss of the services of one or more employees of the Manager could have an
adverse impact on the Funds ability to achieve its investment objective.
The Fund generally does not take temporary defensive positions. Instead it usually is fully
invested in the asset class in which it is permitted to invest (e.g., foreign equities). The Fund
may buy securities not included in its benchmark, hold securities in very different proportions
than its benchmark, and/or engage in other strategies that cause the Funds performance to differ
from (and/or be uncorrelated with or negatively correlated with) that of its benchmark. In those
cases, the Funds performance will depend on the ability of the Manager to choose securities that
perform better than securities that are included in the benchmark and/or to utilize those other
strategies in a way that adds value relative to the benchmark.
The Fund also is subject to the risk of loss and impairment of operations from operational
risk as a result of the Managers and other service providers provision of investment management,
administrative, accounting, tax, legal, shareholder and other services to the Fund. Operational
risk can result from
-10-
inadequate procedures and controls, human error and system failures by a service provider. For
example, trading delays or errors (both human and systematic) could prevent the Fund from
purchasing or selling a security that the Manager expects will appreciate or decline in value, as
the case may be, thus preventing the Fund from benefiting from potential investment gains or
avoiding losses on the security. The Manager is not contractually liable to the Fund for losses
associated with operational risk absent the Managers willful misfeasance, bad faith, gross
negligence or reckless disregard of its contractual obligations to provide services to the Fund.
Other Fund service providers also have limitations on their liability to the Fund for losses
resulting from their errors.
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MARKET RISK EQUITY SECURITIES |
The Fund runs the risk that the market value of its equity investments will decline. The
market value of an equity investment may decline for reasons that directly relate to the issuing
company, such as management performance, financial leverage and reduced demand for its goods or
services. It also may decline due to factors that affect a particular industry, such as a decline
in demand, labor or raw material shortages, increased production costs, regulation, or competitive
industry conditions. In addition, market value may decline as a result of general market conditions
that 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. Equity investments generally have greater
price volatility than fixed-income and other investments with a scheduled stream of payments, and
the market price of equity investments is more susceptible to moving up or down in a rapid or
unpredictable manner.
The Fund invests a substantial portion of its assets in equities and, as described under
Additional Information About the Funds Investment Strategies, Risks, and Expenses
Temporary Defensive Positions, generally does not take temporary defensive positions. As a
result, declines in stock market prices generally are likely to reduce the net asset values of the
Funds shares.
If the Fund purchases equity investments at a discount from their value as determined by the
Manager, the Fund runs the risk that the market prices of these investments will not increase to
that value for a variety of reasons, one of which may be the Managers overestimation of the value
of those investments.
Equity investments trading at higher multiples of current earnings than other securities have
market values that often are more sensitive to changes in future earnings expectations than other
securities. At times when the market is concerned that these expectations may not be met, the
market values of those securities typically fall.
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FOCUSED INVESTMENT RISK |
Funds whose investments are focused in particular countries, regions, sectors, or companies or
in industries with high positive correlations to one another (e.g., different industries within
broad sectors, such as technology or financial services) are subject to greater overall risk than
funds whose investments are more diversified. A fund that invests in the securities of a limited
number of issuers is particularly exposed to adverse developments affecting those issuers, and a
decline in the market value of a particular security held by the fund may affect the funds
performance more than if the fund invested in the securities of a larger number of issuers.
To the extent the Fund focuses its investments in a particular type of security or sector, or
in securities of companies in a particular industry, is vulnerable to events affecting those
securities, sectors
-11-
or companies. Securities, sectors or companies that share common characteristics are often
subject to similar business risks and regulatory burdens, and often react similarly to specific
economic, market, political or other developments.
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FOREIGN INVESTMENT RISK |
Because the Fund invests in foreign (non-U.S.) securities, it is subject to additional and
more varied risks than funds whose investments are limited to U.S. securities. The securities
markets of many foreign countries involve securities of only a limited number of companies in a
limited number of industries. As a result, the market prices of many of those securities fluctuate
more than those of U.S. securities. In addition, issuers of foreign securities often are not
subject to the same degree of regulation as U.S. issuers. Reporting, accounting, custody and
auditing standards of foreign countries differ, in some cases significantly, from U.S. standards.
Foreign portfolio transactions generally involve higher commission rates, transfer taxes and
custodial costs. The Fund may be subject to foreign taxation on realized capital gains, dividends
or interest payable on those securities, on transactions in those securities and on the
repatriation of proceeds generated from those securities. Transaction-based charges are generally
calculated as a percentage of the transaction amount and are paid upon the sale or transfer of
portfolio securities subject to such taxes. In addition, some jurisdictions may limit the Funds
ability to profit from short term trading (as defined in the relevant jurisdiction).
Also, investing in foreign countries exposes the Fund to the risk of nationalization,
expropriation or confiscatory taxation of assets of issuers to which the Fund is exposed, adverse
changes in investment regulations, capital requirements or exchange controls (which may include
suspension of the ability to transfer currency from a country), and adverse political and
diplomatic developments that could adversely affect the market value of the Funds investments.
In some foreign markets, custody arrangements for securities provide significantly fewer
protections than custody arrangements in U.S. markets, and prevailing custody and trade settlement
practices (e.g., the requirement to pay for securities prior to receipt) expose the Fund to credit
and other risks with respect to participating brokers, custodians, clearing banks or other clearing
agents, escrow agents and issuers. Fluctuations in foreign currency exchange rates also will affect
the market value of the Funds foreign investments (see Currency Risk below).
U.S. investors are required to maintain a license to invest directly in many foreign markets.
These licenses are often subject to limitations, including maximum investment amounts. Once a
license is obtained, the Funds ability to continue to invest directly is subject to the risk that
the license will be terminated or suspended. If a license is terminated or suspended, the Fund will
be required to obtain exposure to the market through the purchase of American Depositary Receipts,
Global Depositary Receipts, shares of other funds that are licensed to invest directly, or
derivative instruments. The receipt of a foreign license by one of the Managers clients may
preclude other clients, including the Fund, from obtaining a similar license, and this could limit
the Funds investment opportunities. In addition, the activities of another of the Managers
clients could cause the suspension or revocation of a license and thereby limit the Funds
investment opportunities.
Because the Fund invests a significant portion of its assets in securities of issuers tied
economically to emerging countries, it is subject to greater foreign investment risk than funds
investing primarily in more developed foreign countries. The risks of investing in those securities
include: greater fluctuations in currency exchange rates; increased risk of default (by both
government and private issuers); greater social, economic, and political uncertainty and
instability (including the risk of war or natural disaster); increased risk of nationalization,
expropriation, or other confiscation of assets of issuers to which the Fund is exposed; greater
governmental involvement in the economy; less governmental
-12-
supervision and regulation of the securities markets and participants in those markets;
controls on foreign investment, capital controls and limitations on repatriation of invested
capital, dividends, interest and other income and on the Funds ability to exchange local
currencies for U.S. dollars; inability to purchase and sell investments or otherwise settle
security or derivative transactions (i.e., a market freeze); unavailability of currency hedging
techniques; differences in, or lack of, auditing and financial reporting standards and resulting
unavailability of material information about issuers; slower clearance and settlement; difficulties
in obtaining and/or enforcing legal judgments; and significantly smaller market capitalizations of
issuers.
Currency risk is the risk that fluctuations in exchange rates will adversely affect the market
value of the Funds investments. Currency risk includes the risk that currencies in which the
Funds investments are traded and/or in which the Fund receives income, or currencies in which the
Fund has taken an active investment position, will decline in value relative to other currencies,
in the case of long positions, or increase in value relative to other currencies, in the case of
short positions. In the case of hedging positions, currency risk includes the risk that the
currency to which the Fund has obtained exposure through hedging declines in value relative to the
foreign currency being hedged. In such event, the Fund may realize a loss on the hedging instrument
at the same time the Fund is realizing a loss on the currency being hedged. Currency exchange rates
can fluctuate significantly for many reasons, including changes in supply and demand in the
currency exchange markets, trade balances, actual or perceived changes in interest rates,
differences in relative values of similar assets in different currencies, long-term opportunities
for investment and capital appreciation, intervention (or the failure to intervene) by U.S. or
foreign governments, central banks or supranational agencies such as the International Monetary
Fund, and currency or exchange controls or other political and economic developments in the U.S. or
abroad. See Market Disruption and Geopolitical Risk below.
The Fund uses derivatives to acquire positions in currencies whose value the Manager expects
to correlate with the value of currencies the Fund owns, currencies the Manager wants the Fund to
own, or currencies the Fund is exposed to through its investments. The Fund also takes overweighted
or underweighted currency positions and/or alters the currency exposure of the securities in which
it has invested. As a result, its currency exposure may differ (in some cases significantly) from
the currency exposure of its equity investments and/or its benchmark. If the exchange rates of the
currencies involved do not move as expected, the Fund could lose money on its holdings of a
particular currency and also lose money on the derivative. See also Foreign Investment Risk
above.
Because the Fund has foreign currency holdings and/or invests or trades in securities
denominated in foreign currencies or related derivatives, it may be adversely affected by changes
in the exchange rates of foreign currencies. In addition, some currencies are illiquid (e.g., some
emerging country currencies), and the Fund may not be able to convert these currencies into U.S.
dollars, in which case the Manager may decide to purchase U.S. dollars in a parallel market where
the exchange rate is materially and adversely different. Exchange rates for many currencies (e.g.,
some emerging country currencies) are particularly affected by exchange control regulations.
Derivative transactions in foreign currencies (such as futures, forwards, options and swaps)
may involve leveraging risk in addition to currency risk, as described below under Leveraging
Risk. In addition, the obligations of counterparties in currency derivative transactions are often
not secured by collateral, which increases counterparty risk (see Counterparty Risk below).
-13-
The effect of liquidity risk is particularly pronounced when low trading volume, lack of a
market maker, large size of position, or legal restrictions (including daily price fluctuation
limits or circuit breakers) limit or prevent the Fund from selling particular securities or
unwinding derivative positions at desirable prices. In addition, the more less-liquid securities
the Fund holds, the more likely it is to honor a redemption request in-kind. Because the Funds
principal investment strategies involve the use of securities of companies with smaller market
capitalizations or smaller total float-adjusted market capitalizations, foreign securities (in
particular emerging market securities), derivatives (in particular over-the-counter (OTC)
derivatives), and/or securities subject to restrictions on resale, it has a greater liquidity risk.
These types of investments can be difficult to value and are more likely to be fair valued (see
Determination of Net Asset Value), resulting in differences between the values realized on the
sale of the investments and the value at which the investments are carried on the books of the
Fund. Less liquid securities are more susceptible than other securities to market value declines
when markets decline generally.
The Fund is also exposed to liquidity risk when it has an obligation to purchase particular
securities (e.g., as a result of entering into reverse repurchase agreements, writing a put, or
closing out a short position). Some of the markets, exchanges or securities in which the Fund
invests may be less liquid and this would affect the price at which, and the time period in which,
the Fund may liquidate positions to meet redemption requests or other funding requirements.
Although U.S. Treasury securities have historically been among the most liquid fixed income
investments, these securities may become less liquid in the future.
The Fund makes (or may make) investments in emerging market securities that are not widely
traded and are sometimes subject to purchase and sale restrictions and/or in securities of
companies with smaller market capitalizations that are not widely held and trade less frequently
and in lesser quantities than securities of companies with larger market capitalizations.
To the extent that shares of the Fund are held by large shareholders (e.g., institutional
investors, asset allocation funds or other GMO Funds), the Fund is subject to the risk that these
shareholders will purchase or redeem Fund shares in large amounts and/or on a frequent basis. In
addition, GMO Funds and other accounts over which GMO has investment discretion that invest in the
Fund are not subject to restrictions on the frequency of trading of Fund shares. These transactions
could adversely affect the Fund if it sells portfolio securities to raise the cash to satisfy
shareholder redemption requests or purchase portfolio securities to invest cash. This risk is
particularly pronounced when one shareholder owns a substantial portion of the Fund. A substantial
percentage of the Fund may be held by other GMO Funds and/or separate accounts managed by the
Manager for its clients. Asset allocation decisions by the Manager may result in substantial
redemptions from (or investments into) the Fund. These transactions may adversely affect the Funds
performance to the extent that the Fund is required to sell investments (or invest cash) at times
when it would not otherwise do so. These transactions also may accelerate the realization of
taxable income to shareholders if such sales of investments result in gains, and also may increase
transaction costs. These transactions potentially limit the use of any capital loss carryforwards
and certain other losses to offset future realized capital gains (if any). To the extent the Fund
invests in other GMO Funds having large shareholders, the Fund is indirectly subject to this risk.
Market risk and liquidity risk are particularly pronounced for securities of companies with
smaller market capitalizations, including small- and mid-cap companies. These companies may have
limited product lines, markets or financial resources, may lack the competitive strength of larger
-14-
companies, or may lack managers with experience or depend on a few key employees. In addition,
their securities often are less widely held and trade less frequently and in lesser quantities, and
their market prices often fluctuate more, than the securities of companies with larger market
capitalizations.
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MARKET DISRUPTION AND GEOPOLITICAL RISK |
The Fund is subject to the risk that geopolitical and other events will disrupt securities
markets and adversely affect global economies and markets. The wars in Iraq and Afghanistan have
had a substantial effect on the economies and securities markets of the U.S. and other countries.
Terrorism in the U.S. and around the world has had a similar global impact and has increased
geopolitical risk. The terrorist attacks on September 11, 2001 resulted in the closure of some U.S.
securities markets for four days, and similar attacks are possible in the future. War, terrorism
and related geopolitical events have led, and in the future may lead, to increased short-term
market volatility and may have adverse long-term effects on U.S. and world economies and markets
generally. Likewise, natural and environmental disasters, such as the earthquake and tsunami in
Japan in early 2011, and systemic market dislocations of the kind surrounding the insolvency of
Lehman Brothers in 2008, if repeated, would be highly disruptive to economies and markets. Those
events as well as other changes in foreign and domestic economic and political conditions also
could adversely affect individual issuers or related groups of issuers, securities markets,
interest rates, credit ratings, inflation, investor sentiment and other factors affecting the value
of the Funds investments. During such market disruptions, the Funds exposure to the risks
described elsewhere in this Description of Principal Risks section, including market risk,
liquidity risk, foreign investment risk, currency risk and counterparty risk, will likely increase.
Market disruptions can also prevent the Fund from implementing its investment program for a period
of time and achieving its investment objective. For example, a disruption may cause the Funds
derivatives counterparties to discontinue offering derivatives on some underlying commodities,
securities, reference rates or indices, or to offer such products on a more limited basis, or the
current global economic crisis may strain the U.S. Treasurys ability to satisfy its obligations.
The Fund may invest in derivatives, which are financial contracts whose value depends on, or
is derived from, the value of underlying assets, reference rates, or indices. Derivatives include
futures, foreign currency contracts, swap contracts, reverse repurchase agreements and other OTC
contracts. Derivatives may relate to securities, interest rates, currencies or currency exchange
rates, inflation rates, commodities and indices. The SAI contains a description of the various
types and uses of derivatives in the Funds investment strategies.
The use of derivatives involves risks that are in addition to, and potentially greater than,
the risks associated with investing directly in securities and other more traditional assets. In
particular, the use of OTC derivatives exposes the Fund to the risk that the counterparty to a
derivatives contract will be unable or unwilling to make timely settlement payments or otherwise
honor its obligations. OTC derivatives contracts typically can be closed only with the other party
to the contract. If the counterparty defaults, the Fund will have contractual remedies but may not
be able to enforce them. Because the contract for each OTC derivative is individually negotiated,
the counterparty may interpret contractual terms (e.g., the definition of default) differently than
the Fund, and if that occurs, the Fund may decide not to pursue its claims against the counterparty
in order to avoid incurring the cost and unpredictability of legal proceedings. The Fund,
therefore, may be unable to obtain payments the Manager believes are owed under OTC derivatives
contracts or those payments may be delayed or made only after the Fund has incurred the costs of
litigation.
-15-
The Fund may invest in derivatives that do not require the counterparty to post collateral
(e.g., foreign currency forwards), that require collateral but that do not provide for the Funds
security interest in it to be perfected, that require a significant upfront deposit by the Fund
unrelated to the derivatives intrinsic value, or that do not require the collateral to be
regularly marked-to-market (e.g., certain OTC derivatives). Even when obligations are required by
contract to be collateralized, there is usually a lag between the day the collateral is called for
and the day the Fund receives it. When a counterpartys obligations are not fully secured by
collateral, the Fund is exposed to the risk of having limited recourse if the counterparty
defaults. The Fund may invest in derivatives with a limited number of counterparties, and events
affecting the creditworthiness of any of those counterparties may have a pronounced effect on the
Fund. Derivatives risk is particularly acute in environments (like those experienced recently) in
which financial services firms are exposed to systemic risks of the type evidenced by the
insolvency of Lehman Brothers and subsequent market disruptions. During these periods of market
disruptions, the Fund may have a greater need for cash to provide collateral for large swings in
its mark-to-market obligations under the derivatives used by the Fund.
Derivatives also present risks described elsewhere in this Description of Principal Risks
section, including market risk, liquidity risk, currency risk and counterparty risk. Many
derivatives, in particular OTC derivatives, are complex and their valuation often requires modeling
and judgment, which increases the risk of mispricing or improper valuation. The pricing models
used by the Fund or its pricing agents may not produce valuations that are consistent with the
values realized when OTC derivatives are actually closed out or sold. This valuation risk is more
pronounced when the Fund enters into OTC derivatives with specialized terms because the value of
those derivatives in some cases is determined only by reference to similar derivatives with more
standardized terms. As a result, incorrect valuations may result in increased cash payments to
counterparties, undercollateralization and/or errors in the calculation of the Funds net asset
value.
The Funds use of derivatives may not be effective or have the desired results. Moreover,
suitable derivatives will not be available in all circumstances. For example, the economic costs of
taking some derivative positions may be prohibitive, and if a counterparty or its affiliate is
deemed to be an affiliate of the Fund, the Fund will not be permitted to trade with that
counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise
reduce the Funds risk exposures, potentially resulting in losses for the Fund.
Derivatives also involve the risk that changes in their value may not move as expected
relative to the value of the assets, rates or indices they are designed to track. The use of
derivatives also may increase the taxes payable by shareholders.
Swap contracts and other OTC derivatives are highly susceptible to liquidity risk (see
Liquidity Risk below) and counterparty risk (see Counterparty Risk below), and are subject to
documentation risks. Because many derivatives have a leverage component (i.e., a notional value in
excess of the assets needed to establish and/or maintain the derivative position), adverse changes
in the value or level of the underlying asset, rate or index may result in a loss substantially
greater than the amount invested in the derivative itself (see Leveraging Risk below).
The U.S. government recently enacted legislation that provides for new regulation of the
derivatives market, including clearing, margin, reporting and registration requirements. Because
the legislation leaves much to rule making, its ultimate impact remains unclear. New regulations
could, among other things, restrict the Funds ability to engage in derivatives transactions (for
example, by making certain types of derivatives transactions no longer available to the Fund)
and/or increase the costs of such derivatives transactions (for example, by increasing margin or
capital requirements), and the Fund
-16-
may be unable to execute its investment strategy as a result. It is unclear how the
regulatory changes will affect counterparty risk.
The Funds use of reverse repurchase agreements and other derivatives and securities lending
may cause its portfolio to be leveraged (i.e., the Funds exposure to underlying securities, assets
or currencies exceeds its net asset value). Leverage increases the Funds portfolio losses when the
value of its investments declines. Because many derivatives have a leverage component (i.e., a
notional value in excess of the assets needed to establish and/or maintain the derivative
position), adverse changes in the value or level of the underlying asset, rate or index may result
in a loss substantially greater than the amount invested in the derivative itself. In the case of
swaps, the risk of loss generally is related to a notional principal amount, even if the parties
have not made any initial investment. Some derivatives have the potential for unlimited loss,
regardless of the size of the initial investment. The Funds use of reverse repurchase agreements
also subjects the Fund to interest costs based on the difference between the sale and repurchase
price of a security involved in such a transaction. The Funds portfolio also will be leveraged if
it borrows money to meet redemption requests or settle investment transactions or if it avails
itself of the right to delay payment on a redemption.
The Fund may manage some of its derivative positions by offsetting derivative positions
against one another or against other assets. To the extent offsetting positions do not behave in
relation to one another as expected, the Fund may perform as if it were leveraged.
This is the risk that the counterparty to a repurchase agreement or reverse repurchase
agreement or other OTC derivatives contract or a borrower of the Funds securities will be unable
or unwilling to make timely settlement payments or otherwise honor its obligations. If a
counterparty fails to meet its contractual obligations, goes bankrupt, or otherwise experiences a
business interruption, the Fund could miss investment opportunities or otherwise hold investments
it would prefer to sell, resulting in losses for the Fund. Counterparty risk is pronounced during
unusually adverse market conditions and is particularly acute in environments (like those
experienced recently) in which financial services firms are exposed to systemic risks of the type
evidenced by the insolvency of Lehman Brothers in 2008 and subsequent market disruptions.
Participants in OTC derivatives markets typically are not subject to the same level of credit
evaluation and regulatory oversight as are members of exchange-based markets, and, therefore, OTC
derivatives generally expose the Fund to greater counterparty risk than exchange-traded
derivatives. The Fund is subject to the risk that a counterparty will not settle a transaction in
accordance with its terms and conditions because of a dispute over the terms of the contract
(whether or not bona fide) or because of a credit or liquidity problem, thus causing the Fund to
suffer a loss. If a counterpartys obligation to the Fund is not collateralized, then the Fund is
essentially an unsecured creditor of the counterparty. If the counterparty defaults, the Fund will
have contractual remedies, but the Fund may be unable to enforce them. Counterparty risk is greater
for derivatives with longer maturities where events may intervene to prevent settlement.
Counterparty risk also is greater when the Fund has concentrated its derivatives with a single or
small group of counterparties as it sometimes does as a result of its use of swaps and other OTC
derivatives. To the extent the Fund has significant exposure to a single counterparty, this risk
will be particularly pronounced for the Fund. Funds that use swap contracts are subject, in
particular, to the creditworthiness of the contracts counterparties because some types of swap
contracts used by the funds have durations longer than six months (and, in some cases, a number of
decades). The creditworthiness of a counterparty may be adversely affected by greater than average
volatility in the markets, even if the
-17-
counterpartys net market exposure is small relative to its capital. Counterparty risk still
exists even if a counterpartys obligations are secured by collateral because the Funds interest
in collateral may not be perfected or additional collateral may not be promptly posted as required.
The Fund is also subject to counterparty risk because it executes its securities transactions
through brokers and dealers. If a broker or dealer fails to meet its contractual obligations, goes
bankrupt, or otherwise experiences a business interruption, the Fund could miss investment
opportunities or be unable to dispose of investments it would prefer to sell, resulting in losses
for the Fund.
Counterparty risk with respect to OTC derivatives may be further complicated by recently
enacted U.S. financial reform legislation. See Derivatives Risk above for more information.
The Fund is not a diversified investment company within the meaning of the 1940 Act. This
means it is allowed to invest in the securities of a relatively small number of issuers and/or
foreign currencies. As a result, it may be subject to greater credit, market and other risks, and
poor performance by a single issuer may have a greater impact on its performance than if it was
diversified.
MANAGEMENT OF THE FUND
GMO, 40 Rowes Wharf, Boston, Massachusetts 02110, provides investment management and
shareholder services to the Fund and other GMO Funds. GMO is a private company, founded in 1977.
As of May 31, 2011, GMO managed on a worldwide basis more than $100 billion of assets for the GMO
Funds and other investors, such as pension plans, endowments, and foundations.
Subject to the approval of the Trustees, the Manager establishes and modifies when it deems
appropriate the investment strategies of the Fund. In addition to its management of the Funds
investment portfolio and the shareholder services it provides to the Fund, the Manager administers
the Funds business affairs.
Each class of shares of the Fund pays the Manager a shareholder service fee for providing
client services and reporting, such as performance information, client account information,
personal and electronic access to Fund information, access to analysis and explanations of Fund
reports, and assistance in maintaining and correcting client-related information.
As of the date of this Prospectus, the Fund had not yet operated for a full fiscal year but
pays the Manager, as compensation for investment management services, an annual fee equal to 0.60%
of the Funds average daily net assets for each class of shares.
A discussion of the basis for the Trustees approval of the Funds initial investment
management contract will be included in the Funds annual or semiannual shareholder report for the
period during which the Trustees approved that contract.
GMOs International Active Division is responsible for day-to-day investment management of the
Fund. The Divisions investment professionals work collaboratively to manage the Funds portfolio,
and no one person is primarily responsible for day-to-day management of the Fund.
The following table identifies the senior members of GMOs International Active
Division who are responsible for providing investment management services to the Fund and each
senior members length of service as a senior member, title, and business experience during the
past five years. The senior
-18-
members manage or allocate responsibility for portions of the portfolios to members of their
Division, oversee the implementation of trades, review the overall composition of the portfolios,
including compliance with stated investment objectives and strategies, and monitor cash.
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Senior Members (Length of |
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Title; Business Experience |
Investment Division |
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Service) |
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During Past 5 Years |
International Active
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Drew Spangler
(since 2011)
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Director, International
Active Division,
GMO. Mr.
Spangler has been
responsible for
overseeing the portfolio
management of GMOs
international active
equity portfolios since
May 2011. Previously,
Mr. Spangler provided
portfolio and research
services to GMOs
international active
equity portfolios since
1994. |
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International Active
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Domenic Esposito
(since 1999)
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Portfolio Manager,
International Active
Division, GMO. Mr.
Esposito has been a
portfolio manager within
the International Active
Division since 1999. |
The SAI contains information about how GMO determines the compensation of the senior members,
other accounts they manage and related conflicts, and their ownership of the Fund and other GMO
Funds for which they have responsibility.
Custodian and Fund Accounting Agent
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109, serves as the
Funds custodian and fund accounting agent.
Transfer Agent
State Street Bank and Trust Company, One Lincoln Street, Boston, Massachusetts 02111, serves
as the Funds transfer agent.
Expense Reimbursement
The Manager has contractually agreed to reimburse the Fund for the portion of the Funds total
annual operating expenses that exceed 0.60% of the Funds average daily net assets (the Expense
Reimbursement Amount) exclusive of Excluded Fund Fees and Expenses. As used in this Prospectus,
Excluded Fund Fees and Expenses means shareholder service fees, expenses incurred indirectly by
investment in other GMO Funds, fees and expenses of the independent Trustees of the Trust and their
independent counsel, fees and expenses for legal services the Manager for the Trust has not
undertaken to pay, compensation and expenses of Trust officers and agents who are not affiliated
with GMO, brokerage commissions, securities lending fees and expenses, interest expense, transfer
taxes, and other investment-related costs (including expenses associated with investments in any
company that is an investment company (including an exchange-traded fund) or would be an investment
company under the 1940 Act, but for the exceptions to the definition of investment company provided
in Sections 3(c)(1) and 3(c)(7) of the 1940 Act), hedging transaction fees and extraordinary,
non-recurring and certain other unusual expenses (including taxes).
-19-
In addition to the contractual expense reimbursement described above, the Manager has
contractually agreed to reimburse the Fund for the amount of fees and expenses incurred indirectly
by the Fund through its investment in U.S. Treasury Fund (excluding U.S. Treasury Funds Excluded
Fund Fees and Expenses), subject to a maximum total reimbursement to the Fund of such fees and
expenses equal to the Expense Reimbursement Amount.
The Funds contractual expense limitations will continue through at least September 13, 2012,
and may not be terminated prior to this date without the consent of the Funds Board of Trustees.
DETERMINATION OF NET ASSET VALUE
The net asset value or NAV of each class of shares of the Fund is determined as of the close
of regular trading on the NYSE, generally at 4:00 p.m. Boston time. The NAV per share of a class of
shares of the Fund is determined by dividing the total value of the Funds portfolio investments
and other assets, less any liabilities, allocated to that share class by the total number of
outstanding shares of that class. NAV is not determined on any days when the NYSE is closed for
business. The Fund also may elect not to determine NAV on days during which no share is tendered
for redemption and no order to purchase or sell a share is received by the Fund.
The value of the Funds investments is generally determined as follows:
Exchange-listed securities (other than Exchange-listed options)
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Last sale price or |
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Official closing price or |
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Most recent quoted price published by the exchange (if no reported last sale or
official closing price) or |
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Quoted price provided by a pricing source (if the private market is more
reliable in determining market value than the exchange) |
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(Also, see discussion in Fair Value Pricing below regarding foreign equity securities.) |
Exchange-listed options
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Exchange-listed options are valued at the last sale price, provided that price
is between the closing bid and ask prices. If the last sale price is not within this
range, then they will be valued at the closing bid price for long positions and the
closing ask price for short positions |
Unlisted securities (if market quotations are readily available)
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Most recent quoted price |
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Note: There can be no assurance that quoted prices will be available. If reliable quotes
are not available, the Fund may seek alternative valuation methodologies (e.g., valuing the
relevant assets at fair value as described below). |
Non-emerging market debt obligations (having sixty days or less to final maturity)
-20-
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Amortized cost (unless circumstances dictate otherwise; for example, if the
issuers creditworthiness has become impaired) |
All other fixed income securities (includes bonds, asset-backed securities, loans, structured
notes)
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Most recent quoted price supplied by a single pricing source chosen by the
Manager |
Shares of other GMO Funds and other open-end registered investment companies
Fair Value Pricing
For all other assets and securities, including derivatives, and in cases where market prices
are not readily available or circumstances make an existing methodology or procedure unreliable,
the Funds investments are valued at fair value, as determined in good faith by the Trustees or
pursuant to procedures approved by the Trustees.
With respect to the Funds use of fair value pricing, you should note the following:
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|
► In some cases, a significant percentage of the Funds assets may be fair valued. The
value of assets that are fair valued is determined by the Trustees or persons acting at
their direction pursuant to procedures approved by the Trustees. Factors that may be
considered in determining fair value include, among others, the value of other financial
instruments traded on other markets, trading volumes, changes in interest rates,
observations from financial institutions, significant events (which may be considered to
include changes in the value of U.S. securities or securities indices) that occur after the
close of the relevant market and before the Funds net asset value is calculated, other news
events, and significant unobservable inputs (including the Funds own assumptions in
determining the fair value of investments). Although the goal of fair valuation is to
determine the amount the owner of the securities might reasonably expect to receive upon
their current sale, because of the uncertainty inherent in fair value pricing, the fair
value determined for a particular security may be materially different from the value
realized upon its sale. |
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► Many foreign equity securities markets and exchanges close prior to the close of the NYSE,
and, therefore, the closing prices for foreign equity securities in those markets or on
those exchanges do not reflect events that occur after that close but before the close of
the NYSE. As a result, the Fund generally values those foreign equity securities (including
those foreign equity securities underlying futures and other derivatives) as of the NYSE
close using fair value prices, which are based on local closing prices adjusted by a factor
supplied by a third party vendor using that vendors proprietary models. |
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► The Funds use of fair value pricing may cause the Funds returns to differ from those of
its benchmark or other comparative index more than would otherwise be the case. For example,
the Fund may fair value its international equity holdings as a result of significant events
that occur after the close of the relevant market and before the time the Funds net asset
value is calculated. In these cases, the benchmark or index may use the local market closing
price, whereas the Fund may use an adjusted fair value price. |
Quoted prices are typically the bid price for securities held long and the ask price for
securities sold short. If the pricing convention for the applicable security does not involve a bid
or an ask,
-21-
the quoted price is the quotation provided by a third party pricing source in accordance with
the convention for that security.
The values of foreign securities quoted in foreign currencies, foreign currency balances and
foreign forward currency contracts are typically translated into U.S. dollars at the close of
regular trading on the NYSE, generally at 4:00 p.m. Boston time, at then current exchange rates or
at such other rates as the Trustees or persons acting at their direction may determine in computing
net asset value.
The Manager evaluates pricing sources on an ongoing basis and may change a pricing source at
any time. The Manager normally does not evaluate the prices supplied by pricing sources on a
day-to-day basis. The Manager monitors erratic or unusual movements (including unusual inactivity)
in the prices supplied for a security and has discretion to override a price supplied by a source
(e.g., by taking a price supplied by another) when it believes that the price supplied is not
reliable. In addition, although alternative prices may be available for securities held by the
Fund, those alternative sources are not typically part of the valuation process and do not
necessarily provide greater certainty about the prices used by the Fund. In addition, because the
Fund may hold portfolio securities listed on foreign exchanges that trade on days on which the NYSE
is closed, the net asset value of the Funds shares may change significantly on days when shares
cannot be redeemed.
NAME POLICY
To comply with Securities and Exchange Commission (SEC) rules regarding the use of
descriptive words in a funds name, the Fund has adopted a policy of investing at least 80% of its
assets in equity investments (the Name Policy). The Name Policy is described in the Principal
investment strategies section of the Fund Summary.
The Fund will not change its Name Policy without providing its shareholders at least 60 days
prior written notice. When used in connection with the Funds Name Policy, assets include the
Funds net assets plus any borrowings made for investment purposes. The Fund has not adopted a
formal Name Policy with respect to the term global, but typically invests in investments that are
tied economically to, or seek exposure to, a number of countries throughout the world.
For purposes of this Prospectus, an investment is tied economically to a particular country
or region if: (i) it is an investment in an issuer that is organized under the laws of that country
or of a country within that region or in an issuer that maintains its principal place of business
in that country or region; (ii) it is traded principally in that country or region; or (iii) it is
an investment in an issuer that derived at least 50% of its revenues or profits from goods produced
or sold, investments made, or services performed in that country or region, or has at least 50% of
its assets in that country or region. The Fund may invest directly in securities of companies in a
particular country or geographic region or indirectly, for example, through investments in another
GMO Fund, derivatives, or synthetic instruments with underlying assets that have economic
characteristics similar to investments related to a particular country or geographic region.
DISCLOSURE OF PORTFOLIO HOLDINGS
The Fund has established a policy with respect to disclosure of its portfolio holdings. That
policy is described in the SAI. The largest fifteen portfolio holdings of the Fund are posted
monthly on GMOs website. In addition, from time to time, position attribution information
regarding the Fund may be posted to GMOs website (e.g., best/worst performing positions in the
Fund over a specified time period). Such information is available without a confidentiality
agreement to registered users on GMOs website.
-22-
Additional information regarding the Funds portfolio holdings as of each months end is made
available to shareholders of the Trust, qualified potential shareholders as determined by GMO
(potential shareholders), and their consultants or agents through a secured link on GMOs website
approximately five days after month end. Periodically, in response to heightened market interest in
specific issuers, the Funds holdings in one or more issuers may be made available on a more
frequent basis to shareholders of the Trust, potential shareholders, and their consultants or
agents through a secured link on GMOs website. This information may be posted as soon as the
business day following the date to which the information relates.
To access this information on GMOs website (http://www.gmo.com/america/strategies),
shareholders, potential shareholders, and their consultants and agents must contact GMO to obtain a
password and user name (to the extent they do not already have them) and must generally enter into
a confidentiality agreement with GMO and the Trust. GMO may make portfolio holdings information
available in alternate formats and under additional circumstances under the conditions described in
the SAI. Beneficial owners of shares of the Fund who have invested in the Fund through a broker or
agent should contact that broker or agent for information on how to obtain access to information on
the website regarding the Funds portfolio holdings.
The Fund or GMO may suspend the posting of portfolio holdings, and the Fund may modify the
disclosure policy, without notice to shareholders. Once posted, the Funds portfolio holdings will
remain available on the website at least until the Fund files a Form N-CSR (annual/semiannual
report) or Form N-Q (quarterly schedule of portfolio holdings) for the period that includes the
date of those holdings.
HOW TO PURCHASE SHARES
Under ordinary circumstances, you may purchase the Funds shares directly from the Trust on
days when the NYSE is open for business. In addition, certain brokers and agents are authorized to
accept purchase and redemption orders on the Funds behalf. These brokers and agents may impose
transaction fees and/or other restrictions (in addition to those described in this Prospectus) for
purchasing Fund shares through them. For instructions on purchasing shares, call the Trust at
1-617-346-7646, send an e-mail to SHS@GMO.com, or contact your broker or agent. The Trust will not
accept a purchase request until it has received a GMO Trust Application deemed to be in good order
by the Trust or its designated agent. In addition, the Trust may not accept a purchase request
unless an IRS Form W-9 (for U.S. shareholders) or the appropriate IRS Form W-8 (for foreign
shareholders) with a correct taxpayer identification number (if required) is on file with GMO and
that W-9 or W-8 is deemed to be in good order by the Trusts withholding agent, State Street Bank
and Trust Company. The Trust may require additional tax-related certifications, information or
other documentation from you in order to comply with the reporting and withholding tax provisions
enacted in March 2010 as part of the Hiring Incentives to Restore Employment Act. For more
information on these new rules, see the Taxes section in the SAI. Please consult your tax
adviser to ensure all tax forms provided to the Trust are completed properly and maintained, as
required, in good order. GMO has the right to make final good order assessments.
Purchase Policies. You must submit a purchase request in good order to avoid having it
rejected by the Trust or its designated agent. In general, a purchase request is in good order if
it includes:
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The name of the Fund being purchased; |
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The U.S. dollar amount of the shares to be purchased; |
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The date on which the purchase is to be made (subject to receipt prior to the close
of regular trading on that date); |
-23-
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The name and/or the account number (if any) set forth with sufficient clarity to
avoid ambiguity; and |
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The signature of an authorized signatory as identified in the GMO Trust Application
or subsequent authorized signers list. |
If payment in full (by check, wire, or, when approved, securities) is not received prior to
the earlier of the close of the NYSE or 4:00 p.m. Boston time on the intended purchase date, the
request may be rejected or deferred until payment is received unless prior arrangements for later
payment have been approved by GMO.
If the purchase request is received in good order by the Trust or its agent prior to the close
of regular trading on the NYSE (generally 4:00 p.m. Boston time), the purchase price for the Fund
shares to be purchased is the net asset value per share determined on that day (plus any applicable
purchase premium). If that request is received after the close of regular trading on the NYSE, the
purchase price for the Fund shares to be purchased is the net asset value per share determined on
the next business day that the NYSE is open (plus any applicable purchase premium).
To help the U.S. government fight the funding of terrorism and money laundering activities,
federal law requires the Trust to verify identifying information provided by each investor in its
GMO Trust Application. Additional identifying documentation also may be required. If the Trust is
unable to verify the information shortly after your account is opened, the account may be closed
and your shares redeemed at their net asset value at the time of the redemption.
The Trust or its agents reserve the right to reject any purchase order. In addition, without
notice, the Fund in its sole discretion may temporarily or permanently suspend sales of its shares
to new investors and/or existing shareholders.
Minimum investment amounts (by class) are set forth in the tables on page 29 of this
Prospectus. No minimum additional investment is required to purchase additional shares of the
Fund. The Trust may waive initial minimums for some investors.
Funds advised or sub-advised by GMO (Top Funds) may purchase shares of the Fund after the
close of regular trading on the NYSE (the Cut-off Time) and receive the current days price if
the following conditions are met: (i) the Top Fund received a good order purchase request prior to
the Cut-off Time on that day; and (ii) the purchase(s) by the Top Fund of shares of the Fund are
executed pursuant to an allocation predetermined by GMO prior to that days Cut-off Time.
Submitting Your Purchase Order Form. Completed purchase order forms can be submitted by mail
or by facsimile or other form of communication pre-approved by Shareholder Services to the Trust
at:
GMO Trust
c/o Grantham, Mayo, Van Otterloo & Co. LLC
40 Rowes Wharf
Boston, Massachusetts 02110
Facsimile: 1-617-439-4192
Attention: Shareholder Services
Call the Trust at 1-617-346-7646 or send an e-mail to SHS@GMO.com to confirm that GMO
received, made a good order determination regarding, and accepted your purchase order form. Do not
send cash, checks, or securities directly to the Trust. A purchase request submitted by mail is
-24-
received by the Trust when it is actually delivered to the Trust or its designated agent. A
purchase request delivered by facsimile is received by the Trust when it is actually received by
the Trust or its designated agent.
Funding Your Investment. You may purchase shares:
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with cash (via wire transfer or check) |
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► By wire. Instruct your bank to wire the amount of your investment to: |
State Street Bank and Trust Company, Boston, Massachusetts
ABA#: 011000028
Attn: Transfer Agent
Credit: GMO Deposit Account 00330902
Further credit: GMO Global Focused Equity Fund/Account name and number
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► By check. All checks must be made payable to the Fund or to GMO
Trust. The Trust will not accept checks payable to a third party that have been
endorsed by the payee to the Trust. Mail checks to: |
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By U.S. Postal Service:
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By Overnight Courier: |
State Street Bank and Trust Company
Transfer Agency/GMO
Box 5493
Mail Code JHT1651
Boston, MA 02206
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State Street Bank and Trust Company
Attn: Transfer Agency/GMO
200 Clarendon Street
Mail Code JHT1651
Boston, MA 02116 |
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in exchange for securities acceptable to the Manager |
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► securities must be approved by the Manager prior to transfer to the Fund. |
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► securities will be valued as set forth under Determination of Net Asset Value |
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by a combination of cash and securities |
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A purchase may be made in U.S. dollars or in any other currency deemed acceptable by the
Manager in its sole discretion. Non-U.S. dollar currencies used to purchase Fund shares will
be valued in accordance with the Trusts valuation procedures. |
Frequent Trading Activity. As a matter of policy, the Trust will not honor
requests for purchases or exchanges by shareholders identified as engaging in frequent trading
strategies, including market timing, that GMO determines could be harmful to the Fund and its
shareholders. Frequent trading strategies are generally strategies that involve repeated exchanges
and/or purchases and redemptions (or redemptions and purchases) within a short period of time.
Frequent trading strategies may be disruptive to the efficient management of the Fund, materially
increase portfolio transaction costs and taxes, dilute the value of shares held by long-term
investors, or otherwise be harmful to the Fund and its shareholders.
The Trustees have adopted procedures designed to detect and prevent frequent trading activity
that is harmful to the Fund and its shareholders (the Procedures). The Procedures include the
fair valuation of foreign securities, periodic surveillance of trading in shareholder accounts and
inquiry as to the nature of trading activity. If GMO determines that an account is engaging in
frequent trading that has the potential to be harmful to the Fund or its shareholders, the
Procedures permit GMO to adopt various
-25-
prevention measures, including suspension of the accounts exchange and purchase privileges. There
is no assurance that the Procedures will be effective in all instances. The Fund will not
automatically redeem shares that are the subject of a rejected exchange request. The Fund reserves
the right to reject any order or terminate the sale of Fund shares at any time.
Each of the Procedures does not apply to all GMO Funds or all GMO Fund trading activity.
Application of the Procedures is dependent upon: (1) whether a Fund imposes purchase premiums
and/or redemption fees, (2) the nature of a Funds investment program, including its typical cash
positions and/or whether it invests in foreign securities, and (3) whether GMO has investment
discretion over the purchase, exchange, or redemption activity. The GMO Asset Allocation Funds and
other funds and accounts over which GMO has investment discretion are not subject to restrictions
on the frequency with which they purchase Fund shares. Although GMO may not take affirmative steps
to detect frequent trading for certain Funds, GMO will not honor requests for purchases or
exchanges by shareholders identified as engaging in frequent trading strategies that GMO determines
could be harmful to those Funds and their shareholders.
Shares of the Fund may be distributed through financial intermediaries that submit aggregate
or net purchase and redemption orders through omnibus accounts. These omnibus accounts often by
nature engage in frequent transactions due to the daily trading activity of their underlying
investors. Because transactions by omnibus accounts often take place on a net basis, GMOs ability
to detect and prevent frequent trading strategies within those accounts is limited. GMO ordinarily
seeks the agreement of a financial intermediary to monitor for and/or restrict frequent trading in
accordance with the Procedures. In addition, the Fund may rely on a financial intermediary to
monitor for and/or restrict frequent trading in accordance with the intermediarys policies and
procedures in lieu of the Procedures if GMO believes that the financial intermediarys policies and
procedures are reasonably designed to detect and prevent frequent trading activity that GMO
considers to be potentially harmful to the Fund and its shareholders. Shareholders who own Fund
shares through an intermediary should consult with that intermediary regarding its frequent trading
policies.
HOW TO REDEEM SHARES
Under ordinary circumstances, you may redeem the Funds shares on days when the NYSE is open
for business. Redemption requests should be submitted directly to the Trust
unless the
Fund shares to be redeemed were purchased through a broker or agent, in which case the redemption
request should be effected through that broker or agent. The broker or agent may impose transaction
fees and/or other restrictions (in addition to those described in this Prospectus) for redeeming
Fund shares through it. For instructions on redeeming shares directly, call the Trust at
1-617-346-7646 or send an e-mail to SHS@GMO.com. The Trust may take up to seven days to remit
proceeds.
Redemption Policies. You must submit a redemption request in good order to avoid having it
rejected by the Trust or its designated agent. In general, a redemption request is in good order
if it includes:
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The name of the Fund being redeemed; |
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The number of shares or the dollar amount of the shares to be redeemed or the amount
that the client wants to receive; |
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The date on which the redemption is to be made (subject to receipt prior to the
close of regular trading on the NYSE on that date); |
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The name and/or the account number set forth with sufficient clarity to avoid
ambiguity; |
-26-
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The signature of an authorized signatory as identified in the GMO Trust Application
or subsequent authorized signers list; and |
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Wire instructions or registration address that match the wire instructions
or registration address (as applicable) on file at GMO or confirmation from an
authorized signatory that the wire instructions are valid. |
If a redemption request in good order is received by the Trust or its agent prior to the close
of regular trading on the NYSE (generally 4:00 p.m. Boston time), the redemption price for the Fund
shares to be redeemed is the net asset value per share determined on that day (less any applicable
redemption fee). If a redemption request is received after the close of regular trading on the
NYSE, the redemption price for the Fund shares to be redeemed is the net asset value per share
determined on the next business day that the NYSE is open (less any applicable redemption fee)
unless you or another authorized person on your account have instructed GMO Shareholder Services in
writing to defer the redemption to another day. If you or another authorized person on your
account have instructed GMO Shareholder Services to defer the redemption to another day, you or
another authorized person on your account may revoke your redemption request in writing at any time
prior to 4:00 p.m. Boston time or before the close of regular trading on the NYSE (whichever is
earlier) on the redemption date. In the event of a disaster affecting Boston, Massachusetts,
please contact GMO to confirm that your redemption request was received and is in good order.
Failure to provide the Trust with a properly authorized redemption request or otherwise
satisfy the Trust as to the validity of any change to the wire instructions or registration address
may result in a delay in processing a redemption request, delay in remittance of redemption
proceeds, or a rejection of the redemption request.
In its sole discretion, GMO may determine to have the Fund pay redemption proceeds wholly or
partly in securities (selected by GMO) instead of cash. In particular, if market conditions
deteriorate and the Manager believes the Funds redemption fee (if any) is not fair compensation
for transaction costs, the Fund may limit cash redemptions (honoring redemptions with portfolio
securities) to protect the interests of all Fund shareholders. Redemptions in-kind may require
shareholders to enter into new custodial arrangements if they do not have accounts available for
holding securities directly.
If a redemption is paid in cash:
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payment will generally be made by means of a federal funds transfer to the
bank account designated in the relevant GMO Trust Application. |
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► designation of one or more additional bank accounts or any change
in the bank accounts originally designated in the GMO Trust Application must be
made in a recordable format by an authorized signatory according to the procedures
in the GMO Trust Redemption Order Form |
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► if there is ambiguity with wire instructions that cannot be
resolved in a timely manner, GMO may elect to remit redemption proceeds by check |
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upon request, payment will be made by check mailed to the registration address
(unless another address is specified according to the procedures in the GMO Trust
Redemption Order Form). |
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a redemption may, in the Managers sole discretion, be paid in whole or in part in a
currency other than U.S. dollars in cases where the redeeming shareholder has indicated
a willingness or desire to receive the redemption proceeds in that currency. Non-U.S.
dollar currencies |
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used to redeem Fund shares will be valued in accordance with the Trusts valuation
procedures. |
The Trust will not pay redemption proceeds to third-parties and does not offer check-writing
privileges.
The Trust will not typically remit redemption proceeds to multiple bank accounts.
If a redemption is paid with securities, you should note that:
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the securities will be valued as set forth under Determination of Net
Asset Value |
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the securities will be selected by the Manager in light of the Funds
objective and other practical considerations and may not represent a pro rata
distribution of each security held in the Funds portfolio |
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you will likely incur brokerage charges on the sale of the securities |
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redemptions paid in securities are generally treated by shareholders for
tax purposes the same as redemptions paid in cash |
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the securities will be transferred and delivered by the Trust as directed
in writing by an authorized person on your account. |
The Fund may suspend the right of redemption and may postpone payment for more than seven
days:
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if the NYSE and/or the Federal Reserve Bank are closed on days other than
weekends or holidays |
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during periods when trading on the NYSE is restricted |
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during an emergency that makes it impracticable for the Fund to dispose of
its securities or to fairly determine the net asset value of the Fund |
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during any other period permitted by the SEC for your protection. |
Pursuant to the Trusts Amended and Restated Agreement and Declaration of Trust, the Trust has
the unilateral right to redeem Fund shares held by a shareholder at any time if at that time: (i)
the shares of the Fund or a class held by the shareholder have an aggregate net asset value of less
than an amount determined from time to time by the Trustees; or (ii) the shares of the Fund or
class held by the shareholder exceed a percentage of the outstanding shares of the Fund or the
class determined from time to time by the Trustees. The Trustees have authorized GMO in its sole
discretion to redeem shares to prevent a shareholder from becoming an affiliated person of the
Fund.
Top Funds may redeem shares of the Fund after the Cut-off Time and receive the current days
price if the following conditions are met: (i) the Top Fund received a redemption request prior to
the
Cut-off Time on that day; and (ii) the redemption of the shares of the Fund is executed
pursuant to an allocation predetermined by GMO prior to that days Cut-off Time.
Submitting Your Redemption Request. Redemption requests can be submitted by mail or by
facsimile to the Trust at the address/facsimile number set forth under How to Purchase Shares
Submitting Your Purchase Order Form. Redemption requests submitted by mail are received by the
Trust when actually received by the Trust or its designated agent. Call the Trust at
1-617-346-7646 or
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send an e-mail to SHS@GMO.com to confirm that GMO received, made a good order determination
regarding, and accepted your redemption request.
MULTIPLE CLASSES AND ELIGIBILITY
The Fund currently offers multiple classes of shares. The sole economic difference among the
various classes of shares described in this Prospectus is in their shareholder service fee.
Differences in the fee reflect the fact that, as the size of a client relationship increases, the
cost to service that client decreases as a percentage of the clients assets. Thus, the shareholder
service fee generally is lower for classes requiring greater minimum investments.
Eligibility to purchase Fund shares or different classes of Fund shares depends on the
clients meeting either (i) the minimum Total Fund Investment, which includes only a clients
total investment in the Fund, or (ii) the minimum Total GMO Investment, both set forth in the
table below. No minimum additional investment is required to purchase additional shares of the
Fund.
Minimum Investment Criteria for Class Eligibility
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Shareholder Service Fee |
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Minimum Total Fund |
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Minimum Total GMO |
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(as a % of average daily |
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Investment |
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Investment1 |
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net assets) |
Class III Shares |
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N/A |
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$10 million |
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0.15% |
Class IV Shares |
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$125 million |
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$250 million |
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0.10% |
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1 |
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The eligibility requirements in the table above are subject to exceptions and
special rules for plan investors investing through financial intermediaries. See discussion
immediately following this table for more information about these exceptions and special rules. |
A clients Total GMO Investment equals the Managers estimate of the market value of all
the clients assets managed by GMO and its affiliates (i) at the time of the clients initial
investment, (ii) at the close of business on the last business day of each calendar quarter, or
(iii) at other times as determined by the Manager (including those described below under
Conversions between Classes) (each, a Determination Date). When purchasing shares of the Fund,
investors should consult with the Manager to determine the applicable Determination Date and the
share class for which they are eligible.
Upon request GMO may permit a client to undertake in writing to meet the applicable Total Fund
Investment or Total GMO Investment minimums over a specified period (a Commitment Letter).
You should note:
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No minimum additional investment is required to purchase additional shares of
the Fund for any class of shares. |
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GMO makes all determinations as to the aggregation of client accounts for
purposes of determining eligibility. See the SAI for a discussion of factors GMO
considers relevant when making those determinations. |
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Eligibility requirements for each class of shares are subject to change. |
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The Trust may waive eligibility requirements for certain persons, accounts or
special situations. As of the date of this Prospectus, these waivers include the
waiver of eligibility requirements for (i) GMO Funds and other accounts over which GMO
has investment discretion that invest in other GMO Funds, (ii) GMO partners, employees
and their family members, and (iii) the Trustees of the Trust, each of which may invest
in the least expensive class of those GMO Funds offered at the time of investment
without regard to the amount invested. |
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Investments through an intermediary generally are invested in Class III Shares. |
Conversions between Classes
In determining whether a client is eligible to purchase Fund shares, GMO considers each
clients Total Fund Investment and Total GMO Investment on each Determination Date. Based on this
determination, and subject to the following, each clients shares of the Fund eligible for
conversion will be converted to the class of shares of the Fund with the lowest shareholder service
fee for which the client satisfies all minimum investment requirements (or, to the extent the
client already holds shares of that class, the client will remain in that class). Except as noted
below, with respect to the Fund:
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To the extent a client satisfies all minimum investment requirements for a
class of shares then being offered that bears a lower shareholder service fee than the
class held by the client on the Determination Date (generally at the close of business
on the last business day of each calendar quarter), the clients shares eligible for
conversion generally will be automatically converted to that class within 45 calendar
days following the Determination Date on a date selected by the Manager. |
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If a client no longer satisfies all minimum investment requirements for the
class of shares of the Fund held by the client on the last Determination Date of a
calendar year (generally at the close of business on the last business day of the
calendar year), the Fund generally will convert the clients shares to the class it is
then offering bearing the lowest shareholder service fee for which the client satisfies
all minimum investment requirements (and which class will typically bear a higher
shareholder service fee than the class then held by the client). If a client no longer
satisfies all minimum investment requirements for any class of the Fund as of the last
Determination Date of a calendar year, the Fund will convert the clients shares to the
class of the Fund then being offered bearing the highest shareholder service fee.
Notwithstanding the foregoing, a clients shares will not be converted to a class of
shares bearing a higher shareholder service fee without at least 15 calendar days
prior notice, and if the client makes an additional investment and/or the value of the
clients shares otherwise increases prior to the end of the notice period so as to
satisfy all minimum investment requirements for the clients current class of shares,
the client will remain in the class of shares then held by the client. Solely for the
purpose of determining whether a client has satisfied the minimum investment
requirements for the clients current class of shares, the value of the clients shares
is considered to be the greater of (i) the value of the clients shares on the relevant
Determination Date or (ii) the value of the clients shares on the date that GMO
reassesses the value of the clients account for the purpose of sending notice of a
proposed conversion. If the client is not able to make an additional investment in the
Fund solely because the Fund is closed to new investment or is capacity constrained,
the class of shares then held by the client will not be converted unless the Manager
approves reopening the Fund to permit the client to make an additional investment. The
conversion of a clients shares to a class of shares bearing a higher shareholder
service fee generally will occur within 60 calendar days following the last
Determination Date of a calendar year or, in the case of |
-30-
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conversion due to an abusive pattern of investments and/or redemptions, on any other
date the Manager determines. |
The Fund may at any time without notice convert a clients shares to the class it is then
offering bearing the lowest shareholder service fee for which the client satisfied all minimum
investment requirements (or, if the Fund has no such class, the class of that Fund bearing the
highest shareholder service fee) if the client no longer satisfies all minimum investment
requirements for the class of shares held by the client and: (i) the Manager believes the client
has engaged in an abusive pattern of investments and/or redemptions (e.g., a large investment just
before a Determination Date and a redemption right after the Determination Date), (ii) the client
fails to meet the applicable Total Fund Investment or Total GMO Investment minimums by the time
specified in the clients Commitment Letter, or (iii) the total expense ratio borne by the client
immediately following the conversion is equal to or less than the total expense ratio borne by the
client immediately prior to such conversion (after giving effect to any applicable fee and expense
waivers or reimbursements).
The Fund has been advised by counsel that, for tax purposes, the conversion of a clients
investment from one class of shares of the Fund to another class of shares of the Fund should not
result in the recognition of gain or loss in the shares that are converted. The clients tax basis
in the new class of shares immediately after the conversion should equal the clients 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.
DISTRIBUTIONS AND TAXES
The Funds policy is to declare and pay distributions of its net investment income, if any,
semi-annually. The Fund also intends to distribute net realized capital gains, whether from the
sale of securities held by the Fund for not more than one year (net short-term capital gains) or
from the sale of securities held by the Fund for more than one year (net long-term capital gains),
if any, at least annually. In addition, the Fund may, from time to time and at its discretion,
make unscheduled distributions in advance of large redemptions by shareholders or as otherwise
deemed appropriate by the Fund. From time to time, distributions by the Fund could constitute, for
U.S. federal income tax purposes, a return of capital to shareholders. Shareholders should read
the description below for information regarding the tax character of distributions from the Fund to
shareholders.
Typically, all dividends and/or distributions are reinvested in additional shares of the Fund,
at net asset value, unless a shareholder elects to receive cash. Shareholders may elect to receive
cash by marking the appropriate boxes on the GMO Trust Application, by writing to the Trust, or by
notifying their broker or agent. No purchase premium is charged on reinvested dividends or
distributions.
It is important for you to note:
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The Fund is treated as a separate taxable entity for U.S. federal income tax
purposes and intends to qualify each year as a regulated investment company (RIC)
under Subchapter M of the Internal Revenue Code of 1986, as amended. |
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For U.S. federal income tax purposes, distributions of investment income are
generally taxable to shareholders as ordinary income. |
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For U.S. federal income tax purposes, taxes on distributions of net realized capital
gains generally are determined by how long the Fund owned the investments that
generated them, rather than by how long a shareholder has owned shares in the Fund.
Distributions of net |
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realized capital gains from the sale of investments that the Fund owned for more than
one year and that are reported by the Fund as capital gain dividends generally are
taxable to shareholders as long-term capital gains. Distributions of net realized
capital gains from the sale of investments that the Fund owned for one year or less
generally are taxable to shareholders as ordinary income. |
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The Fund may make total distributions during a taxable year in an amount that
exceeds the Funds net investment income and net realized capital gains for that year,
in which case the excess generally would be treated as a return of capital, which would
reduce a shareholders tax basis in its shares, with any amounts exceeding such basis
treated as capital gain. A return of capital is not taxable to shareholders to the
extent such amount does not exceed a shareholders tax basis, but it reduces a
shareholders tax basis in its shares, thus reducing any loss or increasing any gain on
a subsequent taxable disposition by the shareholder of its shares. |
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The Fund will carry any net realized capital losses (i.e., realized capital losses
in excess of realized capital gains) from any taxable year forward to one or more
subsequent taxable years to offset capital gains, if any, realized during such
subsequent years without expiration until such losses are fully utilized. The Funds
ability to utilize these and certain other losses to reduce distributable net realized
capital gains in succeeding taxable years may be limited by reason of direct or
indirect changes in the actual or constructive ownership of the Fund. See Taxes in
the SAI for more information. |
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For taxable years beginning before January 1, 2013, distributions of net investment
income properly reported by the Fund as derived from qualified dividend income will
be taxable to shareholders taxed as individuals at the rates applicable to long-term
capital gain, provided holding period and other requirements are met at both the
shareholder and Fund levels. Long-term capital gain rates applicable to most
individuals have been reduced to 15% (with a 0% rate applying to taxpayers in the 10%
and 15% rate brackets) for taxable years beginning before January 1, 2013. The
qualified dividend income provision and the reduction of long-term capital gain rates
for individuals will expire for taxable years beginning on or after January 1, 2013,
unless Congress enacts legislation providing otherwise. |
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Distributions by the Fund generally are taxable to a shareholder even if they are
paid from income or gains earned by the Fund before that shareholder invested in the
Fund (and accordingly the income or gains were included in the price the shareholder
paid for the Funds shares). Distributions are taxable whether shareholders receive
them in cash or reinvest them in additional shares. |
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Distributions by the Fund to retirement plans that qualify for tax-exempt treatment
under U.S. federal income tax laws generally will not be taxable. Special tax rules
apply to investments through such plans. You should consult your tax advisor to
determine the suitability of the Fund as an investment through such a plan and the tax
treatment of distributions from such a plan. |
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Any gain resulting from a shareholders sale, exchange, or redemption of Fund shares
generally will be taxable to the shareholder as short-term or long-term capital gain,
depending on how long the Fund shares were held by the shareholder. |
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The Funds investment in foreign securities may be subject to foreign withholding or
other taxes on dividends, interest, or capital gains. The Fund may otherwise be subject
to foreign taxation on repatriation proceeds generated from those securities or to
other transaction-based foreign taxes on those securities. Those withholding and other
taxes will reduce the Funds yield on foreign securities. The foreign withholding and
other tax rates applicable to the Funds investments in certain foreign jurisdictions
may be higher if the Fund has a significant number of non-U.S. shareholders than if it
has fewer non-U.S. shareholders. In certain instances, shareholders may be entitled to
claim a credit or deduction (but not both) for foreign taxes paid by the Fund. In
addition, the Funds investments in certain foreign securities, foreign currencies, or
foreign currency derivatives may accelerate Fund distributions to shareholders and
increase the distributions taxed to shareholders as ordinary income. See Taxes in the
SAI for more information. |
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Under the GMO Funds securities lending arrangements, when a dividend is paid to a
fund security out on loan, the borrower is required to pay to that fund a substitute
payment at least equal, on an after-tax basis, to the dividend that the fund would have
received if it had received the dividend directly. Because some borrowers of foreign
securities may be subject to levels of taxation that are lower than the rates
applicable to that fund, some borrowers are likely to be motivated by the ability to
earn a profit on those differential tax rates and to pay that fund for the opportunity
to earn that profit. In the United States, certain swaps and securities lending
transactions designed to enable non-U.S. persons to reduce otherwise applicable U.S.
withholding taxes on U.S. stock dividends have received the attention of U.S.
lawmakers. In response, Congress enacted legislation in March 2010 to limit these
practices. There can be no assurance that similar legislation will not be adopted in
other jurisdictions with respect to foreign securities or that foreign taxing
authorities will not otherwise challenge beneficial tax results arising from swap or
securities lending arrangements. |
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Certain of the Funds investment practices, including derivative transactions,
hedging activities generally, and securities lending activities (if any), as well as
certain of the Funds investments, including those marked to the market for U.S.
federal income tax purposes, will be subject to special and complex U.S. federal income
tax provisions. These special rules may affect the timing, character, and/or amount of
the Funds distributions and, in some cases, may cause the Fund to liquidate
investments at a time when it is not advantageous to do so. See Taxes in the SAI for
more information about the tax consequences of the Funds specific investment practices
and investments. |
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To the extent the Fund invests in GMO U.S. Treasury Fund or other GMO Funds or
investment companies treated as RICs or partnerships for U.S. federal income tax
purposes, the Funds distributions could vary in terms of their timing, character,
and/or amount from what the Funds distributions would have been had the Fund invested
directly in the portfolio securities and other assets held by the underlying investment
companies. See Taxes in the SAI for more information. |
This section provides a general summary of the principal U.S. federal income tax consequences
of investing in the Fund for shareholders who are U.S. citizens, residents, or domestic
corporations. You should consult your own tax advisors about the precise tax consequences of an
investment in the Fund in light of your particular tax situation, including possible foreign,
state, local, or other applicable taxes (including the federal alternative minimum tax). Most
states permit mutual funds, such as the Fund, to pass through to their shareholders the state tax
exemption on income earned from investments in certain direct U.S. Treasury obligations, as well as
some limited types of U.S. government agency securities, so
-33-
long as a fund meets all applicable state requirements. Therefore, you may be allowed to
exclude from your state taxable income distributions made to you by the Fund (if any), to the
extent attributable to interest the Fund directly or indirectly earned on such investments. The
availability of these exemptions varies by state. You should consult your tax advisors regarding
the applicability of any such exemption to your situation.
See Taxes in the SAI for more information, including a summary of certain tax consequences
of investing in the Fund for non-U.S. shareholders.
-34-
INVESTMENT IN OTHER GMO FUNDS
GMO U.S. Treasury Fund. U.S. Treasury Fund, a series of the Trust, is offered through a
separate prospectus. U.S. Treasury Fund is managed by GMO.
U.S. Treasury Fund pays an investment management fee to the Manager at the annual rate of
0.08% of U.S. Treasury Funds average daily net assets. Subject to Excluded Fees and Expenses, the
Manager has contractually agreed to reimburse U.S. Treasury Fund to the extent U.S. Treasury Funds
total annual operating expenses exceed 0.08% of U.S. Treasury Funds average daily net assets. This
contractual expense limitation will continue through at least June 30, 2012, and may not be
terminated prior to this date without the consent of U.S. Treasury Funds Board of Trustees. In
addition to this contractual expense limitation, the Manager has voluntarily agreed to waive U.S.
Treasury Funds management fee and to reimburse U.S. Treasury Fund to the extent U.S. Treasury
Funds total annual operating expenses exceed 0.00% of U.S. Treasury Funds average daily net
assets (excluding Excluded Fees and Expenses). The Manager may change or terminate these voluntary
waivers and reimbursements at any time. During any period for which these voluntary waivers and
reimbursements are in effect, U.S. Treasury Fund will incur management fees at an annual rate lower
than 0.08% of U.S. Treasury Funds average daily net assets, and, as a result, net annual operating
expenses for U.S. Treasury Fund will be lower. For these purposes, Excluded Fees and Expenses
means expenses incurred indirectly by investment in other GMO Funds, fees and expenses of the
independent Trustees of the Trust and their independent counsel, fees and expenses for legal
services the Manager for the Trust has not undertaken to pay, compensation and expenses of Trust
Officers and agents who are not affiliated with GMO, brokerage commissions, securities lending fees
and expenses, interest expense, transfer taxes, and other investment-related costs (including
expenses associated with investments in any company that is an investment company (including an
exchange-traded fund) or would be an investment company under the 1940 Act, but for the exceptions
to the definition of investment company provided in Sections 3(c)(1) and 3(c)(7) of the 1940 Act),
hedging transaction fees, extraordinary, non-recurring and certain other unusual expenses
(including taxes).
U.S. Treasury Funds investment objective is liquidity and safety of principal with current
income as a secondary objective.
Under normal circumstances, U.S. Treasury Fund invests at least 80% of its net assets, plus
the amount of any borrowings for investment purposes, in Direct U.S. Treasury Obligations and
repurchase agreements collateralized by these Obligations. Direct U.S. Treasury Obligations
include U.S. Treasury bills, bonds and notes and other securities issued by the U.S. Treasury, as
well as Separately Traded Registered Interest and Principal Securities (STRIPS) and other
zero-coupon securities. The Manager normally seeks to maintain an interest rate duration of one
year or less for U.S. Treasury Funds portfolio.
U.S. Treasury Fund also may enter into repurchase agreements, under which U.S. Treasury Fund
purchases a security backed by the full faith and credit of the U.S. government from a seller who
simultaneously commits to repurchase, on an agreed upon date in the future, the security from U.S.
Treasury Fund at the original purchase price plus an agreed upon amount representing the original
purchase price plus interest. The counterparties in repurchase agreements are typically
broker-dealers and banks, and the safety of the arrangement is dependent on, among other things,
U.S. Treasury Funds having an interest in the security that can be realized in the event of the
insolvency of the counterparty.
In addition to Direct U.S. Treasury Obligations, U.S. Treasury Fund may invest in other
fixed-income securities that are backed by the full faith and credit of the U.S. government, such
as guaranteed securities issued by the Government National Mortgage Association (GNMA) and the
Federal Deposit
-35-
Insurance Corporation (FDIC). For cash management purposes, U.S. Treasury Fund also may invest
in unaffiliated money market funds.
Although the fixed-income securities purchased by U.S. Treasury Fund normally will have a
stated or remaining maturity of one year or less, Direct U.S. Treasury Obligations purchased
pursuant to repurchase agreements may not, and, therefore, if the counterparty to the repurchase
agreement defaults, U.S. Treasury Fund may end up owning a security with a stated or remaining
maturity of more than one year.
U.S. Treasury Fund is not a money market fund and is not subject to the duration, quality,
diversification and other requirements applicable to money market funds.
In selecting U.S. Treasury securities for U.S. Treasury Funds portfolio, the Manager focuses
primarily on the relative attractiveness of different obligations (such as bonds, notes or bills),
which can vary depending on the general level of interest rates as well as supply/demand imbalances
and other market conditions.
Other GMO Funds may invest in U.S. Treasury Fund for cash management purposes.
U.S. Treasury Funds benchmark is the Citigroup 3-Month Treasury Bill Index, an independently
maintained and widely published index comprised of short-term U.S. Treasury bills.
To the extent the Fund invests in U.S. Treasury Fund, it is subject to all of the risks to
which U.S. Treasury Fund is exposed. The principal risks of an investment in U.S. Treasury Fund
include Market Risk Fixed Income Securities, Credit Risk, Focused Investment Risk, Large
Shareholder Risk, Management and Operational Risk and Market Disruption and Geopolitical Risk.
Shareholders of the Fund are indirectly exposed to these risks, in addition to all risks associated
with their investment in the Fund.
FUND CODES
The following chart identifies the ticker, news-media symbol, and CUSIP number for each share class
of the Fund currently being offered (if any).
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Ticker |
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Symbol |
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CUSIP |
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Class III |
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Class IV |
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GMO TRUST
ADDITIONAL INFORMATION
The Funds annual and semiannual reports to shareholders (when available) will contain
additional information about the Funds investments. The Funds annual report (when available)
will contain a discussion of the market conditions and investment strategies that significantly
affected the Funds performance during its initial fiscal year. The Funds annual and semiannual
reports (when available) will be, and the Funds SAI is, available free of charge by writing to
Shareholder Services at GMO, 40 Rowes Wharf, Boston, Massachusetts 02110 or by calling collect at
1-617-346-7646. The SAI contains more detailed information about the Fund and is incorporated by
reference into this Prospectus, which means that it is legally considered to be part of this
Prospectus.
You can review and copy the Prospectus, SAI, and reports (when available) at the SECs Public
Reference Room in Washington, D.C. Information regarding the operation of the Public Reference
Room may be obtained by calling the SEC at 1-202-551-8090. Reports and other information about the
Fund are available on the EDGAR database on the SECs Internet site at http://www.sec.gov. Copies
of this information may be obtained, upon payment of a duplicating fee, by electronic request at
the following e-mail address: publicinfo@sec.gov, or by writing the Public Reference Section of the
SEC, Washington, D.C. 20549-1520.
Shareholders who wish to communicate with the Trustees must do so by mailing a written
communication, addressed as follows: To the Attention of the Board of Trustees, c/o GMO Trust Chief
Compliance Officer, 40 Rowes Wharf, Boston, MA 02110. The shareholder communication must (i) be in
writing and be signed by the shareholder, (ii) identify the Fund, and (iii) identify the class and
number of shares held beneficially or of record by the shareholder.
SHAREHOLDER INQUIRIES
Shareholders may request additional
information from and direct inquiries to:
Shareholder Services at
Grantham, Mayo, Van Otterloo & Co. LLC
40 Rowes Wharf, Boston, MA 02110
1-617-346-7646 (call collect)
1-617-439-4192 (fax)
SHS@GMO.com
website: http://www.gmo.com
DISTRIBUTOR
Funds Distributor, LLC
10 High Street
Suite 302
Boston, Massachusetts 02110
Investment Company Act File No. 811-04347
GMO TRUST
STATEMENT OF ADDITIONAL INFORMATION
June 30, 2011, as revised September 13, 2011
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U.S. Equity Funds |
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International Equity Funds |
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International Equity Funds |
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Fixed Income Funds |
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(continued) |
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(continued) |
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(continued) |
U.S. Core Equity Fund |
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International Large/Mid Cap Value |
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Taiwan Fund |
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Inflation Indexed |
Class III: GMUEX |
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Fund |
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Class III: GMOTX |
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Plus Bond Fund |
Class IV: GMRTX |
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Class III: |
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Flexible Equities Fund |
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Class III: GMITX |
Class V: |
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Class IV: |
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Class III: GFEFX |
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Class VI: GMIPX |
Class VI: GMCQX |
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Class V: |
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Class VI: GFFEX |
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U.S. Treasury Fund |
Tobacco-Free Core Fund |
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Class VI: |
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Global Focused Equity Fund |
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Ticker: GUSTX |
Class III: GMTCX |
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International Growth Equity Fund |
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Class III: |
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Asset Allocation Bond |
Quality Fund* |
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Class III: GMIGX |
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Class IV: |
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Fund |
Class III: GQETX |
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Class IV: GMGFX |
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Currency Hedged International |
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Class III: GMOBX |
Class IV: GQEFX |
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Developed World Stock Fund |
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Equity Fund |
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Class VI: GABFX |
Class V: GQLFX |
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Class III: GDWTX |
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Class III: GMOCX |
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Asset Allocation |
Class VI: GQLOX |
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Class IV: GDWFX |
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Fixed Income Funds |
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International Bond |
U.S. Intrinsic Value Fund |
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International Small Companies Fund |
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Domestic Bond Fund |
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Fund |
Class III: GMVUX |
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Class III: GMISX |
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Class III: GMDBX |
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Class III: |
U.S. Growth Fund |
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Asset Allocation International |
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Class VI: GDBSX |
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Class VI: |
Class III: GMGWX |
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Small Companies Fund |
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Core Plus Bond Fund |
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Asset Allocation Funds |
U.S. Small/Mid Cap Value Fund |
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Class III: |
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Class III: GUGAX |
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U.S. Equity |
Class III: GMSUX |
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Tax-Managed International |
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Class IV: GPBFX |
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Allocation Fund |
U.S. Small/Mid Cap Growth Fund |
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Equities Fund |
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International Bond Fund |
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Class III: GUSAX |
Class III: GMSPX |
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Class III: GTMIX |
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Class III: GMIBX |
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International Equity |
Real Estate Fund |
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Foreign Fund |
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Strategic Fixed Income Fund |
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Allocation Fund |
Class III: GMORX |
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Class II: GMFRX |
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Class III: GFITX |
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Class III: GIEAX |
Tax-Managed U.S. Equities Fund |
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Class III: GMOFX |
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Class VI: GMFIX |
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International |
Class III: GTMUX |
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Class IV: GMFFX |
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Currency Hedged International |
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Opportunities Equity |
International Equity Funds |
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Foreign Small Companies Fund |
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Bond Fund |
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Allocation Fund |
International Core Equity Fund |
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Class III: GMFSX |
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Class III: GMHBX |
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Class III: GIOTX |
Class III: GMIEX |
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Class IV: GFSFX |
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Global Bond Fund |
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Global Equity |
Class IV: GMIRX |
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Emerging Markets Fund |
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Class III: GMGBX |
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Allocation Fund |
Class VI: GCEFX |
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Class II: GMEMX |
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Emerging Country Debt Fund |
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Class III: GMGEX |
International Intrinsic Value |
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Class III: GMOEX |
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Class III: GMCDX |
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World Opportunities |
Fund |
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Class IV: GMEFX |
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Class IV: GMDFX |
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Equity Allocation |
Class II: GMICX |
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Class V: GEMVX |
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Short-Duration Investment Fund |
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Fund |
Class III: GMOIX |
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Class VI: GEMMX |
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Class III: GMSIX |
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Class III: GWOAX |
Class IV: GMCFX |
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Emerging Countries Fund |
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Short-Duration Collateral Fund |
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Global Balanced Asset |
International Intrinsic Value |
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Class III: GMCEX |
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Ticker: GMOSX |
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Allocation Fund |
Extended Markets Fund |
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Emerging Domestic Opportunities |
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Short-Duration Collateral |
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Class III: GMWAX |
Class II: |
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Fund |
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Share Fund |
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Strategic |
Class III: |
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Class II: GEDTX |
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Class III: GMDCX |
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Opportunities |
Class IV: |
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Class III: |
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Class VI: |
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Allocation Fund |
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Class IV: |
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Class III: GBATX |
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Class V: GEDOX |
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Benchmark-Free |
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Class VI: |
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Allocation Fund |
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Class III: GBMFX |
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Alpha Only Fund |
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Class III: GGHEX |
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Class IV: GAPOX |
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* |
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Although Quality Fund is categorized as a U.S. Equity Fund, the Fund also invests in non-U.S.
equities. |
This Statement of Additional Information is not a prospectus. It relates to the GMO Trust
Prospectus for each series of GMO Trust (the Trust) set forth above (other than International
Intrinsic Value Extended Markets Fund and Global Focused Equity Fund) dated June 30, 2011, as
amended and revised from time to time thereafter (the MultiFund Prospectus), the GMO Trust
Prospectus for International Intrinsic Value Extended Markets Fund (the International Intrinsic
Value Extended Markets Fund Prospectus) dated September 13, 2011, as amended from time to time
thereafter and the GMO Trust Prospectus for Global Focused Equity Fund (the Global Focused Equity
Fund Prospectus and, together with the International Intrinsic Value Extended Markets Fund
Prospectus and the MultiFund Prospectus, each a Prospectus, and collectively, the Prospectuses)
dated September 13, 2011, as amended from time to time thereafter and should be read in conjunction
therewith. Information from the Prospectuses relating to the series of GMO Trust set forth above
(each a Fund, and collectively, the Funds, and together with other series of the Trust not
offered in the Prospectuses, each a GMO Fund, and collectively, the GMO Funds) and the annual
report to shareholders of each Fund is (or, in the case of each of International Large/Mid Cap
Value Fund, Asset Allocation International Small Companies Fund, Emerging Domestic Opportunities
Fund, Asset Allocation International Bond Fund, International Intrinsic Value Extended Markets Fund
and Global Focused Equity Fund, will be, when available), incorporated by reference into this
Statement of Additional Information. The Prospectus and the annual report to shareholders of each
Fund may be obtained (in the case of each of International Large/Mid Cap Value Fund, Asset
Allocation International Small Companies Fund, Emerging Domestic Opportunities Fund and Asset
Allocation International Bond Fund, International Intrinsic Value Extended Markets Fund and Global
Focused Equity Fund, when available) free of charge from GMO Trust, 40 Rowes Wharf, Boston,
Massachusetts 02110, or by calling the Trust collect at 1-617-346-7646.
Table of Contents
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60 |
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A-1 |
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B-1 |
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C-1 |
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-i-
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and principal strategies of, and risks of investing in, each Fund are
described in each Funds Prospectus. Unless otherwise indicated in the Prospectuses or this
Statement of Additional Information, the investment objective and policies of the Funds may be
changed without shareholder approval.
FUND INVESTMENTS
The charts on the following pages indicate the types of investments that each Fund is generally
permitted (but not required) to make. A Fund may, however, make other types of investments,
provided the investments are consistent with the Funds investment objective and policies and the
Funds investment restrictions do not expressly prohibit it from so doing.
Investors should note that, when used in this Statement of Additional Information, the term
invest includes both direct investing and indirect investing and the term investments includes
both direct investments and indirect investments. For instance, a Fund may invest indirectly or
make indirect investments by investing in another investment company or in derivatives and
synthetic instruments with economic characteristics similar to the underlying asset. Accordingly,
the following charts indicate the types of investments that a Fund is directly or indirectly
permitted to make.
1
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U.S. |
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U.S. |
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Small/ |
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Small/ |
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Tax- |
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U.S. |
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Tobacco- |
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U.S. |
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Mid |
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Mid |
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Managed |
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Core |
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Free |
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Intrinsic |
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U.S. |
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Cap |
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Cap |
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Real |
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U.S. |
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Equity |
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Core |
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Quality |
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Value |
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Growth |
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Value |
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Growth |
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Estate |
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Equities |
U.S. Equity Funds |
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Fund |
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Fund |
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Fund |
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Fund |
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Fund |
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Fund |
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Fund |
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Fund |
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Fund |
U.S. Equity Securities1 |
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X |
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X |
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X |
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Foreign InvestmentsForeign Issuers2 |
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X |
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X |
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X |
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X |
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X |
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X |
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Foreign InvestmentsForeign Issuers (Traded on U.S. Exchanges)2 |
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X |
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X |
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X |
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X |
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X |
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X |
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Foreign InvestmentsEmerging Countries2 |
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X |
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Securities Lending |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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Depositary Receipts |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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Convertible Securities |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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Preferred Stocks |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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Warrants and Rights |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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Non-Standard Warrants (LEPOs and P-Notes) |
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Options and Futures |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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Swap Contracts and Other Two-Party Contracts |
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X |
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X |
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X |
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X |
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X |
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X |
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Foreign Currency Transactions |
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X |
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X |
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X |
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X |
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X |
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Repurchase Agreements |
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X |
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X |
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X |
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X |
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X |
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Debt and Other Fixed Income Securities |
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X |
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X |
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Debt and Other Fixed Income SecuritiesLong and Medium Term Corporate & Government Bonds3 |
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X |
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X |
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Debt and Other Fixed Income SecuritiesShort-Term Corporate & Government Bonds3 |
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X |
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Debt and Other Fixed Income SecuritiesMunicipal Securities4 |
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Cash and Other High Quality Investments |
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X |
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X |
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X |
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X |
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X |
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U.S. Government Securities and Foreign Government Securities |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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Auction Rate Securities |
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Real Estate Investment Trusts and other Real Estate-Related Investments |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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X |
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Asset-Backed and Related Securities |
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Adjustable Rate Securities |
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Below Investment Grade Securities |
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Distressed or Defaulted Instruments |
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Merger Arbitrage Transactions |
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Brady Bonds |
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Euro Bonds |
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Zero Coupon Securities |
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Indexed Investments |
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Structured Notes |
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Firm Commitments and When-Issued Securities |
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Loans, Loan Participations, and Assignments |
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Reverse Repurchase Agreements and Dollar Roll Agreements |
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X |
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X |
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X |
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X |
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X |
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Commodity-Related Investments (through GMO Alternative Asset Opportunity Fund5) |
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|
|
|
|
|
|
|
Illiquid Securities, Private Placements, Restricted Securities, and IPOs and Other Limited Opportunities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Investments in Other Investment Companies or Other Pooled Investments |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Investments in Other Investment CompaniesShares of Other GMO Trust Funds |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic |
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation |
|
Tax- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
International |
|
|
|
|
|
Value |
|
Large/Mid |
|
International |
|
Developed |
|
International |
|
International |
|
Managed |
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
Emerging |
|
|
|
|
|
|
|
|
|
Global |
|
Hedged |
|
|
Core |
|
International |
|
Extended |
|
Cap |
|
Growth |
|
World |
|
Small |
|
Small |
|
International |
|
|
|
|
|
Small |
|
Emerging |
|
Emerging |
|
Domestic |
|
|
|
|
|
Flexible |
|
Focused |
|
International |
International Equity |
|
Equity |
|
Intrinsic Value |
|
Markets |
|
Value |
|
Equity |
|
Stock |
|
Companies |
|
Companies |
|
Equities |
|
Foreign |
|
Companies |
|
Markets |
|
Countries |
|
Opportunities |
|
Taiwan |
|
Equities |
|
Equity |
|
Equity |
Funds |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
U.S. Equity Securities1 |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Foreign InvestmentsForeign
Issuers2 |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Foreign InvestmentsForeign
Issuers (Traded on U.S.
Exchanges)2 |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Foreign InvestmentsEmerging
Countries 2 |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Securities Lending |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Depositary Receipts |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Convertible Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Preferred Stocks |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Warrants and Rights |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Non-Standard Warrants (LEPOs and
P-Notes) |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Options and Futures |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Swap Contracts and Other
Two-Party Contracts |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Foreign Currency Transactions |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Repurchase Agreements |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Debt and Other Fixed Income
Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Debt and Other Fixed Income
SecuritiesLong and Medium Term
Corporate & Government Bonds3 |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Debt and Other Fixed Income
SecuritiesShort-Term Corporate &
Government Bonds3 |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Debt and Other Fixed Income
SecuritiesMunicipal
Securities4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
X |
|
Cash and Other High Quality
Investments |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
U.S. Government Securities and
Foreign Government Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Auction Rate Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Investment Trusts and
other Real Estate-Related
Investments |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic |
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation |
|
Tax- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
International |
|
|
|
|
|
Value |
|
Large/Mid |
|
International |
|
Developed |
|
International |
|
International |
|
Managed |
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
Emerging |
|
|
|
|
|
|
|
|
|
Global |
|
Hedged |
|
|
Core |
|
International |
|
Extended |
|
Cap |
|
Growth |
|
World |
|
Small |
|
Small |
|
International |
|
|
|
|
|
Small |
|
Emerging |
|
Emerging |
|
Domestic |
|
|
|
|
|
Flexible |
|
Focused |
|
International |
International Equity |
|
Equity |
|
Intrinsic Value |
|
Markets |
|
Value |
|
Equity |
|
Stock |
|
Companies |
|
Companies |
|
Equities |
|
Foreign |
|
Companies |
|
Markets |
|
Countries |
|
Opportunities |
|
Taiwan |
|
Equities |
|
Equity |
|
Equity |
Funds |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
Asset-Backed and Related
Securities |
|
|
|
|
|
|
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|
Adjustable Rate Securities |
|
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|
Below Investment Grade Securities |
|
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|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Distressed or Defaulted
Instruments |
|
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|
Merger Arbitrage Transactions |
|
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|
X |
|
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|
X |
|
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|
X |
|
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|
X |
|
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|
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|
Brady Bonds |
|
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Euro Bonds |
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|
Zero Coupon Securities |
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|
Indexed Investments |
|
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|
|
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|
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Structured Notes |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Firm Commitments and When-Issued
Securities |
|
|
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|
|
|
|
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|
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|
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|
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|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Loans, Loan Participations, and
Assignments |
|
|
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|
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|
|
|
Reverse Repurchase Agreements and
Dollar Roll Agreements |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Commodity-Related Investments
(through GMO Alternative Asset
Opportunity Fund5) |
|
|
|
|
|
|
|
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|
|
|
Illiquid Securities, Private
Placements, Restricted
Securities, and IPOs and Other
Limited Opportunities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Investments in Other Investment
Companies or Other Pooled
Investments |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Investments in Other Investment
CompaniesShares of Other GMO
Trust Funds |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
4
|
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|
Currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short- |
|
Inflation |
|
|
|
|
|
|
|
|
|
Asset |
|
|
|
|
|
|
Core |
|
|
|
|
|
Strategic |
|
Hedged |
|
|
|
|
|
Emerging |
|
Short- |
|
Short- |
|
Duration |
|
Indexed |
|
|
|
|
|
Asset |
|
Allocation |
|
|
Domestic |
|
Plus |
|
International |
|
Fixed |
|
International |
|
Global |
|
Country |
|
Duration |
|
Duration |
|
Collateral |
|
Plus |
|
U.S. |
|
Allocation |
|
International |
|
|
Bond |
|
Bond |
|
Bond |
|
Income |
|
Bond |
|
Bond |
|
Debt |
|
Investment |
|
Collateral |
|
Share |
|
Bond |
|
Treasury |
|
Bond |
|
Bond |
Fixed Income Funds |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
U.S. Equity Securities1 |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Foreign InvestmentsForeign Issuers2 |
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Foreign InvestmentsForeign Issuers (Traded on U.S. Exchanges)2 |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Foreign InvestmentsEmerging Countries2 |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Securities Lending |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Depositary Receipts |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Convertible Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Preferred Stocks |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Warrants and Rights |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Non-Standard Warrants (LEPOs and P-Notes) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and Futures |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Swap Contracts and Other Two-Party Contracts |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Foreign Currency Transactions |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Repurchase Agreements |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Debt and Other Fixed Income Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Debt and Other Fixed Income SecuritiesLong and Medium Term Corporate & Government Bonds3 |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Debt and Other Fixed Income SecuritiesShort-Term Corporate & Government Bonds3 |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Debt and Other Fixed Income SecuritiesMunicipal Securities4 |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Cash and Other High Quality Investments |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
U.S. Government Securities and Foreign Government Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
6 |
|
|
X |
|
|
|
X |
|
Auction Rate Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Real Estate Investment Trusts and other Real Estate-Related Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed and Related Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Adjustable Rate Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Below Investment Grade Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Distressed or Defaulted Instruments |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Merger Arbitrage Transactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brady Bonds |
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Euro Bonds |
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Zero Coupon Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Indexed Investments |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Structured Notes |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Firm Commitments and When-Issued Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Loans, Loan Participations, and Assignments |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Reverse Repurchase Agreements and Dollar Roll Agreements |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Commodity-Related Investments (through GMO Alternative Asset Opportunity Fund5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Illiquid Securities, Private Placements, Restricted Securities, and IPOs and Other Limited Opportunities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
7 |
|
|
X |
|
|
|
X |
|
Investments in Other Investment Companies or Other Pooled Investments |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Investments in Other Investment CompaniesShares of Other GMO Trust Funds |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
World |
|
Global |
|
|
|
|
|
|
|
|
U.S. |
|
International |
|
Opportunities |
|
Global |
|
Opportunities |
|
Balanced |
|
Strategic |
|
Benchmark- |
|
|
|
|
Equity |
|
Equity |
|
Equity |
|
Equity |
|
Equity |
|
Asset |
|
Opportunities |
|
Free |
|
Alpha |
|
|
Allocation |
|
Allocation |
|
Allocation |
|
Allocation |
|
Allocation |
|
Allocation |
|
Allocation |
|
Allocation |
|
Only |
Asset Allocation Funds |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
U.S. Equity Securities1 |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Foreign InvestmentsForeign Issuers2 |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Foreign InvestmentsForeign Issuers (Traded on U.S. Exchanges)2 |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Foreign InvestmentsEmerging Countries2 |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Securities Lending |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Depositary Receipts |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Convertible Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Preferred Stocks |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Warrants and Rights |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Non-Standard Warrants (LEPOs and P-Notes) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
Options and Futures |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Swap Contracts and Other Two-Party Contracts |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Foreign Currency Transactions |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Repurchase Agreements |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Debt and Other Fixed Income Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Debt and Other Fixed Income SecuritiesLong and Medium Term Corporate & Government Bonds3 |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Debt and Other Fixed Income SecuritiesShort-Term Corporate & Government Bonds3 |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Debt and Other Fixed Income SecuritiesMunicipal Securities4 |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Cash and Other High Quality Investments |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
U.S. Government Securities and Foreign Government Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Auction Rate Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Real Estate Investment Trusts and other Real Estate-Related Investments |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Asset-Backed and Related Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Adjustable Rate Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Below Investment Grade Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Distressed or Defaulted Instruments |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Merger Arbitrage Transactions |
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Brady Bonds |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Euro Bonds |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Zero Coupon Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Indexed Investments |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Structured Notes |
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Firm Commitments and When-Issued Securities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Loans, Loan Participations, and Assignments |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Reverse Repurchase Agreements and Dollar Roll Agreements |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Commodity-Related Investments (through GMO Alternative Asset Opportunity Fund5) |
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
World |
|
Global |
|
|
|
|
|
|
|
|
U.S. |
|
International |
|
Opportunities |
|
Global |
|
Opportunities |
|
Balanced |
|
Strategic |
|
Benchmark- |
|
|
|
|
Equity |
|
Equity |
|
Equity |
|
Equity |
|
Equity |
|
Asset |
|
Opportunities |
|
Free |
|
Alpha |
|
|
Allocation |
|
Allocation |
|
Allocation |
|
Allocation |
|
Allocation |
|
Allocation |
|
Allocation |
|
Allocation |
|
Only |
Asset Allocation Funds |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
|
Fund |
Illiquid Securities, Private Placements, Restricted Securities, and IPOs and Other Limited Opportunities |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Investments in Other Investment Companies or Other Pooled Investments |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Investments in Other Investment CompaniesShares of Other GMO Trust Funds |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
Footnotes to Fund Investments Charts |
|
1 |
|
For more information, see, among other sections, Description of Principal
RisksMarket RiskEquity Securities Risk in each Prospectus. |
|
2 |
|
For more information, see, among other sections, Description of Principal
RisksForeign Investment Risk in each Prospectus and Descriptions and Risks of Fund
InvestmentsRisks of Foreign Investments herein. |
|
3 |
|
For more information, see, among other sections, Descriptions and Risks of Fund
InvestmentsU.S. Government Securities and Foreign Government Securities herein. |
|
4 |
|
For more information, see, among other sections, Descriptions and Risks of Fund
InvestmentsMunicipal Securities herein. |
|
5 |
|
A series of the Trust offered through a separate private placement memorandum. |
|
6 |
|
U.S. Treasury Fund is not generally permitted to invest in Foreign Government
Securities. |
|
7 |
|
U.S. Treasury Fund is not generally permitted to invest in Private Placements,
Restricted Securities, and IPOs and Other Limited Opportunities. |
(Note: Some of the footnotes to the above charts refer investors to various risks
described in the Description of Principal Risks section of the Prospectuses for more information
relating to a particular type of investment listed in the charts. The presence of such a risk
cross reference for a particular Fund investment is not intended to indicate that such risk is a
principal risk of that Fund, and instead is intended to provide more information regarding the
risks associated with the particular investment. Please refer to the Fund Summary and
Description of Principal Risks sections of a Funds Prospectus for a description of the Funds
principal risks.)
7
DESCRIPTIONS AND RISKS OF FUND INVESTMENTS
The following is a description of investment practices in which the Funds may engage and the risks
associated with their use. The Asset Allocation Funds (as well as other Funds that invest in other
GMO Funds or other investment companies (underlying Funds), as noted in the Prospectuses or in
Fund Investments in this Statement of Additional Information) are indirectly exposed to the
investment practices of the underlying Funds in which they invest, and are therefore subject to all
risks associated with the practices of the underlying Funds. UNLESS OTHERWISE NOTED HEREIN,
THE INVESTMENT PRACTICES AND ASSOCIATED RISKS DETAILED BELOW ALSO INCLUDE THOSE TO WHICH A FUND
INDIRECTLY MAY BE EXPOSED THROUGH ITS INVESTMENT IN THE UNDERLYING FUNDS. ANY REFERENCES TO
INVESTMENTS MADE BY A FUND INCLUDE THOSE THAT MAY BE MADE BOTH DIRECTLY BY THE FUND AND INDIRECTLY
BY THE FUND (E.G., THROUGH ITS INVESTMENTS IN THE UNDERLYING FUNDS OR THROUGH ITS INVESTMENTS IN
DERIVATIVES OR SYNTHETIC INSTRUMENTS).
Not all Funds may engage in all practices described below. Please refer to each Funds Fund
Summary in the Funds Prospectus and Fund Investments in this Statement of Additional
Information for additional information regarding the practices in which a particular Fund may
engage.
Portfolio Turnover
Based on Grantham, Mayo, Van Otterloo & Co. LLCs (GMO or the Manager) assessment of market
conditions, the Manager may trade each Funds investments more frequently at some times than at
others, resulting in a higher portfolio turnover rate. Increased portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs, which will be borne
directly by a Fund, and which may adversely affect the Funds performance. It also may give rise
to additional taxable income for its shareholders, including through the realization of capital
gains or other types of income that are taxable to Fund shareholders when distributed by a Fund to
them, unless those shareholders are themselves exempt from taxation or otherwise investing in the
Fund through a tax-advantaged account. If portfolio turnover results in the recognition of
short-term capital gains, those gains, when distributed to shareholders, typically are taxed to
shareholders at ordinary income tax rates. The after-tax impact of portfolio turnover is not
considered when making investment decisions for a Fund, except for Tax-Managed U.S. Equities Fund
and Tax-Managed International Equities Fund (collectively, the Tax-Managed Funds). See
Distributions and Taxes in each Prospectus and Distributions and Taxes in this Statement of
Additional Information for more information.
Other than International Large/Mid Cap Value Fund, Asset Allocation International Small Companies
Fund, Emerging Domestic Opportunities Fund, Asset Allocation International Bond Fund, International
Intrinsic Value Extended Markets Fund and Global Focused Equity Fund, each of which did not
commence operations prior to the end of the most recent fiscal year, the historical portfolio
turnover rate for each Fund is shown under the heading Financial Highlights in the Funds
Prospectus. Changes in portfolio turnover rates for Currency Hedged International Equity Fund,
Asset Allocation Bond Fund, and Strategic Opportunities Allocation Fund were generally the result
of active trading strategies employed by such Funds portfolio
8
managers in response to market conditions, and not reflective of a material change in investment
strategy.
Diversified and Non-Diversified Portfolios
As set forth in Investment Restrictions below, Funds that are diversified funds are required to
satisfy the diversified fund requirements under the Investment Company Act of 1940, as amended (the
1940 Act). At least 75% of the value of a diversified funds total assets must be represented by
cash and cash items (including receivables), government securities, securities of other investment
companies, and other securities that for the purposes of this calculation are limited in respect of
any one issuer to not greater than 5% of the value of the funds total assets and not more than 10%
of the outstanding voting securities of any single issuer.
As stated in the Prospectuses, Funds that are non-diversified funds under the 1940 Act are not
required to satisfy the requirements for diversified funds. A non-diversified Fund is permitted
(but is not required) to invest a higher percentage of its assets in the securities of fewer
issuers. That concentration could increase the risk of loss to a Fund resulting from a decline in
the market value of particular portfolio securities. Investment in a non-diversified fund may
entail greater risks than investment in a diversified fund.
All Funds, whether diversified or non-diversified, must meet diversification standards to qualify
as a regulated investment company under the Internal Revenue Code of 1986, as amended (the
Code). See Taxes below for a description of these diversification standards.
Accelerated Transactions
For a Fund to take advantage of certain available investment opportunities, the Manager may need to
make investment decisions on an expedited basis. In such cases, the information available to the
Manager at the time of an investment decision may be limited. The Manager may not, therefore, have
access to the detailed information necessary for a full analysis and evaluation of the investment
opportunity.
Risks of Foreign Investments
General. Investment in foreign issuers or securities principally traded outside the United States
may involve special risks due to foreign economic, political, and legal developments, including
favorable or unfavorable changes in currency exchange rates, exchange control regulations
(including currency blockage), expropriation, nationalization or confiscatory taxation of assets,
and possible difficulty in obtaining and enforcing judgments against foreign entities. A Fund may
be subject to foreign taxation on realized capital gains, dividends or interest payable on foreign
securities, on transactions in those securities and on the repatriation of proceeds generated from
those securities. Transaction-based charges are generally calculated as a percentage of the
transaction amount and are paid upon the sale or transfer of portfolio securities subject to such
taxes. Any taxes or other charges paid or incurred by a Fund in respect of its foreign securities
will reduce its yield. See Taxes below for more information about these and other special tax
considerations applicable to investments in securities of foreign issuers and securities
principally traded outside the United States.
9
In addition, the tax laws of some foreign jurisdictions in which a Fund may invest are unclear and
interpretations of such laws can change over time. As a result, in order to comply with guidance
related to the accounting and disclosure of uncertain tax positions under U.S. generally accepted
accounting principles (GAAP), a Fund may be required to accrue for book purposes certain foreign
taxes in respect of its foreign securities or other foreign investments that it may or may not
ultimately pay. Such tax accruals will reduce a Funds net asset value at the time accrued, even
though, in some cases, the Fund ultimately will not pay the related tax liabilities. Conversely, a
Funds net asset value will be increased by any tax accruals that are ultimately reversed.
Issuers of foreign securities are subject to different, often less comprehensive, accounting,
custody, reporting, and disclosure requirements than U.S. issuers. The securities of some foreign
governments, companies, and securities markets are less liquid, and at times more volatile, than
comparable U.S. securities and securities markets. Foreign brokerage commissions and related fees
also are generally higher than in the United States. Funds that invest in foreign securities also
may be affected by different custody and/or settlement practices or delayed settlements in some
foreign markets. The laws of some foreign countries may limit a Funds ability to invest in
securities of certain issuers located in those countries. Foreign countries may have reporting
requirements with respect to the ownership of securities, and those reporting requirements may be
subject to interpretation or change without prior notice to investors. While the Funds make
reasonable efforts to stay informed of foreign reporting requirements relating to the Funds
foreign portfolio securities (e.g., through the Funds brokerage contacts, publications of the
Investment Company Institute, which is the national association of U.S. investment companies, the
Funds custodial network, and, to the extent deemed appropriate by the Funds under the
circumstances, local counsel in the relevant foreign country), no assurance can be given that the
Funds will satisfy applicable foreign reporting requirements at all times.
Emerging Countries. The risks described above apply to an even greater extent to investments in
emerging countries. Taiwan is considered by the Manager to be an emerging country. The securities
markets of emerging countries are generally smaller, less developed, less liquid, and more volatile
than the securities markets of the United States and developed foreign countries, and disclosure
and regulatory standards in many respects are less stringent. In addition, the securities markets
of emerging countries are typically subject to a lower level of monitoring and regulation.
Government enforcement of existing securities regulations is limited, and any such enforcement may
be arbitrary and the results may be difficult to predict. In addition, reporting requirements of
emerging countries with respect to the ownership of securities are more likely to be subject to
interpretation or changes without prior notice to investors than more developed countries.
Many emerging countries have experienced substantial, and in some periods extremely high, rates of
inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on such countries economies and securities markets.
Economies of emerging countries generally are heavily dependent on international trade and,
accordingly, have been and may continue to be affected adversely by trade barriers, exchange
10
controls, managed adjustments in relative currency values, and other protectionist measures imposed
or negotiated by the countries with which they trade. Economies of emerging countries also have
been and may continue to be adversely affected by economic conditions in the countries with which
they trade. The economies of emerging countries may be predominantly based on only a few
industries or dependent on revenues from particular commodities. In many cases, governments of
emerging countries continue to exercise significant control over their economies, and government
actions relative to the economy, as well as economic developments generally, may affect the
capacity of creditors in those countries to make payments on their debt obligations, regardless of
their financial condition.
Custodial services are often more expensive and other investment-related costs higher in emerging
countries than in developed countries, which could reduce a Funds income from investments in
securities or debt instruments of emerging country issuers.
Emerging countries are more likely than developed countries to experience political uncertainty and
instability, including the risk of war, terrorism, nationalization, limitations on the removal of
funds or other assets, or diplomatic developments that affect U.S. investments in these countries.
No assurance can be given that adverse political changes will not cause a Fund to suffer a loss of
any or all of its investments (or, in the case of fixed-income securities, interest) in emerging
countries.
Special Risks of Investing in Asian Securities. In addition to the risks of foreign investments
and emerging countries investments described above, investments in Asia are subject to other risks.
The economies of Asian countries are at varying levels of development. Markets of countries whose
economies are in the early stages of development typically exhibit a high concentration of market
capitalization and have less trading volume, lower liquidity, and more volatility that more
developed markets. Some Asian countries depend heavily on foreign trade. The economies of some
Asian countries are not diversified and are based on only a few commodities or industries.
Investments in Asia also are susceptible to social, political, legal, and operational risks. Some
countries have authoritarian or relatively unstable governments. Some governments in the region
provide less supervision and regulation of their financial markets and in some countries less
financial information is available than is typical of more developed markets. Some Asian countries
restrict direct foreign investment in securities markets, and investments in securities traded on
those markets may be made, if at all, only indirectly (e.g., through Depositary Receipts, as
defined below under Depositary Receipts, derivatives, etc.). For example, Taiwan permits foreign
investment only through authorized qualified foreign institutional investors (FINI). For Taiwan
Fund, the Manager is registered with the Securities and Futures Commission of Taiwan as a FINI and
is therefore authorized to invest directly in the Taiwanese securities market, subject to certain
limitations including a maximum investment amount. Taiwan Fund is listed as a sub-account under
the Managers FINI license and is authorized to invest directly in the Taiwanese securities market.
Taiwan Funds ability to continue to invest directly in Taiwan is subject to the risk that the
Managers FINI license or the Funds sub-account under the Managers FINI license may be terminated
or suspended by the Securities and Futures Commission. In addition, the maximum investment amount
permitted under the
11
Managers FINI license applies to investments by the Manager, Taiwan Fund, and any other entities
listed as sub-accounts under the Managers license. Investments by the Manager and any other
sub-accounts may limit the amount which Taiwan Fund can invest, and the activities of the other
entities listed as sub-accounts could cause the termination or suspension of the Managers FINI
license.
Asian countries periodically experience increases in market volatility and declines in foreign
currency exchange rates. Currency fluctuations affect the value of securities because the prices
of these securities are generally denominated or quoted in currencies other than the U.S. dollar.
Fluctuations in currency exchange rates can also affect a countrys or companys ability to service
its debt.
Investment in particular Asian countries is subject to unique risks, yet the political and economic
prospects of one country or group of countries can affect other countries in the region. For
example, the economies of some Asian countries are directly affected by Japanese capital investment
in the region and by Japanese consumer demands. In addition, a recession, a debt crisis, or a
decline in currency valuation in one Asian country may spread to other Asian countries. The risks
of investing in Asian countries are particularly pronounced for Taiwan Fund, which invests
primarily in Taiwan. Such risks may also be particularly pronounced for Flexible Equities Fund,
which, as of the date of this Statement of Additional Information, had invested substantially all
of its assets in equity investments tied economically to Japan.
Special Risks of Investing in Russian Securities. Certain of the Funds may invest directly in the
securities of Russian issuers. Certain other Funds may have indirect exposure to Russian
securities through their investment in one or more of the GMO Funds with direct investments in
Russia. Investment in those securities presents many of the same risks as investing in the
securities of emerging country issuers, as described in the preceding sections. The social,
political, legal, and operational risks of investing in Russian issuers, and of having assets held
in custody within Russia, however, may be particularly pronounced relative to investments in more
developed countries. Russias system of share registration and custody creates certain risks of
loss (including the risk of total loss) that are not normally associated with investments in other
securities markets.
A risk of particular note with respect to direct investment in Russian securities results from the
way in which ownership of shares of companies is normally recorded. Ownership of shares (except
where shares are held through depositories that meet the requirements of the 1940 Act) is defined
according to entries in the companys share register and normally evidenced by share extracts
from the register or, in certain circumstances, by formal share certificates. However, there is no
central registration system for shareholders and these services are carried out by the companies
themselves or by registrars located throughout Russia. The share registrars are controlled by the
issuer of the security, and investors are provided with few legal rights against such registrars.
These registrars are not necessarily subject to effective state supervision nor are they licensed
with any governmental entity. It is possible for a Fund to lose its registration through fraud,
negligence or even mere oversight. A Fund will endeavor to ensure that its interest is
appropriately recorded, which may involve a custodian or other agent inspecting the share register
and obtaining extracts of share registers through regular confirmations. However,
12
these extracts have no legal enforceability and it is possible that a subsequent illegal amendment
or other fraudulent act may deprive the Fund of its ownership rights or improperly dilute its
interests. In addition, while applicable Russian regulations impose liability on registrars for
losses resulting from their errors, it may be difficult for a Fund to enforce any rights it may
have against the registrar or issuer of the securities in the event of a loss of share
registration. Further, significant delays or problems may occur in registering the transfer of
securities, which could cause a Fund to incur losses due to a counterpartys failure to pay for
securities the Fund has delivered or the Funds inability to complete its contractual obligations
because of theft or other reasons.
Also, although a Russian public enterprise having a certain minimum number of shareholders is
required by law to contract out the maintenance of its shareholder register to an independent
entity that meets certain criteria, this regulation has not always been strictly enforced in
practice. Because of this lack of independence, management of a company may be able to exert
considerable influence over who can purchase and sell the companys shares by illegally instructing
the registrar to refuse to record transactions in the share register.
Securities Lending
A Fund may make secured loans of its portfolio securities amounting to not more than one-third of
its total assets (one-quarter in the case of International Intrinsic Value Fund, International
Large/Mid Cap Value Fund and Currency Hedged International Equity Fund). For these purposes, total
assets include the proceeds of such loans. 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, including possible
impairment of the Funds ability to vote the securities. However, securities loans will be made to
broker-dealers that the Manager believes to be of relatively high credit standing pursuant to
agreements requiring that the loans be collateralized by cash, liquid securities, or shares of
other investment companies with a value at least equal to the market value of the loaned securities
(marked to market daily). If a loan is collateralized by U.S. government or other securities, the
Fund receives a fee from the borrower. If a loan is collateralized by cash, the Fund typically
invests the cash collateral for its own account in one or more money market funds (in which case
the Fund will bear its pro rata share of such money market funds fees and expenses), or directly
in interest-bearing, short-term securities, and typically pays a fee to the borrower that normally
represents a portion of the Funds earnings on the collateral. As with other extensions of credit,
the Fund bears the risk of delay in the recovery of loaned securities and of loss of rights in the
collateral should the borrower fail financially. The Fund also bears the risk that the value of
investments made with collateral may decline. The Fund bears the risk of total loss with respect
to the investment of collateral.
Voting rights or rights to consent with respect to the loaned securities pass to the borrower. The
Fund has the right to call loans at any time on reasonable notice and will do so if both (i) the
Manager receives adequate notice of a proposal upon which shareholders are being asked to vote, and
(ii) the Manager believes that the benefits to the Fund of voting on such proposal outweigh the
benefits to the Fund of having the security remain out on loan. However, the Fund bears the risk
of delay in the return of the security, impairing the Funds ability to vote on such matters. The
Manager has retained lending agents on behalf of several of the Funds that are
13
compensated based on a percentage of the Funds return on its securities lending. The Funds may
also pay various fees in connection with securities loans, including shipping fees and custodian
fees.
Depositary Receipts
Many of the Funds invest in American Depositary Receipts (ADRs), Global Depositary Receipts
(GDRs), and European Depositary Receipts (EDRs) or other similar securities representing
ownership of foreign securities (collectively, Depositary Receipts) if issues of such Depositary
Receipts are available that are consistent with the Funds investment objective. Depositary
Receipts generally evidence an ownership interest in a corresponding foreign security on deposit
with a financial institution. Transactions in Depositary Receipts usually do not settle in the
same currency as the underlying foreign securities are denominated or traded. Generally, ADRs are
designed for use in the U.S. securities markets and EDRs are designed for use in European
securities markets. GDRs may be traded in any public or private securities market and may
represent securities held by institutions located anywhere in the world. GDRs and other types of
Depositary Receipts are typically issued by foreign banks or trust companies, although they may be
issued by U.S. financial institutions, and evidence ownership interests in a security or pool of
securities issued by either a foreign or a domestic corporation.
Because the value of a Depositary Receipt is dependent upon the market price of an underlying
foreign security, Depositary Receipts are subject to most of the risks associated with investing in
foreign securities directly. Depositary Receipts may be issued as sponsored or unsponsored
programs. See Descriptions and Risks of Fund InvestmentsRisks of Foreign Investments.
Depositary Receipts also may be subject to liquidity risk.
Convertible Securities
A convertible security is a security (a bond or preferred stock) that may be converted at a stated
price within a specified period into a specified number of shares of common stock of the same or a
different issuer. Convertible securities are senior to common stock in a corporations capital
structure, but are usually subordinated to senior debt obligations of the issuer. Convertible
securities provide holders, through their conversion feature, an opportunity to participate in
increases in the market price of their underlying securities. The price of a convertible security
is influenced by the market price of the underlying security, and tends to increase as the market
price rises and decrease as the market price declines. The Manager regards convertible securities
as a form of equity security.
The value of a convertible security is a function of its investment value (determined by its
yield in comparison with the yields of other securities of comparable maturity and quality that do
not have a conversion privilege) and its conversion value (the securitys worth, at market value,
if converted into the underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as interest rates increase
and increasing as interest rates decline. The credit standing of the issuer and other factors may
also have an effect on the convertible securitys investment value. The conversion value of a
convertible security is determined by the market price of the underlying common stock. If the
conversion value is low relative to the investment value, as in the case of broken
14
or busted convertibles, the price of the convertible security is governed principally by its
investment value. To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be increasingly influenced
by its conversion value. A convertible security generally will sell at a premium over its
conversion value by the extent to which investors place value on the right to acquire the
underlying common stock while holding a fixed income security. Generally, the amount of the
premium decreases as the convertible security approaches maturity.
A convertible security may be subject to redemption at the option of the issuer at a price
established in the convertible securitys governing instrument. If a convertible security held by
a Fund is called for redemption, the Fund will be required to permit the issuer to redeem the
security, convert it into the underlying common stock or sell it to a third-party.
Preferred Stocks
Preferred stocks include convertible and non-convertible preferred and preference stocks that are
senior to common stock. Preferred stocks are equity securities that are senior to common stock
with respect to the right to receive dividends and a fixed share of the proceeds resulting from the
issuers liquidation. Some preferred stocks also entitle their holders to receive additional
liquidation proceeds on the same basis as holders of the issuers common stock, and thus represent
an ownership interest in the issuer. Depending on the features of the particular security, holders
of preferred stock may bear the risks disclosed in the Prospectuses or this Statement of Additional
Information regarding equity or fixed income securities.
Investment in preferred stocks involves certain risks. Certain preferred stocks contain provisions
that allow an issuer under certain conditions to skip or defer distributions. If a Fund owns a
preferred stock that is deferring its distribution, it may be required to report income for tax
purposes despite the fact that it is not receiving current income on this position. Preferred
stocks often are subject to legal provisions that allow for redemption in the event of certain tax
or legal changes or at the issuers call. In the event of redemption, a Fund may not be able to
reinvest the proceeds at comparable rates of return. Preferred stocks are subordinated to bonds
and other debt securities in an issuers capital structure in terms of priority for corporate
income and liquidation payments, and therefore will be subject to greater credit risk than those
debt securities. Preferred stocks may trade less frequently and in a more limited volume and may be
subject to more abrupt or erratic price movements than many other securities, such as common
stocks, corporate debt securities and U.S. government securities.
Warrants and Rights
A Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give
the holder the right to receive, upon exercise, a security of the issuer at a stated price. Funds
typically use warrants and rights in a manner similar to their use of options on securities, as
described in Options and Futures below. Risks associated with the use of warrants and rights are
generally similar to risks associated with the use of options. Unlike most options, however,
warrants and rights are issued in specific amounts, and warrants generally have longer terms than
options. Warrants and rights are not likely to be as liquid as exchange-traded options backed by a
recognized clearing agency. In addition, the terms of warrants or rights may limit a Funds
15
ability to exercise the warrants or rights at such time, or in such quantities, as the Fund would
otherwise wish.
Non-Standard Warrants. From time to time, certain Funds may use non-standard warrants, including
low exercise price warrants or low exercise price options (LEPOs) and participatory notes
(P-Notes), to gain exposure to issuers in certain countries. LEPOs are different from standard
warrants in that they do not give their holders the right to receive a security of the issuer upon
exercise. Rather, LEPOs pay the holder the difference in price of the underlying security between
the date the LEPO was purchased and the date it is sold. P-Notes are a type of equity-linked
derivative that generally are traded over-the-counter and constitute general unsecured contractual
obligations of the banks or broker-dealers that issue them. Generally, banks and broker-dealers
associated with non-U.S.-based brokerage firms buy securities listed on certain foreign exchanges
and then issue P-Notes which are designed to replicate the performance of certain issuers and
markets. The performance results of P-Notes will not replicate exactly the performance of the
issuers or markets that the notes seek to replicate due to transaction costs and other expenses.
The return on a P-Note that is linked to a particular underlying security generally is increased to
the extent of any dividends paid in connection with the underlying security. However, the holder
of a P-Note typically does not receive voting or other rights as it would if it directly owned the
underlying security, and P-Notes present similar risks to investing directly in the underlying
security. Additionally, LEPOs and P-Notes entail the same risks as other over-the-counter
derivatives. These include the risk that the counterparty or issuer of the LEPO or P-Note may not
be able to fulfill its obligations, that the holder and counterparty or issuer may disagree as to
the meaning or application of contractual terms, or that the instrument may not perform as
expected. See Description of Principal RisksDerivatives Risk and
Counterparty Risk in the Prospectuses and Uses of Derivatives below. Additionally, while
LEPOs or P-Notes may be listed on an exchange, there is no guarantee that a liquid market will
exist or that the counterparty or issuer of a LEPO or P-Note will be willing to repurchase such
instrument when the Fund wishes to sell it.
Options and Futures
Many of the Funds use options and futures for various purposes, including for investment purposes
and as a means to hedge other investments. (See Uses of Derivatives below for more information
regarding the various derivatives strategies those Funds may employ using options and futures.)
The use of options contracts, futures contracts, and options on futures contracts involves risk.
Thus, while a Fund may benefit from the use of options, futures, and options on futures,
unanticipated changes in interest rates, securities prices, currency exchange rates, or other
underlying assets or reference rates may adversely affect a Funds performance.
Options on Securities and Indices. Many of the Funds may purchase and sell put and call options on
equity, fixed income, or other securities or indices in standardized exchange-traded contracts. An
option on a security or index is a contract that gives the holder of the option, in return for a
premium, the right (but not the obligation) to buy from (in the case of a call) or sell to (in the
case of a put) the writer of the option the security underlying the option (or the cash value of
the index underlying the option) at a specified price. Upon exercise, the writer of an option on a
security has the obligation to deliver the underlying security upon payment of the exercise price
or to pay the exercise price upon delivery of the underlying security. Upon
16
exercise, the writer of an option on an index is required to pay the difference between the cash
value of the index and the exercise price multiplied by the specified multiplier for the index
option.
Purchasing Options on Securities and Indices. Among other reasons, a Fund may purchase a put
option to hedge against a decline in the value of a portfolio security. If such a decline occurs,
the put option will permit the Fund to sell the security at the higher exercise price or to close
out the option at a profit. By using put options in this manner, the Fund will reduce any profit
it might otherwise have realized in the underlying security by the amount of the premium paid for
the put option and by its transaction costs. In order for a put option purchased by a Fund to be
profitable, the market price of the underlying security must decline sufficiently below the
exercise price to cover the premium paid by the Fund and transaction costs.
Among other reasons, a Fund may purchase call options to hedge against an increase in the price of
securities the Fund anticipates purchasing in the future. If such a price increase occurs, a call
option will permit the Fund to purchase the securities at the exercise price or to close out the
option at a profit. The premium paid for the call option, plus any transaction costs, will reduce
the benefit, if any, that the Fund realizes upon exercise of the option and, unless the price of
the underlying security rises sufficiently, the option may expire worthless to the Fund. Thus, for
a call option purchased by a Fund to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium paid by the Fund to the writer
and transaction costs.
In the case of both call and put options, the purchaser of an option risks losing the premium paid
for the option plus related transaction costs if the option expires worthless.
Writing Options on Securities and Indices. Because a Fund receives a premium for writing a put or
call option, a Fund may seek to increase its return by writing call or put options on securities or
indices. The premium a Fund receives for writing an option will increase the Funds return in the
event the option expires unexercised or is closed out at a profit. The size of the premium a Fund
receives reflects, among other things, the relationship of the market price and volatility of the
underlying security or index to the exercise price of the option, the remaining term of the option,
supply and demand, and interest rates.
A Fund may write a call option on a security or other instrument held by the Fund (commonly known
as writing a covered call option). In such case, the Fund limits its opportunity to profit from
an increase in the market price of the underlying security above the exercise price of the option.
Alternatively, a Fund may write a call option on securities in which it may invest but that are not
currently held by the Fund (commonly known as writing a naked call option). During periods of
declining securities prices or when prices are stable, writing these types of call options can be a
profitable strategy to increase a Funds income with minimal capital risk. However, when
securities prices increase, the Fund is exposed to an increased risk of loss, because if the price
of the underlying security or instrument exceeds the options exercise price, the Fund will suffer
a loss equal to the amount by which the market price exceeds the exercise price at the time the
call option is exercised, minus the premium received. Calls written on securities that the Fund
does not own are riskier than calls written on securities owned by the Fund because there is
17
no underlying security held by the Fund that can act as a partial hedge. When such a call is
exercised, the Fund must purchase the underlying security to meet its call obligation or make a
payment equal to the value of its obligation in order to close out the option. Calls written on
securities that the Fund does not own have speculative characteristics and the potential for loss
is unlimited. There is also a risk, especially with less liquid preferred and debt securities,
that the securities may not be available for purchase.
A Fund also may write a put option on a security. In so doing, 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 price, resulting in a loss on exercise equal to the amount by which the market
price of the security is below the exercise price minus the premium received.
OTC Options. A Fund may also invest in over-the-counter (OTC) options. OTC options differ from
exchange-traded options in that they are two-party contracts, with price and other terms negotiated
between the buyer and seller, and generally do not have as much market liquidity as exchange-traded
options.
Closing Options Transactions. The holder of an option may terminate its position in a put or call
option it has purchased by allowing it to expire or by exercising the option. If an option is
American style, it may be exercised on any day up to its expiration date. In contrast, a European
style option may be exercised only on its expiration date.
In addition, a holder of an option may terminate its obligation prior to the options expiration by
effecting an offsetting closing transaction. In the case of exchange-traded options, a Fund, as a
holder of an option, may effect an offsetting closing sale transaction by selling an option of the
same series as the option previously purchased. A Fund realizes a loss from a closing sale
transaction if the premium received from the sale of the option is less than the premium paid to
purchase the option (plus transaction costs). Similarly, a Fund that has written an option may
effect an offsetting closing purchase transaction by buying an option of the same series as the
option previously written. A Fund realizes a loss from a closing purchase transaction if the cost
of the closing purchase transaction (option premium plus transaction costs) is greater than the
premium received from writing the option. If a Fund desires to sell a security on which it has
written a call option, it will effect a closing purchase prior to or concurrently with the sale of
the security. There can be no assurance, however, that a closing purchase or sale can be effected
when a Fund desires to do so.
An OTC option may be closed only with the counterparty, although either party may engage in an
offsetting transaction that puts that party in the same economic position as if it had closed out
the option with the counterparty.
No guarantee exists that a Fund will be able to effect a closing purchase or a closing sale with
respect to a specific option at any particular time.
Risk Factors in Options Transactions. There are various risks associated with transactions in
exchange-traded and OTC options. The value of options written by a Fund will be affected by many
factors, including changes in the value of underlying securities or indices, changes in the
18
dividend rates of underlying securities (or in the case of indices, the securities comprising such
indices), changes in interest rates, changes in the actual or perceived volatility of the stock
market and underlying securities, and the remaining time to an options expiration. The value of
an option also may be adversely affected if the market for the option is reduced or becomes less
liquid. In addition, since an American style option allows the holder to exercise its rights any
time prior to expiration of the option, the writer of an American style option has no control over
the time when it may be required to fulfill its obligations as a writer of the option. This risk
is not present when writing a European style option since the holder may only exercise the option
on its expiration date.
The Funds ability to use options as part of their investment programs depends on the liquidity of
the markets in those instruments. In addition, there can be no assurance that a liquid market will
exist when a Fund seeks to close out an option position. If a Fund were unable to close out an
option that it had purchased on a security, it would have to exercise the option in order to
realize any profit or the option may expire worthless. As the writer of a call option on a
portfolio security, during the options life, the Fund foregoes the opportunity to profit from
increases in the market value of the security underlying the call option above the sum of the
premium and the strike price of the call, but retains the risk of loss (net of premiums received)
should the price of the underlying security decline. Similarly, as the writer of a call option on
a securities index, a Fund foregoes the opportunity to profit from increases in the index over the
strike price of the option, though it retains the risk of loss (net of premiums received) should
the price of the Funds portfolio securities decline. If a Fund writes a call option and does not
hold the underlying security or instrument, the amount of the Funds potential loss is
theoretically unlimited.
An exchange-traded option may be closed out by means of an offsetting transaction only on a
national securities exchange (Exchange), which provides a secondary market for an option of the
same series. If a liquid secondary market for an exchange-traded option does not exist, a Fund
might not be able to effect an offsetting closing transaction for a particular option. Reasons for
the absence of a liquid secondary market on an Exchange include the following: (i) insufficient
trading interest in some options; (ii) restrictions by an Exchange on opening or closing
transactions, or both; (iii) trading halts, suspensions, or other restrictions on particular
classes or series of options or underlying securities; (iv) unusual or unforeseen interruptions in
normal operations on an Exchange; (v) inability to handle current trading volume; or (vi)
discontinuance of options trading (or trading in a particular class or series of options) (although
outstanding options on an Exchange that were issued by the Options Clearing Corporation should
continue to be exercisable in accordance with their terms). In addition, the hours of trading for
options on an Exchange may not conform to the hours during which the securities held by a Fund are
traded. To the extent that the options markets close before the markets for the underlying
securities, significant price and rate movements can take place in the underlying markets that may
not be reflected in the options markets.
The Exchanges generally have established limits on the maximum number of options an investor or
group of investors acting in concert may write. The Funds, the Manager, and other clients of the
Manager may constitute such a group. These limits could restrict a Funds ability to purchase or
sell options on a particular security.
19
An OTC option may be closed only with the counterparty, although either party may engage in an
offsetting transaction that puts that party in the same economic position as if it had closed out
the option with the counterparty; however, the exposure to counterparty risk may differ. See Swap
Contracts and Other Two-Party ContractsRisk Factors in Swap Contracts, OTC Options, and Other
Two-Party Contracts below for a discussion of counterparty risk and other risks associated with
investing in OTC options.
Each Funds ability to engage in options transactions may be limited by tax considerations.
Currency Options. Certain Funds may purchase and sell options on currencies. Options on
currencies possess many of the same characteristics as options on securities and generally operate
in a similar manner. Funds that are permitted to invest in securities denominated in foreign
currencies may purchase or sell options on currencies. (See Foreign Currency Transactions below
for more information on those Funds use of currency options.)
Futures. To the extent consistent with applicable law and its investment restrictions, a Fund
permitted to invest in futures contracts may invest in futures contracts on, among other things,
financial instruments (such as a U.S. government security or other fixed income security),
individual equity securities (single stock futures), securities indices, interest rates,
currencies, inflation indices, and (to the extent a Fund is permitted to invest in commodities and
commodity-related derivatives (as defined in Commodity-Related Investments (through GMO
Alternative Asset Opportunity Fund) below)) commodities or commodities indices. Futures contracts
on securities indices are referred to herein as Index Futures. The purchase and sale of futures
contracts may be used for speculative purposes.
Certain futures contracts are physically settled (i.e., involve the making and taking of delivery
of a specified amount of an underlying security or other asset). For instance, the sale of futures
contracts on foreign currencies or financial instruments creates an obligation of the seller to
deliver a specified quantity of an underlying foreign currency or financial instrument called for
in the contract for a stated price at a specified time. Conversely, the purchase of such futures
contracts creates an obligation of the purchaser to pay for and take delivery of the underlying
foreign currency or financial instrument called for in the contract for a stated price at a
specified time. In some cases, the specific instruments delivered or taken, respectively, on the
settlement date are not determined until on or near that date. That determination is made in
accordance with the rules of the exchange on which the sale or purchase was made. Some futures
contracts are cash settled (rather than physically settled), 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 by the seller of the futures contract and, if negative, is paid by the purchaser
to the seller of the futures contract. In particular, Index Futures are agreements pursuant to
which two parties agree to take or make delivery of an amount of cash equal to the difference
between the value of a securities index at the close of the last trading day of the contract and
the price at which the index contract was originally written. Although the value of a securities
index might be a function of the value of certain specified securities, no physical delivery of
these securities is made.
20
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, U.S.
government securities, or other liquid assets equal in value to a percentage of the face amount of
the futures contract must be deposited with the broker. This amount is known as initial margin.
The amount of the initial margin is generally set by the market on which the contract is traded
(margin requirements on foreign exchanges may be different than those on U.S. exchanges).
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 the market. For futures
contracts which are cash settled, a Fund may designate or segregate liquid assets in an amount
equal to the Funds daily marked-to-market value of such contract. Prior to the settlement date of
the futures contract, the position may be closed by taking an opposite position. 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 to the broker on each completed purchase and sale.
Although some futures contracts call for making or taking delivery of the underlying securities,
currencies, commodities, or other underlying instrument, in most cases, futures contracts are
closed before the settlement date without the making or taking of delivery by offsetting purchases
or sales of matching futures contracts (i.e., with the same exchange, underlying financial
instrument, currency, commodity, or index, and delivery month). If the price of the initial sale
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, a purchase of a futures contract is closed out by selling a
corresponding futures contract. If the offsetting sale price exceeds the original purchase price,
the purchaser realizes a gain, and, if the original purchase price exceeds the offsetting sale
price, the purchaser realizes a loss. Any transaction costs must also be included in these
calculations.
In the United States, futures contracts are traded only on commodity exchanges or boards of trade
known as contract markets approved by the Commodity Futures Trading Commission (CFTC), and
must be executed through a futures commission merchant or brokerage firm that is a member of the
relevant market. Certain Funds may also purchase futures contracts on foreign exchanges or similar
entities, which are not regulated by the CFTC and may not be subject to the same degree of
regulation as the U.S. contract markets. (See Additional Risks of Options on Securities, Futures
Contracts, and Options on Futures Contracts Traded on Foreign Exchanges below.)
Index Futures. A Funds purchase and sale of Index Futures is limited to contracts and exchanges
approved by the CFTC. A Fund may close open positions on an exchange on which Index Futures are
traded at any time up to and including the expiration day. In general, all positions that remain
open at the close of business on that day must be settled on the next business day (based on the
value of the relevant index on the expiration day). Additional or different margin requirements as
well as settlement procedures may apply to foreign stock Index Futures.
21
Interest Rate Futures. Some Funds may engage in transactions involving the use of futures on
interest rates. These transactions may be in connection with investments in U.S. government
securities and other fixed income securities.
Inflation Linked Futures. The Fixed Income Funds may engage in transactions involving inflation
linked futures, including Consumer Price Index (CPI) futures, which are exchange-traded futures
contracts that represent the inflation on a notional value of $1,000,000 for a period of three
months, as implied by the CPI. Inflation linked futures may be used by the Fund to hedge the
inflation risk in nominal bonds (i.e., non-inflation indexed bonds) thereby creating synthetic
inflation indexed bonds. The Fund also may combine inflation linked futures with U.S. Treasury
futures contracts to create synthetic inflation indexed bonds issued by the U.S. Treasury. See
Indexed InvestmentsInflation Indexed Bonds below for a discussion of inflation indexed bonds.
Currency Futures. Funds that are permitted to invest in securities denominated in foreign
currencies may buy and sell futures contracts on currencies. (See Foreign Currency Transactions
below for a description of those Funds use of currency futures.)
Options on Futures Contracts. Options on futures contracts give the purchaser the right in return
for the premium paid to assume a long position (in the case of a call option) or a short position
(in the case of a put option) in a futures contract at the option exercise price at any time during
the period of the option (in the case of an American style option) or on the expiration date (in
the case of European style option). Upon exercise of a call option, the holder acquires a long
position in the futures contract and the writer is assigned the opposite short position. In the
case of a put option, the holder acquires a short position and the writer is assigned the opposite
long position in the futures contract. Accordingly, in the event that an option is exercised, the
parties will be subject to all the risks associated with the trading of futures contracts, such as
payment of initial and variation margin deposits.
Funds 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, a Fund may purchase put
options or write call options on futures contracts rather than selling futures contracts.
Similarly, a Fund may hedge against a possible increase in the price of securities the Fund expects
to purchase by purchasing call options or writing put options on futures contracts rather than
purchasing futures contracts. In addition, a Fund may purchase and sell interest rate options on
U.S. Treasury or Eurodollar futures to take a long or short position on interest rate fluctuations.
Options on futures contracts generally operate in the same manner as options purchased or written
directly on the underlying investments. (See Foreign Currency Transactions below for a
description of some Funds use of options on currency futures.)
A Fund is also required to deposit and maintain margin with respect to put and call options on
futures contracts written by it. Such margin deposits may vary depending on the nature of the
underlying futures contract (and the related initial margin requirements), the current market value
of the option, and other futures positions held by the Fund.
22
A position in an option on a futures contract may be terminated by the purchaser or seller prior to
expiration by effecting a closing purchase or sale transaction, subject to the availability of a
liquid secondary market, which is the purchase or sale of an option of the same type (i.e., the
same exercise price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the Funds profit or loss on the
transaction.
Commodity Futures and Options on Commodity Futures. The Asset Allocation Funds (except U.S. Equity
Allocation Fund and Alpha Only Fund), through their investments in GMO Alternative Asset
Opportunity Fund (another series of the Trust offered through a separate private placement
memorandum), may have exposure to futures contracts on various commodities or commodities indices
(commodity futures) and options on commodity futures. A futures contract on a commodity is an
agreement between two parties in which one party agrees to purchase a commodity, such as an energy,
agricultural, or metal commodity, from the other party at a later date at a price and quantity
agreed upon when the contract is made. Futures contracts on commodities indices operate in a
manner similar to Index Futures. While commodity futures on individual commodities are physically
settled, the Manager intends to close out those futures contracts before the settlement date
without the making or taking of delivery.
Risk Factors in Futures and Futures Options Transactions. Investment in futures contracts involves
risk. A purchase or sale of futures contracts may result in losses in excess of the amount
invested in the futures contract. If a futures contract is used for hedging, an imperfect
correlation between movements in the price of the futures contract and the price of the security,
currency, or other investment being hedged creates risk. Correlation is higher when the investment
being hedged underlies the futures contract. Correlation is lower when the investment being hedged
is different than the security, currency, or other investment underlying the futures contract, such
as when a futures contract on an index of securities or commodities is used to hedge a single
security or commodity, a futures contract on one security (e.g., U.S. Treasury bonds) or commodity
(e.g., gold) is used to hedge a different security (e.g., a mortgage-backed security) or commodity
(e.g., copper), or when a futures contract in one currency is used to hedge a security denominated
in another currency. In the case of Index Futures and futures on commodity indices, changes in the
price of those futures contracts may not correlate perfectly with price movements in the relevant
index due to market distortions. In the event of an imperfect correlation between a futures
position and the portfolio position (or anticipated position) intended to be hedged, the Fund may
realize a loss on the futures contract at the same time the Fund is realizing a loss on the
portfolio position intended to be hedged. To compensate for imperfect correlations, a Fund may
purchase or sell futures contracts in a greater amount than the hedged investments if the
volatility of the price of the hedged investments is historically greater than the volatility of
the futures contracts. Conversely, a Fund may purchase or sell fewer futures contracts if the
volatility of the price of the hedged investments is historically less than that of the futures
contract. The successful use of transactions in futures and related options for hedging also
depends on the direction and extent of exchange rate, interest rate and asset price movements
within a given time frame. For example, to the extent equity prices remain stable during the
period in which a futures contract or option is held by a Fund investing in equity securities (or
such prices move in a direction opposite to that anticipated), the Fund may
23
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 Funds total return for such
period may be less than if it had not engaged in the hedging transaction.
All participants in the futures market are subject to margin deposit and maintenance requirements.
Instead of meeting margin calls, investors may close futures contracts through offsetting
transactions, which could distort normal correlations. The margin deposit requirements in the
futures market are less onerous than margin requirements in the securities market, allowing for
more speculators who may cause temporary price distortions. Trading hours for foreign stock Index
Futures may not correspond perfectly to the trading hours of the foreign exchange to which a
particular foreign stock Index Future relates. As a result, the lack of continuous arbitrage may
cause a disparity between the price of foreign stock Index Futures and the value of the relevant
index.
A Fund may purchase futures contracts (or options on them) as an anticipatory hedge against a
possible increase in the price of a currency in which securities the Fund anticipates purchasing is
denominated. In such instances, the currency may instead decline. If the Fund does not then
invest in those securities, 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 Funds ability to engage in the futures and options on futures strategies described above
depends on the liquidity of the markets in those instruments. Trading interest in various types of
futures and options on futures cannot be predicted. Therefore, no assurance can be given that a
Fund will be able to utilize these instruments at all or that their use will be effective. In
addition, there can be no assurance that a liquid market will exist at a time when a Fund seeks to
close out a futures or option on a futures contract position, and that Fund would remain obligated
to meet margin requirements until the position is closed. The liquidity of a secondary market in a
futures contract may be adversely affected by daily price fluctuation limits established by
commodity exchanges to limit the amount of fluctuation in a futures contract price during a single
trading day. Once the daily limit has been reached, no trades of the contract may be entered at a
price beyond the limit, thus preventing the liquidation of open futures positions. In the past,
prices have exceeded the daily limit on several consecutive trading days. Short (and long)
positions in Index Futures or futures on commodities indices may be closed only by purchasing (or
selling) a futures contract on the exchange on which the Index Futures or commodity futures, as
applicable, are traded.
As discussed above, a Fund that purchases or sells a futures contract is only required to deposit
initial and variation margin as required by relevant CFTC regulations and the rules of the contract
market. The Funds net asset value will generally fluctuate with the value of the security or
other instrument underlying a futures contract as if it were already in the Funds portfolio.
Futures transactions can have the effect of investment leverage. Furthermore, if a Fund combines
short and long positions, in addition to possible declines in the values of its investment
securities, the Fund will incur losses if the index underlying the long futures position
underperforms the index underlying the short futures position.
In addition, if a Funds futures brokers become bankrupt or insolvent, or otherwise default on
24
their obligations to the Fund, the Fund may not receive all amounts owing to it in respect of its
trading, despite the futures clearinghouse fully discharging all of its obligations. Furthermore,
in the event of the bankruptcy of a futures broker, a Fund could be limited to recovering only a
pro rata share of all available funds segregated on behalf of the futures brokers combined
customer accounts, even though certain property specifically traceable to the Fund was held by the
futures broker.
Each Funds ability to engage in futures and options on futures transactions may be limited by tax
considerations.
Additional Risk Associated with Commodity Futures Transactions. Several additional risks are
associated with transactions in commodity futures contracts.
Storage Costs. The price of a commodity futures contract reflects the storage costs of purchasing
the underlying commodity, including the time value of money invested in the commodity. To the
extent that the storage costs change, the value of the futures contracts may change
correspondingly.
Reinvestment Risk. In the commodity futures markets, producers of an underlying commodity may sell
futures contracts to lock in the price of the commodity at delivery. To induce speculators to
purchase the other side (the long side) of the contract, the commodity producer generally must sell
the contract at a lower price than the expected futures spot price. Conversely, if most purchasers
of the underlying commodity purchase futures contracts to hedge against a rise in commodity prices,
then speculators will only sell the contract at a higher price than the expected future spot price
of the commodity. The changing nature of the hedgers and speculators in the commodity markets will
influence whether futures prices are above or below the expected futures spot price. As a result,
when the Manager reinvests the proceeds from a maturing contract, it may purchase a new futures
contract at a higher or lower price than the expected futures spot prices of the maturing contract
or choose to pursue other investments.
Additional Economic Factors. The value of the commodities underlying commodity futures contracts
may be subject to additional economic and non-economic factors, such as drought, floods or other
weather conditions, livestock disease, trade embargoes, competition from substitute products,
transportation bottlenecks or shortages, fluctuations in supply and demand, tariffs, and
international economic, political, and regulatory developments.
See also Commodity-Related Investments (through GMO Alternative Asset Opportunity Fund) below for
more discussion of the special risks of investing in commodity futures, options on commodity
futures, and related types of derivatives.
Additional Risks of Options on Securities, Futures Contracts, and Options on Futures Contracts
Traded on Foreign Exchanges. Options on securities, futures contracts, options on futures
contracts, and options on currencies may be traded on foreign exchanges. Such transactions may not
be regulated as effectively as similar transactions in the United States (which are 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
25
clearing facility exists and a trader may look only to the broker for performance of the contract.
The lack of a common clearing facility creates counterparty risk. If a counterparty defaults, a
Fund normally will have contractual remedies against that counterparty, but may be unsuccessful in
enforcing those remedies. When seeking to enforce a contractual remedy, a Fund also is subject to
the risk that the parties may interpret contractual terms (e.g., the definition of default)
differently. Counterparty risk is greater for derivatives with longer maturities where events may
intervene to prevent settlement. Counterparty risk is also greater when a Fund has concentrated
its derivatives with a single or small group of counterparties as it sometimes does as a result of
its use of swaps and other OTC derivatives. To the extent a Fund has significant exposure to a
single counterparty, this risk will be particularly pronounced for the Fund. If a dispute occurs,
the cost and unpredictability of the legal proceedings required for the Fund to enforce its
contractual rights may lead the Fund to decide not to pursue its claims against the counterparty.
A Fund thus assumes the risk that it may be unable to obtain payments owed under foreign futures
contracts or that those payments may be delayed or made only after the Fund has incurred the costs
of litigation. In addition, unless a Fund hedges against fluctuations in the exchange rate between
the currencies in which trading is done on foreign exchanges and other currencies, any profits that
a Fund might realize in trading could be offset (or worse) by adverse changes in the exchange rate.
The value of foreign options and futures may also be adversely affected by other factors unique to
foreign investing (see Risks of Foreign Investments above).
Swap Contracts and Other Two-Party Contracts
Many of the Funds use swap contracts (or swaps) and other two-party contracts for the same or
similar purposes as options and futures. (See Uses of Derivatives below for more information
regarding the various derivatives strategies those Funds may employ using swap contracts and other
two-party contracts.)
Swap Contracts. The Funds may directly or indirectly use various different types of swaps, such as
swaps on securities and securities indices, total return swaps, interest rate swaps, currency
swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps, and other types of
available swap agreements, depending on a Funds investment objective and policies. Swap contracts
are two-party contracts entered into primarily by institutional investors for periods ranging from
a few weeks to a number of years. Under a typical swap, one party may agree to pay a fixed rate or
a floating rate determined by reference to a specified instrument, rate, or index, multiplied in
each case by a specified amount (notional amount), while the other party agrees to pay an amount
equal to a different floating rate multiplied by the same notional amount. On each payment date,
the parties obligations are netted, with only the net amount paid by one party to the other.
Swap contracts are typically individually negotiated and structured to provide exposure to a
variety of different types of investments or market factors. Swap contracts may be entered into
for hedging or non-hedging purposes and therefore may increase or decrease a Funds exposure to the
underlying instrument, rate, asset or index. Swaps can take many different forms and are known by
a variety of names. A Fund is not limited to any particular form or variety of swap agreement if
the Manager determines it is consistent with the Funds investment objective and policies.
26
A Fund may enter into swaps on securities, baskets of securities or securities indices. For
example, the parties to a swap contract may agree to exchange returns calculated on a notional
amount of a security, basket of securities, or securities index (e.g., S&P 500 Index).
Additionally, a Fund may use total return swaps, which typically involve commitments to pay amounts
computed in the same manner as interest in exchange for a market-linked return, both based on
notional amounts. A Fund may use such swaps to gain investment exposure to the underlying security
or securities where direct ownership is either not legally possible or is economically
unattractive. To the extent the total return of the security, basket of securities, or index
underlying the transaction exceeds or falls short of the offsetting interest rate obligation, a
Fund will receive a payment from or make a payment to the counterparty, respectively.
In addition, a Fund may enter into an interest rate swap in order to protect against declines in
the value of fixed income securities held by the Fund. In such an instance, the Fund may agree
with a counterparty to pay a fixed rate (multiplied by a notional amount) and the counterparty pay
a floating rate multiplied by the same notional amount. If interest rates rise, resulting in a
diminution in the value of the Funds portfolio, the Fund would receive payments under the swap
that would offset, in whole or in part, such diminution in value. A Fund may also enter into swaps
to modify its exposure to particular currencies using currency swaps. For instance, a Fund may
enter into a currency swap between the U.S. dollar and the Japanese Yen in order to increase or
decrease its exposure to each such currency.
A Fund may use inflation swaps (including inflation swaps tied to the CPI), which involve
commitments to pay a regular stream of inflation indexed cash payments in exchange for receiving a
stream of nominal interest payments (or vice versa), where both payment streams are based on a
notional amount. The nominal interest payments may be based on either a fixed interest rate or
variable interest rate, such as LIBOR. Inflation swaps may be used to hedge the inflation risk in
nominal bonds (i.e., non-inflation indexed bonds), thereby creating synthetic inflation indexed
bonds, or combined with U.S. Treasury futures contracts to create synthetic inflation indexed bonds
issued by the U.S. Treasury. See Indexed Investments Inflation Indexed Bonds below.
In addition, a Fund may directly or indirectly use credit default swaps to take an active long or
short position with respect to the likelihood of default by a corporate or sovereign issuer of
fixed income securities (including asset-backed securities). In a credit default swap, one party
pays, in effect, an insurance premium through a stream of payments to another party in exchange for
the right to receive a specified return in the event of default (or similar events) by one or more
third parties on their obligations. For example, in purchasing a credit default swap, a Fund may
pay a premium in return for the right to put specified bonds or loans to the counterparty, such as
a U.S. or foreign issuer or basket of such issuers, upon issuer default (or similar events) at
their par (or other agreed-upon) value. A Fund, as the purchaser in a credit default swap, bears
the risk that the investment might expire worthless. It also would be subject to counterparty risk
the risk that the counterparty may fail to satisfy its payment obligations to the Fund in the
event of a default (or similar event) (see Risk Factors in Swap Contracts, OTC Options, and Other
Two-Party Contracts below). In addition, as a purchaser in a credit default swap, the Funds
investment would only generate income in the event of an actual default (or similar event) by the
27
issuer of the underlying obligation. A Fund may also invest in credit default indices, which are
indices that reflect the performance of a basket of credit default swaps.
A Fund also may use credit default swaps for investment purposes by selling a credit default swap,
in which case the Fund will receive a premium from its counterparty in return for the Funds taking
on the obligation to pay the par (or other agreed-upon) value to the counterparty upon issuer
default (or similar events). As the seller in a credit default swap, a Fund effectively adds
economic leverage to its portfolio because, in addition to its total net assets, the Fund is
subject to investment exposure on the notional amount of the swap. If no event of default (or
similar event) occurs, the Fund would keep the premium received from the counterparty and would
have no payment obligations. For credit default swap agreements on asset-backed securities, an
event of default may result from various events, which may include an issuers failure to pay
interest or principal, a breach of a material representation or covenant, an agreement by the
holders of an asset-backed security to a maturity extension, or a write-down on the collateral
underlying the security. For credit default swap agreements on corporate or sovereign issuers, an
event of default may result from such events as the issuers bankruptcy, failure to pay interest or
principal, repudiation/moratorium or restructuring.
A Fund may use variance swap agreements, which involve an agreement by two parties to exchange cash
flows based on the measured variance (or square of volatility) of a specified underlying asset. One
party agrees to exchange a fixed rate or strike price payment for the floating rate or realized
price variance on the underlying asset with respect to the notional amount. At inception, the
strike price chosen is generally fixed at a level such that the fair value of the swap is zero. As
a result, no money changes hands at the initiation of the contract. At the expiration date, the
amount paid by one party to the other is the difference between the realized price variance of the
underlying asset and the strike price multiplied by the notional amount. A receiver of the realized
price variance would receive a payment when the realized price variance of the underlying asset is
greater than the strike price and would make a payment when that variance is less than the strike
price. A payer of the realized price variance would make a payment when the realized price variance
of the underlying asset is greater than the strike price and would receive a payment when that
variance is less than the strike price. This type of agreement is essentially a forward contract on
the future realized price variance of the underlying asset.
While no Fund directly uses commodity swaps, the Asset Allocation Funds (except U.S. Equity
Allocation Fund and Alpha Only Fund), through their investments in GMO Alternative Asset
Opportunity Fund (another series of the Trust offered through a separate private placement
memorandum), may have indirect exposure to commodity swaps on one or more broad-based commodities
indices (e.g., the Dow Jones-UBS Commodity Index), as well as commodity swaps on individual
commodities or baskets of commodities. See Commodity-Related Investments (through GMO Alternative
Asset Opportunity Fund) below for more discussion of that Funds use of commodity swap contracts
and other related types of derivatives.
Contracts for Differences. Contracts for differences are swap arrangements in which the parties
agree that their return (or loss) will be based on the relative performance of two different groups
or baskets of securities. Often, one or both baskets will be an established securities index. The
28
Funds return will be based on changes in value of theoretical long futures positions in the
securities comprising one basket (with an aggregate face value equal to the notional amount of the
contract for differences) and theoretical short futures positions in the securities comprising the
other basket. A Fund also may use actual long and short futures positions and achieve similar
market exposure by netting the payment obligations of the two contracts. A Fund will only enter
into contracts for differences (and analogous futures positions) when the Manager believes that the
basket of securities constituting the long position will outperform the basket constituting the
short position. If the short basket outperforms the long basket, the Fund will realize a loss
even in circumstances when the securities in both the long and short baskets appreciate in value.
In addition, GMO Alternative Asset Opportunity Fund may use contracts for differences that are
based on the relative performance of two different groups or baskets of commodities. Often, one or
both baskets is a commodities index. Contracts for differences on commodities operate in a similar
manner to contracts for differences on securities described above.
Interest Rate Caps, Floors, and Collars. The Funds may use interest rate caps, floors, and collars
for the same or similar purposes as they use interest rate futures contracts and related options
and, as a result, will be subject to similar risks. See Options and FuturesRisk Factors in
Options Transactions and Risk Factors in Futures and Futures Options Transactions above. Like
interest rate swap contracts, interest rate caps, floors, and collars are two-party agreements in
which the parties agree to pay or receive interest on a notional principal amount and are generally
individually negotiated with a specific counterparty. The purchaser of an interest rate cap
receives interest payments from the seller to the extent that the return on a specified index
exceeds a specified interest rate. The purchaser of an interest rate floor receives interest
payments from the seller to the extent that the return on a specified index falls below a specified
interest rate. The purchaser of an interest rate collar receives interest payments from the seller
to the extent that the return on a specified index falls outside the range of two specified
interest rates.
Swaptions. An option on a swap agreement, also called a swaption, is an OTC option that gives
the buyer the right, but not the obligation, to enter into a swap on a specified future date in
exchange for paying a market-based premium. A receiver swaption gives the owner the right to
receive the total return of a specified asset, reference rate, or index (such as a call option on a
bond). A payer swaption gives the owner the right to pay the total return of a specified asset,
reference rate, or index (such as a put option on a bond). Swaptions also include options that
allow one of the counterparties to terminate or extend an existing swap.
Risk Factors in Swap Contracts, OTC Options, and Other Two-Party Contracts. A Fund may only close
out a swap, contract for differences, cap, floor, collar, or OTC option (including swaption) with
its particular counterparty, and may only transfer a position with the consent of that
counterparty. If a counterparty fails to meet its contractual obligations, goes bankrupt, or
otherwise experiences a business interruption, the Fund could miss investment opportunities or
otherwise hold investments it would prefer to sell, resulting in losses for the Fund. If the
counterparty defaults, a Fund will have contractual remedies, but there can be no assurance that
the counterparty will be able to meet its contractual obligations or that the Fund will be able to
enforce its rights. For example, because the contract for each OTC derivatives transaction is
29
individually negotiated with a specific counterparty, a Fund is subject to the risk that a
counterparty may interpret contractual terms (e.g., the definition of default) differently than the
Fund. The cost and unpredictability of the legal proceedings required for the Fund to enforce its
contractual rights may lead it to decide not to pursue its claims against the counterparty.
Counterparty risk is greater with longer maturities where events may intervene to prevent
settlement. Counterparty risk is also greater when a Fund has concentrated its derivatives with a
single or small group of counterparties as it sometimes does as a result of its use of swaps and
other OTC derivatives. To the extent a Fund has significant exposure to a single counterparty,
this risk will be particularly pronounced for the Fund. The Fund, therefore, assumes the risk that
it may be unable to obtain payments the Manager believes are owed under an OTC derivatives contract
or that those payments may be delayed or made only after the Fund has incurred the costs of
litigation. In addition, counterparty risk is pronounced during unusually adverse market
conditions and is particularly acute in environments (like those experienced recently) in which
financial services firms are exposed to systemic risks of the type evidenced by the insolvency of
Lehman Brothers in 2008 and subsequent market disruptions.
The credit rating of a counterparty may be adversely affected by greater-than-average volatility in
the markets, even if the counterpartys net market exposure is small relative to its capital.
Counterparty risk with respect to OTC derivatives may be further complicated by recently enacted
U.S. financial reform legislation. See Legal and Regulatory Risk below for more information.
Each Funds ability to enter into these transactions may be affected by tax considerations.
Additional Risk Factors in OTC Derivatives Transactions. Participants in OTC derivatives markets
typically are not subject to the same level of credit evaluation and regulatory oversight as are
members of exchange-based markets and, therefore, OTC derivatives generally expose a Fund to
greater counterparty risk than exchange-traded derivatives.
Among other trading agreements, certain Funds are party to International Swaps and Derivatives
Association, Inc. Master Agreements (ISDA Agreements) or other similar types of agreements with
select counterparties that generally govern over-the-counter derivative transactions entered into
by such Funds. The ISDA Agreements typically include representations and warranties as well as
contractual terms related to collateral, events of default, termination events, and other
provisions. Termination events may include the decline in the net assets of a Fund below a certain
level over a specified period of time and entitle a counterparty to elect to terminate early with
respect to some or all the transactions under the ISDA Agreement with that counterparty. Such an
election by one or more of the counterparties could have a material adverse impact on a Funds
operations.
Use of Futures and Related Options, Interest Rate Floors, Caps and Collars, Certain Types of Swap
Contracts and Related InstrumentsCommodity Pool Operator Status. Each Fund has claimed an
exclusion from the definition of commodity pool operator under the Commodity Exchange Act and,
therefore, is not subject to registration or regulation as a commodity pool operator under that
Act.
30
Foreign Currency Transactions
Currency exchange rates may fluctuate significantly over short periods of time. They generally are
determined by the forces of supply and demand in the currency exchange markets, trade balances, the
relative merits of investments in different countries, actual or perceived changes in interest
rates, differences in relative values of similar assets in different currencies, long-term
opportunities for investment and capital appreciation, and other complex factors. Currency
exchange rates also can be affected unpredictably as a result of intervention (or the failure to
intervene) by the U.S. or foreign governments, central banks, or supranational agencies such as the
International Monetary Fund, or by currency or exchange controls or political and economic
developments in the U.S. or abroad. Currencies in which a Funds assets are denominated, or in
which a Fund has taken a long position, may be devalued against other currencies, resulting in a
loss to the Fund. Similarly, currencies in which a Fund has taken a short position may increase in
value relative to other currencies, resulting in a loss to the Fund.
In addition, some currencies are illiquid (e.g., emerging country currencies), and a Fund may not
be able to covert these currencies into U.S. dollars, in which case the Manager may decide to
purchase U.S. dollars in a parallel market where the exchange rate is materially and adversely
different. Exchange rates for many currencies (e.g., emerging country currencies) are particularly
affected by exchange control regulations.
Funds that are permitted to invest in securities denominated in foreign currencies may buy or sell
foreign currencies or deal in forward foreign currency contracts, currency futures contracts and
related options, and options on currencies. Those Funds may use such currency instruments for
hedging, investment, and/or currency risk management. Currency risk management may include taking
overweighted or underweighted currency positions relative to both the securities portfolio of a
Fund and the Funds performance benchmark or index. Those Funds also may purchase forward foreign
exchange contracts in conjunction with U.S. dollar-denominated securities in order to create a
synthetic foreign currency-denominated security that approximates desired risk and return
characteristics when the non-synthetic securities either are not available in foreign markets or
possess undesirable characteristics.
Forward foreign currency contracts are contracts between two parties to purchase and sell a
specified quantity of a particular currency at a specified price, with delivery and settlement to
take place on a specified future date. A forward foreign currency contract can reduce a Funds
exposure to changes in the value of the currency it will deliver and can increase its exposure to
changes in the value of the currency it will receive for the duration of the contract. The effect
on the value of a Fund is similar to the effect of selling securities denominated in one currency
and purchasing securities denominated in another currency. Contracts to sell a particular foreign
currency would limit any potential gain that might be realized by a Fund if the value of the hedged
currency increases. 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 because of independent factors not
related to currency fluctuations. If a forward foreign currency contract is used for hedging, an
imperfect correlation between movements in the price of the forward foreign currency contract and
the price of the currency or other investment being hedged creates risk.
31
Forward foreign currency contracts involve a number of the same characteristics and risks as
currency futures contracts (discussed below) but there also are several differences. Forward
foreign currency contracts are not market traded, and are not necessarily marked to market on a
daily basis. They settle only at the pre-determined settlement date. This can result in
deviations between forward foreign currency prices and currency futures prices, especially in
circumstances where interest rates and currency futures prices are positively correlated. Second,
in the absence of exchange trading and involvement of clearing houses, there are no standardized
terms for forward currency contracts. Accordingly, the parties are free to establish such
settlement times and underlying amounts of a currency as desirable, which may vary from the
standardized provisions available through any currency futures contract. Finally, forward foreign
currency contracts, as two party obligations for which there is no secondary market, involve
counterparty risk not present with currency futures contracts, discussed below.
A Fund also may purchase or sell currency futures contracts and related options. Currency futures
contracts are contracts to buy or sell a standard quantity of a particular currency at a specified
future date and price. However, currency futures can be and often are closed out prior to delivery
and settlement. In addition, a Fund may use options on currency futures contracts, which give
their holders the right, but not the obligation, to buy (in the case of a call option) or sell (in
the case of a put option) a specified currency futures contract at a fixed price during a specified
period. (See Options and FuturesFutures above for more information on futures contracts and
options on futures contracts.)
A Fund also may purchase or sell options on currencies. These give their holders the right, but
not the obligation, to buy (in the case of a call option) or sell (in the case of a put option) a
specified quantity of a particular currency at a fixed price during a specified period. Options on
currencies possess many of the same characteristics as options on securities and generally operate
in a similar manner. They may be traded on an exchange or in the OTC markets. Options on
currencies traded on U.S. or other exchanges may be subject to position limits, which may limit the
ability of a Fund to reduce foreign currency risk using options. (See Options and
FuturesCurrency Options above for more information on currency options.)
Repurchase Agreements
A Fund may (in the case of U.S. Treasury Fund, as a principal investment strategy) enter into
repurchase agreements with banks and broker-dealers. A repurchase agreement is a contract under
which the Fund acquires a security (usually an obligation of the government in the jurisdiction
where the transaction is initiated or in whose currency the agreement is denominated or, in the
case of U.S. Treasury Fund, usually a security backed by the full faith and credit of the U.S.
government, such as a U.S. Treasury bill, bond or note) for a relatively short period (usually less
than a week) for cash and subject to the commitment of the seller to repurchase the security for an
agreed-upon price on a specified date. The repurchase price exceeds the acquisition price and
reflects an agreed-upon market rate unrelated to the coupon rate on the purchased security.
Repurchase agreements afford a Fund the opportunity to earn a return on temporarily available cash
without market risk, although the Fund bears the risk of a sellers failure to meet its obligation
to pay the repurchase price when it is required to do so. Such a default may subject the Fund to
expenses, delays, and risks of loss including: (i) possible declines in the value of the underlying
security while the Fund seeks to enforce its rights thereto, (ii) possible reduced levels
32
of income and lack of access to income during this period, and (iii) the inability to enforce its
rights and the expenses involved in attempted enforcement. Entering into repurchase agreements
entails certain risks, which include the risk that the counterparty to the repurchase agreement may
not be able to fulfill its obligations, as discussed above, that the parties may disagree as to the
meaning or application of contractual terms, or that the instrument may not perform as expected.
See Description of Principal RisksCounterparty Risk in the Prospectuses.
Debt and Other Fixed Income Securities Generally
Debt and other fixed income securities include fixed and floating rate securities of any maturity.
Fixed rate securities pay a specified rate of interest or dividends. Floating rate securities pay
a rate that is adjusted periodically by reference to a specified index or market rate. Fixed and
floating rate securities include securities issued by federal, state, local, and foreign
governments and related agencies, and by a wide range of private issuers, and generally are
referred to in this Statement of Additional Information as fixed income securities. Indexed
bonds are a type of fixed income security whose principal value and/or interest rate is adjusted
periodically according to a specified instrument, index, or other statistic (e.g., another
security, inflation index, currency, or commodity). See Adjustable Rate Securities and Indexed
Investments below. In addition, the Funds may 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). See, for example, Options and
FuturesInflation-Linked Futures above.
Holders of fixed income securities are exposed to both market and credit risk. Market risk (or
interest rate risk) relates to changes in a securitys value as a result of changes in interest
rates. In general, the values of fixed income securities increase when interest rates fall and
decrease when interest rates rise. Credit risk relates to the ability of an issuer to make
payments of principal and interest. Obligations of issuers are subject to bankruptcy, insolvency
and other laws that affect the rights and remedies of creditors. Fixed income securities
denominated in
foreign currencies also are subject to the risk of a decline in the value of the denominating
currency.
Because interest rates vary, the future income of a Fund that invests in floating rate fixed income
securities cannot be predicted with certainty. The future income of a Fund that invests in indexed
securities also will be affected by changes in those securities indices over time (e.g., changes
in inflation rates, currency rates, or commodity prices).
The Funds may invest in a wide range of debt and fixed income instruments, including, but not
limited to, Brady Bonds, Euro Bonds and Zero Coupon Securities, described below.
Cash and Other High Quality Investments
Many of the Funds may temporarily invest a portion of their assets in cash or cash items pending
other investments or to maintain liquid assets required in connection with some of the Funds
investments. These cash items and other high quality debt securities may include money market
33
instruments, such as securities issued by the United States Government and its agencies, bankers
acceptances, commercial paper, and bank certificates of deposit. If a custodian holds cash on
behalf of a Fund, the Fund may be an unsecured creditor in the event of the insolvency of the
custodian. In addition, the Fund will be subject to credit risk with respect to such a custodian,
which may be heightened to the extent the Fund takes a temporary defensive position.
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. Different kinds of U.S.
government securities and foreign government securities have different kinds of government support.
For example, some U.S. government securities (e.g., U.S. Treasury bonds) are supported by the full
faith and credit of the United States. Other U.S. government securities are issued or guaranteed
by federal agencies or government-chartered or -sponsored enterprises but are neither guaranteed
nor insured by the U.S. government (e.g., debt securities issued by the Federal Home Loan Mortgage
Corporation (Freddie Mac), Federal National Mortgage Association (Fannie Mae), and Federal Home
Loan Banks (FHLBs)). 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.
Foreign government securities of some countries may involve varying degrees of credit risk as a
result of financial or political instability in those countries or the possible inability of a Fund
to enforce its rights against the foreign government. As with issuers of other fixed income
securities, sovereign issuers may be unable or unwilling to satisfy their obligations to pay
principal or interest payments.
Supra-national agencies are agencies whose member nations make capital contributions to support the
agencies activities. Examples include the International Bank for Reconstruction and Development
(the World Bank), the Asian Development Bank, and the Inter-American Development Bank.
As with other fixed income securities, U.S. government securities and foreign government securities
expose their holders to market risk because their values typically change as interest rates
fluctuate. For example, the value of 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.
Generally, when interest rates on short term U.S. Treasury obligations equal or approach zero, a
Fund that invests a substantial portion of its assets in U.S. Treasury obligations, such as U.S.
Treasury Fund, will have a negative return unless the Manager waives or reduces its management
fees.
In addition to investing directly in U.S. government securities and foreign government securities,
a Fund may purchase certificates of accrual or similar instruments evidencing undivided ownership
interests in interest payments and/or principal payments of U.S. government securities and foreign
government securities. A Fund may also invest in Separately Traded Registered Interest and
Principal Securities (STRIPS), which are interests in separately traded interest and principal
component parts of U.S. Treasury obligations that represent future interest payments,
34
principal payments, or both, are direct obligations of the U.S. government, and are transferable
through the federal reserve book-entry system. Certificates of accrual and similar instruments may
be more volatile than other government securities.
Municipal Securities
Municipal obligations are issued by or on behalf of states, territories and possessions of the
United States and their political subdivisions, agencies and instrumentalities and the District of
Columbia to obtain funds for various public purposes. Municipal obligations are subject to more
credit risk than U.S. government securities that are supported by the full faith and credit of the
United States. The ability of municipalities to meet their obligations will depend on the
availability of tax and other revenues, economic, political and other conditions within the state
and municipality, and the underlying fiscal condition of the state and municipality. As with other
fixed income securities, municipal securities also expose their holders to market risk because
their values typically change as interest rates fluctuate. The two principal classifications of
municipal obligations are notes and bonds.
Municipal notes are generally used to provide for short-term capital needs, such as to finance
working capital needs of municipalities or to provide various interim or construction financing,
and generally have maturities of one year or less. They are generally payable from specific
revenues expected to be received at a future date or are issued in anticipation of long-term
financing to be obtained in the market to provide for the repayment of the note.
Municipal bonds, which meet longer-term capital needs and generally have maturities of more than
one year when issued, have two principal classifications: general obligation bonds and revenue
bonds. Issuers of general obligation bonds, the proceeds of which are used to fund a wide range of
public projects including the construction or improvement of schools, highways and roads, water and
sewer systems and a variety of other public purposes, include states, counties, cities, towns and
regional districts. The basic security behind general obligation bonds is the issuers pledge of
its full faith, credit, and taxing power for the payment of principal and interest.
Revenue bonds have been issued to fund a wide variety of capital projects including: electric, gas,
water and sewer systems; highways, bridges and tunnels; port and airport facilities; colleges and
universities; and hospitals. The principal security for a revenue bond is generally the net
revenues derived from a particular facility or group of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source. Although the principal security
behind these bonds varies widely, many provide additional security in the form of a debt service
reserve fund whose monies may also be used to make principal and interest payments on the issuers
obligations. In addition to a debt service reserve fund, some authorities provide further security
in the form of a states ability (without obligation) to make up deficiencies in the debt reserve
fund.
Securities purchased for a Fund may include variable/floating rate instruments, variable mode
instruments, put bonds, and other obligations that have a specified maturity date but also are
payable before maturity after notice by the holder. There are, in addition, a variety of hybrid
and special types of municipal obligations as well as numerous differences in the security of
35
municipal obligations both within and between the two principal classifications (i.e., notes and
bonds). A Fund may also invest in credit default swaps on municipal securities. See Swap
Contracts and Other Two-Party ContractsSwap Contracts above.
See Taxes below for a discussion of the tax treatment of municipal obligations at the Fund and
shareholder level.
Auction Rate Securities
Auction rate securities consist of auction rate municipal securities and auction rate preferred
securities sold through an auction process issued by closed-end investment companies,
municipalities and governmental agencies. Provided that the auction mechanism is successful,
auction rate securities usually permit the holder to sell the securities in an auction at par value
at specified intervals. The dividend is reset by Dutch auction in which bids are made by
broker-dealers and other institutions for a certain amount of securities at a specified minimum
yield. The dividend rate set by the auction is the lowest interest or dividend rate that covers all
securities offered for sale. While this process is designed to permit auction rate securities to be
traded at par value, there is the risk that an auction will fail due to insufficient demand for the
securities.
Real Estate Investment Trusts and other Real Estate-Related Investments
Certain Funds may invest in pooled real estate investment vehicles (so-called real estate
investment trusts or REITs) and other real estate-related investments such as securities of
companies principally engaged in the real estate industry. In addition to REITs, companies in the
real estate industry and real estate-related investments may include, for example, entities that
either own properties or make construction or mortgage loans, real estate developers, and companies
with substantial real estate holdings. Each of these types of investments is subject to risks
similar to those associated with direct ownership of real estate. Factors affecting real estate
values include the supply of real property in particular markets, overbuilding, changes in zoning
laws, casualty or condemnation losses, delays in completion of construction, changes in real estate
values, changes in operations costs and property taxes, levels of occupancy, adequacy of rent to
cover operating expenses, possible environmental liabilities, regulatory limitations on rent,
fluctuations in rental income, increased competition and other risks related to local and regional
market conditions. The value of real-estate related investments also may be affected by changes in
interest rates, macroeconomic developments, and social and economic trends. For instance, during
periods of declining interest rates, certain mortgage REITs may hold mortgages that the mortgagors
elect to prepay, which prepayment may diminish the yield on securities issued by those REITs. Some
REITs have relatively small market capitalizations, which can tend to increase the volatility of
the market price of their securities.
REITs are pooled investment vehicles that invest in real estate or real estate-related companies.
The Funds may invest in different types of REITs, including equity REITs, which own real estate
directly; mortgage REITs, which make construction, development, or long-term mortgage loans; and
hybrid REITs, which share characteristics of equity REITs and mortgage REITs. In general, the
value of a REITs shares changes in light of factors affecting the real estate industry. REITs are
also subject to the risk of fluctuations in income from underlying real estate assets, poor
performance by the REITs manager and the managers inability to manage cash flows generated
36
by the REITs assets, prepayments and defaults by borrowers, self-liquidation, adverse changes in
the tax laws, and, with regard to U.S. REITs (as defined in Taxes below), the risk of failing to
qualify for tax-free pass-through of income under the Code and/or to maintain exempt status under
the 1940 Act. See Taxes below for a discussion of special tax considerations relating to a
Funds investment in U.S. REITs.
By investing in REITs indirectly through a Fund, investors will bear not only their proportionate
share of the expenses of the Fund, but also, indirectly, similar expenses of REITs. In addition,
REITs depend generally on their ability to generate cash flow to make distributions to investors.
Investments in REITs are subject to risks associated with the direct ownership of real estate.
Asset-Backed and Related Securities
An asset-backed security is a fixed income security that predominantly derives its creditworthiness
from cash flows relating to a pool of assets. There are a number of different types of
asset-backed and related securities, including mortgage-backed securities, securities backed by
other pools of collateral (such as automobile loans, student loans, sub-prime mortgages, and
credit- card receivables), collateralized mortgage obligations, and collateralized debt
obligations, each of which is described in more detail below. Investments in asset-backed
securities are subject to all of the market risks for fixed-income securities described in the
Prospectuses under Description of Principal RisksMarket RiskFixed Income Securities Risk and
elsewhere in this SAI.
Mortgage-Backed Securities. Mortgage-backed securities are asset-backed securities backed by pools
of residential and commercial mortgages, which may include sub-prime mortgages. Mortgage-backed
securities may be issued by agencies or instrumentalities of the U.S. government (including those
whose securities are neither guaranteed nor insured by the U.S. government, such as Freddie Mac,
Fannie Mae, and FHLBs), foreign governments (or their agencies or instrumentalities), or
non-governmental issuers. Interest and principal payments (including prepayments) on the mortgage
loans underlying mortgage-backed securities pass through to the holders of the mortgage-backed
securities. Prepayments occur when the mortgagor on an individual mortgage loan prepays the
remaining principal before the loans scheduled maturity date. Unscheduled prepayments of the
underlying mortgage loans may result in early payment of the applicable mortgage-backed securities
held by a Fund. The Fund may be unable to invest prepayments in an investment that provides as
high a yield as the mortgage-backed securities. Consequently, early payment associated with
mortgage-backed securities may cause these securities to experience significantly greater price and
yield volatility than traditional fixed income securities. Many factors affect the rate of
mortgage loan prepayments, including changes in interest rates, general economic conditions,
further deterioration of worldwide economic and liquidity conditions, the location of the property
underlying the mortgage, the age of the mortgage loan, governmental action, including legal
impairment of underlying home loans, changes in demand for products financed by those loans, the
inability of borrowers to refinance existing loans (e.g., sub-prime mortgages), and social and
demographic conditions. During periods of falling interest rates, the rate of mortgage loan
prepayments usually increases, which tends to decrease the life of mortgage-backed securities.
During periods of rising interest
37
rates, the rate of mortgage loan prepayments usually decreases, which tends to increase the life of
mortgage-backed securities.
Mortgage-backed securities are subject to varying degrees of credit risk, depending on whether they
are issued by agencies or instrumentalities of the U.S. government (including those whose
securities are neither guaranteed nor insured by the U.S. government) or by non-governmental
issuers. Securities issued by private organizations may not be readily marketable, and since the
deterioration of worldwide economic and liquidity conditions that became acute in 2008,
mortgage-backed securities have been subject to greater liquidity risk. These conditions may occur
again. Also, government actions and proposals affecting the terms of underlying home loans,
changes in demand for products (e.g., automobiles) financed by those loans, and the inability of
borrowers to refinance existing loans (e.g., subprime mortgages), have had, and may continue to
have, adverse valuation and liquidity effects on mortgage-backed securities. Although liquidity of
mortgage-backed securities has improved recently, there can be no assurance that in the future the
market for mortgage-backed securities will continue to improve and become more liquid. In
addition, mortgage-backed securities are subject to the risk of loss of principal if the obligors
of the underlying obligations default in their payment obligations, and to certain other risks
described in Other Asset-Backed Securities below. The risk of defaults associated with
mortgage-backed securities is generally higher in the case of mortgage-backed investments that
include sub-prime mortgages. See Market RiskAsset-Backed Securities in the Prospectuses for
more information regarding credit and other risks associated with investments in asset-backed
securities.
Mortgage-backed securities may include Adjustable Rate Securities as such term is defined in
Adjustable Rate Securities below.
Other Asset-Backed Securities. Similar to mortgage-backed securities, other types of asset-backed
securities may be issued by agencies or instrumentalities of the U.S. government (including those
whose securities are neither guaranteed nor insured by the U.S. government), foreign governments
(or their agencies or instrumentalities), or non-governmental issuers. These securities include
securities backed by pools of automobile loans, educational loans, home equity loans, and
credit-card receivables. The underlying pools of assets are securitized through the use of trusts
and special purpose entities. These securities may be subject to risks associated with changes in
interest rates and prepayment of underlying obligations similar to the risks of investment in
mortgage-backed securities described immediately above. Additionally, since the deterioration of
worldwide economic and liquidity conditions that became acute in 2008, asset-backed securities have
been subject to greater liquidity risk. These conditions may occur again. Also, government
actions and proposals affecting the terms of underlying home and consumer loans, changes in demand
for products (e.g., automobiles) financed by those loans, and the inability of borrowers to
refinance existing loans (e.g., subprime mortgages), have had, and may continue to have, adverse
valuation and liquidity effects on asset-backed securities. Although liquidity of asset-backed
securities has improved recently, there can be no assurance that in the future the market for
asset-backed securities will continue to improve and become more liquid. The risk of investing in
asset-backed securities has increased because performance of the various sectors in which the
assets underlying asset-backed securities are concentrated (e.g., auto loans, student loans,
sub-prime mortgages, and credit card receivables) has become more highly
38
correlated since the deterioration in worldwide economic and liquidity conditions referred to
above.
Payment of interest on asset-backed securities and repayment of principal largely depends on the
cash flows generated by the underlying assets backing the securities and, in certain cases, may be
supported by letters of credit, surety bonds, or other credit enhancements. The amount of market
risk associated with asset-backed securities depends on many factors, including the deal structure
(i.e., determination as to the amount of underlying assets or other support needed to produce the
cash flows necessary to service interest and make principal payments), the quality of the
underlying assets, the level of credit support, if any, provided for the securities, and the credit
quality of the credit-support provider, if any. Asset-backed securities involve risk of loss of
principal if obligors of the underlying obligations default in payment of the obligations and the
defaulted obligations exceed the securities credit support. The obligations of issuers (and
obligors of underlying assets) also are subject to bankruptcy, insolvency and other laws affecting
the rights and remedies of creditors. In addition, the existence of insurance on an asset-backed
security does not guarantee that principal and/or interest will be paid because the insurer could
default on its obligations. In recent years, a significant number of asset-backed security insurers
have defaulted on their obligations.
The market value of an asset-backed security may be affected by the factors described above and
other factors, such as the availability of information concerning the pool and its structure, the
creditworthiness of the servicing agent for the pool, the originator of the underlying assets, or
the entities providing the credit enhancement. The market value of asset-backed securities also
can depend on the ability of their servicers to service the underlying collateral and is,
therefore, subject to risks associated with servicers performance. In some circumstances, a
servicers or originators mishandling of documentation related to the underlying collateral (e.g.,
failure to properly document a security interest in the underlying collateral) may affect the
rights of the security holders in and to the underlying collateral. In addition, the insolvency of
entities that generate receivables or that utilize the underlying assets may result in a decline in
the value of the underlying assets as well as costs and delays.
Certain types of asset-backed securities present additional risks that are not presented by
mortgage-backed securities. In particular, certain types of asset-backed securities may not have
the benefit of a security interest in the related assets. For example, many securities backed by
credit-card receivables are unsecured. In addition, a Fund may invest in securities backed by
pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these
bonds and loans, many of which may be unsecured (commonly referred to as collateralized debt
obligations or collateralized loan obligations ) (see Collateralized Debt Obligations (CDOs)
below). Even when security interests are present, the ability of an issuer of certain types of
asset-backed securities to enforce those interests may be more limited than that of an issuer of
mortgage-backed securities. For instance, automobile receivables generally are secured, but by
automobiles rather than by real property. Most issuers of automobile receivables permit loan
servicers to retain possession of the underlying assets. In addition, because of the large number
of underlying vehicles involved in a typical issue of asset-backed securities and technical
requirements under state law, the trustee for the holders of the automobile receivables may not
have a proper security interest in all of the automobiles.
39
Therefore, recoveries on repossessed automobiles may not be available to support payments on these
securities.
In addition, certain types of asset-backed securities may experience losses on the underlying
assets as a result of certain rights provided to consumer debtors under federal and state law. In
the case of certain consumer debt, such as credit-card debt, debtors are entitled to the protection
of a number of state and federal consumer credit laws, many of which give such debtors the right to
set off certain amounts owed on their credit-cards (or other debt), thereby reducing their balances
due. For instance, a debtor may be able to offset certain damages for which a court has determined
that the creditor is liable to the debtor against amounts owed to the creditor by the debtor on his
or her credit-card.
Collateralized Mortgage Obligations (CMOs); Strips and Residuals. A CMO is a debt obligation
backed by a portfolio of mortgages or mortgage-backed securities held under an indenture. The
issuer of a CMO generally pays interest and prepaid principal on a monthly basis. These payments
are secured by the underlying portfolio, which typically includes mortgage pass-through securities
guaranteed by Freddie Mac, Fannie Mae, or the Government National Mortgage Association (Ginnie
Mae) and their income streams, and which also may include whole mortgage loans and private
mortgage bonds.
CMOs are issued in multiple classes, often referred to as tranches. Each class has a different
maturity and is entitled to a different schedule for payments of principal and interest, including
pre-payments.
In a typical CMO transaction, the issuer of the CMO bonds uses proceeds from the CMO offering to
buy mortgages or mortgage pass-through certificates (the Collateral). The issuer then pledges
the Collateral to a third party trustee as security for the CMOs. The issuer uses principal and
interest payments from the Collateral to pay principal on the CMOs, paying the tranche with the
earliest maturity first. Thus, the issuer pays no principal on a tranche until all other tranches
with earlier maturities are paid in full. The early retirement of a particular class or series has
the same effect as the prepayment of mortgage loans underlying a mortgage-backed pass-through
security.
CMOs may be less liquid and may exhibit greater price volatility than other types of mortgage- or
other asset-backed securities.
The Funds also may invest in CMO residuals, which are issued by agencies or instrumentalities of
the U.S. government or by private lenders of, or investors in, mortgage loans, including savings
and loan associations, homebuilders, mortgage banks, commercial banks, and investment banks. A CMO
residual represents excess cash flow generated by the Collateral after the issuer of the CMO makes
all required principal and interest payments and after the issuers management fees and
administrative expenses have been paid. Thus, CMO residuals have value only to the extent income
from the Collateral exceeds the amount necessary to satisfy the issuers debt obligations on all
other outstanding CMOs. The amount of residual cash flow resulting from a CMO will depend on,
among other things, the characterization of the mortgage assets, the
40
coupon rate of each class of CMO, prevailing interest rates, the amount of administrative expenses,
and the pre-payment experience on the mortgage assets.
CMOs also include certificates representing undivided interests in payments of interest-only or
principal-only (IO/PO Strips) on the underlying mortgages.
IO/PO Strips and CMO residuals tend to be more volatile than other types of securities. If the
underlying securities are prepaid, holders of IO/PO Strips and CMO residuals may lose a substantial
portion or the entire value of their investment. In addition, if a CMO pays interest at an
adjustable rate, the cash flows on the related CMO residual will be extremely sensitive to rate
adjustments.
Collateralized Debt Obligations (CDOs). A Fund may invest in CDOs, which include collateralized
bond obligations (CBOs), collateralized loan obligations (CLOs), and other similarly structured
securities. CBOs and CLOs are asset-backed securities. A CBO is an obligation of a trust or other
special purpose vehicle backed by a pool of fixed income securities. A CLO is an obligation of a
trust or other special purpose vehicle typically collateralized by a pool of loans, which may
include domestic and foreign senior secured and unsecured loans, and subordinate corporate loans,
including loans that may be rated below investment-grade, or equivalent unrated loans.
For both CBOs and CLOs, the cash flows from the trust are split into two or more portions, called
tranches, which vary in risk and yield. The riskier portions are the residual, equity, and
subordinate tranches, which bear some or all of the risk of default by the bonds or loans in the
trust, and therefore protect the other, more senior tranches from default in all but the most
severe circumstances. Since it is partially protected from defaults, a senior tranche from a CBO
trust or CLO trust typically has higher ratings and lower yields than its underlying securities,
and can be rated investment grade. Despite the protection from the riskier tranches, senior CBO or
CLO tranches can experience substantial losses due to actual defaults (including collateral
default), the total loss of the riskier tranches due to losses in the collateral, market
anticipation of defaults, fraud by the trust, and the illiquidity of CBO or CLO securities.
The risks of an investment in a CDO largely depend on the type of underlying collateral securities
and the tranche in which a Fund invests. The Funds may invest in any tranche of a CBO or CLO.
Typically, CBOs, CLOs and other CDOs are privately offered and sold, and thus, are not registered
under the securities laws. As a result, a Fund may characterize its investments in CDOs as
illiquid, unless an active dealer market for a particular CDO allows the CDO to be purchased and
sold in Rule 144A transactions. CDOs are subject to the typical risks associated with debt
instruments discussed elsewhere in this Statement of Additional Information and the Prospectuses,
including interest rate risk (which may be exacerbated if the interest rate payable on a structured
financing changes based on multiples of changes in interest rates or inversely to changes in
interest rates),default risk, prepayment risk, credit risk, liquidity risk, market risk, structural
risk, and legal risk Additional risks of CDOs include: (i) the possibility that distributions from
collateral securities will be insufficient to make interest or other payments, (ii) the possibility
that the quality of the collateral may decline in value or default, due to factors such as the
availability of any credit enhancement, the level and timing of payments and
41
recoveries on and the characteristics of the underlying receivables, loans or other assets that are
being securitized, remoteness of those assets from the originator or transferor, the adequacy of
and ability to realize upon any related collateral and the capability of the servicer of the
securitized assets, (iii) market and liquidity risks affecting the price of a structured finance
investment, if required to be sold, at the time of sale, and (iv) if the particular structured
product is invested in a security in which a Fund is also invested, this would tend to increase the
Funds overall exposure to the credit of the issuer of such securities, at least on an absolute, if
not on a relative basis. In addition, due to the complex nature of a CDO, an investment in a CDO
may not perform as expected. An investment in a CDO also is subject to the risk that the issuer
and the investors may interpret the terms of the instrument differently, giving rise to disputes.
Adjustable Rate Securities
Adjustable rate securities are securities that have interest rates that reset at periodic
intervals, usually by reference to an interest rate index or market interest rate. Adjustable rate
securities include U.S. government securities and securities of other issuers. Some adjustable
rate securities are backed by pools of mortgage loans. Although the rate adjustment feature may
act as a buffer to reduce sharp changes in the value of adjustable rate securities, changes in
market interest rates or changes in the issuers creditworthiness may still affect their value.
Because the interest rate is reset only periodically, changes in the interest rates on adjustable
rate securities may lag changes in prevailing market interest rates. Also, some adjustable rate
securities (or, in the case of securities backed by mortgage loans, the underlying mortgages) are
subject to caps or floors that limit the maximum change in interest rate during a specified period
or over the life of the security. Because of the rate adjustments, adjustable rate securities are
less likely than non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall.
Below Investment Grade Securities
Some Funds may invest some or all of their assets in securities or instruments rated below
investment grade (that is, rated below Baa3/P-2 by Moodys Investors Service, Inc. (Moodys) or
below BBB-/A-2 by Standard & Poors (S&P) for a particular security/commercial paper, or
securities unrated by Moodys or S&P that are determined by the Manager to be of comparable quality
to securities so rated) at the time of purchase, including securities in the lowest rating
categories and comparable unrated securities (Below Investment Grade Securities) (commonly
referred to as junk bonds). In addition, some Funds may hold securities that are downgraded to
below-investment-grade status after the time of purchase by the Funds. Many issuers of high yield
debt are highly leveraged, and their relatively high debt-to-equity ratios create increased risks
that their operations might not generate sufficient cash flow to service their debt obligations.
In addition, many issuers of high yield debt may be (i) in poor financial condition, (ii)
experiencing poor operating results, (iii) having substantial capital needs or negative net worth
or (iv) facing special competitive or product obsolescence problems, and may include companies
involved in bankruptcy or other reorganizations or liquidation proceedings. Compared to higher
quality fixed income securities, Below Investment Grade Securities offer the potential for higher
investment returns but subject holders to greater credit and market risk. The ability of an issuer
of Below Investment Grade Securities to meet principal and interest payments is considered
speculative. A Funds investments in Below Investment Grade Securities are more
42
dependent on the Managers own credit analysis than its investments in higher quality bonds.
Certain of these securities may not be publicly traded, and therefore it may be difficult to obtain
information as to the true condition of the issuers. The market for Below Investment Grade
Securities may be more severely affected than other financial markets by economic recession or
substantial interest rate increases, changing public perceptions, or legislation that limits the
ability of certain categories of financial institutions to invest in Below Investment Grade
Securities. In addition, the market may be less liquid for Below Investment Grade Securities than
for other types of securities. Reduced liquidity can affect the values of Below Investment Grade
Securities, make their valuation and sale more difficult, and result in greater volatility.
Because Below Investment Grade Securities are difficult to value and are more likely to be fair
valued (see Determination of Net Asset Value in the Prospectuses and herein), particularly during
erratic markets, the values realized on their sale may differ from the values at which they are
carried on the books of a Fund. Some Below Investment Grade Securities in which a Fund invests may
be in poor standing or in default.
Securities in the lowest investment-grade category (BBB or Baa) also have some speculative
characteristics. See Appendix BCommercial Paper and Corporate Debt Ratings for more information
concerning commercial paper and corporate debt ratings.
Distressed or Defaulted Instruments
Some Funds may invest in securities, claims and obligations of U.S. and non-U.S. issuers which are
experiencing significant financial or business difficulties (including companies involved in
bankruptcy or other reorganization and liquidation proceedings). A Fund may purchase distressed
securities and instruments of all kinds, subject to tax considerations, including equity and debt
instruments and, in particular, loans, loan participations, claims held by trade or other
creditors, bonds, notes, non-performing and sub-performing mortgage loans, beneficial interests in
liquidating trusts or other similar types of trusts, fee interests and financial interests in real
estate, partnership interests and similar financial instruments, executory contracts and
participations therein, many of which are not publicly traded and which may involve a substantial
degree of risk.
Investments in distressed or defaulted instruments generally are considered speculative and may
involve substantial risks not normally associated with investments in healthier companies,
including adverse business, financial or economic conditions that can lead to defaulted payments
and insolvency proceedings.
In particular, defaulted obligations might be repaid, if at all, only after lengthy workout or
bankruptcy proceedings, during which the issuer might not make any interest or other payments. The
amount of any recovery may be adversely affected by the relative priority of the Funds investment
in the issuers capital structure. The ability to enforce obligations may be adversely affected by
actions or omissions of predecessors in interest that give rise to counterclaims or defenses,
including causes of action for equitable subordination or debt recharacterization. In addition,
such investments, collateral securing such investments, and payments made in respect of such
investments may be challenged as fraudulent conveyances or to be subject to avoidance as
preferences under certain circumstances.
43
Investments in distressed securities inherently have more credit risk than do investments in
similar securities and instruments of non-distressed companies, and the degree of risk associated
with any particular distressed securities may be difficult or impossible for the Manager to
determine within reasonable standards of predictability. The level of analytical sophistication,
both financial and legal, necessary for successful investment in distressed securities is unusually
high.
If the Managers evaluation of the eventual recovery value of a defaulted instrument should prove
incorrect, a Fund may lose a substantial portion or all of its investment or it may be required to
accept cash or instruments with a value less than the Funds original investment.
Investments in financially distressed companies domiciled outside the United States involve
additional risks. Bankruptcy law and creditor reorganization processes may differ substantially
from those in the United States, resulting in greater uncertainty as to the rights of creditors,
the enforceability of such rights, reorganization timing and the classification, seniority and
treatment of claims. In certain developing countries, although bankruptcy laws have been enacted,
the process for reorganization remains highly uncertain.
In addition, investments in distressed or defaulted instruments can present special tax issues for
a Fund. See Taxes below for more information.
Merger Arbitrage Transactions
Some Funds may engage in merger arbitrage transactions, where a Fund will purchase securities at
prices below the Managers anticipated value of the cash, securities or other consideration to be
paid or exchanged for such securities in a proposed merger, exchange offer, tender offer or other
similar transaction. Such purchase price may be substantially in excess of the market price of the
securities prior to the announcement of the merger, exchange offer, tender offer or other similar
transaction. If the proposed merger, exchange offer, tender offer or other similar transaction
later appears likely not to be consummated or in fact is not consummated or is delayed, the market
price of the security purchased by the Fund may decline sharply and result in losses to the Fund if
such securities are sold, transferred or exchanged for securities or cash, the value of which is
less than the purchase price. There is typically asymmetry in the risk/reward payout of mergers
the losses that can occur in the event of deal break-ups can far exceed the gains to be had if
deals close successfully. For instance, mark-to-market losses can occur intra-month even if a
particular deal is not breaking-up and such losses may or may not be recouped upon successful
consummation of such deal. Further, the consummation of mergers, tender offers and exchange offers
can be prevented or delayed by a variety of factors, including: (i) regulatory and antitrust
restrictions; (ii) political motivations; (iii) industry weakness; (iv) stock specific events;
(v) failed financings and (vi) general market declines. Also, in certain transactions, a Fund may
not hedge against market fluctuations. This can result in losses even if the proposed transaction
is consummated. In addition, a security to be issued in a merger or exchange offer may be sold
short by a Fund in the expectation that the short position will be covered by delivery of such
security when issued. If the merger or exchange offer is not consummated, the Fund may be forced
to cover its short position at a higher price than its short sale price, resulting in a loss.
44
Merger arbitrage strategies also depend for success on the overall volume of merger activity, which
has historically been cyclical in nature. During periods when merger activity is low, it may be
difficult or impossible to identify opportunities for profit or to identify a sufficient number of
such opportunities to provide diversification among potential merger transactions.
Merger arbitrage strategies are also subject to the risk of overall market movements. To the
extent that a general increase or decline in equity values affects the stocks involved in a merger
arbitrage position differently, the position may be exposed to loss. At any given time,
arbitrageurs can become improperly hedged by accident or in an effort to maximize risk-adjusted
returns. This can lead to inadvertent market-related losses.
Brady Bonds
Brady Bonds are securities created through the restructuring of commercial bank loans to public and
private entities under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury Nicholas F. Brady (the Brady Plan). Brady Plan debt restructurings have been
implemented in Mexico, Uruguay, Venezuela, Costa Rica, Argentina, Nigeria, the Philippines, and
other emerging countries.
Brady Bonds may be collateralized, are issued in various currencies (but primarily the U.S.
dollar), and are actively traded in OTC secondary markets. U.S. dollar-denominated, collateralized
Brady Bonds, which may be fixed-rate bonds or floating-rate bonds, are generally collateralized in
full as to principal by U.S. Treasury zero coupon bonds having the same maturity as the bonds.
The valuation of a Brady Bond typically depends on an evaluation of: (i) any collateralized
repayments of principal at final maturity; (ii) any collateralized interest payments; (iii) the
uncollateralized interest payments; and (iv) any uncollateralized repayments of principal at
maturity (the uncollateralized amounts constitute the residual risk). In light of the residual
risk of Brady Bonds and the history of prior defaults by the issuers of Brady Bonds, investments in
Brady Bonds may be viewed as speculative.
Euro Bonds
Euro bonds are securities denominated in U.S. dollars or another currency and sold to investors
outside of the country whose currency is used. Euro bonds may be issued by government or corporate
issuers, and are typically underwritten by banks and brokerage firms in numerous countries. While
Euro bonds often pay principal and interest in Eurodollars (i.e., U.S. dollars held in banks
outside of the United States), some Euro bonds may pay principal and interest in other currencies.
Euro bonds are subject to the same risks as other fixed income securities. See Debt and Other
Fixed Income Securities Generally above.
Zero Coupon Securities
A Fund investing in zero coupon fixed income securities accrues interest income at a fixed rate
based on initial purchase price and length to maturity, but the securities do not pay interest in
45
cash on a current basis. The Fund is required to distribute the accrued income to its
shareholders, even though the Fund is not receiving the income in cash on a current basis. Thus, a
Fund may have to sell other investments to obtain cash to make income distributions (including at a
time when it may not be advantageous to do so). The market value of zero coupon securities is
often more volatile than that of non-zero coupon fixed income securities of comparable quality and
maturity. Zero coupon securities include IO/PO Strips and STRIPS.
Indexed Investments
Each Fund may invest in various transactions and instruments that are designed to track the
performance of an index (including, but not limited to, securities indices and credit default
indices). Indexed securities are securities the redemption values and/or coupons of which are
indexed to a specific instrument, group of instruments, index, or other statistic. Indexed
securities typically, but not always, are debt securities or deposits whose value at maturity or
coupon rate is determined by reference to other securities, securities or inflation indices,
currencies, precious metals or other commodities, or other financial indicators. For example, the
maturity value of gold-indexed securities depends on the price of gold and, therefore, their price
tends to rise and fall with gold prices.
While investments that track the performance of an index may increase the number, and thus the
diversity, of the underlying assets to which the Fund is exposed, such investments are subject to
many of the same risks of investing in the underlying assets that comprise the index discussed
elsewhere in this section, as well as certain additional risks that are not typically associated
with investments in such underlying assets. An investment that is designed to track the
performance of an index may not replicate and maintain exactly the same composition and relative
weightings of the assets in the index. Additionally, the liquidity of the market for such
investments may be subject to the same conditions affecting liquidity in the underlying assets and
markets and could be relatively less liquid in certain circumstances. The performance of indexed
securities depends on the performance of the security, security index, inflation index, currency,
or other instrument to which they are indexed. Interest rate changes in the U.S. and abroad also
may influence performance. Indexed securities also are subject to the credit risks of the issuer,
and their values are adversely affected by declines in the issuers creditworthiness.
A Funds investments in certain indexed securities, including inflation indexed bonds, may generate
taxable income in excess of the interest they pay to the Fund, which may cause the Fund to sell
investments to obtain cash to make income distributions to shareholders (including at a time when
it may not be advantageous to do so). See Distributions and Taxes in the Prospectuses and
Distributions and Taxes in this Statement of Additional Information.
Currency-Indexed Securities. Currency-indexed securities have maturity values or interest rates
determined by reference to the values of one or more foreign currencies. Currency-indexed
securities also may have maturity values or interest rates that depend on the values of a number of
different foreign currencies relative to each other.
Inverse Floating Obligations. Indexed securities in which a Fund may invest include so-called
inverse floating obligations or residual interest bonds on which the interest rates typically
decline as the index or reference rates, typically short-term interest rates, increase and increase
as
46
index or reference rates decline. An inverse floating obligation may have the effect of investment
leverage to the extent that its interest rate varies by a magnitude that exceeds the magnitude of
the change in the index or reference rate of interest. Generally, leverage will result in greater
price volatility.
Inflation Indexed Bonds. Some Funds, in particular Inflation Indexed Plus Bond Fund, Asset
Allocation Bond Fund, and Asset Allocation International Bond Fund, invest in inflation indexed
bonds. Such Funds may also invest in futures contracts on inflation indexed bonds. See Options
and FuturesInflation Linked Futures above for a discussion of inflation linked futures.
Inflation indexed bonds are fixed income securities whose principal value is adjusted periodically
according to the rate of inflation. Two structures are common. The U.S. Treasury and some other
issuers use a structure that accrues inflation into the principal value of the bond. Most other
issuers pay out the CPI accruals as part of a semiannual coupon.
Inflation indexed securities issued by the U.S. Treasury (or TIPS) have maturities of
approximately five, ten or twenty years (thirty year TIPS are no longer offered), although it is
possible that securities that have other maturities will be issued in the future. U.S. Treasury
securities pay interest on a semi-annual basis equal to a fixed percentage of the
inflation-adjusted principal amount. For example, if a Fund purchased an inflation indexed bond
with a par value of $1,000 and a 3% real rate of return coupon (payable 1.5% semi-annually), and
the rate of inflation over the first six months was 1%, the mid-year par value of the bond would be
$1,010 and the first semi-annual interest payment would be $15.15 ($1,010 times 1.5%). If
inflation during the second half of the year resulted in the whole years inflation equaling 3%,
the end-of-year par value of the bond would be $1,030 and the second semi-annual interest payment
would be $15.45 ($1,030 times 1.5%).
If the periodic adjustment rate measuring inflation falls, the principal value of inflation indexed
bonds will be adjusted downward and, consequently, the interest they pay (calculated with respect
to a smaller principal amount) will be reduced. The U.S. government guarantees the repayment of
the original bond principal upon maturity (as adjusted for inflation) in the case of a TIPS, even
during a period of deflation, although the inflation-adjusted principal received could be less than
the inflation-adjusted principal that had accrued to the bond at the time of purchase. However,
the current market value of the bonds is not guaranteed and will fluctuate. A Fund also may invest
in other inflation-related bonds which may or may not provide a similar guarantee. If a guarantee
of principal is not provided, the adjusted principal value of the bond repaid at maturity may be
less than the original principal.
The value of inflation indexed bonds normally changes when real interest rates change. Real
interest rates, in turn, are tied to the relationship between nominal interest rates (i.e., stated
interest rates) and the rate of inflation. Therefore, if the rate of inflation rises at a faster
rate than nominal interest rates, real interest rates (i.e. nominal interest rate minus inflation)
might decline, leading to an increase in value of inflation indexed bonds. In contrast, if nominal
interest rates increase at a faster rate than inflation, real interest rates might rise, leading to
a decrease in value of inflation indexed bonds. There can be no assurance, however, that the value
of inflation indexed bonds will change in the same proportion as changes in nominal interest
rates, and short term increases in inflation may lead to a decline in their value.
47
Although inflation indexed bonds protect their holders from long-term inflationary trends,
short-term increases in inflation may result in a decline in value. In addition, inflation indexed
bonds do not protect holders from increases in interest rates due to reasons other than inflation
(such as changes in currency exchange rates).
The periodic adjustment of U.S. inflation indexed bonds is tied to the Consumer Price Index for
Urban Consumers (CPI-U), which is calculated monthly by the U.S. Bureau of Labor Statistics. The
CPI-U is a measurement of changes in the cost of living, made up of components such as housing,
food, transportation, and energy. Inflation indexed bonds issued by a foreign government are
generally adjusted to reflect changes in a comparable inflation index calculated by the foreign
government. No assurance can be given that the CPI-U or any foreign inflation index will
accurately measure the real rate of inflation in the prices of goods and services. In addition, no
assurance can be given that the rate of inflation in a foreign country will correlate to the rate
of inflation in the United States.
Coupon payments received by a Fund from inflation indexed bonds are included in the Funds gross
income for the period in which they accrue. In addition, any increase in the principal amount of
an inflation indexed bond constitutes taxable ordinary income to investors in the Fund, even though
principal is not paid until maturity.
Structured Notes
Similar to indexed securities, structured notes are derivative debt securities, the interest rate
or principal of which is determined by reference to changes in the value of a specific asset,
reference rate, or index (the reference) or the relative change in two or more references. The
interest rate or the principal amount payable upon maturity or redemption may increase or decrease,
depending upon changes in the reference. The terms of a structured note may provide that, in
certain circumstances, no principal is due at maturity and, therefore, may result in a loss of
invested capital. Structured notes may be indexed positively or negatively, so that appreciation
of the reference may produce an increase or decrease in the interest rate or value of the principal
at maturity. In addition, changes in the interest rate or the value of the principal at maturity
may be fixed at a specified multiple of the change in the value of the reference, making the value
of the note particularly volatile.
Structured notes may entail a greater degree of market risk than other types of debt securities
because the investor bears the risk of the reference. Structured notes also may be more volatile,
less liquid, and more difficult to price accurately than less complex securities or more
traditional debt securities.
Firm Commitments and When-Issued Securities
Some Funds may enter into firm commitments and similar agreements with banks or broker-dealers for
the purchase or sale of securities at an agreed-upon price on a specified future date. For
example, a Fund that invests in fixed-income securities may enter into a firm commitment agreement
if the Manager anticipates a decline in interest rates and believes it is able to obtain a more
advantageous future yield by committing currently to purchase securities to be issued later.
48
When a Fund purchases securities on a when-issued or delayed-delivery basis, it is required to
maintain cash, U.S. government securities, or other liquid securities in an amount equal to or
greater than, on a daily basis, the amount of the Funds when-issued or delayed-delivery
commitments. A Fund generally does not earn income on the securities it has committed to purchase
until after delivery. A Fund may take delivery of the securities or, if deemed advisable as a
matter of investment strategy, may sell the securities before the settlement date. When payment is
due on when-issued or delayed-delivery securities, the Fund makes payment from then-available cash
flow or the sale of securities, or from the sale of the when-issued or delayed-delivery securities
themselves (which may have a value greater or less than what the Fund paid for them).
Loans (Including Bank Loans), Loan Participations, and Assignments
Some Funds may invest in direct debt instruments, which are interests in amounts owed by a
corporate, governmental, or other borrower to lenders or lending syndicates (loans, including bank
loans, promissory notes, and loan participations), to suppliers of goods or services (trade claims
or other receivables), or to other parties. Investments in direct debt instruments are subject to
a Funds policies regarding the quality of debt investments generally. Such instruments may
include term loans and revolving loans, may pay interest at a fixed or floating rate and may be
senior or subordinated. The Funds may acquire interests in loans either directly (by way of sale
or assignment) or indirectly (by way of participation).
Purchases of loans and other forms of direct indebtedness, including promissory notes, depend
primarily upon the creditworthiness of the borrower for payment of principal and interest, and
adverse changes in the creditworthiness of the borrower may affect its ability to pay principal and
interest. Direct debt instruments may not be rated by any rating agency. In the event of
non-payment of interest or principal, loans that are secured offer a Fund more protection than
comparable unsecured loans. However, no assurance can be given that the collateral for a secured
loan can be liquidated or that the proceeds will satisfy the borrowers obligation. Investment in
the indebtedness of borrowers with low creditworthiness involves substantially greater risks, and
may be highly speculative. Borrowers that are in bankruptcy or restructuring may never pay off
their indebtedness, or may pay only a small fraction of the amount owed. Investments in sovereign
debt similarly involve the risk that the governmental entities responsible for repayment of the
debt may be unable or unwilling to pay interest and repay principal when due. The bank loans
acquired by a Fund may be below investment-grade.
When investing in a loan participation, a Fund typically purchases participation interests in a
portion of a lenders or participants interest in a loan but has no direct contractual
relationship with the borrower. Participation interests in a portion of a debt obligation
typically result in a contractual relationship only with the institution participating in the
interest, not with the borrower. The Fund must rely on the seller of the participation interest
not only for the enforcement of the Funds rights against the borrower but also for the receipt and
processing of principal, interest, or other payments due under the loan. This may subject the Fund
to greater delays, expenses, and risks than if the Fund could enforce its rights directly against
the borrower. In addition, the Fund generally will have no rights of set-off against the borrower,
and the Fund may not directly benefit from the collateral supporting the debt obligation in which
it has purchased the participation. A participation agreement also may limit the rights of the
Fund to
49
vote on changes that may be made to the underlying loan agreement, such as waiving a breach of a
covenant. In addition, under the terms of a participation agreement, the Fund may be treated as a
creditor of the seller of the participation interest (rather than of the borrower), thus exposing
the Fund to the credit risk of the seller in addition to the credit risk of the borrower.
Additional risks include inadequate perfection of a loans security interest, the possible
invalidation or compromise of an investment transaction as a fraudulent conveyance or preference
under relevant creditors rights laws, the validity and seniority of bank claims and guarantees,
environmental liabilities that may arise with respect to collateral securing the obligations, and
adverse consequences resulting from participating in such instruments through other institutions
with lower credit quality.
Bank loans and participation interests may not be readily marketable and may be subject to
restrictions on resale. There can be no assurance that future levels of supply and demand in loan
or loan participation trading will provide an adequate degree of liquidity and no assurance that
the market will not experience periods of significant illiquidity in the future.
Investments in loans through direct assignment of a lenders interests may involve additional risks
to a Fund. For example, if a secured loan is foreclosed, the Fund could become part owner of any
collateral, and would bear the costs and liabilities associated with owning and disposing of the
collateral. In addition, under legal theories of lender liability, the Fund potentially might be
held liable as a co-lender.
A loan is often administered by a bank or other financial institution that acts as agent for all
holders. The agent administers the terms of the loan, as specified in the loan agreement. Unless,
under the terms of the loan or other indebtedness a Fund has direct recourse against the borrower,
it may have to rely on the agent to enforce its rights against the borrower.
The Manager may, with respect to its management of investments in certain loans for a Fund, seek to
remain flexible to purchase and sell other securities in the borrowers capital structure, by
remaining public. In such cases, the Manager will seek to avoid receiving material, non-public
information about the borrowers to which the Fund may lend (through assignments, participations or
otherwise). The Managers decision not to use material, non-public information about borrowers may
place the Manager at an information disadvantage relative to other lenders. Also, in instances
where lenders are asked to grant amendments, waivers or consents in favor of the borrower, the
Managers ability to assess the significance of the amendment, waiver or consent or its
desirability from a Funds point of view may be materially and adversely affected.
When the Managers personnel do come into possession of material, non-public information about the
issuers of loans that may be held by a Fund or other accounts managed by the Manager (either
intentionally or inadvertently), the Managers ability to trade in other securities of the issuers
of these loans for the account of the Manager will be limited pursuant to applicable securities
laws. Such limitations on the Managers ability to trade could have an adverse affect on a Fund. In
many instances, these trading restrictions could continue in effect for a substantial period of
time.
50
Direct indebtedness purchased by a Fund may include letters of credit, revolving credit facilities,
or other standby financing commitments obligating the Fund to pay additional cash on demand. These
commitments may have the effect of requiring the Fund to increase its investment in a borrower at a
time when it would not otherwise have done so. A Fund is required to maintain liquid assets to
cover the Funds potential obligations under standby financing commitments.
Trade Claims. The Funds may purchase trade claims against companies, including companies in
bankruptcy or reorganization proceedings. Trade claims generally include claims of suppliers for
goods delivered and not paid, claims for unpaid services rendered, claims for contract rejection
damages and claims related to litigation. An investment in trade claims is very speculative and
carries a high degree of risk. Trade claims are illiquid instruments which generally do not pay
interest and there can be no guarantee that the debtor will ever be able to satisfy the obligation
on the trade claim. Additionally, there can be restrictions on the purchase, sale, and/or
transferability of trade claims during all or part of a bankruptcy proceeding. The markets in
trade claims are not regulated by U.S. federal securities laws or the SEC.
Trade claims are typically unsecured and may be subordinated to other unsecured obligations of a
debtor, and generally are subject to defenses of the debtor with respect to the underlying
transaction giving rise to the trade claim. Although the Manager endeavors to protect against such
risks in connection with the evaluation and purchase of claims, trade claims are subject to risks
not generally associated with standardized securities and instruments due to the idiosyncratic
nature of the claims purchased. These risks include the risk that the debtor may contest the
allowance of the claim due to disputes the debtor has with the original claimant or the inequitable
conduct of the original claimant, or due to administrative errors in connection with the transfer
of the claim. Recovery on allowed trade claims may also be impaired if the anticipated dividend
payable on unsecured claims in the bankruptcy is not realized or if the timing of the bankruptcy
distribution is delayed. As a result of the foregoing factors, trade claims are also subject to
the risk that if a Fund does receive payment, it may be in an amount less than what the Fund paid
for or otherwise expects to receive in respect of the claim.
In addition, because they are not negotiable instruments, trade claims are typically less liquid
than negotiable instruments. Given these factors, trade claims often trade at a discount to other
pari passu instruments.
Reverse Repurchase Agreements and Dollar Roll Agreements
The Funds may enter into reverse repurchase agreements and dollar roll agreements with banks and
brokers to enhance return. Reverse repurchase agreements involve sales by a Fund of portfolio
securities concurrently with an agreement by the Fund to repurchase the same securities at a later
date at a fixed price. During the reverse repurchase agreement period, the Fund continues to
receive principal and interest payments on the securities and also has the opportunity to earn a
return on the collateral furnished by the counterparty to secure its obligation to redeliver the
securities.
Dollar rolls are transactions in which a Fund sells securities for delivery in the current month
and simultaneously contracts to repurchase substantially similar (same type and coupon) securities
on a specified future date. During the roll period, the Fund foregoes principal and interest paid
on
51
the securities. The Fund is compensated by the difference between the current sales price and the
forward price for the future purchase (often referred to as the drop) as well as by the interest
earned on the cash proceeds of the initial sale.
A Fund that enters into reverse repurchase agreements and dollar roll agreements maintains cash,
U.S. government securities, or other liquid assets equal in value to its obligations under those
agreements. If the buyer in a reverse repurchase agreement or dollar roll agreement files for
bankruptcy or becomes insolvent, a Funds use of proceeds from the sale of its securities may be
restricted while the other party or its trustee or receiver determines whether to honor the Funds
right to repurchase the securities. Furthermore, in that situation a Fund may be unable to recover
the securities it sold in connection with a reverse repurchase agreement and as a result would
realize a loss equal to the difference between the value of the securities and the payment it
received for them. This loss would be greater to the extent the buyer paid less than the value of
the securities the Fund sold to it (e.g., a buyer may only be willing to pay $95 for a bond with a
market value of $100). A Funds use of reverse repurchase agreements also subjects the Fund to
interest costs based on the difference between the sale and repurchase price of a security involved
in such a transaction. Additionally, reverse repurchase agreements entail the same risks as
over-the-counter derivatives. These include the risk that the counterparty to the reverse
repurchase agreement may not be able to fulfill its obligations, as discussed above, that the
parties may disagree as to the meaning or application of contractual terms, or that the instrument
may not perform as expected. See Description of Principal RisksDerivatives Risk and
Counterparty Risk in the Prospectuses and Uses of Derivatives below. Reverse repurchase
agreements and dollar rolls are not considered borrowings by a Fund for purposes of a Funds
fundamental investment restriction on borrowings.
Commodity-Related Investments (through GMO Alternative Asset Opportunity Fund)
The Asset Allocation Funds (except for U.S. Equity Allocation Fund and Alpha Only Fund) may gain
exposure to commodity markets by investing in GMO Alternative Asset Opportunity Fund, a series of
the Trust, which is offered through a separate private placement memorandum. GMO Alternative Asset
Opportunity Fund pursues its objective by investing in a range of markets, including the commodity
markets, which include a range of assets with tangible properties, such as oil, natural gas,
agricultural products (e.g., wheat, corn, and livestock), precious metals (e.g., gold and silver),
industrial metals (e.g., copper), and softs (e.g., cocoa, coffee, and sugar). GMO Alternative
Asset Opportunity Fund obtains such exposure by investing in shares of a wholly owned subsidiary
company, which, in turn, primarily invests in commodity-related derivatives (as defined below).
GMO serves as the investment manager to the subsidiary but does not receive any additional
management or other fees for such services.
Commodity prices can be extremely volatile and may be directly or indirectly affected by many
factors, including changes in overall market movements, real or perceived inflationary trends,
commodity index volatility, changes in interest rates or currency exchange rates, population growth
and changing demographics, and factors affecting a particular industry or commodity, such as
drought, floods, or other weather conditions, livestock disease, trade embargoes, competition from
substitute products, transportation bottlenecks or shortages, fluctuations in supply and demand,
tariffs, and international regulatory, political, and economic developments (e.g., regime changes
and changes in economic activity levels). In addition, some commodities
52
are subject to limited pricing flexibility because of supply and demand factors, and others are
subject to broad price fluctuations as a result of the volatility of prices for certain raw
materials and the instability of supplies of other materials.
Actions of and changes in governments, and political and economic instability, in
commodity-producing and -exporting countries may affect the production and marketing of
commodities. In addition, commodity-related industries throughout the world are subject to greater
political, environmental, and other governmental regulation than many other industries. Changes in
government policies and the need for regulatory approvals may adversely affect the products and
services of companies in the commodities industries. For example, the exploration, development,
and distribution of coal, oil, and gas in the United States are subject to significant federal and
state regulation, which may affect rates of return on coal, oil, and gas and the kinds of services
that the federal and state governments may offer to companies in those industries. In addition,
compliance with environmental and other safety regulations has caused many companies in
commodity-related industries to incur production delays and significant costs. Government
regulation may also impede the development of new technologies. The effect of future regulations
affecting commodity-related industries cannot be predicted.
GMO Alternative Asset Opportunity Fund achieves indirect exposure to commodities through its wholly
owned subsidiary, which, in turn, invests in derivatives whose values are based on the value of a
commodity, commodity index, or other readily-measurable economic variables dependent upon changes
in the value of commodities or the commodities markets (commodity-related derivatives). The
value of commodity-related derivatives fluctuates based on changes in the values of the underlying
commodity, commodity index, futures contract, or other economic variable to which they are related.
Additionally, economic leverage will increase the volatility of these instruments as they may
increase or decrease in value more quickly than the underlying commodity or other relevant economic
variable.
The Asset Allocation Funds should generally be entitled to treat all of the income that they
realize from GMO Alternative Asset Opportunity Fund, including income from GMO Alternative Asset
Opportunity Funds investment in its subsidiary, as qualifying income for purposes of qualifying as
a regulated investment company under the Code. There is a risk, however, that the IRS could
determine that some or all of the income derived from GMO Alternative Asset Opportunity Funds
investment in its subsidiary should not be treated as qualifying income in the hands of the Asset
Allocation Funds, which might adversely affect the Asset Allocation Funds ability to qualify as
regulated investment companies. See Taxes below.
Illiquid Securities, Private Placements, Restricted Securities, and IPOs and Other Limited
Opportunities
Each Fund may invest up to 15% of its net assets in illiquid securities. For this purpose,
illiquid securities are securities that the Fund may not sell or dispose of within seven days in
the ordinary course of business at approximately the amount at which the Fund has valued the
securities.
53
A repurchase agreement maturing in more than seven days is considered illiquid, unless it can be
terminated after a notice period of seven days or less.
The Manager also may deem certain securities to be illiquid as a result of the Managers receipt
from time to time of material, non-public information about an issuer, which may limit the
Managers ability to trade such securities for the account of any of its clients, including the
Funds. In some instances, these trading restrictions could continue in effect for a substantial
period of time.
Private Placements and Restricted Investments. Illiquid securities include securities of private
issuers, securities traded in unregulated or shallow markets, securities issued by entities deemed
to be affiliates of a Fund, and securities that are purchased in private placements and are subject
to legal or contractual restrictions on resale. Because relatively few purchasers of these
securities may exist, especially in the event of adverse economic and liquidity conditions or
adverse changes in the issuers financial condition, a Fund may not be able to initiate a
transaction or liquidate a position in such investments at a desirable price. Disposing of
illiquid securities may involve time-consuming negotiation and legal expenses, and selling them
promptly at an acceptable price may be difficult or impossible.
While private placements may offer attractive opportunities not otherwise available in the open
market, the securities purchased are usually restricted securities or are not readily
marketable. Restricted securities cannot be sold without being registered under the Securities
Act of 1933, as amended (the 1933 Act), unless they are sold pursuant to an exemption from
registration (such as Rules 144 or 144A). Securities that are not readily marketable are subject
to other legal or contractual restrictions on resale. A Fund may have to bear the expense of
registering restricted securities for resale and the risk of substantial delay in effecting
registration. A Fund selling its securities in a registered offering may be deemed to be an
underwriter for purposes of Section 11 of the 1933 Act. In such event, the Fund may be liable to
purchasers of the securities under Section 11 if the registration statement prepared by the issuer,
or the prospectus forming a part of it, is materially inaccurate or misleading, although the Fund
may have a due diligence defense.
At times, the inability to sell illiquid securities can make it more difficult to determine their
fair value for purposes of computing a Funds net asset value. The judgment of the Manager
normally plays a greater role in valuing these securities than in valuing publicly traded
securities.
IPOs and Other Limited Opportunities. Certain Funds may purchase securities of companies that are
offered pursuant to an initial public offering (IPO) or other similar limited opportunities.
Although companies can be any age or size at the time of their IPO, they are often smaller and have
a limited operating history, which involves a greater potential for the value of their securities
to be impaired following the IPO. The price of a companys securities may be highly unstable at
the time of its IPO and for a period thereafter due to factors such as market psychology prevailing
at the time of the IPO, the absence of a prior public market, the small number of shares available,
and limited availability of investor information. Securities purchased in IPOs have a tendency to
fluctuate in value significantly shortly after the IPO relative to the price at which they were
purchased. These fluctuations could impact the net asset
54
value and return earned on a Funds shares. Investors in IPOs can be adversely affected by
substantial dilution in the value of their shares, by sales of additional shares, and by
concentration of control in existing management and principal shareholders. In addition, all of
the factors that affect the performance of an economy or equity markets may have a greater impact
on the shares of IPO companies. IPO securities tend to involve greater risk due, in part, to
public perception and the lack of publicly available information and trading history.
Investments in Other Investment Companies or Other Pooled Investments
Subject to applicable regulatory requirements, a Fund may invest in shares of both open- and
closed-end investment companies (including other GMO Funds, money market funds, and exchange-traded
funds (ETFs)). Investing in another investment company exposes a Fund to all the risks of that
investment company and, in general, subjects it to a pro rata portion of the other investment
companys fees and expenses. Many of the Funds also may invest in private investment funds,
vehicles, or structures.
ETFs are hybrid investment companies that are registered as open-end investment companies or unit
investment trusts (UITs) but possess some of the characteristics of closed-end funds. ETFs in
which a Fund may invest typically hold a portfolio of common stocks that is intended to track the
price and dividend performance of a particular index. The Funds may also invest in
actively-managed ETFs. Common examples of ETFs include S&P Depositary Receipts (SPDRs), Vanguard
ETFs, and iShares, which may be purchased from the UIT or investment company issuing the securities
or in the secondary market (SPDRs, Vanguard ETFs, and iShares are predominantly listed on the NYSE
Arca). The market price for ETF shares may be higher or lower than the ETFs net asset value. The
sale and redemption prices of ETF shares purchased from the issuer are based on the issuers net
asset value.
Because ETFs are investment companies, investments in ETFs would, absent exemptive relief, be
limited under applicable statutory limitations. Those limitations restrict a Funds investment in
the shares of an ETF or other investment company to up to 5% of the Funds assets (which may
represent no more than 3% of the securities of such ETF or other investment company) and limit
aggregate investments in all ETFs and other investment companies to 10% of the Funds assets.
Certain Funds, including Emerging Markets Fund, Emerging Countries Fund, and Emerging Domestic
Opportunities Fund, may invest in one or more ETFs beyond the statutory limitations pursuant to an
agreement with the ETF, provided that the Fund complies with the terms and conditions of the
agreement and the conditions of the ETFs exemptive order.
Currency Hedged International Equity Fund, Alpha Only Fund and some non-asset allocation Funds may
invest without limitation in other GMO Funds. These investments are not made in reliance on the
fund of funds exemption provided in Section 12(d)(1)(G) of the 1940 Act, but instead are made in
reliance on a Securities and Exchange Commission (SEC) exemptive order obtained by the Manager
and the Trust permitting Funds of the Trust to operate as funds of funds. As described in each
Prospectus, shareholders of the investing Funds do not bear directly any of the operating fees and
expenses of these underlying Funds, but bear indirectly a proportionate share of their operating
fees and expenses (absent reimbursement of those expenses).
55
Short Sales
A Fund may seek to hedge investments or realize additional gains through short sales. A Fund may
make short sales against the box, meaning the Fund may make short sales where the Fund owns, or
has the right to acquire at no added cost, securities or currencies identical to those sold short.
If a Fund makes a short sale against the box, the Fund will not immediately deliver the securities
or currencies sold and will not immediately receive the proceeds from the sale. However, with
respect to securities, the Fund is required to hold securities equivalent in kind and amount to the
securities sold short (or securities convertible or exchangeable into such securities) while the
short sale is outstanding. Once the Fund closes out its short position by delivering the
securities or currencies sold short, it will receive the proceeds of the sale. A Fund will incur
transaction costs, including interest, in connection with opening, maintaining, and closing short
sales against the box.
In addition, certain Funds, in particular Alpha Only Fund and Flexible Equities Fund, are permitted
to make short sales of securities or currencies it does not own (i.e., short sales that are not
against the box), in anticipation of a decline in the market value of that security or currency.
To complete such a transaction, the Fund must borrow the security or currency (e.g., shares of an
ETF) to make delivery to the buyer. The Fund then is obligated to replace the security or currency
borrowed by purchasing it at the market price at or prior to termination of the loan. The price at
such time may be more or less than the price at which the security or currency was sold by the
Fund, and purchasing such security or currency to close out a short position can itself cause the
price of the security or currency to rise further, thereby exacerbating any losses. Until the
security or currency is replaced, the Fund is required to repay the lender any dividends or
interest which accrue during the period of the loan. To borrow the security or currency, the Fund
also may be required to pay a premium, which would increase the cost of the security or currency
sold. The net proceeds of the short sale will be retained by the broker, to the extent necessary
to meet margin requirements, until the short position is closed out. A Fund also will incur
transaction costs in effecting short sales that are not against the box.
A Fund will incur a loss as a result of a short sale if the price of the security or index or
currency increases between the date of the short sale and the date on which the Fund replaces the
borrowed security or currency. A Fund will realize a gain if the price of the security or currency
declines between those dates. The amount of any gain will be decreased, and the amount of any loss
increased, by the amount of the premium, dividends or interest a Fund may be required to pay in
connection with a short sale. Short sales that are not against the box involve a form of
investment leverage, and the amount of a Funds loss on such a short sale is theoretically
unlimited. Under adverse market conditions, a Fund may have difficulty purchasing securities or
currencies to meet its short sale delivery obligations, and may have to sell portfolio securities
or currencies to raise the capital necessary to meet its short sale obligations at a time when it
would be unfavorable to do so. If a request for return of borrowed securities and/or currencies
occurs at a time when other short sellers of the securities and/or currencies are receiving similar
requests, a short squeeze can occur, and the Fund may be compelled to replace borrowed securities
and/or currencies previously sold short with purchases on the open market at the most
disadvantageous time, possibly at prices significantly in excess of the proceeds received in
originally selling the securities and/or currencies short. In addition, a Fund may have difficulty
purchasing securities and/or currencies to meet its delivery obligations in the case of less liquid
securities and/or
56
currencies sold short by the Fund such as certain emerging market country securities or securities
of companies with smaller market capitalizations. A Fund may also take short positions in
securities through various derivative products. These derivative products will typically expose
the Fund to economic risks similar to those associated with shorting securities directly.
Lack of Correlation Risk; Hedging
There can be no assurance that the short positions that a Fund holds will act as an effective hedge
against its long positions. Any decrease in negative correlation or increase in positive
correlation between the positions the Manager anticipated would be offsetting (such as short and
long positions in securities or currencies held by a Fund) could result in significant losses for
the Fund.
To the extent the Manager employs a hedging strategy for a Fund, the success of any such hedging
strategy will depend, in part, upon the Managers ability to correctly assess the degree of
correlation between the performance of the instruments used in the hedging strategy and the
performance of the investments being hedged.
Tax-Sensitive Strategies
When making investment decisions for the Tax-Managed Funds, the Manager considers the after-tax
impact of portfolio transactions. As described in the MultiFund Prospectus, in doing so, the
Manager may employ a variety of tax management techniques, such as seeking to minimize sales of
securities that result in capital gains, preferring the sale of securities producing long-term
capital gains to those producing short-term capital gains, and selling securities to realize
capital losses that can be offset against realized capital gains. A Tax-Managed Funds ability to
utilize excess net capital losses from prior taxable years to reduce distributable net realized
capital gains in subsequent taxable years may be limited by reason of direct or indirect changes in
actual or constructive ownership of the Fund. Please see Taxes in this Statement of Additional
Information for more information, including information about recent changes to the U.S. federal
income tax rules concerning capital loss carryforwards. In addition, the tax management techniques
employed by the Manager may change over time depending upon a variety of factors, including current
market conditions and the amount of embedded gains and losses in a Funds portfolio. No assurance
can be given that the Manager will be successful in employing any or all of these strategies.
In addition, for redemptions initiated by the shareholder, in lieu of redeeming its shares in cash,
a Fund may pay the redemption price in whole or in part with appreciated securities, so as to avoid
having to distribute the capital appreciation in those securities to its remaining shareholders.
The effect on the redeeming shareholder is the same for U.S. federal income tax purposes as a
redemption in cash. Redeeming shareholders receiving securities will pay tax on any capital gains
realized on the Fund shares redeemed and may incur additional gains or losses during the period
between the date of redemption and the date they sell the securities. They also may incur
brokerage charges on the sale of those securities.
57
Tobacco-Free Strategies
As described in the MultiFund Prospectus, the Tobacco-Free Core Fund must invest at least 80% of
its assets, and expects to invest substantially all of its assets, in investments in tobacco-free
companies. Due to this investment policy, the Fund is subject to the additional investment risk
that tobacco-producing issuers will outperform non-tobacco-producing issuers and, consequently,
that the Fund will underperform relative to the U.S. Core Equity Fund.
Legal and Regulatory Risk
Legal, tax and regulatory changes could occur during the term of a Fund that may adversely affect
the Fund. New (or revised) laws or regulations may be imposed by the CFTC, the SEC, the U.S.
Federal Reserve or other banking regulators, other governmental regulatory authorities or
self-regulatory organizations that supervise the financial markets that could adversely affect the
Funds. In particular, these agencies are empowered to promulgate a variety of new rules pursuant
to recently enacted financial reform legislation in the United States. The Funds also may be
adversely affected by changes in the enforcement or interpretation of existing statutes and rules
by these governmental regulatory authorities or self-regulatory organizations. In addition, the
securities and futures markets are subject to comprehensive statutes, regulations and margin
requirements. The CFTC, the SEC, the Federal Deposit Insurance Corporation, other regulators and
self-regulatory organizations and exchanges are authorized to take extraordinary actions in the
event of market emergencies. The regulation of derivatives transactions and funds that engage in
such transactions is an evolving area of law and is subject to modification by government and
judicial action.
The U.S. government recently enacted legislation that provides for new regulation of the
derivatives market, including clearing, margin, reporting and registration requirements. Because
the legislation leaves much to rule making, its ultimate impact remains unclear. New regulations
could, among other things, restrict a Funds ability to engage in derivatives transactions (for
example, by making certain types of derivatives transactions no longer available to the Fund)
and/or increase the costs of such derivatives transactions (for example, by increasing margin or
capital requirements), and the Fund may be unable to execute its investment strategy as a result.
It is unclear how the regulatory changes will affect counterparty risk.
The CFTC and certain futures exchanges have established limits, referred to as position limits,
on the maximum net long or net short positions which any person may hold or control in particular
options and futures contracts. All positions owned or controlled by the same person or entity,
even if in different accounts, may be aggregated for purposes of determining whether the applicable
position limits have been exceeded. Thus, even if a Fund does not intend to exceed applicable
position limits, it is possible that different clients managed by the Manager and its affiliates
may be aggregated for this purpose. Although it is possible that the trading decisions of the
Manager may have to be modified and that positions held by the Funds may have to be liquidated in
order to avoid exceeding such limits, the Manager believes that this is unlikely. The modification
of investment decisions or the elimination of open positions, if it occurs, may adversely affect
the profitability of a Fund.
58
The SEC has in the past adopted interim rules requiring reporting of all short positions above a
certain de minimis threshold and is expected to adopt rules requiring monthly public disclosure in
the future. In addition, other non-U.S. jurisdictions where a Fund may trade have adopted
reporting requirements. If a Funds short positions or its strategy become generally known, it
could have a significant effect on the Managers ability to implement its investment strategy. In
particular, it would make it more likely that other investors could cause a short squeeze in the
securities held short by a Fund forcing the Fund to cover its positions at a loss. Such reporting
requirements may also limit the Managers ability to access management and other personnel at
certain companies where the Manager seeks to take a short position. In addition, if other
investors engage in copycat behavior by taking positions in the same issuers as a Fund, the cost of
borrowing securities to sell short could increase drastically and the availability of such
securities to the Fund could decrease drastically. Such events could make a Fund unable to execute
its investment strategy. In addition, the SEC recently proposed additional restrictions on short
sales. If the SEC were to adopt additional restrictions regarding short sales, they could restrict
a Funds ability to engage in short sales in certain circumstances, and the Fund may be unable to
execute its investment strategy as a result.
The SEC and regulatory authorities in other jurisdictions may adopt (and in certain cases, have
adopted) bans on short sales of certain securities in response to market events. Bans on short
selling may make it impossible for a Fund to execute certain investment strategies and may have a
material adverse effect on the Funds ability to generate returns.
Pending federal legislation would require the adoption of regulations that would require any
creditor that makes a loan and any securitizer of a loan to retain at least 5% of the credit risk
on any loan that is transferred, sold or conveyed by such creditor or securitizer. It is currently
unclear how these requirements would apply to loan participations, syndicated loans, and loan
assignments. Funds that invest in loans could be adversely affected by the regulation. The effect
of any future regulatory change on the Funds could be substantial and adverse.
Lack of Operating History
As of the date of this SAI, International Large/Mid Cap Value Fund, Asset Allocation International
Small Companies Fund, Asset Allocation International Bond Fund, International Intrinsic Value
Extended Markets Fund and Global Focused Equity Fund have no operating history, and Emerging
Domestic Opportunities Fund has limited operating history. Therefore, there is no (or, with
respect to Emerging Domestic Opportunities Fund, limited) operating history to evaluate these
Funds future performance. The past performance of other investment funds managed by the Manager
cannot be relied upon as an indicator of a Funds success, in part because of the unique nature of
such Funds investment strategy. An investor in each Fund must rely upon the ability of the
Manager in identifying and implementing investments. There can be no assurance that such personnel
will be successful in identifying and implementing investment opportunities for such Fund.
59
USES OF DERIVATIVES
Introduction and Overview
Derivatives are financial contracts whose value depends on, or is derived from, the value of
underlying assets, reference rates, or indices, to increase, decrease or adjust elements of the
investment exposures of the Funds portfolio. Derivatives may relate to securities, interest
rates, currencies, currency exchange rates, inflation rates, commodities, and indices, and include
foreign currency contracts, swap contracts, reverse repurchase agreements, and other
exchange-traded and OTC contracts.
This overview outlines various ways in which the U.S. Equity, International Equity Funds and Alpha
Only Fund, and Fixed Income Funds (other than U.S. Treasury Fund) may use different types of
exchange-traded and OTC derivatives in implementing their investment programs. It is intended to
supplement the information included in each Funds Prospectus, including the risks associated with
derivatives described under Description of Principal Risks in the Prospectuses, and the
information provided in the Fund Investments and Descriptions and Risks of Fund Investments
sections of this Statement of Additional Information. This overview, however, is not intended to
be exhaustive and a Fund may use types of derivatives and/or employ derivatives strategies not
otherwise described in this Statement of Additional Information or the Funds Prospectus.
In addition, a Fund may decide not to employ any of the strategies described below, and no
assurance can be given that any strategy used will succeed. Also, suitable derivatives
transactions may not be available in all circumstances and there can be no assurance that a Fund
will be able to identify or employ a desirable derivatives transaction at any time or from time to
time, or that any such transactions will be successful.
Each Fund may take advantage of instruments and any security or synthetic or derivative instruments
which are not presently contemplated for use by the Fund or which are not currently available, but
which may be developed, to the extent such opportunities are both consistent with the Funds
investment objective and legally permissible for the Fund. Each Fund may become a party to various
other customized derivative instruments entitling the counterparty to certain payments on the gain
or loss on the value of an underlying or referenced instrument.
Note: Unless otherwise noted below in this section, the uses of derivatives discussed
herein with respect to a particular Fund only refer to the Funds direct use of such derivatives.
As indicated in the Prospectuses and in the Fund Investments section of this Statement of
Additional Information, certain Funds may invest in other Funds of the Trust, which, in turn, may
use types of derivatives and/or employ derivatives strategies that differ from those described in
this Statement of Additional Information or the Prospectuses.
Function of Derivatives in the Funds. The types of derivatives used and derivatives strategies
employed by a Fund and the extent a Fund uses derivatives varies from Fund to Fund depending on the
Funds specific investment objective and strategies. In addition, specific market conditions may
influence the Managers choice of derivatives and derivatives strategies for a particular Fund, in
some cases to a significant extent.
60
Legal and Regulatory Risk Relating to Derivatives. As described above under Descriptions and
Risks of Fund InvestmentsLegal and Regulatory Risk, the U.S. government recently enacted
legislation which includes provisions for new regulation of the derivatives market, including
clearing, margin, reporting and registration requirements. Because the legislation leaves much to
rule making, its ultimate impact remains unclear. The regulatory changes could, among other
things, restrict a Funds ability to engage in derivatives transactions (including because certain
types of derivatives transactions may no longer be available to the Fund) and/or increase the costs
of such derivatives transactions (including through increased margin or capital requirements), and
the Fund may be unable to execute its investment strategy as a result. It is unclear how the
regulatory changes will affect counterparty risk.
Use of Derivatives by the U.S. Equity Funds (other than Quality Fund)
Types of Derivatives That May Be Used by the U.S. Equity Funds (other than Quality Fund)
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Options, futures contracts, and related options on securities indices |
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Long swap contracts in which a Fund pays a fixed rate plus the negative performance, if
any, and receives the positive performance, if any, of an index, a single equity security,
or a basket of equity securities |
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Short swap contracts in which a Fund receives a fixed rate plus the negative
performance, if any, and pays the positive performance of an index, a single equity
security, or a basket of equity securities |
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Contracts for differences, i.e., swaps on an index, a single equity security, or a
basket of equity securities that contain both long and short equity components |
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Warrants and rights |
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Reverse repurchase agreements |
Foreign Currency Derivative Transactions That May Be Employed by the U.S. Equity Funds (other than
Quality Fund)
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Buying and selling spot currencies |
Uses of Derivatives by the U.S. Equity Funds (other than Quality Fund)
The Funds primarily use derivatives as a substitute for direct investment in securities or other
assets. For example, a Fund may use derivatives instead of investing directly in equity securities,
including using equity derivatives to maintain equity exposure when it holds cash by equitizing
its cash balances using futures contracts or other types of derivatives.
The Funds also may use derivatives in an attempt to reduce their investment exposures (which may
result in a reduction below zero). In addition, the Funds may use derivatives in an attempt to
adjust elements of their investment exposures to various securities, sectors and markets without
actually having to sell existing investments or make new direct investments. For example, if a Fund
holds a large proportion of stocks of companies in a particular sector and the
Manager believes that stocks of companies in another sector will outperform those stocks, the
61
Fund might use a short futures contract on an appropriate index (to synthetically sell a portion of
the Funds portfolio) in combination with a long futures contract on another index (to
synthetically buy exposure to that index).
The Funds may use derivatives to effect transactions intended as substitutes for securities
lending.
The U.S. Equity Funds (other than Quality Fund) do not employ leverage as a principal investment
strategy, but each Fund may have net long exposures in excess of their net assets.
Use of Derivatives by Quality Fund, the International Equity Funds, and Alpha Only Fund
Note: Currency Hedged International Equity Fund and Alpha Only Fund may use the derivatives
and engage in the derivatives strategies described below directly and/or indirectly through their
investment in other Funds of the Trust.
Types of Derivatives That May Be Used by Quality Fund, the International Equity Funds, and Alpha
Only Fund
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Options, futures contracts, and related options on securities or baskets or indices of
securities |
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Long swap contracts in which a Fund pays a fixed rate plus the negative performance, if
any, and receives the positive performance, if any, of an index, a single equity security,
or a basket of equity securities |
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Short swap contracts in which a Fund receives a fixed rate plus the negative
performance, if any, and pays the positive performance of an index, a single equity
security, or a basket of equity securities |
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Contracts for differences, i.e., swaps on an index, a single equity security, or a
basket of equity securities that contain both long and short equity components |
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Structured notes (except Quality Fund) |
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Warrants and rights |
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Non-Standard Warrants (including LEPOs and P-Notes) (except Quality Fund) |
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Reverse repurchase agreements |
Foreign Currency Derivative Transactions That May Be Employed by Quality Fund, the International
Equity Funds, and Alpha Only Fund
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Buying and selling spot currencies |
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Forward foreign currency contracts |
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Currency futures contracts and related options (both cash and physically settled) |
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Options on currencies |
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Currency swap contracts |
62
Uses of Derivatives by Quality Fund, the International Equity Funds, and Alpha Only Fund
The Funds primarily use derivatives as a substitute for direct investment in securities or other
assets. For example, a Fund may use derivatives instead of investing directly in equity securities,
including using equity derivatives to maintain equity exposure when it holds cash by equitizing
its cash balances using futures contracts or other types of derivatives. The Funds also may use
currency derivatives (including forward currency contracts, futures contracts, swap contracts and
options) to gain exposure to a given currency.
The Funds may use derivatives in an attempt to reduce their investment exposures (which may result
in a reduction below zero). A Fund also may use currency derivatives in an attempt to reduce some
aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an
instrument denominated in a different currency that the Manager believes is highly correlated with
the relevant currency.
The Funds may use derivatives in an attempt to adjust elements of their investment exposures to
various securities, sectors, markets, indices and currencies without actually having to sell
existing investments or make new direct investments. For example, if a Fund holds a large
proportion of stocks of companies in a particular sector and the Manager believes that stocks of
companies in another sector will outperform those stocks, the Fund might use a short futures
contract on an appropriate index (to synthetically sell a portion of the Funds portfolio) in
combination with a long futures contract on another index (to synthetically buy exposure to that
index). In adjusting their investment exposures, the Funds also may use currency derivatives in an
attempt to adjust their currency exposure, seeking currency exposure that is different (in some
cases, significantly different) from the currency exposure represented by their portfolio
investments.
The Funds may use derivatives to effect transactions intended as substitutes for securities
lending.
Quality Fund and the International Equity Funds do not employ leverage as a principal investment
strategy, but each Fund may have net long exposures in excess of their net assets. Alpha Only Fund
is not limited in the extent to which it uses derivatives or in the absolute face value of its
derivative positions. As a result, Alpha Only Fund may be leveraged in terms of aggregate exposure
of its assets, and its net long exposure may exceed 100% of its net assets. A Funds foreign
currency exposure may differ significantly from the currency exposure represented by its
investments.
63
Use of Derivatives by the Fixed Income Funds
Note: The Fixed Income Funds (other than U.S. Treasury Fund) may use the derivatives and
engage in the derivatives strategies described below directly and/or indirectly through their
investment in other GMO Funds (some of which are not offered through the Prospectuses).
Types of Derivatives That May Be Used by the Fixed Income Funds
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Futures contracts and related options on bonds as well as baskets or indices of
securities |
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Options on bonds and other securities |
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Swap contracts, including interest rate swaps, swaps on an index, a single fixed income
security, or a basket of fixed income securities, credit default swaps, inflation swaps,
and contracts for differences |
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Swaptions |
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Structured notes |
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Reverse repurchase agreements |
Foreign Currency Derivative Transactions That May Be Employed by the Fixed Income Funds
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Buying and selling spot currencies |
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Forward foreign currency contracts |
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Currency futures contracts and related options (both cash and physically settled) |
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Options on currencies |
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Currency swap contracts |
Uses of Derivatives by the Fixed Income Funds
The Funds may use derivatives as a substitute for direct investment in securities or other assets.
In particular, the Funds may use swaps or other derivatives on an index, a single security or a
basket of securities to gain investment exposures (e.g., by selling protection under a credit
default swap). The Funds also may use currency derivatives (including forward currency contracts,
futures contracts, swap contracts and options) to gain exposure to a given currency.
The Funds may use derivatives in an attempt to reduce their investment exposures (which may result
in a reduction below zero). For example, a Fund may use credit default swaps to take a short
position with respect to the likelihood of default by an issuer. A Fund also may use currency
derivatives in an attempt to reduce (which may result in a reduction below zero) some aspect of the
currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated
in a different currency that the Manager believes is highly correlated with the relevant currency.
The Funds may use derivatives in an attempt to adjust elements of their investment exposures to
various securities, sectors, markets, indices and currencies without actually having to sell
existing investments or make new direct investments. For instance, the Manager may alter the
interest rate exposure of debt instruments by employing interest rate swaps. Such a strategy is
designed to maintain the Funds exposure to the credit of an issuer through the debt instrument
64
but adjust the Funds interest rate exposure through the swap. With these swaps, the Fund and its
counterparties exchange interest rate exposure, such as fixed versus variable rates and shorter
duration versus longer duration exposure. In adjusting their investment exposures, a Fund also may
use currency derivatives in an attempt to adjust its currency exposure, seeking currency exposure
that is different (in some cases, significantly different) from the currency exposure represented
by its portfolio investments.
The Funds also may use derivatives to effect transactions intended as substitutes for securities
lending.
Each of the Fixed Income Funds is not limited in the extent to which it uses derivatives or in the
absolute face value of its derivative positions. As a result, each Fund may be leveraged in terms
of aggregate exposure of its assets, and its net long exposure may exceed 100% of its net assets.
INVESTMENT RESTRICTIONS
Fundamental Restrictions:
The following are Fundamental Investment Restrictions of the Funds, which may not be
changed without shareholder approval:
(1) Each Fund may not borrow money except under the following circumstances: (i) Each 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) Each 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; and (iii) Each
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 a Funds
custodian earmarks and 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, the above types of transactions are not treated as
involving senior securities so long as and to the extent that the Fund maintains liquid assets
equal in value to its obligations in respect of these transactions.
(2) With respect to each Fund (except for Quality Fund, Developed World Stock Fund, Benchmark-Free
Allocation Fund, Strategic Opportunities Allocation Fund, World Opportunities Equity Allocation
Fund, Short-Duration Collateral Share Fund, Strategic Fixed Income Fund, International
Opportunities Equity Allocation Fund, Inflation Indexed Plus Bond Fund, U.S. Treasury Fund, Asset
Allocation Bond Fund, Asset Allocation International Bond Fund, Flexible Equities Fund, Emerging
Domestic Opportunities Fund, International Intrinsic Value Extended
Markets Fund and Global Focused Equity Fund), the Fund may not purchase securities on
65
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) With respect to each Fund (except for Quality Fund, International Core Equity Fund,
International Growth Equity Fund, Developed World Stock Fund, Benchmark-Free Allocation Fund,
Strategic Opportunities Allocation Fund, World Opportunities Equity Allocation Fund, Short-Duration
Collateral Share Fund, Strategic Fixed Income Fund, International Opportunities Equity Allocation
Fund, Inflation Indexed Plus Bond Fund, Alpha Only Fund, U.S. Treasury Fund, Asset Allocation Bond
Fund, Asset Allocation International Bond Fund, Flexible Equities Fund, Emerging Domestic
Opportunities Fund, International Intrinsic Value Extended Markets Fund and Global Focused Equity
Fund), the Fund may not make short sales of securities or maintain a short position for the Funds
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.
This restriction does not prohibit the payment of an amount to exercise the right to acquire the
identical securities, provided that the Fund maintains segregated liquid assets in an amount
sufficient to exercise such right.
(4) Each Fund may not 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) Each Fund may not 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.
(6) Each Fund may not make loans, except by purchase of debt obligations or by entering into
repurchase agreements or through the lending of the Funds portfolio securities. Loans of
portfolio securities may be made with respect to up to 33 1/3% of a Funds total assets in the case
of each Fund (except International Intrinsic Value Fund, International Large/Mid Cap Value Fund,
Currency Hedged International Equity Fund, Flexible Equities Fund, Taiwan Fund, and Short-Duration
Collateral Fund), with respect to not more than 25% of total assets in the case of each of
International Intrinsic Value Fund, International Large/Mid Cap Value Fund and Currency Hedged
International Equity Fund, and with respect to 100% of total assets in the case of each of Flexible
Equities Fund, Taiwan Fund, and Short-Duration Collateral Fund.
(7) Each Fund may not concentrate more than 25% of the value of its total assets in any one
industry, except that Real Estate Fund will invest more than 25% of its assets in real
estate-related securities.
For purposes of this Fundamental Restriction (7), an industry shall not be considered to include
the U.S. government or its agencies or instrumentalities.
66
(8)(a) With respect to each Fund (except Developed World Stock Fund, Benchmark-Free Allocation
Fund, Global Balanced Asset Allocation Fund, Global Equity Allocation Fund, International Equity
Allocation Fund, Strategic Opportunities Allocation Fund, World Opportunities Equity Allocation
Fund, U.S. Equity Allocation Fund, Short-Duration Collateral Share Fund, Strategic Fixed Income
Fund, International Opportunities Equity Allocation Fund, Inflation Indexed Plus Bond Fund, Asset
Allocation Bond Fund, Asset Allocation International Bond Fund, Emerging Domestic Opportunities
Fund, International Intrinsic Value Extended Markets Fund and Global Focused Equity Fund), the Fund
may not purchase or sell commodities or commodity contracts, except that the Funds (other than the
Short-Duration Investment Fund) may purchase and sell financial futures contracts and options
thereon.
(b) With respect to each of Developed World Stock Fund, Short-Duration Collateral Share Fund,
Strategic Fixed Income Fund, Inflation Indexed Plus Bond Fund, Asset Allocation Bond Fund, Asset
Allocation International Bond Fund, Emerging Domestic Opportunities Fund, International Intrinsic
Value Extended Markets Fund and Global Focused Equity Fund, the Fund may not purchase commodities,
except that the Fund may purchase and sell commodity contracts or any type of commodity-related
derivative instrument (including, without limitation, all types of commodity-related swaps, futures
contracts, forward contracts, and options contracts).
(c) With respect to each of Benchmark-Free Allocation Fund, Global Balanced Asset Allocation Fund,
Global Equity Allocation Fund, International Equity Allocation Fund, Strategic Opportunities
Allocation Fund, World Opportunities Equity Allocation Fund, U.S. Equity Allocation Fund, and
International Opportunities Equity Allocation Fund, the Fund may not purchase commodities or
commodities contracts, except that the Fund may purchase and sell financial futures contracts and
options thereon and may invest in other registered open-end investment companies that purchase or
sell commodities, commodity contracts or any type of commodity-related derivative instrument
(including without limitation all types of commodity-related swaps, futures contracts, forward
contracts, and option contracts).
(9) Each Fund may not 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 a Fund covers such obligations or maintains liquid
assets equal in value to its obligations with respect to these transactions. Similarly, so long as
such assets 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 Restriction (4) below; any borrowing permitted by
Fundamental Restriction (1) above; any collateral arrangements with respect to initial and
variation margin permitted by Non-Fundamental
Restriction (4) below; and the purchase or sale of options, forward contracts, futures contracts or
options on futures contracts.
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(10) With respect to the Tobacco-Free Core Fund only, the Fund may not invest in (i) securities
which at the time of such investment are not readily marketable, (ii) securities the disposition of
which is restricted under federal securities laws, and (iii) repurchase agreements maturing in more
than seven days if, as a result, more than 10% of the Funds total assets (taken at current value)
would then be invested in securities described in (i), (ii) and (iii) above.
(11) With respect to each of U.S. Core Equity Fund, Tobacco-Free Core Fund, U.S. Small/Mid Cap
Value Fund, International Core Equity Fund, International Intrinsic Value Fund, International
Large/Mid Cap Value Fund, Asset Allocation International Small Companies Fund, International Growth
Equity Fund, Foreign Small Companies Fund, International Small Companies Fund, International Equity
Allocation Fund, Global Balanced Asset Allocation Fund, Global Equity Allocation Fund,
Benchmark-Free Allocation Fund, Strategic Opportunities Equity Allocation Fund, World Opportunities
Equity Allocation Fund, and International Opportunities Equity Allocation Fund, the Fund may not
cause less than 75% of the value of the Funds total assets to be represented by cash and cash
items (including receivables), Government securities, securities of other investment companies, and
other securities for the purposes of this calculation limited in respect of any one issuer to an
amount not greater than 5% of the value of the Funds total assets and to not more than 10% of the
outstanding voting securities of any single issuer.
Non-Fundamental Restrictions:
The following are Non-Fundamental Investment Restrictions of the Funds, which may be changed by the
Trustees without shareholder approval:
(1) Each Fund may not buy or sell oil, gas, or other mineral leases, rights or royalty contracts,
although it may purchase securities of issuers that deal in oil, gas, or other mineral leases,
rights or royalty contracts, including securities of royalty trusts, and may purchase securities
which are secured by, or otherwise hold or represent interests in, oil, gas, or other mineral
leases, rights or royalty contracts.
(2) Each Fund may not make investments for the purpose of gaining control of a companys
management.
(3) Each Fund may not invest more than 15% of its net assets in illiquid securities.
(4) With respect to each Fund (except for Quality Fund, Developed World Stock Fund, Benchmark-Free
Allocation Fund, Strategic Opportunities Allocation Fund, World Opportunities Equity Allocation
Fund, Short-Duration Collateral Share Fund, Strategic Fixed Income Fund, International
Opportunities Equity Allocation Fund, Inflation Indexed Plus Bond Fund, U.S. Treasury Fund, Asset
Allocation Bond Fund, Asset Allocation International Bond Fund, Flexible Equities Fund, Emerging
Domestic Opportunities Fund, International Intrinsic Value Extended Markets Fund and Global Focused
Equity Fund), the Fund may not pledge, hypothecate,
mortgage, or otherwise encumber its assets in excess of 33 1/3% of the Funds 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
68
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.)
(5) With respect to each Fund which has adopted a non-fundamental investment policy pursuant to
Rule 35d-1 under the 1940 Act (each, a Name Policy), the Fund may not change its Name Policy as
set forth under the Funds Principal investment strategies in the Funds Prospectus without
providing the Funds shareholders with a notice meeting the requirement of Rule 35d-1(c) at least
60 days prior to such change.
For purposes of each Name Policy, each Fund considers the term invest to include both direct
investing and indirect investing and the term investments to include both direct investments and
indirect investments (for instance, a Fund may invest indirectly or make indirect investments by
investing in another GMO Fund or in derivatives and synthetic instruments with economic
characteristics similar to the underlying asset), and a Fund may achieve exposure to a particular
investment, industry, country, or geographic region through direct investing or indirect investing
and/or direct investments or indirect investments. For Name Policies related to Equity Funds, the
terms equity investments and equities refer to direct and indirect investments (described
above) in common stocks and other stock-related securities, such as preferred stocks, convertible
securities and depositary receipts. These investments also include exchange-traded equity REITs and
equity income trusts.
(6) With respect to Short-Duration Investment Fund only, the Fund may not invest more than 25% of
the value of its total assets in obligations issued by banks.
(7) With respect to Emerging Markets Fund only, for so long as any investor in the Fund is an
Undertaking for Collective Investment in Transferable Securities subject to the European
Communities (Undertaking for Collective Investment in Transferable Securities) Regulations 2003, as
amended (the UCITS Regulations), the Fund may not hold investments in collective investment
undertakings (as such term is used in the UCITS Regulations) in excess of 10% of the Funds net
assets.
Except as indicated above in Fundamental Restriction (1) and Non-Fundamental Restriction (7), all
percentage limitations on investments set forth herein and in a Funds 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 Prospectuses and in this Statement of Additional
Information, and the phrases vote of a majority of the outstanding voting securities and the
approval of shareholders, as used herein with respect to a Fund, mean the affirmative vote of the
lesser of (1) more than 50% of the outstanding shares of that Fund, or (2) 67% or more of the
shares of that Fund present at a meeting if more than 50% of the outstanding shares
are represented at the meeting in person or by proxy. Except for policies and restrictions that
are explicitly described as fundamental in the Prospectuses or this Statement of Additional
Information, the investment policies and restrictions of each Fund may be changed by the Trusts
69
Trustees without the approval of shareholders of that Fund. Policies and restrictions of a Fund
that are explicitly described as fundamental in the Funds Prospectus or this Statement of
Additional Information cannot be changed without the approval of shareholders of that Fund.
In addition to the Name Policies referenced in Non-Fundamental Restriction (5) above, each of the
following Funds has also agreed as follows:
|
1) |
|
Tax-Managed U.S. Equities Fund: Under normal circumstances, the Fund will invest at
least 80% of its assets in each of (1) investments tied economically to the U.S. and (2)
equity investments. |
|
|
2) |
|
Foreign Small Companies Fund: Under normal circumstances, the Fund will invest at
least 80% of its assets in each of (i) investments tied economically to countries outside
the United States and (ii) investments in small companies. |
|
|
3) |
|
Emerging Country Debt Fund: Under normal circumstances, the Fund will invest at least
80% of its assets in each of (i) investments tied economically to emerging countries and
(ii) debt investments. |
|
|
4) |
|
Domestic Bond Fund: Under normal circumstances, the Fund will invest at least 80% of
its assets in each of (i) bond investments and (ii) investments tied economically to the
United States. |
When used in connection with a Funds Name Policy, the Manager uses the terms invest,
investments, assets, tied economically and related as defined in the Funds Prospectus.
With respect to each International Equity Fund that has the term international, global, or
world included in the Funds name, the Fund typically will invest in investments that are tied
economically to a number of countries throughout the world.
With respect to each Fixed Income Fund that has the term international or global included in
the Funds name, the Fund typically will have exposure to a number of countries throughout the
world, including exposure to the interest rate and currency markets of those countries through the
use of futures contracts, swap contracts, currency forwards, and other types of derivatives.
With respect to each Asset Allocation Fund that has the term international, global, or world
included in the Funds name, the Fund typically will invest, through its investments in the
underlying Funds, in investments that are tied economically to a number of countries throughout the
world.
70
DETERMINATION OF NET ASSET VALUE
The net asset value or NAV of a Fund or each class of shares of a Fund, as applicable, is
determined as of the close of regular trading on the New York Stock Exchange (NYSE), generally at
4:00 p.m. Boston time. The NAV per share of a class of shares of a Fund is determined by dividing
the total value of the Funds portfolio investments and other assets, less any liabilities,
allocated to that share class by the total number of outstanding shares of that class. For
Short-Duration Collateral Share Fund, NAV is calculated based on the NAV of Short-Duration
Collateral Fund. NAV is not determined on any days when the NYSE is closed for business. NAV for
the Fixed Income Funds is not determined (and accordingly transactions in shares of the Fixed
Income Funds are not processed) on days when the U.S. bond markets are closed.
A Fund also may elect not to determine NAV on days during which no share is tendered for redemption
and no order to purchase or sell a share is received by that Fund. Taiwan Fund will not determine
NAV on any days when the NYSE or the Taiwan Stock Exchange (TSE) is closed for trading. As a
result, from time to time, Taiwan Fund may not determine NAV for several consecutive weekdays
(e.g., during the Chinese Lunar New Year), during which time investors will have no ability to
redeem their shares in Taiwan Fund. Please refer to Determination of Net Asset Value in each
Prospectus for additional information.
The Manager evaluates pricing sources on an ongoing basis and may change a pricing source at any
time. The Manager normally does not evaluate the prices supplied by pricing sources on a
day-to-day basis. The Manager monitors erratic or unusual movements (including unusual inactivity)
in the prices supplied for a security and has discretion to override a price supplied by a source
(e.g., by taking a price supplied by another) when it believes that the price supplied is not
reliable. In addition, although alternative prices may be available for securities held by a Fund,
those alternative sources are not typically part of the valuation process and do not necessarily
provide greater certainty about the prices used by the Fund. In addition, to the extent a Fund
holds portfolio securities listed on foreign exchanges that trade on days on which the NYSE or the
U.S. bond markets are closed, the net asset value of those Funds shares may change significantly
on days when shares cannot be redeemed.
DISTRIBUTIONS
Each Prospectus describes the distribution policies of each Fund under the heading Distributions
and Taxes. Each Fund generally maintains a policy to pay its shareholders, as dividends,
substantially all net investment income, if any, and all net realized capital gains, if any, after
offsetting any available capital loss carryovers. Each Fund generally maintains a policy to make
distributions at least annually, sufficient to avoid the imposition of a nondeductible 4% excise
tax on certain undistributed amounts of ordinary income and capital gain net income. Each Fund,
from time to time and at the Funds discretion, also may make unscheduled distributions of net
investment income, short-term capital gains, and/or long-term capital gains prior to large
redemptions by shareholders from the Fund or as otherwise deemed appropriate by the Fund. From
time to time, distributions by a Fund could constitute, for U.S. federal income tax purposes, a
return of capital to shareholders (see discussion in Taxes below).
71
TAXES
Tax Status and Taxation of Each Fund
Each Fund is treated as a separate taxable entity for U.S. federal income tax purposes. Each Fund
intends to qualify each year as a regulated investment company (RIC) under Subchapter M of the
Internal Revenue Code of 1986, as amended (previously defined above as the Code). In order to
qualify for the special tax treatment accorded RICs and their shareholders, each Fund must, among
other things:
(a) |
|
derive at least 90% of its gross income for each taxable year from (i) dividends, interest,
payments with respect to certain securities loans, and gains from the sale or other
disposition of stock, securities, or 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 and (ii) net income derived
from interests in qualified publicly traded partnerships (as defined below); |
|
(b) |
|
diversify its holdings so that, at the end of each quarter of the Funds taxable year, (i) at
least 50% of the market value of the Funds total assets consists of cash and cash items, U.S.
government securities, securities of other RICs, and other securities limited in respect of
any one issuer to a value not greater than 5% of the value of the Funds total assets and not
more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of the Funds total assets is invested in the securities (other than those of the
U.S. government or RICs) 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, or in the
securities of one or more qualified publicly traded partnerships (as defined below); and |
|
(c) |
|
distribute with respect to each taxable year at least 90% of the sum of its investment
company taxable income (as that term is defined in the Code without regard to the deduction
for dividends paidgenerally, taxable ordinary income and the excess, if any, of net
short-term capital gains over net long-term capital losses) and any net tax-exempt interest
income for such year. |
In general, for purposes of the 90% gross income requirement described in paragraph (a) above,
income derived from a partnership will be treated as qualifying income only to the extent such
income is attributable to items of income of the partnership which would be qualifying income if
realized directly by the RIC. However, 100% of the net income derived from an interest in a
qualified publicly traded partnership (defined generally as a partnership (i) the interests in
which are traded on an established securities market or are readily tradable on a secondary market
or the substantial equivalent thereof, (ii) that derives at least 90% of its income from passive
income sources defined in Section 7704(d) of the Code, and (iii) that derives less than 90% of its
income from the qualifying income described in paragraph (a)(i) above) will be treated as
qualifying income. In addition, although in general the passive loss rules of the Code do not
apply to RICs, such rules do apply to a RIC with respect to items attributable to an interest in a
qualified publicly traded partnership. Further, for the purposes of the diversification test in
paragraph (b) above: (i) the term outstanding voting securities of such issuer will include the
72
equity securities of a qualified publicly traded partnership, and (ii) identification of the issuer
(or, in some cases, issuers) of a particular Fund investment can depend on the terms and conditions
of that investment. In some cases, identification of the issuer (or issuers) is uncertain under
current law, and an adverse determination or future guidance by the Internal Revenue Service
(IRS) with respect to issuer identification for a particular type of investment may adversely
affect the Funds ability to meet the diversification test in (b) above.
If a Fund qualifies as a RIC that is accorded special tax treatment, the Fund will not be subject
to U.S. federal income tax on income distributed in a timely manner to its shareholders in the form
of dividends (including Capital Gain Dividends, as defined below).
As described above, each Fund intends generally to distribute at least annually to its shareholders
substantially all of its net investment income (including any net tax-exempt interest income) and
all of its net realized capital gains (including both net short-term and long-term capital gains).
Any net taxable investment income or net short-term capital gains (as reduced by any net long-term
capital losses) retained by a Fund will be subject to tax at the Fund level at regular corporate
rates. Although each Fund intends generally to distribute all of its net capital gain (i.e., the
excess of any net long-term capital gains over net short-term capital losses) each year, each Fund
reserves the right to retain for investment all or a portion of its net capital gain. If a Fund
retains any net capital gain, it will be subject to tax at the Fund level at regular corporate
rates on the amount retained. In that case, a Fund is permitted to designate the retained amount
as undistributed capital gains in a timely notice to its shareholders, who would then, in turn, be
(i) required to include in income for U.S. federal income tax purposes, as long-term capital gain,
their shares of such undistributed amount, and (ii) entitled to credit their proportionate shares
of the tax paid by the Fund on such undistributed amount against their U.S. federal income tax
liabilities, if any, and to claim refunds on a properly filed U.S. tax return to the extent the
credit exceeds such liabilities. If a Fund properly makes this designation, for U.S. federal
income tax purposes, the tax basis of shares owned by a shareholder of the Fund would be increased
by an amount equal under current law to the difference between the amount of undistributed capital
gains included in the shareholders gross income under clause (i) of the preceding sentence and the
tax deemed paid by the shareholder under clause (ii) of the preceding sentence. A Fund is not
required to, and there can be no assurance that a Fund will, make this designation if it retains
all or a portion of its net capital gain in a taxable year.
In determining its net capital gain, including in connection with determining the amount available
to support a Capital Gain Dividend (as defined below), its taxable income, and its earnings and
profits, a Fund generally may elect to treat part or all of any post-October capital loss (defined
as the greatest of net capital loss, net long-term capital loss, or net short-term capital loss, in
each case attributable to the portion of the taxable year after October 31) or late-year ordinary
loss (generally, (i) net ordinary loss from the sale, exchange or other taxable disposition of
property, attributable to the portion of the taxable year after October 31, plus (ii) other net
ordinary loss attributable to the portion of the taxable year after December 31) as if incurred in
the succeeding taxable year.
If a Fund were to fail to distribute in a calendar year at least an amount generally equal to the
sum of 98% of its ordinary income for such year and 98.2% of its capital gain net income for the
73
one-year period ending October 31 within that year, plus any such retained amounts from the prior
year, such Fund would be subject to a nondeductible 4% excise tax on the undistributed amounts.
Each Fund intends generally to make distributions sufficient to avoid imposition of the 4% excise
tax, although each Fund reserves the right to pay an excise tax rather than make an additional
distribution when circumstances warrant (e.g., the payment of the excise tax amount is deemed by
the Fund to be de minimis). For purposes of the required excise tax distribution, a Funds
ordinary gains and losses from the sale, exchange, or other taxable disposition of property that
would otherwise be taken into account after October 31 of a calendar year generally are treated as
arising on January 1 of the following calendar year.
Realized capital losses in excess of realized capital gains (Net Capital Losses) are not
permitted to be deducted against net investment income. Instead, potentially subject to the
limitations described below, a Fund will carry Net Capital Losses forward from any taxable year to
subsequent taxable years to offset capital gains, if any, realized during such subsequent taxable
year. Distributions from capital gains are generally made after applying any available capital
loss carryforwards. Capital loss carryforwards are reduced to the extent they offset current-year
net realized capital gains, whether a Fund retains or distributes such gains. If a Fund has
incurred Net Capital Losses in a taxable year beginning on or before December 22, 2010 (pre-2011
losses), that Fund is permitted to carry such losses forward for eight taxable years; in the year
to which they are carried forward, such losses are treated as short-term capital losses that first
offset any short-term capital gains, and then offset any long-term capital gains.
If a Fund incurs Net Capital Losses in taxable years beginning after December 22, 2010, those
losses will be carried forward to one or more subsequent taxable years without expiration. Any
such carryforward losses will retain their character as short-term or long-term; this may well
result in larger distributions of short-term gains to shareholders (taxable to individual
shareholders as ordinary income) than would have resulted under the previous regime described
above. A Fund must use any such carryforwards, which will not expire, applying them first against
gains of the same character, before it uses any pre-2011 losses. This increases the likelihood
that pre-2011 losses will expire unused at the conclusion of the eight-year carryforward period.
See each Funds most recent annual shareholder report, as available, for more information
concerning the Funds Net Capital Losses available to be carried forward (if any) as of the end of
its most recently ended fiscal year.
In addition, a Funds ability to use Net Capital Losses may be limited following the occurrence of
certain (i) acquisitive reorganizations and (ii) shifts in the ownership of the Fund by a
shareholder owning or treated as owning 5% or more of the shares of the Fund (each, an ownership
change). The Code may similarly limit a Funds ability to use any of its other capital losses, or
ordinary losses, that have accrued but have not been recognized (i.e., built-in losses) at the
time of an ownership change to the extent they are realized within the five-year period following
the ownership change.
Transactions in Fund Shares
The sale, exchange, or redemption of Fund shares may give rise to a taxable gain or loss, generally
equal to the difference between the amount realized by a shareholder on the disposition of the
shares (that is, gross proceeds) and the shareholders adjusted basis in those shares.
74
Shareholders are responsible for keeping track of their own basis in Fund shares, including any
events requiring adjustments to their basis (e.g., due to receipt of a Return of Capital
Distribution (as defined below)). However, under new rules effective January 1, 2012, the Funds
(or in the case of shares held through an intermediary, the intermediary) generally will be
required to provide cost-basis information (generally on an IRS Form 1099-B) to the IRS and to
shareholders with respect to Fund shares acquired on or after January 1, 2012, when such shares are
subsequently redeemed. Under the new rules, the Funds (or an intermediary) will be required to use
the particular cost-basis reporting method (e.g., average cost basis, first in-first out, specific
share identification) selected by the shareholder in reporting such cost-basis information, and if
a shareholder fails to select a particular method, use the Funds (or intermediarys) default
method. Shareholders should consult their tax advisors (and if holding shares through an
intermediary, their intermediary) concerning the application of these new rules to their investment
in a Fund. Prior to the effective date of these new rules, the Funds expect to provide
shareholders affected by these new rules with more information about these new reporting
requirements, including the Funds default cost basis reporting method and how shareholders can
notify the Funds of their chosen cost-basis reporting method.
In general, any gain or loss realized upon a taxable disposition of shares will be treated as
long-term capital gain if the shares have been held for more than one year and as short-term
capital gain if the shares have been held for not more than one year. However, in the event that a
Fund were to be deemed a nonpublicly offered RIC as described under Limitation on Deductibility
of Fund Expenses below, depending on a shareholders percentage ownership in that Fund, a partial
redemption of Fund shares could cause the shareholder to be treated as receiving a dividend,
taxable under the rules applicable to dividends and distributions described below, rather than
capital gain income received in exchange for Fund shares.
Any loss realized upon a taxable disposition of Fund shares held by a shareholder for six months or
less generally will be treated as long-term capital loss to the extent of any Capital Gain
Dividends, as defined below, received or deemed received by a shareholder with respect to those
shares. Further, all or a portion of any loss realized upon a taxable disposition of Fund shares
will be disallowed under the Codes wash-sale rules if other shares of the same Fund are
purchased, including by means of dividend reinvestment, 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.
Taxation of Fund Distributions
Fund distributions are taxable to shareholders under the rules described below whether received in
cash or reinvested in additional Fund shares.
Dividends and distributions on each Funds shares are generally subject to U.S. federal income tax
as described below to the extent they do not exceed the Funds realized income and gains, even
though such dividends and distributions may economically represent a return of a particular
shareholders investment. Such dividends and distributions are likely to occur in respect of
shares purchased at a time when the Funds net asset value reflects unrealized gains, or realized
but undistributed income or gains, that were therefore included in the price the shareholder paid
for its shares. Such distributions may reduce the net asset value of the Funds shares below the
75
shareholders cost basis in those shares. Such realized income and gains may be required to be
distributed even when the Funds net asset value also reflects unrealized losses.
For U.S. federal income tax purposes, distributions of investment income made by a Fund are
generally taxable to shareholders as ordinary income. Taxes on distributions of capital gains are
determined by how long a Fund owned the investments that generated them, rather than how long a
shareholder may have owned shares in the Fund. In general, the Fund will recognize long-term
capital gain or loss on investments it has owned (or is deemed to have owned) for more than one
year, and short-term capital gain or loss on investments it has owned (or is deemed to have owned)
for one year or less. Distributions of net capital gains (that is, the excess of net long-term
capital gain over net short-term capital loss, in each case determined with reference to loss
carryforwards) that are properly reported by a Fund as capital gain dividends (Capital Gain
Dividends) generally are taxable to shareholders as long-term capital gains. Long-term capital
gain rates applicable to most individuals have been temporarily reduced to 15% (with a 0% rate
applying to taxpayers in the 10% and 15% rate brackets) for taxable years beginning before January
1, 2013. These reduced rates will expire for taxable years beginning on or after January 1, 2013,
unless Congress enacts legislation providing otherwise. Distributions attributable to net
short-term capital gain (as reduced by any net long-term capital loss for the taxable year, in each
case determined with reference to loss carryforwards) generally are taxable to shareholders as
ordinary income.
For taxable years beginning before January 1, 2013, distributions of investment income reported by
a Fund as derived from qualified dividend income will be taxed in the hands of individuals at the
rates applicable to long-term capital gain, provided holding period and other requirements are met
at both the shareholder and Fund levels. This provision will expire for taxable years beginning on
or after January 1, 2013, unless Congress enacts legislation providing otherwise. The Fixed Income
Funds do not expect a significant portion of Fund distributions (if any) to be derived from
qualified dividend income.
In order for some portion of the dividends received by a Fund shareholder to be qualified dividend
income, a Fund must meet holding period and other requirements with respect to some portion of the
dividend-paying stocks in its portfolio and the shareholder must meet holding
period and other requirements with respect to the Funds shares. A dividend will not be treated as
qualified dividend income (at either the Fund or shareholder level) (i) if the dividend is received
with respect to any share of stock held for fewer than 61 days during the 121-day period beginning
on the date which is 60 days before the date on which such share becomes ex-dividend with respect
to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period
beginning 90 days before such date), (ii) to the extent that the recipient is under an obligation
(whether pursuant to a short sale or otherwise) to make related payments with respect to positions
in substantially similar or related property, (iii) if the recipient elects to have the dividend
income treated as investment income for purposes of the limitation on deductibility of investment
interest, or (iv) if the dividend is received from a foreign corporation that is (A) not eligible
for the benefits of a comprehensive income tax treaty with the United States (with the exception of
dividends paid on stock of such a foreign corporation readily tradable on an established securities
market in the United States) or (B) treated as a passive foreign investment company (as defined
below).
76
In general, distributions of investment income reported by a Fund as derived from qualified
dividend income will be treated as qualified dividend income in the hands of a shareholder taxed as
an individual, provided the shareholder meets the holding period and other requirements described
above with respect to the Funds shares. If the above-described holding period and other
requirements are met at both the shareholder and Fund level, qualified dividend income will be
taxed in the hands of individuals at the rates applicable to long-term capital gain for taxable
years beginning before January 1, 2013. As noted above, this provision will expire for taxable
years beginning on or after January 1, 2013, unless Congress enacts legislation providing
otherwise. If the aggregate qualified dividend income received by a Fund during any taxable year
is 95% or more of its gross income, then 100% of the Funds dividends (other than Capital Gain
Dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only
gain included in the term gross income is the excess of net short-term capital gain over net
long-term capital loss.
For information regarding qualified dividend income received by a Fund from certain underlying
Funds, see Special Tax Considerations Pertaining to the Asset Allocation Funds and Other Funds of
Funds, below.
For corporate shareholders (other than S corporations), the 70% dividends-received deduction will
generally apply (subject to holding period and other requirements imposed by the Code) to a Funds
dividends paid from investment income to the extent derived from dividends received from U.S.
corporations for the taxable year. A dividend received by a Fund from a U.S. corporation will not
be treated as a dividend eligible for the dividends-received deduction (1) if it has been received
with respect to any share of stock that the Fund has held for less than 46 days (91 days in the
case of certain preferred stock) during the 91-day period beginning on the date which is 45 days
before the date on which such share becomes ex-dividend with respect to such dividend (during the
181-day period beginning 90 days before such date in the case of certain preferred stock) or (2) to
the extent that the Fund is under an obligation (pursuant to a short sale or otherwise) to make
related payments with respect to positions in substantially similar or related property. Moreover,
the dividends received deduction may otherwise be disallowed or reduced (1) if the corporate
shareholder fails to satisfy the foregoing requirements with respect to its shares of the Fund or
(2) by application of various provisions of the Code (for instance, the
dividends-received deduction is reduced in the case of a dividend received on debt-financed
portfolio stock (generally, stock acquired with borrowed funds)). The Fixed Income Funds and
International Equity Funds generally do not expect that a significant portion of their
distributions will be eligible for the corporate dividends-received deduction. For information
regarding eligibility for the dividends-received deduction of dividends received by a Fund from
certain underlying Funds, see Special Tax Considerations Pertaining to the Asset Allocation Funds
and Other Funds of Funds, below.
A portion of the original issue discount (OID) accrued on certain high yield discount obligations
may not be deductible to the issuer as interest and will instead be treated as a dividend for
purposes of the corporate dividends-received deduction. In such cases, if the issuer of the high
yield discount obligations is a domestic corporation, dividend payments by the Fund may be eligible
for the dividends-received deduction to the extent attributable to the deemed dividend portion of
such OID. See Tax Implications of Certain Investments below for more discussion of OID.
77
To the extent that a Fund makes a distribution of income that is attributable to (i) income
received by the Fund in lieu of dividends with respect to securities on loan pursuant to a
securities lending transaction or (ii) dividend income received by the Fund on securities it
temporarily purchased from a counterparty pursuant to a repurchase agreement treated for U.S.
federal income tax purposes as a loan, such distribution will not constitute qualified dividend
income to individual shareholders and will not be eligible for the dividends-received deduction for
corporate shareholders.
A Fund may make a distribution to its shareholders in excess of its current and accumulated
earnings and profits in any taxable year (a Return of Capital Distribution), in which case the
excess distribution will be treated as a return of capital to the extent of each shareholders tax
basis in its shares, and thereafter as capital gain. A return of capital is not taxable to the
extent such an amount does not exceed a shareholders tax basis. Return of Capital Distributions
reduce a shareholders tax basis in its shares, thus reducing any loss or increasing any gain on a
subsequent taxable disposition by such shareholder of the shares.
A Fund may make distributions of capital gains in excess of its net capital gain for the taxable
year (as reduced by any available capital loss carryforwards from prior taxable years). In this
case, there is a possibility that the distributions will be taxable as ordinary dividend
distributions, even though the distributed excess amounts would not have been subject to tax if
retained by the Fund.
A distribution paid to shareholders by a 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. Early each calendar year, the Trust will provide U.S. federal tax information, including
information about the character and amount of dividends and distributions paid during the preceding
year, to taxable investors and others requesting such information.
Limitation on Deductibility of Fund Expenses
Very generally, pursuant to Treasury regulations, expenses of nonpublicly offered RICs, except
those expenses specific to their status as a RIC or separate entity (e.g., registration fees or
transfer agency fees), are subject to special pass-through rules. A RIC is nonpublicly offered
if it has fewer than 500 shareholders at all times during a taxable year, and its shares are not
continuously offered pursuant to a public offering. In the event that a Fund were deemed to be a
nonpublicly offered RIC, the affected expenses (which include Management Fees) would be treated as
additional dividends to certain Fund shareholders (generally including individuals and entities
that compute their taxable income in the same manner as individuals) and would be deductible by
those shareholders, subject to the 2% floor on miscellaneous itemized deductions and other
significant limitations on itemized deductions set forth in the Code.
Backup Withholding
Each Fund (or in the case of shares held through an intermediary, the intermediary) generally is
required to withhold and remit to the U.S. Treasury a percentage of the taxable distributions and
78
redemption proceeds paid to any individual shareholder who fails to properly furnish the Fund (or
the intermediary) with a correct taxpayer identification number, who has under-reported dividend or
interest income, or who fails to certify that he or she is not subject to such withholding. The
backup withholding tax rate is 28% for amounts paid through 2012. This rate will expire and the
backup withholding rate will be 31% for amounts paid after December 31, 2012, unless Congress
enacts tax legislation providing otherwise. 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 owners U.S. federal income tax return, provided the appropriate
information is furnished to the IRS.
Distributions to Foreign Investors
Absent a specific statutory exemption, a Funds dividend distributions (other than Capital Gain
Dividends as described more fully below) are subject to a U.S. withholding tax of 30% when paid to
a shareholder that is not a U.S. person within the meaning of the Code (a foreign shareholder).
In addition, subject to certain exceptions, a Fund is generally not required and currently does
not expect to withhold on the amount of a non-dividend distribution (i.e., a Return of Capital
Distribution) paid to its foreign shareholders; a Fund, however, may determine to withhold on any
such distribution in its discretion to the extent permissible under applicable law. To the extent
withholding is made, persons who are resident in a country, such as the United Kingdom, that has an
income tax treaty with the United States 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.
For taxable years of a Fund beginning before January 1, 2012, a Fund is not required to withhold
any amounts (i) with respect to distributions (other than distributions to a foreign shareholder
(A) that has not provided a satisfactory statement that the beneficial owner is not a U.S. person,
(B) to the extent that the dividend is attributable to certain interest on an obligation if the
foreign shareholder is the issuer or is a 10% shareholder of the issuer, (C) that is within certain
foreign countries that had inadequate information exchange with the United States, or (D) to the
extent the dividend is attributable to interest paid by a person that is a related person of the
foreign
shareholder and the foreign shareholder is a controlled foreign corporation) from U.S.-source
interest income of types similar to those not subject to U.S. federal income tax if earned directly
by an individual foreign shareholder, to the extent such distributions are properly reported as
such by the Fund (interest-related dividends), and (ii) with respect to distributions (other than
(A) distributions to an individual foreign shareholder who is present in the United States for a
period or periods aggregating 183 days or more during the year of the distribution and (B)
distributions subject to special rules regarding the disposition of U.S. real property interests
(USRPIs) as described below) of net short-term capital gains in excess of net long-term capital
losses, to the extent such distributions are properly reported as such by the Fund (short-term
capital gain dividends). A Fund is permitted to report such parts of its dividends as
interest-related and/or short-term capital gain dividends as are eligible, but is not required to
do so. The exemption from withholding for interest-related and short-term capital gain dividends
will expire for distributions with respect to taxable years of a Fund beginning on or after January
1, 2012, unless Congress enacts legislation providing otherwise.
79
If a Fund invests in an underlying Fund, including an ETF, that is treated as a RIC for U.S.
federal income tax purposes (Underlying RIC) that pays such short-term capital gain or
interest-related dividends to its shareholders, such distributions will retain their character as
not subject to withholding if properly reported as such in respect of distributions by the Fund to
its shareholders.
In the case of shares held through an intermediary, the intermediary may withhold even if a Fund
reports all or a portion of a payment as an interest-related or short-term capital gain dividend to
shareholders. Foreign shareholders should contact their intermediaries regarding the application
of these rules to their accounts.
Under U.S. federal tax law, a foreign shareholder is not, in general, subject to U.S. federal
income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of a
Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively
connected with the conduct by the foreign shareholder of a trade or business within the United
States, (ii) in the case of a foreign shareholder that is an individual, the shareholder is present
in the United States for a period or periods aggregating 183 days or more during the year of the
sale or the receipt of the Capital Gain Dividend and certain other conditions are met, or (iii) the
special rules relating to gain attributable to the sale or exchange of USRPIs apply to the foreign
shareholders sale of shares of a Fund or to the Capital Gain Dividend received (as described
below).
Also, foreign shareholders with respect to whom income from a 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 such income is received in cash or reinvested in
shares, and, in the case of a foreign corporation, may also be subject to a branch profits tax. If
a foreign shareholder is eligible for the benefits of a tax treaty, any effectively connected
income or gain will generally be subject to U.S. federal income tax on a net basis only if it is
also attributable to a permanent establishment maintained by the shareholder in the United States.
Again, foreign shareholders who are residents 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.
Special withholding and other rules apply to distributions to foreign shareholders from a Fund that
is either a U.S. real property holding corporation (USRPHC) or would be a USRPHC but for the
operation of the exceptions to the definition thereof described below. Additionally, special
withholding and other rules apply to the redemption of shares in a Fund that is a USRPHC or former
USRPHC. Very generally, a USRPHC is a domestic corporation that holds USRPIsUSRPIs are defined as
any interest in U.S. real property or any equity interest in a USRPHC or former USRPHCthe fair
market value of which equals or exceeds 50% of the sum of the fair market values of the
corporations USRPIs, interests in real property located outside the United States, and other
assets. A Fund that holds (directly or indirectly) significant interests in real estate investment
trusts (as defined in Section 856 of the Code) qualifying for the special tax treatment under
Subchapter M of the Code (U.S. REITs) may be a USRPHC. The special rules discussed in the next
paragraph also apply to distributions from a Fund that would be a USRPHC absent exclusions from
USRPI treatment for interests in domestically controlled
80
U.S. REITs or RICs and not-greater-than-5%
interests in publicly traded classes of stock in U.S. REITs or RICs.
In the case of a Fund that is a USRPHC or would be a USRPHC but for the exceptions from the
definition of USRPI (described immediately above), any dividend distributions by the Fund and
certain distributions made by the Fund in redemption of its shares that are attributable to (i)
gains realized on the disposition of USRPIs by the Fund and (ii) distributions received by the Fund
from a lower-tier RIC or U.S. REIT that the Fund is required to treat as USRPI gain in its hands
will retain their character as gains realized from USRPIs in the hands of the Funds foreign
shareholders. However, absent the enactment of further legislation, on and after January 1, 2012,
this look-through treatment for distributions by the Fund to foreign shareholders applies only to
such distributions that, in turn, are attributable to distributions received by a Fund from a
lower-tier U.S. REIT and required to be treated as USRPI gain in the Funds hands. If a foreign
shareholder holds (or has held in the prior year) more than a 5% interest in any class of a Fund,
such distributions generally will be treated as gains effectively connected with the conduct of a
U.S. trade or business, and subject to tax at graduated rates. Moreover, such shareholders
generally will be required to file a U.S. income tax return for the year in which the gain was
recognized and the Fund generally will be required to withhold 35% of the amount of such
distribution. In the case of all other foreign shareholders (i.e., those whose interest in the
Fund did not exceed 5% in any class of the Fund at any time during the prior year), the USRPI
distribution generally will be treated as ordinary income (regardless of any reporting by the Fund
that such distribution is a short-term capital gain dividend or a Capital Gain Dividend), and the
Fund generally must withhold 30% (or a lower applicable treaty rate) of the amount of the
distribution paid to such foreign shareholder. It is currently unclear whether Congress will
extend the look-through provisions described above for distributions made on or after January 1,
2012, and what the terms of any such extension would be.
Foreign shareholders of a Fund may also be subject to certain wash-sale rules to prevent the
avoidance of the tax filing and payment obligations discussed above through the sale and repurchase
of Fund shares.
In addition, a Fund that is a USRPHC or former USRPHC must typically withhold 10% of the amount
realized in a redemption by a greater-than-5% foreign shareholder, and that shareholder typically
must file a U.S. income tax return for the year of the disposition of the USRPI and pay
any additional tax due on the sale. A similar withholding obligation may apply to Return of
Capital Distributions by a Fund that is a USRPHC or former USRPHC to a greater-than-5% foreign
shareholder, even if all or a portion of such distribution would be treated as a return of capital
to the foreign shareholder. Prior to January 1, 2012, such withholding on these redemptions and
distributions generally is not required if the Fund is a domestically controlled USRPHC or, in
certain limited cases, if the Fund (whether or not domestically controlled) holds substantial
investments in Underlying RICs that are domestically controlled USRPHCs. These exemptions from
withholding will expire for redemptions or distributions made on or after January 1, 2012, unless
Congress enacts legislation providing otherwise. If no such legislation is enacted, beginning on
January 1, 2012, such withholding is required, without regard to whether the Fund or any Underlying
RIC in which it invests is domestically controlled.
81
Foreign shareholders should consult their tax advisors (and if holding shares through an
intermediary, their intermediary) concerning the application of these rules to their investment in
a Fund.
In order to qualify for any exemptions from withholding described above or for lower withholding
tax rates under income tax treaties, or to establish an exemption from backup withholding, a
foreign shareholder must comply with special certification and filing requirements relating to its
non-U.S. status (including, for example, furnishing an IRS Form W-8BEN). Foreign
shareholders in a Fund should consult their tax advisors and, if holding shares through
intermediaries, their intermediaries, in this regard.
Special rules (including withholding and reporting requirements) apply to foreign partnerships and
those holding Fund shares through foreign partnerships. Also, additional considerations may apply
to foreign trusts and estates. Investors holding Fund shares through foreign entities should
consult their tax advisors about their particular situation.
A foreign shareholder may be subject to state and local taxes and to the U.S. federal estate tax in
addition to the U.S. federal income tax referred to above.
See also Other Reporting and Withholding Requirements below for information regarding the
potential application of an additional withholding regime.
Foreign Taxes
A Funds investments in foreign securities may be subject to foreign withholding and other taxes on
dividends, interest, or capital gains which will decrease a Funds yield. A Fund may otherwise be
subject to foreign taxation on repatriation proceeds generated from those securities or to other
transaction-based foreign taxes on those securities, which can also decrease the Funds yield.
Such foreign withholding taxes and other taxes may be reduced or eliminated under income tax
treaties between the United States and certain foreign jurisdictions. Depending on the number of
foreign shareholders in a Fund, however, such reduced foreign withholding and other tax rates may
not be available for investments in certain jurisdictions.
If, at the end of a Funds taxable year, more than 50% of the value of the total assets of the Fund
is represented by direct investments in stock or other securities of foreign corporations, the Fund
may make an election that allows shareholders to claim a foreign tax credit or deduction (but not
both) on their U.S. income tax return in respect of foreign taxes paid by or withheld from the Fund
on one or more of its foreign portfolio securities. Only foreign taxes that meet certain
qualifications are eligible for this pass-through treatment. If a Fund is eligible for and makes
such an election, its shareholders generally will include in gross income from foreign sources
their pro rata shares of such taxes paid by the Fund. A shareholders ability to claim an
offsetting foreign tax credit or deduction in respect of these taxes is subject to limitations
imposed by the Code, which may result in the shareholders not receiving a full credit or deduction
(if any) for the amount of such taxes. Shareholders who do not itemize deductions on their U.S.
federal income tax returns may claim a credit (but not a deduction) for such foreign taxes.
Certain of the International Equity Funds are eligible for and expect to make this election.
However, even if a Fund is eligible to make this election, it may determine not to do so in its
sole
82
discretion, in which case any such qualified foreign taxes paid by the Fund cannot be given
this special pass-through treatment by the Fund or its shareholders. Investors should consult
their tax advisors for further information relating to the foreign tax credit and deduction. To
the extent a Fund is eligible for and makes this election, its shareholders whose income from the
Fund is not subject to U.S. taxation at the graduated rates applicable to U.S. citizens, residents,
or domestic corporations may receive substantially different tax treatment of distributions by the
Fund, and may be disadvantaged as a result of the Fund making this election.
In some cases, a Fund may also be eligible to pass through to its shareholders the foreign taxes
paid by Underlying RICs in which it invests that themselves elected to pass through such taxes to
their shareholders. Each eligible Asset Allocation Fund expects to make this election for any
taxable year in which it directly or indirectly (through one or more Underlying RICs making this
election) pays qualifying foreign taxes as described above. However, even if a Fund is eligible to
make such an election for a given year, it may determine not to do so. See Special Tax
Considerations Pertaining to the Asset Allocation Funds and other Funds of Funds for more
information.
Withholding taxes that are accrued on dividends in respect of (i) securities on loan pursuant to a
securities lending transaction during the period that any such security was not directly held by a
Fund or (ii) securities the Fund temporarily purchased from a counterparty pursuant to a repurchase
agreement that is treated as a loan for U.S. federal income tax purposes generally will not qualify
as a foreign tax paid by the Fund, in which case, they could not be passed through to shareholders
even if the Fund meets the other requirements described above.
Shareholder Reporting Obligations With Respect to Foreign Bank and Financial Accounts and Other
Foreign Financial Assets
Certain individuals (and, if provided in future guidance, certain domestic entities) must disclose
annually their interests in specified foreign financial assets on IRS Form 8938, which must be
attached to their U.S. federal income tax returns for taxable years beginning after March 18, 2010
pursuant to new rules enacted in March 2010 as part of the Hiring Incentives to Restore Employment
Act (HIRE Act). In Notice 2011-55, issued in June 2011, the IRS suspended this reporting
requirement pending its release of Form 8938. Following the IRSs release of Form 8938,
individuals for which the filing of Form 8938 has been suspended for a taxable year under this
Notice will be required to attach Form 8938 for the suspended taxable year to their next
income tax return required to be filed with the IRS. Until the Form 8938, as well as anticipated
related Treasury regulations, are issued, it is unclear under what circumstances, if any, a
shareholders (indirect) interest in a Funds specified foreign financial assets, if any, falls
within this requirement. In addition, shareholders that are U.S. persons and own, directly or
indirectly, more than 50% of a Fund could be required to report annually their financial interest
in the Funds foreign financial accounts, if any, on Treasury Department Form TD F 90-22.1,
Report of Foreign Bank and Financial Accounts (FBAR). Shareholders should consult their
intermediaries through which a Fund investment is made (if applicable), as well as a tax advisor,
regarding the applicability to them of both of these reporting requirements.
83
Other Reporting and Withholding Requirements
Rules enacted in March 2010 require the reporting to the IRS of direct and indirect ownership of
foreign financial accounts and foreign entities by U.S. persons. Failure to provide this required
information can result in a 30% withholding tax on certain payments (withholdable payments)
beginning in 2014 or 2015, depending on the type of payment. Specifically, withholdable payments
subject to this 30% withholding tax include payments of U.S.-source dividends or interest made on
or after January 1, 2014, and payments of gross proceeds from the sale or other disposal or
property that can produce U.S.-source dividends or interest made on or after January 1, 2015.
The IRS has issued only preliminary guidance with respect to these rules; their scope remains
unclear and potentially subject to material change. Very generally, it is possible that all or a
portion of distributions made by a Fund on or after the dates noted above (or such later dates as
may be provided in future guidance) to a shareholder, including a distribution in redemption of
shares and a distribution of income or gains otherwise exempt from withholding under the rules
applicable to non-U.S. shareholders described above (e.g., Capital Gain Dividends and short-term
capital gain and interest-related dividends, as described above), will be subject to the 30%
withholding requirement. Payments will generally not be subject to withholding under these rules so
long as shareholders provide their Fund with certifications or other documentation as the Fund may
request including, to the extent required, with regard to their direct and indirect owners. The
failure of a shareholder to provide such certifications, documentation, or other information may
result in other adverse consequences to the shareholder, in addition to the 30% withholding.
Payments to a foreign shareholder that is a foreign financial institution (as defined under these
rules) will generally be subject to withholding unless such shareholder enters into, and provides
certification to the Fund of, a valid and timely information reporting and withholding agreement
with the IRS to, among other requirements, report required information about certain direct and
indirect U.S. investors or U.S. accounts. Future regulations or other guidance may exempt certain
foreign financial institutions from these requirements, but it is currently unclear whether or when
such regulations or other guidance will be issued. Persons investing in a Fund through an
intermediary should contact their intermediary regarding the application of this reporting and
withholding regime to their investments in the Fund.
Shareholders are urged to consult a tax advisor regarding this reporting and withholding regime, in
light of their particular circumstances.
The Funds and their shareholders may be subject to certain other tax reporting requirements as a
result of the investment strategies and activities of the Funds. Certain U.S. federal, state,
local and foreign tax reporting requirements may require a Fund to provide certain information
about its shareholders to the IRS and other similar authorities responsible for tax matters in
other jurisdictions (e.g., foreign countries).
Tax Implications of Certain Investments
In general, option premiums received by a Fund are not immediately included in the income of the
Fund. Instead, the premiums are recognized when the option contract expires, the option is
exercised by the holder, or the Fund transfers or otherwise terminates the option (e.g., through a
closing transaction). If a call option written by a Fund is exercised and the Fund sells or
delivers the
84
underlying securities or other assets, the Fund generally will recognize capital gain or loss equal
to (i) the sum of the strike price and the option premium received by the Fund minus (ii) the
Funds basis in the underlying securities or other assets. Such gain or loss generally will be
short-term or long-term depending upon the holding period of the underlying securities or other
assets. If securities or other assets are purchased by a Fund pursuant to the exercise of a put
option written by it, the Fund generally will subtract the premium received from its cost basis in
the securities or other assets purchased. The gain or loss with respect to any termination of a
Funds obligation under an option other than through the exercise of the option and related
purchase, sale, or delivery of the underlying securities or other assets generally will be
short-term gain or loss depending on whether the premium income received by the Fund is greater or
less than the amount paid by the Fund (if any) in terminating the transaction. Thus, for example,
if an option written by a Fund expires unexercised, the Fund generally will recognize short-term
gain equal to the premium received.
Certain covered call writing activities and other option strategies of a Fund may trigger the U.S.
federal income tax straddle rules of Section 1092 of the Code, requiring the deferral of losses and
the termination of holding periods on offsetting positions in options and stocks deemed to
constitute substantially similar or related property. Call options on stocks that are not deep in
the money may qualify as qualified covered calls, which generally are not subject to the
straddle rules; the holding period on stock underlying qualified covered calls that are in the
money although not deep in the money will be suspended during the period that such calls are
outstanding. Thus, the straddle rules and the rules governing qualified covered calls could cause
gains that would otherwise constitute long-term capital gains to be treated as short-term capital
gains, and distributions that would otherwise constitute qualified dividend income or qualify for
the corporate dividends-received deduction to fail to satisfy the holding period requirements and
therefore to be taxed as ordinary income or to fail to qualify for the dividends-received
deduction, as the case may be.
The tax treatment of certain futures contracts entered into by a Fund as well as listed non-equity
options written or purchased by a Fund on U.S. exchanges (including options on futures contracts,
equity indices, and debt securities) will be governed by Section 1256 of the Code (Section 1256
contracts). Gains or losses on Section 1256 contracts generally are considered 60% long-term and
40% short-term capital gains or losses (60/40), although certain foreign currency gains and
losses from such contracts may be treated as ordinary in character. Also, Section 1256 contracts
held by a Fund at the end of each taxable year (and, for purposes of the 4% excise tax, on certain
other dates as prescribed under the Code) are marked to market, with the result that unrealized
gains or losses are treated as though they were realized and the resulting gain or loss is treated
as ordinary or 60/40 gain or loss, as applicable.
In addition to the special rules described above in respect of futures and options transactions, a
Funds transactions in other derivative instruments (e.g., forward contracts and swap agreements),
as well as any of its other hedging, short sales, or similar transactions, may be subject to one or
more special tax rules (e.g., notional principal contract, straddle, constructive sale, wash-sale,
and short-sale rules). These rules may affect whether gains and losses recognized by a Fund are
treated as ordinary or capital and/or as short-term or long-term, accelerate the recognition of
income or gains to a Fund, defer losses, and cause adjustments in
85
the holding periods of a Funds securities. The rules could therefore affect the amount, timing,
and/or character of distributions to shareholders.
A Fund may make extensive use of various types of derivative financial instruments to the extent
consistent with its investment policies and restrictions. The tax rules applicable to derivative
financial instruments are in some cases uncertain under current law, including under Subchapter M
of the Code. Accordingly, while the Funds intend to account for such transactions in a manner they
deem to be appropriate, an adverse determination or future guidance by the IRS with respect to one
or more of these rules (which determination or guidance could be retroactive) may adversely affect
a Funds ability to meet one or more of the relevant requirements to maintain its qualification as
a RIC, as well as to avoid a fund-level tax. See Loss of RIC Status below.
Certain investments made and investment practices engaged in by a Fund can produce a difference
between its book income and its taxable income. These can include, but are not limited to, certain
hedging activities, as well as investments in foreign currencies, foreign currency-denominated debt
securities, Section 1256 contracts, passive foreign investment companies (as defined below), and
debt obligations with discount or purchased at a premium. In addition, certain foreign currency
transactions associated with the redemption of Fund shares (in the case of a Fund that permits
redemptions of Fund shares in foreign currencies) may produce a difference between a Funds book
income and its taxable income. If a Funds book income exceeds the sum of its taxable income and
net tax-exempt interest income (if any), the distribution (if any) of such excess generally will be
treated as (i) a dividend to the extent of the Funds remaining earnings and profits (including
earnings and profits arising from tax-exempt interest income (if any)), (ii) thereafter, as a
return of capital to the extent of the recipients basis in its shares, and (iii) thereafter, as
gain from the sale or exchange of a capital asset. If a Funds book income is less than the sum of
its taxable income and net tax-exempt income (if any), the Fund could be required to make
distributions exceeding book income to qualify as a RIC that is accorded special tax treatment.
Any investment by a Fund in U.S. REIT equity securities may result in the Funds receipt of cash in
excess of the U.S. REITs earnings; if the Fund distributes these amounts, these distributions
could constitute a return of capital to Fund shareholders for U.S. federal income tax purposes.
Investments in U.S. REIT equity securities may also require a Fund to accrue and distribute income
not yet received. To generate sufficient cash to make the requisite distributions, a Fund may be
required to sell securities in its portfolio (including when it is not advantageous to do so) that
it otherwise would have continued to hold. Dividends received by a Fund from a U.S. REIT will not
qualify for the corporate dividends-received deduction and generally will not constitute qualified
dividend income.
Under a notice issued by the IRS in October 2006 and Treasury regulations that have not yet been
issued, but may apply retroactively, a portion of a Funds income (including income allocated to
the Fund from a U.S. REIT or other pass-through entity) that is attributable to a residual interest
in a real estate mortgage investment conduit (REMIC) (including by investing in residual
interests in CMOs with respect to which an election to be treated as a REMIC is in effect) or an
equity interest in a taxable mortgage pool (TMP) (referred to in the Code as an excess
inclusion) will be subject to U.S. federal income tax in all events. This notice also
86
provides and the regulations are expected to provide that excess inclusion income of RICs, such as
the Funds, will be allocated to shareholders of RICs in proportion to the dividends received by
such shareholders, with the same consequences as if the shareholders held the related interest
directly. As a result, a Fund investing in any such interests may not be a suitable investment for
certain tax-exempt investors, as noted below.
In general, excess inclusion income allocated to shareholders (i) cannot be offset by net operating
losses (subject to a limited exception for certain thrift institutions), (ii) will constitute
unrelated business taxable income (UBTI) to entities (including a qualified pension plan, an
individual retirement account, a 401(k) plan, a Keogh plan, or other tax-exempt entity) subject to
tax on UBTI, thereby potentially requiring such an entity that is allocated excess inclusion
income, and otherwise might not be required to file a tax return, to file a tax return and pay tax
on such income, and (iii) in the case of a foreign shareholder, will not qualify for any reduction
in U.S. federal withholding tax.
Under current law, income of a Fund that would be treated as UBTI if earned directly by a
tax-exempt entity generally will not be attributed and taxed as UBTI when distributed to tax-exempt
shareholders (that is, the Fund blocks this income with respect to such shareholders).
Notwithstanding this blocking effect, a tax-exempt shareholder could realize UBTI by virtue of
its investment in a Fund if shares in the Fund constitute debt-financed property in the hands of
the tax-exempt shareholder within the meaning of Section 514(b) of the Code. A tax-exempt
shareholder may also recognize UBTI if a Fund recognizes excess inclusion income derived from
direct or indirect investments in residual interests in REMICs or equity interests in TMPs as
described above, if the amount of such income recognized by the Fund exceeds the Funds investment
company taxable income (after taking into account deductions for dividends paid by the Fund).
In addition, special tax consequences apply to charitable remainder trusts (CRTs) that invest in
RICs that invest directly or indirectly in residual interests in REMICs or equity interests in
TMPs. Under legislation enacted in December 2006, a CRT (as defined in Section 664 of the Code)
that realizes any UBTI for a taxable year must pay an excise tax annually of an amount equal to
such UBTI. Under IRS guidance issued in October 2006, a CRT will not recognize UBTI as a result of
investing in a Fund that recognizes excess inclusion income. Rather, if at any time during any
taxable year a CRT (or one of certain other tax-exempt shareholders, such as the United States, a
state or political subdivision, or an agency or instrumentality thereof, and certain energy
cooperatives) is a record holder of a share in a Fund that recognizes excess inclusion income, then
the Fund will be subject to a tax on that portion of its excess inclusion income for the taxable
year that is allocable to such shareholders at the highest U.S. federal corporate income tax rate.
The extent to which this IRS guidance remains applicable in light of the December 2006 legislation
is unclear. To the extent permitted under the 1940 Act, each Fund may elect to specially allocate
any such tax to the applicable CRT, or other shareholder, and thus reduce such shareholders
distributions for the year by the amount of the tax that relates to such shareholders interest in
the Fund. CRTs and other tax-exempt investors are urged to consult their tax advisors concerning
the consequences of investing in the Funds.
Some debt obligations with a fixed maturity date of more than one year from the date of issuance
(and zero-coupon debt obligations with a fixed maturity date of more than one year from the date
87
of issuance) that are acquired by a Fund will be treated as debt obligations that are issued
originally at a discount. Generally, the amount of the OID is treated as interest income and is
included in a Funds taxable income (and required to be distributed by the Fund) over the term of
the debt security, even though payment of that amount is not received until a later time, usually
upon partial or full repayment or disposition of the debt security. In addition, payment-in-kind
securities will give rise to income which is required to be distributed and is taxable even though
the Fund holding the security receives no interest payment in cash on the security during the year.
Some debt obligations with a fixed maturity date of more than one year from the date of issuance
that are acquired by a Fund in the secondary market may be treated as having market discount. Very
generally, market discount is the excess of the stated redemption price of a debt obligation (or in
the case of an obligation issued with OID, its revised issue price) over the purchase price of
such obligation. Generally, any gain recognized on the disposition of, and any partial payment of
principal on, a debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the accrued market discount on such debt
security. Alternatively, a Fund may elect to accrue market discount currently, in which case the
Fund will be required to include the accrued market discount in the Funds income (as ordinary
income) and thus distribute it over the term of the debt security, even though payment of that
amount is not received until a later time, upon partial or full repayment or disposition of the
debt security. The rate at which the market discount accrues, and thus is included in the Funds
income, will depend upon which of the permitted accrual methods the Fund elects.
Some debt obligations with a fixed maturity date of one year or less from the date of issuance that
are acquired by a Fund may be treated as having OID or, in certain cases, acquisition discount
(very generally, the excess of the stated redemption price over the purchase price). Generally, a
Fund will be required to include the OID or acquisition discount in income (as ordinary income)
over the term of the debt security, even though payment of that amount is not received until a
later time, usually when the debt security matures. The OID or acquisition discount accrues
ratably in equal daily installments or, if the Fund so elects, at a constant (compound) interest
rate. If the Fund elects the constant interest rate method, the character and timing of
recognition of income by the Fund will differ from what they would have been under the default pro
rata method.
Increases in the principal amount of an inflation indexed bond will be treated as OID includible in
income (as ordinary income) over the term of the bond, even though payment of that amount is not
received until a later time. Decreases in the principal amount of an inflation indexed bond will
reduce the amount of interest from the debt instrument that would otherwise be includible in income
by a Fund. In addition, if the negative inflation adjustment exceeds the income includible by a
Fund with respect to the debt instrument (including any OID) for the taxable year, such excess will
be an ordinary loss to the extent a Funds total interest inclusions on the debt instrument in
prior taxable years exceed the total amount treated by the Fund as an ordinary loss on the debt
instrument in prior taxable years. Any remaining excess may be carried forward to reduce taxable
income from the instrument in subsequent years.
If a Fund holds the foregoing kinds of debt instruments, it may be required to pay out as an income
distribution each year an amount which is greater than the total amount of cash interest
88
the Fund actually received. Such distributions may be made from the cash assets of the Fund or, if
necessary, by liquidation of portfolio securities including at a time when it may not be
advantageous to do so. A Fund may realize gains or losses from such liquidations. In the event a
Fund realizes net long-term or short-term capital gains from such transactions, its shareholders
may receive a larger Capital Gain Dividend or ordinary dividend, respectively, than they would in
the absence of such transactions.
Investments in debt obligations that are at risk of or in default present special tax issues for a
Fund. Tax rules are not entirely clear about issues such as whether and to what extent the Fund
should recognize market discount on a debt obligation; when the Fund may cease to accrue interest,
OID, or market discount; when and to what extent the Fund may take deductions for bad debts or
worthless securities; and how the Fund should allocate payments received on obligations in default
between principal and income. These and other related issues will be addressed by a Fund when, as,
and if it invests in such securities, in order to seek to ensure that it distributes sufficient
income to preserve its status as a RIC and does not become subject to U.S. federal income or excise
tax.
Special tax considerations apply if a Fund invests in investment companies treated as partnerships
for U.S. federal income tax purposes. For U.S. federal income tax purposes, a Fund investing in
such a partnership generally will be allocated its share of the income, gains, losses, deductions,
credits, and other tax items of the partnership so as to reflect the Funds interests in the
partnership. A partnership in which a Fund invests may modify its partner allocations to comply
with applicable tax regulations, including, without limitation, the income tax regulations under
Sections 704, 706, 708, 734, 743, 754, and 755 of the Code. It also may make special allocations
of specific tax items, including gross income, gain, deduction, or loss. These modified or special
allocations could result in the Fund, as a partner, receiving more or fewer items of income, gain,
deduction, or loss (and/or income, gain, deduction, or loss of a different character) than it would
in the absence of such modified or special allocations. A Fund will be required to include in its
income its share of a partnerships tax items, including gross income, gain, deduction, or loss,
for any partnership taxable year ending within or with the Funds taxable year, regardless of
whether or not the partnership distributes any cash to the Fund in such year.
In general, a Fund will not recognize its share of these tax items until the close of the
partnerships taxable year. However, absent the availability of an exception, a Fund will
recognize its share of these tax items as they are recognized by the partnership for purposes of
determining the Funds liability for the 4% excise tax (described above). If a Fund and a
partnership have different taxable years, the Fund may be obligated to make distributions in excess
of the net income and gains recognized from that partnership and yet be unable to avoid the 4%
excise tax because it is without sufficient earnings and profits at the end of its taxable year.
In some cases, however, a Fund can take advantage of certain safe harbors which would allow it to
include its share of a partnerships income, gain, loss, and certain other tax items at the close
of the partnerships taxable year for both excise tax purposes and general Subchapter M purposes,
thus avoiding the potential complexities arising from different taxable years.
In general, cash distributions to a Fund by a partnership in which it invests (including in partial
or complete redemption of its interest in the partnership) will represent a nontaxable return of
89
capital to the Fund up to the amount of the Funds adjusted tax basis in its interest in the
partnership, with any amounts exceeding such basis treated as capital gain. Any loss may be
recognized by a Fund only if it redeems its entire interest in the partnership for money.
More generally, as a result of the foregoing and certain other special rules, a Funds investment
in investment companies that are partnerships for U.S. federal income tax purposes can cause a
Funds distributions to shareholders to vary in terms of their timing, character, and/or amount
from what that Funds distributions would have been had the Fund invested directly in the portfolio
securities and other assets held by those underlying partnerships.
In addition, any transactions by a Fund in foreign currencies, foreign currency-denominated debt
obligations, or certain foreign currency options, futures contracts, or forward contracts (or
similar instruments) may give rise to ordinary income or loss to the extent such income or loss
results from fluctuations in the value of the foreign currency concerned and, as described earlier,
can give rise to differences in the Funds book and taxable income. Such ordinary income treatment
may accelerate Fund distributions to shareholders and increase the distributions taxed to
shareholders as ordinary income. Any net ordinary losses so created cannot be carried forward by
the Fund to offset income or gains earned in subsequent taxable years.
A Funds investments in certain passive foreign investment companies (PFICs), as defined below,
could subject the Fund to U.S. federal income tax (including interest charges) on distributions
received from a PFIC or on proceeds received from the disposition of shares in a PFIC, which tax
cannot be eliminated by making distributions to Fund shareholders. However, a Fund may make
certain elections to avoid the imposition of that tax. For example, a Fund may elect to treat a
PFIC as a qualified electing fund (QEF) (i.e., make a QEF election), in which case the Fund
will be required to include its share of the PFICs income and net capital gain annually,
regardless of whether it receives any distribution from the PFIC. Alternately, a Fund may make an
election to mark the gains (and to a limited extent the losses) in such holdings to the market as
though it had sold (and, solely for purposes of this mark-to-market election, repurchased) its
holdings in those PFICs on the last day of the Funds 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 increasing 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 Funds total return. In general, a Fund that indirectly invests
in PFICs by virtue of the Funds investment in Underlying RICs or other investment companies may
not make such elections; rather, the Underlying RICs or other investment companies directly
investing in PFICs would decide whether to make such elections. In addition, there is a risk that
a Fund may not realize that a foreign corporation in which it invests is a PFIC for U.S. federal
tax purposes and thus fail to timely make a QEF or mark-to-market election in respect of that
corporation, in which event the Fund could be subject to the U.S. federal income taxes and interest
charges described above.
A PFIC is any foreign corporation in which (i) 75% or more of the gross income for the taxable year
is passive income, or (ii) the average percentage of the assets (generally by value, but by
90
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 purpose means dividends, interest
(including income equivalent to interest), royalties, rents, annuities, the excess of gains over
losses from certain property transactions and commodities transactions, income from certain
notional principal contracts, and foreign currency gains. Passive income for this purpose does not
include rents and royalties received by the foreign corporation from active business and certain
income received from related persons.
Dividends paid by PFICs will not be eligible to be treated as qualified dividend income or for the
dividends-received deduction.
A U.S. person, including a Fund, who owns (directly or indirectly) 10% or more of the total
combined voting power of all classes of stock of a foreign corporation is a U.S. Shareholder for
purposes of the controlled foreign corporation (CFC) provisions of the Code. A CFC is a foreign
corporation that, on any day of its taxable year, is owned (directly, indirectly, or
constructively) more than 50% (measured by voting power or value) by U.S. Shareholders. From time
to time, a Fund may be a U.S. Shareholder in a CFC. As a U.S. Shareholder, a Fund is required to
include in gross income for U.S. federal income tax purposes for each taxable year of the Fund its
pro rata share of its CFCs subpart F income for the CFCs taxable year ending within the Funds
taxable year whether or not such income is actually distributed by the CFC, provided that the
foreign corporation has been a CFC for at least 30 uninterrupted days in its taxable year. Subpart
F income generally includes interest, OID, dividends, net gains from the disposition of stocks or
securities, receipts with respect to securities loans, and net payments received with respect to
equity swaps and similar derivatives. Subpart F income is treated as ordinary income, regardless
of the character of the CFCs underlying income. Net losses incurred by a CFC during a tax year do
not flow through to an investing Fund and thus will not be available to offset income or capital
gain generated from that Funds other investments. In addition, net losses incurred by a CFC
during a tax year generally cannot be carried forward by the CFC to offset gains realized by it in
subsequent taxable years. To the extent a Fund invests in a CFC and recognizes subpart F income in
excess of actual cash distributions from the CFC, it 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 interest on municipal obligations is generally exempt from U.S. federal income tax. However,
the interest on municipal obligations may be subject to the federal alternative minimum tax both
for individuals and corporations (e.g., in the case of interest earned on certain private activity
bonds) and may be subject to state and local taxes. Interest on municipal obligations is taxable
to shareholders of a Fund when received as a distribution from the Fund, unless the Fund is
eligible to pass through the interest as part of an exempt-interest dividend. Currently, the
Funds do not expect to pass through exempt-interest dividends. In addition, gains realized by a
Fund on the sale or exchange of municipal obligations are taxable to shareholders of the Fund,
regardless of whether the Fund is eligible to pass through exempt-interest dividends to its
shareholders.
91
Special Tax Considerations Pertaining to the Asset Allocation Funds and Other Funds of Funds
Because the Asset Allocation Funds and certain other Funds invest substantially or entirely in
shares of one or more Underlying RICs (the Asset Allocation Funds and such other Funds are referred
to in this section as Funds of Funds), their distributable income and gains will normally consist
substantially or entirely, as the case may be, of distributions from Underlying RICs and gains and
losses on the disposition of shares of Underlying RICs. To the extent that an Underlying RIC
realizes net capital losses on its investments for a given taxable year, a Fund of Funds investing
in that Underlying RIC will not be able to benefit from those losses until (i) the Underlying RIC
realizes capital gains that can be reduced by those losses, or (ii) the Fund of Funds recognizes
its share of those losses when it disposes of shares of the Underlying RIC. Moreover, even when a
Fund of Funds does make such a disposition of Underlying RIC shares at a net capital loss, a
portion of its loss may be recognized as a long-term capital loss, which will not be treated as
favorably for U.S. federal income tax purposes as a short-term capital loss or an ordinary
deduction. A Fund of Funds also will not be able to offset any capital losses realized from its
dispositions of Underlying RIC shares against its ordinary income (including distributions of any
net short-term capital gains realized by an Underlying RIC).
In addition, in certain circumstances, the wash-sale rules under Section 1091 of the Code may
apply to a Fund of Funds sales of Underlying RIC shares that have generated losses. A wash sale
occurs if shares of an Underlying RIC are sold by the Fund of Funds at a loss and the Fund of Funds
acquires additional shares of that same Underlying RIC 30 days before or after the date of the
sale. The wash-sale rules could defer losses in the Fund of Fundss hands on sales of Underlying
RIC shares (to the extent such sales are wash sales) for extended periods of time.
As a result of the foregoing rules, and certain other special rules, the amounts of net investment
income and net capital gains that a Fund of Funds will be required to distribute to shareholders
may be greater than such amounts would have been had the Fund of Funds invested directly in the
securities held by the Underlying RICs, rather than investing in shares of the Underlying RICs.
For similar reasons, the amount or timing of distributions from a Fund of Funds qualifying for
treatment as a particular character (e.g., long-term capital gain, eligibility for
dividends-received deduction, etc.) will not necessarily be the same as it would have been had the
Fund of Funds invested directly in the securities held by the Underlying RICs.
Depending on a Fund of Funds percentage ownership in an Underlying RIC both before and after a
redemption of Underlying RIC shares, the Funds redemption of shares of such Underlying RIC may
cause it to be treated as receiving a dividend taxable as ordinary income on the full amount of the
redemption instead of being treated as realizing capital gain (or loss) on the redemption of the
shares of the Underlying RIC. This could be the case where the Fund of Funds holds a significant
interest in an Underlying RIC that is not a publicly offered RIC within the meaning of the Code
(e.g., certain underlying GMO Funds principally available only to other GMO Funds and certain other
accredited investors, including GMO High Quality Short-Duration Bond Fund and GMO Debt
Opportunities Fund) and redeems only a small portion of such interest. Dividend treatment of a
redemption by a Fund of Funds would affect the amount and character of income required to be
distributed by both the Fund of Funds and the Underlying
92
RIC for the year in which the redemption occurred. It is possible that any such dividend would
qualify as qualified dividend income taxable at long-term capital gain rates for taxable years
beginning before January 1, 2013; otherwise, it would be taxable as ordinary income and could cause
shareholders of the Fund of Funds to recognize higher amounts of ordinary income than if the
shareholders held shares of the Underlying RICs directly.
If a Fund of Funds receives dividends from an Underlying RIC, and the Underlying RIC reports such
dividends as qualified dividend income, then the Fund of Funds is permitted, in turn, to report a
portion of its distributions as qualified dividend income, provided that the Fund of Funds meets
the holding period and other requirements with respect to shares of the Underlying RIC.
If a Fund of Funds receives dividends from an Underlying RIC that qualifies as a RIC, and the
Underlying RIC reports such dividends as eligible for the dividends-received deduction, then the
Fund of Funds is permitted, in turn, to report a portion of its distributions as eligible for the
dividends-received deduction, provided that the Fund of Funds meets the holding period and other
requirements with respect to shares of the Underlying RIC.
If, at the close of each quarter of a Fund of Funds taxable year, at least 50% of its total assets
consists of interests in Underlying RICs, that Fund of Funds will be a qualified fund of funds.
In that case, the Fund of Funds is permitted to elect to pass through to its shareholders foreign
income and other similar taxes paid by the Fund of Funds in respect of foreign securities held
directly by the Fund of Funds or by an Underlying RIC in which its invests that itself elected to
pass such taxes through to shareholders, so that shareholders of the Fund of Funds will be eligible
to claim a tax credit or deduction for such taxes. Each eligible Asset Allocation Fund expects to
make this election for any taxable year in which it directly or indirectly (through one or more
Underlying RICs making this election) pays qualifying foreign taxes. However, even if a Fund of
Funds qualifies to make such election for any year, it may determine not to do so. See Foreign
Taxes above for more information.
Loss of RIC Status
A Fund may experience particular difficulty qualifying as a RIC, for example, in the case of highly
unusual market movements, or in the case of high redemption levels, and/or during the first year of
its operations.
If a Fund were to fail to meet the income or diversification test described in Tax Status and
Taxation of Each Fund above, the Fund could in some cases cure such failure, including by paying a
Fund-level tax and, in the case of a diversification test failure, disposing of certain assets. If
the Fund were ineligible to or otherwise did not cure such failure for any year, or if the Fund
were otherwise to not qualify for taxation as a RIC for such year, the Funds income would be taxed
at the Fund level at regular corporate rates, and depending on when the Fund discovered its
qualification failure for a particular taxable year, the Fund may be subject to penalties and
interest on any late payments of its Fund-level taxes for such year. In addition, in the event of
any such loss of RIC status, all distributions from earnings and profits, including distributions
of net long-term capital gains and net tax-exempt income (if any), generally would be taxable to
shareholders as ordinary income. Such distributions generally would be eligible (i) to be treated
as qualified dividend income in the case of shareholders taxed as individuals and (ii) for the
93
dividends-received deduction in the case of corporate shareholders, provided, in both cases, the
shareholder meets certain holding period and other requirements in respect of the Funds shares.
In addition, in order to re-qualify for taxation as a RIC that is accorded special tax treatment, a
Fund may be required to recognize unrealized gains, pay substantial taxes and interest on such
gains, and make certain substantial distributions.
Tax Shelter Reporting Regulations
Under Treasury regulations, if a shareholder recognizes a loss on disposition of a Funds shares of
$2 million or more for an individual shareholder or $10 million or more for a corporate
shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886. Direct
shareholders of portfolio securities are in many cases excepted from this reporting requirement,
but under current guidance, shareholders of a RIC are not excepted. Future guidance may extend the
current exception from this reporting requirement to shareholders of most or all RICs. The fact
that a loss is reportable under these regulations does not affect the legal determination of
whether the taxpayers treatment of the loss is proper. Shareholders should consult their tax
advisors to determine the applicability of these regulations in light of their individual
circumstances.
State, Local, and Other Tax Matters
The foregoing discussion relates only to the U.S. federal income tax consequences of investing in
the Funds for shareholders who are U.S. citizens, residents, or domestic corporations. The
consequences under other tax laws may differ. This discussion has not addressed all aspects of
taxation that may be relevant to particular shareholders in light of their own investment or tax
circumstances, or to particular types of shareholders (including insurance companies, financial
institutions or broker-dealers, tax-exempt entities, foreign corporations, and persons who are not
citizens or residents of the United States) subject to special treatment under the U.S. federal
income tax laws. This summary is based on the Code, the regulations thereunder, published rulings,
and court decisions, all as currently in effect. These laws are subject to change, possibly on a
retroactive basis. Shareholders should consult their tax advisors about the precise tax
consequences of an investment in a Fund in light of their particular tax situation, including
possible foreign, state, local, or other applicable tax laws.
Special tax rules apply to investments through defined contribution plans and other tax-qualified
plans. Shareholders should consult their tax advisors to determine the suitability of shares of a
Fund as an investment through such plans.
Additionally, most states permit mutual funds, such as the Funds, to pass through to their
shareholders the state tax exemption on income earned from investments in certain direct U.S.
Treasury obligations, as well as some limited types of U.S. government agency securities (such as
Federal Farm Credit Bank and Federal Home Loan Bank securities), so long as a Fund meets all
applicable state requirements. Therefore, shareholders in a Fund may be allowed to exclude from
their state taxable income distributions made to them by the Fund to the extent attributable to
interest the Fund directly or indirectly earned on such investments. The availability of these
exemptions varies by state. Investments in securities of certain U.S. government agencies,
including securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac, and repurchase
94
agreements collateralized by U.S. government securities generally do not qualify for these
exemptions. Moreover, these exemptions may not be available to corporate shareholders. All
shareholders should consult their tax advisors regarding the applicability of these exemptions to
their situation.
MANAGEMENT OF THE TRUST
The following tables present information as of June 30, 2011 regarding each current Trustee and
officer of the Trust. Each Trustees and officers date of birth (DOB) is set forth after his or
her name. Unless otherwise noted, (i) each Trustee and officer has engaged in the principal
occupation(s) noted in the table for at least the most recent five years, although not necessarily
in the same capacity, and (ii) the address of each Trustee and officer is c/o GMO Trust, 40 Rowes
Wharf, Boston, MA 02110. Each Trustee serves in office until the earlier of (a) the election and
qualification of a successor at the next meeting of shareholders called to elect Trustees or (b)
the Trustee dies, resigns, or is removed as provided in the Trusts governing documents. Each of
the Trustees of the Trust, other than Mr. Kittredge, is not an interested person of the Trust, as
such term is used in the 1940 Act (each, an Independent Trustee). Because the Funds do not hold
annual meetings of shareholders, each Trustee will hold office for an indeterminate period. Each
officer serves in office until his or her successor is elected and determined to be qualified to
carry out the duties and responsibilities of the office, or until the officer resigns or is removed
from office.
95
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Number of |
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Portfolios in |
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Position(s) |
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Fund |
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Other |
Name and Date |
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Held |
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Length of |
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Principal Occupation(s) |
|
Complex |
|
Directorships |
of Birth |
|
with the Trust |
|
Time Served |
|
During Past 5 Years |
|
Overseen |
|
Held |
INDEPENDENT TRUSTEES |
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Donald W. Glazer,
Esq.
DOB: 07/26/1944
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Chairman of the
Board of Trustees
|
|
Chairman of the
Board of Trustees
since March 2005;
Lead Independent
Trustee (September
2004-March 2005);
Trustee since
December 2000.
|
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ConsultantLaw and
Business1;
Author of Legal Treatises.
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68 |
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None. |
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Peter Tufano
DOB: 04/22/1957
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Trustee
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Since December 2008.
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Peter Moores Dean and
Professor of Finance,
University of Oxford Saïd
Business School (as of July 1,
2011); Sylvan C. Coleman
Professor of Financial
Management, Harvard Business
School (1989-2011).
|
|
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68 |
|
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Trustee of State
Street Navigator
Securities Lending
Trust (2
Portfolios). |
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Paul Braverman
DOB: 01/25/1949
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Trustee
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Since March 2010.
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Director of Courier
Corporation (a book publisher
and manufacturer) (January
2008-present); Chief Financial
Officer, Wellington Management
Company, LLP (an investment
adviser) (March 1986-December
2007).
|
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68 |
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Director of Courier
Corporation (a book
publisher and
manufacturer). |
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INTERESTED TRUSTEE AND OFFICER
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Joseph B.
Kittredge,
Jr.2
DOB: 08/22/1954
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Trustee;
President and Chief
Executive Officer
of the Trust
|
|
Trustee since March
2010; President and
Chief Executive
Officer of the
Trust since March
2009.
|
|
General Counsel, Grantham,
Mayo, Van Otterloo & Co. LLC
(October 2005-present);
Partner, Ropes & Gray LLP
(prior to October 2005).
|
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|
68 |
|
|
None. |
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1 |
|
As part of Mr. Glazers work as a consultant, he provides part-time consulting
services to Goodwin Procter LLP (Goodwin). Goodwin has provided legal services to Renewable
Resources, LLC, an affiliate of GMO; GMO, in connection with its relationship with Renewable
Resources; and funds managed by Renewable Resources. Mr. Glazer has represented that he has no
financial interest in, and is not involved in the provision of, such legal services. In the
calendar years ended December 31, 2009 and December 31, 2010, these entities paid $397,491 and
$1,238,183, respectively, in legal fees and disbursements to Goodwin. In correspondence with the
Staff of the SEC beginning in August 2006, the Independent Trustees legal counsel provided the
Staff with information regarding Mr. Glazers relationship with Goodwin and his other business
activities. On September 11, 2007, based on information that had been given to the Staff as of that
date, the Staff provided oral no-action assurance consistent with the opinion of the Independent
Trustees legal counsel that Mr. Glazer is not an interested person of the Trust. |
|
2 |
|
Mr. Kittredge is an interested person of the Trust, as such term is used in the 1940
Act (an Interested Trustee), by virtue of his positions with the Trust and GMO indicated in the
table above. |
96
Information About Each Trustees Experience, Qualifications, Attributes, or Skills for Board
Membership. As described in additional detail below under Committees, the Governance Committee,
which is comprised solely of Independent Trustees, has responsibility for recommending to the Board
of Trustees the nomination of candidates for election as Trustees, including identifying, and
evaluating the skill sets and qualifications of, potential candidates. In recommending the
election of the current board members as Trustees, the Governance Committee generally considered
the educational, business and professional experience of each Trustee in determining his or her
qualifications to serve as a Trustee of the Funds. The Governance Committee focuses on the
complementary skills and experience of the Trustees as a group, as well as on those of any
particular Trustee. With respect to Messrs. Glazer, Tufano and Braverman, the Governance Committee
noted that these Trustees all had considerable experience in overseeing investment management
activities and/or related operations and in serving on the boards of other companies. In addition,
the Committee also considered, among other factors, the particular attributes described below with
respect to the various individual Trustees:
Donald W. Glazer Mr. Glazers experience serving as Chairman of the Board of Trustees and as a
director of other companies, his professional training and his experience as a business lawyer,
including as a partner at a leading law firm, and his business experience.
Peter Tufano Mr. Tufanos experience serving as Trustee of the Funds and as a director of other
companies, and his professional training and his experience in business and finance, including as a
professor of financial management at a leading business school.
Paul Braverman Mr. Bravermans experience as a director, his professional training and his
experience as a certified public accountant and lawyer and his experience in the management of a
leading investment management firm.
Joseph B. Kittredge, Jr. Mr. Kittredges experience serving as President of the Trust and General
Counsel and a Member of GMO, his professional training and his experience as a lawyer representing
mutual funds and investment management firms, including as a partner at a leading law firm, and his
perspective on Board matters as a senior executive of GMO.
Information relating to the experience, qualifications, attributes and skills of the Trustees is
required by the registration form adopted by the SEC, does not constitute holding out the Board or
any Trustee as having any special expertise or experience, and does not impose any greater
responsibility or liability on any such person or on the Board as a whole than would otherwise be
the case.
97
Other Officers
|
|
|
|
|
|
|
|
|
Position(s) |
|
|
|
|
Name and Date of |
|
Held |
|
Length |
|
Principal Occupation(s) |
Birth |
|
with the Trust |
|
of Time Served |
|
During Past 5 Years1 |
Sheppard N. Burnett
DOB: 10/24/1968
|
|
Treasurer and Chief
Financial Officer
|
|
Chief Financial
Officer since March
2007; Treasurer
since November
2006; Assistant
Treasurer,
September
2004-November 2006.
|
|
Head of Fund Administration
(December 2006-present), Fund
Administration Staff (June
2004-November 2006), Grantham,
Mayo, Van Otterloo & Co. LLC. |
|
|
|
|
|
|
|
John L. Nasrah
DOB: 05/27/1977
|
|
Assistant Treasurer
|
|
Since March 2007.
|
|
Fund Administrator, Grantham,
Mayo, Van Otterloo & Co. LLC
(September 2004-present). |
|
|
|
|
|
|
|
Mahmoodur Rahman
DOB: 11/30/1967
|
|
Assistant Treasurer
|
|
Since September
2007.
|
|
Fund Administrator, Grantham,
Mayo, Van Otterloo & Co. LLC
(April 2007-present); Vice
President and Senior Tax
Manager, Massachusetts
Financial Services Company
(January 2000-April 2007). |
|
|
|
|
|
|
|
Carolyn Haley
DOB: 07/12/1966
|
|
Assistant Treasurer
|
|
Since June 2009.
|
|
Fund Administrator, Grantham,
Mayo, Van Otterloo & Co. LLC
(May 2009-present); Treasurer
and Chief Compliance Officer,
Hambrecht & Quist Capital
Management LLC (April
2007-April 2009); Senior
Manager,
PricewaterhouseCoopers LLP
(2003-2007). |
|
|
|
|
|
|
|
Jason Nagler
DOB: 08/12/1982
|
|
Assistant Treasurer
|
|
Since September 2011
|
|
Fund Administrator, Grantham,
Mayo, Van Otterloo & Co. LLC
(August 2009-present); Audit
Senior at Deloitte (August
2007-August 2009); Audit Staff
at Deloitte (January
2005-August 2007). |
|
|
|
|
|
|
|
John McGinty
DOB: 08/11/1962
|
|
Chief Compliance
Officer
|
|
Since February 2011.
|
|
Chief Compliance Officer,
Grantham, Mayo, Van Otterloo &
Co. LLC (July 2009-present);
Senior Vice President and
Deputy General Counsel
(January 2007-July 2009), Vice
President and Associate
General Counsel (February
2006-December 2006), Fidelity
Investments. |
|
|
|
|
|
|
|
Jason B. Harrison
DOB: 01/29/1977
|
|
Chief Legal
Officer, Vice
President-Law and
Clerk
|
|
Chief Legal Officer
since October 2010;
Vice President-Law
since October 2010;
Vice President
since November
2006; Clerk since
March 2006.
|
|
Legal Counsel, Grantham, Mayo,
Van Otterloo & Co. LLC (since
February 2006). |
|
|
|
|
|
|
|
David L. Bohan
DOB: 06/21/1964
|
|
Vice President and
Assistant Clerk
|
|
Vice President
since March 2005;
Assistant Clerk
since March 2006.
|
|
Legal Counsel, Grantham, Mayo,
Van Otterloo & Co. LLC. |
98
|
|
|
|
|
|
|
|
|
Position(s) |
|
|
|
|
Name and Date of |
|
Held |
|
Length |
|
Principal Occupation(s) |
Birth |
|
with the Trust |
|
of Time Served |
|
During Past 5 Years1 |
Gregory L. Pottle
DOB: 07/09/1971
|
|
Vice President and
Assistant Clerk
|
|
Since November 2006.
|
|
Legal Counsel, Grantham, Mayo,
Van Otterloo & Co. LLC. |
|
|
|
|
|
|
|
Anne K. Trinque
DOB: 04/15/1978
|
|
Vice President and
Assistant Clerk
|
|
Since September
2007.
|
|
Legal Counsel, Grantham, Mayo,
Van Otterloo & Co. LLC
(January 2007-present);
Attorney, Goodwin Procter LLP
(September 2003-January 2007). |
|
|
|
|
|
|
|
Heather Schirmer
DOB: 6/10/1974
|
|
Vice President and
Assistant Clerk
|
|
Since March 2011.
|
|
Legal Counsel, Grantham, Mayo,
Van Otterloo & Co. LLC. |
|
|
|
|
|
|
|
Cheryl Wakeham
DOB: 10/29/1958
|
|
Vice President and
Anti-Money
Laundering Officer
|
|
Since December 2004.
|
|
Manager, Client Service
Administration, Grantham,
Mayo, Van Otterloo & Co. LLC. |
|
|
|
1 |
|
Each of Messrs. Burnett, Bohan and Pottle and Mses. Haley, Trinque and Schirmer serves
as an officer and/or director of certain pooled investment vehicles of which GMO or an affiliate of
GMO serves as the investment adviser. |
Trustees Responsibilities. Under the provisions of the GMO Declaration of Trust, the
Trustees manage the business of the Trust, an open-end management investment company. The Trustees
have all powers necessary or convenient to carry out that responsibility, including the power to
engage in securities transactions 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; amend and repeal By-Laws to the extent that
such By-Laws do not reserve that right to the shareholders; fill vacancies in or remove members of
the Board of Trustees (including any vacancies created by an increase in the number of Trustees);
remove members of the Board of Trustees with or without cause; elect and remove such officers and
appoint and terminate agents as they consider appropriate; appoint members of the Board of Trustees
to one or more committees consisting of two or more Trustees, which may exercise the powers and
authority of the Trustees, and terminate any such appointments; employ one or more custodians of
the assets of the Trust and 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.
Board Leadership Structure and Risk Oversight. The Board of Trustees is responsible for the
general oversight of the Funds affairs and for assuring that each Fund is managed in the best
interests of its shareholders. The Board regularly reviews each Funds investment performance as
well as the quality of services provided to the Fund and its shareholders by GMO and its
99
affiliates, including shareholder servicing. At least annually, the Board reviews and evaluates
the fees and operating expenses paid by each Fund for these services and negotiates changes that it
deems appropriate. In carrying out these responsibilities, the Board is assisted by the Funds
auditors, independent counsel to the Independent Trustees and other persons as appropriate, who are
selected by and responsible to the Board. In addition, the Funds Chief Compliance Officer reports
directly to the Board.
Currently, all but one of the Trustees are Independent Trustees. The Independent Trustees must
vote separately to approve all financial arrangements and other agreements with the Funds
investment adviser, GMO, and other affiliated parties. The role of the Independent Trustees has
been characterized as that of a watchdog charged with oversight of protecting shareholders
interests against overreaching and abuse by those who are in a position to control or influence a
fund. The Independent Trustees meet regularly as a group in executive session without
representatives of GMO present. An Independent Board Member currently serves as Chairman of the
Board of Trustees.
Taking into account the number, diversity and complexity of the Funds overseen by the Board of
Trustees and the aggregate amount of assets under management in the Funds, the Board has determined
that the efficient conduct of its affairs makes it desirable to delegate responsibility for certain
specific matters to committees of the Board. These committees, which are described in more detail
below, review and evaluate matters specified in their charters and make recommendations to the
Board as they deem appropriate. Each committee may utilize the resources of the Funds counsel and
auditors as well as other persons. The committees meet from time to time, either in conjunction
with regular meetings of the Board or otherwise. The membership and chair of each committee are
appointed by the Board upon recommendation of the Governance Committee. The membership and chair
of each committee other than the Risk Oversight Committee consists exclusively of Independent
Trustees.
The Board of Trustees has determined that this committee structure also allows the Board to focus
more effectively on the oversight of risk as part of its broader oversight of each Funds affairs.
While risk management is primarily the responsibility of the Funds investment adviser, GMO, the
Board regularly receives reports, including reports from GMO and the Funds Chief Compliance
Officer, regarding investment risks, compliance risks, and certain other risks applicable to the
Funds. The Boards committee structure allows separate committees, such as the Audit Committee,
Pricing Committee, and Governance Committee, which are discussed in more detail below under
Committees, to focus on different aspects of these risks within the scope of the committees
authority and their potential impact on some or all of the Funds, and to discuss with the GMO the
ways in which GMO monitors and controls such risks. The Board has also established a separate Risk
Oversight Committee to oversee the management of risks applicable to the Funds, to the extent such
risks are not overseen by a separate standing committee of the Board or by the Board itself.
The Board recognizes that not all risks that may affect the Funds can be identified, that it may
not be practical or cost-effective to eliminate or mitigate certain risks, that it may be necessary
to bear certain risks (such as investment-related risks) to achieve a Funds goals, that reports
received by the Trustees with respect to risk management matters are typically summaries of the
relevant information, and that the processes, procedures and controls employed to address risks may
be limited in their effectiveness. As a result of the foregoing and other factors, risk management
oversight by the Board and by the Committees is subject to substantial limitations.
100
Committees
The Board of Trustees has the authority to establish committees, which may exercise the power and
authority of the Trustees to the extent the Board determines. The committees assist the Board of
Trustees in performing its functions and duties under the 1940 Act and Massachusetts law.
The Board of Trustees currently has established four standing committees: the Audit Committee, the
Pricing Committee, the Risk Oversight Committee, and the Governance Committee. During the fiscal
year ended February 28, 2011, the Audit Committee held 7 meetings; the Pricing Committee held 5
meetings; the Governance Committee held 7 meetings; and the Risk Oversight Committee held 2
meetings.
Audit Committee. The Audit Committee (i) oversees the Trusts accounting and financial reporting
policies and practices and internal controls over financial reporting; (ii) oversees the quality
and objectivity of the Trusts financial statements and the independent audit of those statements;
(iii) appoints, determines the independence and compensation of, and oversees the work performed by
the Trusts independent auditors in preparing or issuing an audit report or related work;
(iv) approves all audit and permissible non-audit services provided to the Trust, and certain other
persons by the Trusts independent auditors; and (v) acts as a liaison between the Trusts
independent auditors and the Board of Trustees. Mr. Braverman and Mr. Tufano are members of the
Audit Committee, and Mr. Glazer is an alternate member of the Audit Committee. Mr. Braverman is
the Chairman of the Audit Committee.
Pricing Committee. The Pricing Committee oversees the valuation of the securities and other assets
held by the Funds, reviews and makes recommendations regarding the Trusts Pricing Policies, and,
to the extent required by the Trusts Pricing Policies, determines the fair value of the securities
or other assets held by the Funds. Mr. Tufano and Mr. Glazer are members of the Pricing Committee,
and Mr. Braverman is an alternate member of the Pricing Committee. Mr. Tufano is the Chairman of
the Pricing Committee.
Risk Oversight Committee. The Risk Oversight Committee assists the Board in overseeing the
management of risks applicable to the Funds to the extent those risks are not overseen by another
standing committee of the Board or by the Board itself (e.g., financial reporting and audit-related
operational or compliance risks, which are overseen by the Audit Committee, valuation-related
operational or compliance risks, which are overseen by the Pricing Committee, or legal risks, which
are overseen by the Board as a whole) including, without limitation, investment, operational and
compliance risks. All of the Trustees are members of the Risk Oversight Committee, and Messrs.
Braverman and Tufano are Co-Chairmen of the Risk Oversight Committee.
Governance Committee. The Governance Committee oversees general Fund governance-related matters,
including making recommendations to the Board of Trustees relating to governance of the Trust,
reviewing possible conflicts of interest and independence issues involving Trustees, considering
the skill sets and qualifications of prospective Trustees and to propose to the Board candidates to
serve as Trustees, overseeing the determination that any person serving as legal
101
counsel for the Independent Trustees qualifies as independent legal counsel, as that term is
defined in the 1940 Act, and performing any other functions delegated to it by the Board of
Trustees. Mr. Glazer and Mr. Braverman are members of the Governance Committee, and Mr. Tufano is
an alternate member of the Governance Committee. Mr. Glazer is the Chairman of the Governance
Committee.
As described above under Information About Each Trustees Experience, Qualifications, Attributes
or Skills for Board Membership, the Governance Committee has responsibility for recommending to
the Board of Trustees the nomination of candidates for election as Trustees, including identifying,
and evaluating the skill sets and qualifications of, potential candidates. Prospective nominees may
be recommended by the current Trustees, the Trusts Officers, GMO, current shareholders or other
sources that the Governance Committee deems appropriate. Candidates properly submitted by
shareholders will be considered on the same basis as candidates recommended by other sources. The
Governance Committee has full discretion to reject nominees who are recommended by shareholders.
The Governance Committee considers a variety of qualifications, skills and other attributes in
evaluating potential candidates for nomination to the Board of Trustees. The attributes considered
may include, but are not limited to: (i) relevant industry and related experience, including
experience serving on other boards; (ii) skill sets, areas of expertise, abilities and judgment;
and (iii) availability and commitment to attend meetings and to perform the responsibilities of a
Trustee. In evaluating potential candidates, the Governance Committee also considers the overall
composition of the Board of Trustees and assesses the needs of the Board and its committees.
Shareholders may recommend nominees to the Board of Trustees by writing the Board of Trustees, c/o
GMO Trust Chief Compliance Officer, GMO Trust, 40 Rowes Wharf, Boston, Massachusetts 02110. A
recommendation must (i) be in writing and signed by the shareholder, (ii) identify the Fund to
which it relates, and (iii) identify the class and number of shares held by the shareholder.
Trustee Fund Ownership
The following table sets forth ranges of the current Trustees direct beneficial share ownership in
the Funds offered in the Prospectuses and the aggregate dollar ranges of their direct beneficial
share ownership in all GMO Funds (including GMO Funds not offered in the Prospectuses) as of
December 31, 2010.
102
|
|
|
|
|
|
|
|
|
Aggregate Dollar Range of Shares |
|
|
|
|
Directly Owned in all |
|
|
Dollar Range of |
|
Funds of the Trust (whether |
|
|
Shares Directly Owned in |
|
or not offered in the |
Name/Funds Offered in the |
|
Funds Offered in the |
|
Prospectuses) |
Prospectuses* |
|
Prospectuses* |
|
Overseen by Trustee* |
Donald W. Glazer |
|
|
|
|
Alpha Only Fund
|
|
Over $100,000 |
|
|
Benchmark-Free Allocation Fund
|
|
Over $100,000 |
|
|
Emerging Markets Fund
|
|
Over $100,000 |
|
|
Quality Fund
|
|
$10,001-$50,000
|
|
Over $100,000 |
|
|
|
|
|
Peter Tufano
|
|
None
|
|
None |
|
|
|
|
|
Paul Braverman
|
|
None
|
|
None |
|
|
|
|
|
Joseph B. Kittredge, Jr. |
|
|
|
|
Short-Duration Collateral Share Fund
|
|
$50,001 $100,000
|
|
$50,001- $100,000 |
|
|
|
* |
|
Emerging Domestic Opportunities Fund commenced operations after the most recent calendar year
ended December 31, 2010, and, therefore had not yet offered any shares for sale as of such date.
International Large/Mid Cap Value Fund, Asset Allocation International Small Companies Fund, Asset
Allocation International Bond Fund, International Intrinsic Value Extended Markets Fund and Global
Focused Equity Fund will commence operations on or following the date of this SAI, and, therefore,
have not yet offered any shares for sale as of this date. |
The following table sets forth ranges of Mr. Glazers and Mr. Kittredges indirect beneficial
share ownership in the Funds offered in the Prospectuses and the aggregate dollar range of their
indirect beneficial share ownership in all GMO Funds (including GMO Funds not offered in the
Prospectuses), as of December 31, 2010, by virtue of their direct ownership of shares of certain
Funds (as disclosed in the table immediately above) that invest in other GMO Funds and of other
private investment companies managed by the Manager that invest in GMO Funds.
|
|
|
|
|
|
|
|
|
Aggregate Dollar Range of Shares |
|
|
|
|
Indirectly Owned in all |
|
|
Dollar Range of |
|
Funds of the Trust (whether |
|
|
Shares Indirectly Owned |
|
or not offered in the |
Name/Funds Offered in the |
|
in Funds Offered in the |
|
Prospectuses) |
Prospectuses* |
|
Prospectuses* |
|
Overseen by Trustee* |
Donald W. Glazer
|
|
|
|
|
Alpha Only Fund
|
|
$10,001-$50,000
|
|
Over $100,000 |
Currency Hedged International Equity Fund
|
|
$10,001-$50,000 |
|
|
Emerging Country Debt Fund
|
|
$1-$10,000 |
|
|
Emerging Markets Fund
|
|
$10,001-$50,000 |
|
|
International Growth Equity Fund
|
|
Over $100,000 |
|
|
International Intrinsic Value Fund
|
|
Over $100,000 |
|
|
Quality Fund
|
|
Over $100,000 |
|
|
Short-Duration Collateral Fund
|
|
$1-$10,000 |
|
|
Strategic Fixed Income Fund
|
|
$10,001-$50,000 |
|
|
U.S. Core Equity Fund |
|
Over $100,000 |
|
|
U.S. Treasury Fund |
|
$10,001-$50,000 |
|
|
103
|
|
|
|
|
|
|
|
|
Aggregate Dollar Range of Shares |
|
|
|
|
Indirectly Owned in all |
|
|
Dollar Range of |
|
Funds of the Trust (whether |
|
|
Shares Indirectly Owned |
|
or not offered in the |
Name/Funds Offered in the |
|
in Funds Offered in the |
|
Prospectuses) |
Prospectuses* |
|
Prospectuses* |
|
Overseen by Trustee* |
Joseph B. Kittredge, Jr. |
|
|
|
|
Short-Duration Collateral Fund
|
|
$50,001- $100,000
|
|
$50,001- $100,000 |
|
|
|
* |
|
Emerging Domestic Opportunities Fund commenced operations after the most recent calendar year
ended December 31, 2010, and, therefore, had not yet offered any shares for sale as of such date.
International Large/Mid Cap Value Fund, Asset Allocation International Small Companies Fund, Asset
Allocation International Bond Fund, International Intrinsic Value Extended Markets Fund and Global
Focused Equity Fund will commence operations on or following the date of this SAI, and, therefore,
have not yet offered any shares for sale as of this date. |
Trustee Ownership of Securities Issued by the Manager or Principal Underwriter
None.
Trustee Ownership of Related Companies
The following table sets forth information about securities owned by the current Independent
Trustees and their family members, as of December 31, 2010, in the Manager, Funds Distributor, LLC,
the Funds principal underwriter, or entities directly or indirectly controlling, controlled by, or
under common control with the Manager or Funds Distributor, LLC.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of |
|
|
|
|
|
|
|
|
Name of Non- |
|
Owner(s) and |
|
|
|
|
|
|
|
|
Interested |
|
Relationship |
|
|
|
Title of |
|
Value of |
|
% of |
Trustee |
|
to Trustee |
|
Company |
|
Class |
|
Securities 2 |
|
Class |
Donald W. Glazer
|
|
Self
|
|
GMO Multi-Strategy
Fund (Offshore), a
private investment
company managed by
the
Manager1
|
|
Limited partnership
interest Class A
|
|
$1,092,661.10
|
|
0.032% |
Peter Tufano
|
|
N/A
|
|
None
|
|
N/A
|
|
N/A
|
|
N/A |
Paul Braverman
|
|
N/A
|
|
None
|
|
N/A
|
|
N/A
|
|
N/A |
|
|
|
1 |
|
The Manager may be deemed to control this fund by virtue of its serving as
investment manager of the fund and by virtue of its ownership of all the outstanding voting shares
of the fund as of December 31, 2010. |
|
2 |
|
Securities valued as of December 31, 2010. |
Remuneration. The Trust has adopted a compensation policy for its Trustees. Each Trustee
receives an annual retainer from the Trust for his services. In addition, each Chairman of the
Trusts standing committees and the Chairman of the Board of Trustees receive an annual fee. Each
Trustee also is paid a fee for participating in in-person and telephone meetings of the Board of
Trustees and its committees, and a fee for consideration of actions proposed to be taken by written
consent. The Trust pays no additional compensation for travel time to meetings, attendance at
directors educational seminars or conferences, service on industry or association
104
committees, participation as speakers at directors conferences, or service on special director
task forces or subcommittees, although the Trust does reimburse Trustees for seminar or conference
fees and for travel expenses incurred in connection with attendance at seminars or conferences.
The Trustees do not receive any employee benefits such as pension or retirement benefits or health
insurance.
Other than as set forth in the following table, no Trustee of the Trust received any direct
compensation from the Trust or any Fund offered in the Prospectuses during the fiscal year ended
February 28, 2011:
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald W. |
|
|
|
|
|
|
|
|
Glazer, |
|
W. Nicholas |
|
Peter |
|
Paul |
|
|
Esq., |
|
Thorndike, |
|
Tufano, |
|
Braverman, |
|
|
Trustee |
|
Trustee1 |
|
Trustee |
|
Trustee2 |
Compensation from Each Fund
Offered in the Prospectuses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Core Equity Fund |
|
$ |
8,966 |
|
|
$ |
6,094 |
|
|
$ |
7,263 |
|
|
$ |
6,419 |
|
Tobacco-Free Core Fund |
|
$ |
111 |
|
|
$ |
74 |
|
|
$ |
90 |
|
|
$ |
82 |
|
Quality Fund |
|
$ |
73,398 |
|
|
$ |
48,649 |
|
|
$ |
59,186 |
|
|
$ |
53,817 |
|
U.S. Intrinsic Value Fund |
|
$ |
36 |
|
|
$ |
24 |
|
|
$ |
29 |
|
|
$ |
27 |
|
U.S. Growth Fund |
|
$ |
38 |
|
|
$ |
25 |
|
|
$ |
26 |
|
|
$ |
16 |
|
U.S. Small/Mid Cap Value Fund |
|
$ |
58 |
|
|
$ |
38 |
|
|
$ |
47 |
|
|
$ |
42 |
|
U.S. Small/Mid Cap Growth Fund |
|
$ |
53 |
|
|
$ |
35 |
|
|
$ |
43 |
|
|
$ |
39 |
|
Real Estate Fund |
|
$ |
70 |
|
|
$ |
46 |
|
|
$ |
56 |
|
|
$ |
51 |
|
Tax-Managed U.S. Equities Fund |
|
$ |
79 |
|
|
$ |
53 |
|
|
$ |
64 |
|
|
$ |
58 |
|
International Core Equity Fund |
|
$ |
24,515 |
|
|
$ |
16,207 |
|
|
$ |
19,724 |
|
|
$ |
18,228 |
|
International Intrinsic Value Fund |
|
$ |
27,117 |
|
|
$ |
18,022 |
|
|
$ |
21,819 |
|
|
$ |
19,903 |
|
International Intrinsic Value
Extended Markets Fund |
|
$ |
1,477 |
3 |
|
$ |
N/A |
3 |
|
$ |
1,224 |
3 |
|
$ |
1,113 |
3 |
International Large/Mid Cap Value
Fund |
|
$ |
3,069 |
3 |
|
$ |
N/A |
3 |
|
$ |
2,545 |
3 |
|
$ |
2,313 |
3 |
International Growth Equity Fund |
|
$ |
15,760 |
|
|
$ |
10,455 |
|
|
$ |
12,695 |
|
|
$ |
11,670 |
|
Developed World Stock Fund |
|
$ |
1,781 |
|
|
$ |
1,176 |
|
|
$ |
1,435 |
|
|
$ |
1,312 |
|
International Small Companies Fund |
|
$ |
2,922 |
|
|
$ |
1,996 |
|
|
$ |
2,356 |
|
|
$ |
1,915 |
|
Asset Allocation International
Small Companies Fund |
|
$ |
1,539 |
3 |
|
$ |
N/A |
3 |
|
$ |
1,277 |
3 |
|
$ |
1160 |
3 |
Tax-Managed International
Equities Fund |
|
$ |
2,735 |
|
|
$ |
1,818 |
|
|
$ |
2,202 |
|
|
$ |
1,997 |
|
Foreign Fund |
|
$ |
16,549 |
|
|
$ |
11,824 |
|
|
$ |
14,105 |
|
|
$ |
12,414 |
|
Foreign Small Companies Fund |
|
$ |
2,648 |
|
|
$ |
1,815 |
|
|
$ |
2,242 |
|
|
$ |
2,020 |
|
Emerging Markets Fund |
|
$ |
54,846 |
|
|
$ |
35,743 |
|
|
$ |
45,399 |
|
|
$ |
39,519 |
|
Emerging Countries Fund |
|
$ |
1,230 |
|
|
$ |
803 |
|
|
$ |
1,018 |
|
|
$ |
884 |
|
Emerging Domestic Opportunities
Fund |
|
$ |
57 |
3 |
|
$ |
N/A |
3 |
|
$ |
48 |
3 |
|
$ |
43 |
3 |
Taiwan Fund |
|
$ |
420 |
|
|
$ |
261 |
|
|
$ |
339 |
|
|
$ |
320 |
|
Flexible Equities Fund |
|
$ |
1,809 |
|
|
$ |
1,226 |
|
|
$ |
1,464 |
|
|
$ |
1,296 |
|
Global Focused Equity Fund |
|
$ |
544 |
3 |
|
$ |
N/A |
3 |
|
$ |
451 |
3 |
|
$ |
410 |
3 |
Currency Hedged International
Equity Fund |
|
$ |
1,587 |
|
|
$ |
1,012 |
|
|
$ |
1,289 |
|
|
$ |
1,276 |
|
Domestic Bond Fund |
|
$ |
3,704 |
|
|
$ |
2,775 |
|
|
$ |
3,161 |
|
|
$ |
2,827 |
|
Core Plus Bond Fund |
|
$ |
1,839 |
|
|
$ |
1,405 |
|
|
$ |
1,575 |
|
|
$ |
1,424 |
|
International Bond Fund |
|
$ |
847 |
|
|
$ |
642 |
|
|
$ |
721 |
|
|
$ |
644 |
|
Strategic Fixed Income Fund |
|
$ |
12,339 |
|
|
$ |
8,841 |
|
|
$ |
10,473 |
|
|
$ |
9,721 |
|
Currency Hedged International
Bond Fund |
|
$ |
755 |
|
|
$ |
592 |
|
|
$ |
649 |
|
|
$ |
583 |
|
Global Bond Fund |
|
$ |
1,210 |
|
|
$ |
889 |
|
|
$ |
1,030 |
|
|
$ |
945 |
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald W. |
|
|
|
|
|
|
|
|
Glazer, |
|
W. Nicholas |
|
Peter |
|
Paul |
|
|
Esq., |
|
Thorndike, |
|
Tufano, |
|
Braverman, |
|
|
Trustee |
|
Trustee1 |
|
Trustee |
|
Trustee2 |
Emerging Country Debt Fund |
|
$ |
15,896 |
|
|
$ |
10,540 |
|
|
$ |
14,247 |
|
|
$ |
13,483 |
|
Short-Duration Investment Fund |
|
$ |
36 |
|
|
$ |
27 |
|
|
$ |
31 |
|
|
$ |
28 |
|
Short-Duration Collateral Fund |
|
$ |
14,506 |
|
|
$ |
10,842 |
|
|
$ |
12,375 |
|
|
$ |
11,031 |
|
Short-Duration Collateral Share
Fund |
|
$ |
194 |
|
|
$ |
141 |
|
|
$ |
165 |
|
|
$ |
152 |
|
Inflation Indexed Plus Bond Fund |
|
$ |
2,045 |
|
|
$ |
1,624 |
|
|
$ |
1,763 |
|
|
$ |
1,560 |
|
U.S. Treasury Fund |
|
$ |
6,099 |
|
|
$ |
4,153 |
|
|
$ |
5,136 |
|
|
$ |
5,080 |
|
Asset Allocation Bond Fund |
|
$ |
3,608 |
|
|
$ |
2,700 |
|
|
$ |
3,119 |
|
|
$ |
2,715 |
|
Asset Allocation International
Bond Fund |
|
$ |
271 |
3 |
|
|
N/A |
3 |
|
$ |
225 |
3 |
|
$ |
204 |
3 |
U.S. Equity Allocation Fund |
|
$ |
558 |
|
|
$ |
392 |
|
|
$ |
460 |
|
|
$ |
406 |
|
International Equity Allocation
Fund |
|
$ |
5,542 |
|
|
$ |
3,727 |
|
|
$ |
4,539 |
|
|
$ |
4,180 |
|
International Opportunities
Equity Allocation Fund |
|
$ |
3,438 |
|
|
$ |
2,320 |
|
|
$ |
2,821 |
|
|
$ |
2,587 |
|
Global Equity Allocation Fund |
|
$ |
4,978 |
|
|
$ |
3,182 |
|
|
$ |
4,055 |
|
|
$ |
3,874 |
|
World Opportunities Equity |
|
$ |
5,360 |
|
|
$ |
3,617 |
|
|
$ |
4,405 |
|
|
$ |
4,030 |
|
Allocation Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Balanced Asset Allocation
Fund |
|
$ |
15,837 |
|
|
$ |
10,760 |
|
|
$ |
13,019 |
|
|
$ |
11,853 |
|
Strategic Opportunities
Allocation Fund |
|
$ |
9,485 |
|
|
$ |
6,590 |
|
|
$ |
7,800 |
|
|
$ |
7,091 |
|
Benchmark-Free Allocation Fund |
|
$ |
9,844 |
|
|
|
6,215 |
|
|
$ |
8,046 |
|
|
$ |
7,586 |
|
Alpha Only Fund |
|
$ |
8,888 |
|
|
$ |
6,004 |
|
|
$ |
8,977 |
|
|
$ |
8,343 |
|
Pension or Retirement Benefits
Accrued as Part of Fund Expenses: |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Estimated Annual Benefits Upon
Retirement: |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Total Compensation from the Trust: |
|
$ |
372,302 |
4 |
|
$ |
251,479 |
4 |
|
$ |
308,613 |
4 |
|
$ |
280,116 |
4 |
|
|
|
1 |
|
Mr. Thorndike resigned as a Trustee effective December 2010 and no
longer serves as a Trustee of the Trust. |
|
2 |
|
Reflects actual direct compensation received during the fiscal year
ended February 28, 2011. Each of Paul Braverman and Joseph B. Kittredge, Jr. was
elected as Trustee effective March 2010. |
|
3 |
|
Reflects an estimate of the direct compensation to be paid to each
Trustee for the Funds initial fiscal year ending February 29, 2012. Actual direct
compensation paid to the Trustees will vary depending on the net assets of the Fund
throughout its initial fiscal year. |
|
4 |
|
Reflects actual direct compensation received during the fiscal year
ended February 28, 2011 from Funds of the Trust that had commenced operations on or
before February 28, 2011, including GMO Funds that are not offered through the
Prospectuses. |
Other than as set forth in the following table, no officer of the Trust received aggregate
compensation exceeding $60,000 from any Fund offered in the Prospectuses during the fiscal year
ended February 28, 2011.
107
|
|
|
|
|
|
|
Name of Person, Position |
|
|
Michael E. Gillespie,1 |
|
|
Chief Compliance Officer |
Compensation exceeding $60,000 received
from any Fund offered in the Prospectuses: |
|
|
|
|
Quality Fund |
|
$ |
108,583 |
|
Emerging Markets Fund |
|
$ |
77,345 |
|
Pension or Retirement Benefits Accrued
as Part of Fund Expenses: |
|
|
N/A |
|
Estimated Annual Benefits Upon Retirement: |
|
|
N/A |
|
|
|
|
1 |
|
Michael E. Gillespie served as Chief Compliance Officer of the
Trust until February 14, 2011. |
Mr. Kittredge does not receive any compensation from the Trust, but as a member of the Manager
will benefit from management, shareholder servicing, administration, and any other fees paid to GMO
and its affiliates by the Funds and various other GMO Funds not offered through the Prospectuses.
The officers of the Trust do not receive any employee benefits such as pension or retirement
benefits or health insurance from the Trust.
As of June 10, 2011, the Trustees and officers of the Trust as a group owned less than 1% of the
outstanding shares of each class of shares of each Fund offered in the Prospectuses. International
Large/Mid Cap Value Fund, Asset Allocation International Small Companies Fund, Asset Allocation
International Bond Fund, International Intrinsic Value Extended Markets Fund and Global Focused
Equity Fund will commence operations on or following the date of this SAI, and, therefore, have not
yet offered any shares for sale as of this date.
Code of Ethics. The Trust and the Manager have each adopted a Code of Ethics pursuant to the
requirements of the 1940 Act. Under the Code of Ethics, personnel are permitted to engage in
personal securities transactions only in accordance with specified conditions relating to their
position, the identity of the security, the timing of the transaction, and similar factors.
Transactions in securities that may be purchased or held by the Funds are permitted, subject to
compliance with the Code. Personal securities transactions must be reported quarterly and broker
confirmations must be provided for review.
The non-interested Trustees of the Trust are subject to a separate Code of Ethics for the
Independent Trustees pursuant to the requirements of the 1940 Act. Transactions by the Independent
Trustees in securities, including securities that may be purchased or held by the Funds, are
permitted, subject to compliance with the Code of Ethics. Pursuant to the Code of Ethics, an
Independent Trustee ordinarily is not required to report his or her personal securities
transactions or to identify his or her brokerage accounts to a Fund or its representatives, subject
to certain limited exceptions specified in the Code of Ethics.
108
INVESTMENT ADVISORY AND OTHER SERVICES
Management Contracts
As disclosed in each Prospectus under the heading Management of the Trust, under separate
Management Contracts (each, a Management Contract) between the Trust, on behalf of the Funds, and
the Manager, subject to such policies as the Trustees of the Trust may determine, the Manager
furnishes continuously an investment or asset allocation program, as applicable, for each Fund, and
makes investment decisions on behalf of the Fund and places 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 Trusts portfolio
transactions may be placed with broker-dealers who furnish the Manager, at no cost, research,
statistical and quotation services of value to the Manager in advising the Trust or its other
clients.
In addition, as disclosed in the Prospectuses, the Manager has contractually agreed to waive and/or
reimburse (i) each Fund (other than International Intrinsic Value Extended Markets Fund and Global
Focused Equity Fund) for specified Fund expenses through at least June 30, 2012 and (ii)
International Intrinsic Value Extended Markets Fund and Global Focused Equity Fund through at least
September 13, 2012.
Each Management Contract provides that the Manager shall not be subject to any liability in
connection with the performance of its services in the absence of willful misfeasance, bad faith,
gross negligence, or reckless disregard of its obligations and duties.
Each Management Contract was approved by the Trustees of the Trust (including a majority of the
Trustees who were not interested persons of the Manager) and by the relevant Funds sole initial
shareholder in connection with the organization of the Trust and the establishment of the Funds.
Generally, each Management Contract continues in effect for a period of two years from the date of
its execution and continuously thereafter so long as its continuance is approved at least annually
by (i) the 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 relevant 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, each
Management Contract may be terminated on not more than 60 days written notice by the Manager to
the Trust.
109
For each Fund, the Management Fee is calculated based on a fixed percentage of the Funds average
daily net assets. Pursuant to their Management Contracts, the Funds that commenced operations
prior to the end of the most recent fiscal year have paid the following amounts as Management Fees
to the Manager during the last three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
Reduction |
|
Net |
U.S. CORE EQUITY FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
5,590,136 |
|
|
$ |
462,010 |
|
|
$ |
5,128,126 |
|
Year ended 2/28/10 |
|
|
5,916,928 |
|
|
|
522,979 |
|
|
|
5,393,949 |
|
Year ended 2/28/09 |
|
|
8,713,227 |
|
|
|
657,777 |
|
|
|
8,055,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOBACCO-FREE CORE FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
74,579 |
|
|
$ |
74,579 |
|
|
$ |
0 |
|
Year ended 2/28/10 |
|
|
65,815 |
|
|
|
65,815 |
|
|
|
0 |
|
Year ended 2/28/09 |
|
|
81,514 |
|
|
|
81,514 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QUALITY FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
49,119,693 |
|
|
$ |
2,676,518 |
|
|
$ |
46,443,175 |
|
Year ended 2/28/10 |
|
|
40,256,218 |
|
|
|
2,309,811 |
|
|
|
37,946,407 |
|
Year ended 2/28/09 |
|
|
29,784,343 |
|
|
|
1,475,298 |
|
|
|
28,309,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. INTRINSIC VALUE FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
22,894 |
|
|
$ |
22,894 |
|
|
$ |
0 |
|
Year ended 2/28/10 |
|
|
19,541 |
|
|
|
19,541 |
|
|
|
0 |
|
Year ended 2/28/09 |
|
|
63,735 |
|
|
|
63,735 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GROWTH FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
24,909 |
|
|
$ |
24,909 |
|
|
$ |
0 |
|
Year ended 2/28/10 |
|
|
129,936 |
|
|
|
129,936 |
|
|
|
0 |
|
Year ended 2/28/09 |
|
|
327,610 |
|
|
|
175,580 |
|
|
|
152,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. SMALL/MID CAP VALUE FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
36,411 |
|
|
$ |
36,411 |
|
|
$ |
0 |
|
Year ended 2/28/10 |
|
|
46,584 |
|
|
|
46,584 |
|
|
|
0 |
|
Year ended 2/28/09 |
|
|
71,313 |
|
|
|
71,313 |
|
|
|
0 |
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
Reduction |
|
Net |
U.S. SMALL/MID CAP GROWTH FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
33,468 |
|
|
$ |
33,468 |
|
|
$ |
0 |
|
Year ended 2/28/10 |
|
|
16,568 |
|
|
|
16,568 |
|
|
|
0 |
|
Year ended 2/28/09 |
|
|
20,454 |
|
|
|
20,454 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REAL ESTATE FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
46,701 |
|
|
$ |
46,701 |
|
|
$ |
0 |
|
Year ended 2/28/10 |
|
|
40,048 |
|
|
|
40,048 |
|
|
|
0 |
|
Year ended 2/28/09 |
|
|
56,747 |
|
|
|
56,747 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TAX-MANAGED U.S. EQUITIES FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
52,936 |
|
|
$ |
52,936 |
|
|
$ |
0 |
|
Year ended 2/28/10 |
|
|
37,649 |
|
|
|
37,649 |
|
|
|
0 |
|
Year ended 2/28/09 |
|
|
198,196 |
|
|
|
101,441 |
|
|
|
96,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERNATIONAL CORE EQUITY FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
19,031,077 |
|
|
$ |
2,368,383 |
|
|
$ |
16,662,694 |
|
Year ended 2/28/10 |
|
|
15,591,754 |
|
|
|
2,074,060 |
|
|
|
13,517,694 |
|
Year ended 2/28/09 |
|
|
17,737,003 |
|
|
|
2,276,350 |
|
|
|
15,460,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERNATIONAL INTRINSIC VALUE FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
27,515,694 |
|
|
$ |
2,635,948 |
|
|
$ |
24,879,746 |
|
Year ended 2/28/10 |
|
|
25,304,308 |
|
|
|
2,530,455 |
|
|
|
22,773,853 |
|
Year ended 2/28/09 |
|
|
31,414,815 |
|
|
|
2,981,508 |
|
|
|
28,433,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERNATIONAL GROWTH EQUITY FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
16,070,186 |
|
|
$ |
1,699,570 |
|
|
$ |
14,370,616 |
|
Year ended 2/28/10 |
|
|
12,726,794 |
|
|
|
1,500,183 |
|
|
|
11,226,611 |
|
Year ended 2/28/09 |
|
|
15,090,970 |
|
|
|
1,671,830 |
|
|
|
13,419,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEVELOPED WORLD STOCK FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
1,628,921 |
|
|
$ |
386,001 |
|
|
$ |
1,242,920 |
|
Year ended 2/28/10 |
|
|
1,558,927 |
|
|
|
394,223 |
|
|
|
1,164,704 |
|
Year ended 2/28/09 |
|
|
1,855,185 |
|
|
|
470,537 |
|
|
|
1,384,648 |
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
Reduction |
|
Net |
INTERNATIONAL SMALL COMPANIES FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
3,438,346 |
|
|
$ |
682,947 |
|
|
$ |
2,755,399 |
|
Year ended 2/28/10 |
|
|
5,613,055 |
|
|
|
866,619 |
|
|
|
4,746,436 |
|
Year ended 2/28/09 |
|
|
3,305,724 |
|
|
|
686,093 |
|
|
|
2,619,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TAX-MANAGED INTERNATIONAL EQUITIES FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
2,785,950 |
|
|
$ |
594,364 |
|
|
$ |
2,191,586 |
|
Year ended 2/28/10 |
|
|
2,676,033 |
|
|
|
499,462 |
|
|
|
2,176,571 |
|
Year ended 2/28/09 |
|
|
4,048,795 |
|
|
|
834,130 |
|
|
|
3,214,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
17,190,364 |
|
|
$ |
1,694,649 |
|
|
$ |
15,495,715 |
|
Year ended 2/28/10 |
|
|
20,509,678 |
|
|
|
1,836,978 |
|
|
|
18,672,700 |
|
Year ended 2/28/09 |
|
|
37,348,751 |
|
|
|
3,187,460 |
|
|
|
34,161,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN SMALL COMPANIES FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
3,275,076 |
|
|
$ |
640,544 |
|
|
$ |
2,634,532 |
|
Year ended 2/28/10 |
|
|
2,111,764 |
|
|
|
400,611 |
|
|
|
1,711,153 |
|
Year ended 2/28/09 |
|
|
5,028,384 |
|
|
|
798,420 |
|
|
|
4,229,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMERGING MARKETS FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
81,259,560 |
|
|
$ |
3,372,015 |
|
|
$ |
77,887,545 |
|
Year ended 2/28/10 |
|
|
68,764,224 |
|
|
|
2,371,724 |
|
|
|
66,392,500 |
|
Year ended 2/28/09 |
|
|
77,280,205 |
|
|
|
597,813 |
|
|
|
76,682,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMERGING COUNTRIES FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
1,585,171 |
|
|
$ |
372,021 |
|
|
$ |
1,213,150 |
|
Year ended 2/28/10 |
|
|
1,154,735 |
|
|
|
439,346 |
|
|
|
715,389 |
|
Year ended 2/28/09 |
|
|
1,702,677 |
|
|
|
399,673 |
|
|
|
1,303,004 |
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
Reduction |
|
Net |
TAIWAN FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
704,051 |
|
|
$ |
0 |
|
|
$ |
704,051 |
|
Year ended 2/28/10 |
|
|
979,422 |
|
|
|
0 |
|
|
|
979,422 |
|
Year ended 2/28/09 |
|
|
1,285,293 |
|
|
|
N/A |
|
|
|
1,285,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FLEXIBLE EQUITIES FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
2,008,166 |
|
|
$ |
419,570 |
|
|
$ |
1,588,596 |
|
Year ended 2/28/10 |
|
|
2,314,167 |
|
|
|
478,960 |
|
|
|
1,835,207 |
|
Commencement of
Operations (12/12/08)
Through 2/28/09 |
|
|
13,453,668 |
|
|
|
10,247,773 |
|
|
|
3,205,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENCY HEDGED INTERNATIONAL EQUITY FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
1,788,494 |
|
|
$ |
1,788,494 |
|
|
$ |
0 |
|
Year ended 2/28/10 |
|
|
150,076 |
|
|
|
150,076 |
|
|
|
0 |
|
Year ended 2/28/09 |
|
|
136,868 |
|
|
|
136,868 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DOMESTIC BOND FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
652,930 |
|
|
$ |
507,029 |
|
|
$ |
145,901 |
|
Year ended 2/28/10 |
|
|
870,266 |
|
|
|
655,477 |
|
|
|
214,789 |
|
Year ended 2/28/09 |
|
|
1,187,642 |
|
|
|
269,141 |
|
|
|
918,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CORE PLUS BOND FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
786,320 |
|
|
$ |
328,877 |
|
|
$ |
457,443 |
|
Year ended 2/28/10 |
|
|
776,919 |
|
|
|
252,612 |
|
|
|
524,307 |
|
Year ended 2/28/09 |
|
|
1,769,661 |
|
|
|
530,585 |
|
|
|
1,239,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERNATIONAL BOND FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
370,508 |
|
|
$ |
232,019 |
|
|
$ |
138,489 |
|
Year ended 2/28/10 |
|
|
525,955 |
|
|
|
245,460 |
|
|
|
280,495 |
|
Year ended 2/28/09 |
|
|
974,604 |
|
|
|
315,656 |
|
|
|
658,948 |
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
Reduction |
|
Net |
STRATEGIC FIXED INCOME FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
5,427,956 |
|
|
$ |
724,011 |
|
|
$ |
4,703,945 |
|
Year ended 2/28/10 |
|
|
5,623,049 |
|
|
|
689,160 |
|
|
|
4,933,889 |
|
Year ended 2/28/09 |
|
|
9,947,921 |
|
|
|
990,126 |
|
|
|
8,957,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENCY HEDGED INTERNATIONAL BOND FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
317,038 |
|
|
$ |
207,281 |
|
|
$ |
109,757 |
|
Year ended 2/28/10 |
|
|
324,720 |
|
|
|
152,338 |
|
|
|
172,382 |
|
Year ended 2/28/09 |
|
|
351,634 |
|
|
|
183,060 |
|
|
|
168,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GLOBAL BOND FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
398,586 |
|
|
$ |
131,619 |
|
|
$ |
266,967 |
|
Year ended 2/28/10 |
|
|
504,961 |
|
|
|
90,268 |
|
|
|
414,693 |
|
Year ended 2/28/09 |
|
|
591,744 |
|
|
|
72,314 |
|
|
|
519,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMERGING COUNTRY DEBT FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
6,607,898 |
|
|
$ |
0 |
|
|
$ |
6,607,898 |
|
Year ended 2/28/10 |
|
|
7,078,307 |
|
|
|
0 |
|
|
|
7,078,307 |
|
Year ended 2/28/09 |
|
|
8,355,373 |
|
|
|
0 |
|
|
|
8,355,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHORT-DURATION INVESTMENT FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
3,177 |
|
|
$ |
3,177 |
|
|
$ |
0 |
|
Year ended 2/28/10 |
|
|
3,286 |
|
|
|
3,286 |
|
|
|
0 |
|
Year ended 2/28/09 |
|
|
3,479 |
|
|
|
3,479 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHORT-DURATION COLLATERAL FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Year ended 2/28/10 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Year ended 2/28/09 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHORT-DURATION COLLATERAL SHARE FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
16,971 |
|
|
$ |
16,971 |
|
|
$ |
0 |
|
Year ended 2/28/10 |
|
|
14,929 |
|
|
|
14,929 |
|
|
|
0 |
|
Year ended 2/28/09 |
|
|
13,329 |
|
|
|
13,329 |
|
|
|
0 |
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
Reduction |
|
Net |
INFLATION INDEXED PLUS BOND FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
860,031 |
|
|
$ |
338,119 |
|
|
$ |
521,912 |
|
Year ended 2/28/10 |
|
|
998,649 |
|
|
|
378,539 |
|
|
|
620,110 |
|
Year ended 2/28/09 |
|
|
594,279 |
|
|
|
209,312 |
|
|
|
384,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. TREASURY FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
835,483 |
|
|
$ |
835,483 |
|
|
$ |
0 |
|
Commencement of Operations
(3/17/09) Through 2/28/10 |
|
|
314,070 |
|
|
|
314,070 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSET ALLOCATION BOND FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
1,577,619 |
|
|
$ |
224,192 |
|
|
$ |
1,353,427 |
|
Commencement of Operations
(3/18/09) Through 2/28/10 |
|
|
1,527,538 |
|
|
|
248,713 |
|
|
|
1,278,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. EQUITY ALLOCATION FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Year ended 2/28/10 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Year ended 2/28/09 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERNATIONAL EQUITY ALLOCATION FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Year ended 2/28/10 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Year ended 2/28/09 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERNATIONAL OPPORTUNITIES EQUITY ALLOCATION FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Year ended 2/28/10 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Year ended 2/28/09 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GLOBAL EQUITY ALLOCATION FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Year ended 2/28/10 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Year ended 2/28/09 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
Reduction |
|
Net |
WORLD OPPORTUNITIES EQUITY ALLOCATION FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Year ended 2/28/10 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Year ended 2/28/09 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GLOBAL BALANCED ASSET ALLOCATION FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Year ended 2/28/10 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Year ended 2/28/09 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STRATEGIC OPPORTUNITIES ALLOCATION FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Year ended 2/28/10 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Year ended 2/28/09 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BENCHMARK-FREE ALLOCATION FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Year ended 2/28/10 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Year ended 2/28/09 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALPHA ONLY FUND |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 2/28/11 |
|
$ |
9,125,313 |
|
|
$ |
7,150,671 |
|
|
$ |
1,974,642 |
|
Year ended 2/28/10 |
|
|
6,462,026 |
|
|
|
5,065,614 |
|
|
|
1,396,412 |
|
Year ended 2/28/09 |
|
|
13,453,668 |
|
|
|
10,247,773 |
|
|
|
3,205,895 |
|
Emerging Domestic Opportunities Fund commenced operations after the most recent fiscal year ended
February 28, 2011, and, therefore, had not yet paid any Management Fees to the Manager as of such
date. International Large/Mid Cap Value Fund, Asset Allocation International Small Companies Fund,
Asset Allocation International Bond Fund, International Intrinsic Value Extended Markets Fund and
Global Focused Equity Fund will commence operations on or following the date of this SAI, and,
therefore, have not yet paid any Management Fees to the Manager as of this date.
In the event that the Manager ceases to be the manager of a Fund, the right of the Trust to use the
identifying name GMO may be withdrawn.
Portfolio Management
Day-to-day management of each Fund, and in the case of Flexible Equities Fund, Strategic Fixed
Income Fund, Asset Allocation Bond Fund, and Asset Allocation International Bond Fund, overall
investment management and strategic direction, is the responsibility of one of several
116
divisions
comprising investment professionals associated with the Manager. Each divisions members work
collaboratively to manage a Funds portfolio, and no one person is primarily responsible for
day-to-day management of any Fund.
The following table sets forth information about accounts overseen or managed by the senior members
of the divisions as of February 28, 2011.
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered investment companies managed |
|
Other pooled investment vehicles |
|
Separate accounts managed |
|
|
(including non-GMO mutual fund |
|
managed (world-wide) |
|
(world-wide) |
|
|
subadvisory relationships) |
|
Number of |
|
|
|
Number of |
|
|
Senior Member |
|
Number of accounts1 |
|
Total assets1,2 |
|
accounts |
|
Total assets |
|
accounts |
|
Total assets |
Amit Bhartia |
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
Thomas Cooper |
|
|
16 |
|
|
$ |
5,872,730,306.55 |
|
|
|
13 |
|
|
$ |
3,829,670,032.03 |
|
|
|
8 |
|
|
$ |
885,364,524.84 |
|
Arjun Divecha |
|
|
3 |
|
|
$ |
11,661,665,185.35 |
|
|
|
3 |
|
|
$ |
970,585,266.45 |
|
|
|
8 |
|
|
$ |
3,663,855,159.78 |
|
Domenic Esposito |
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
Thomas Hancock |
|
|
23 |
|
|
$ |
39,936,918,987.37 |
|
|
|
9 |
|
|
$ |
3,630,644,686.57 |
|
|
|
47 |
|
|
$ |
11,370,387,487.60 |
|
Anthony Hene |
|
|
1 |
|
|
$ |
411,936,255.69 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
Ben Inker |
|
|
13 |
|
|
$ |
16,656,974,983.87 |
|
|
|
8 |
|
|
$ |
4,114,976,665.33 |
|
|
|
217 |
|
|
$ |
16,449,645,730.73 |
|
William Joyce |
|
|
1 |
|
|
$ |
16,183,075,069.40 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
William Nemerever |
|
|
16 |
|
|
$ |
5,872,730,306.55 |
|
|
|
13 |
|
|
$ |
3,829,670,032.03 |
|
|
|
8 |
|
|
$ |
885,364,524.84 |
|
Drew Spangler |
|
|
2 |
|
|
$ |
3,243,086,679.96 |
|
|
|
2 |
|
|
$ |
2,741,566,469.44 |
|
|
|
9 |
|
|
$ |
4,322,298,108.89 |
|
Sam Wilderman |
|
|
23 |
|
|
$ |
39,936,918,987.37 |
|
|
|
9 |
|
|
$ |
3,630,644,686.57 |
|
|
|
47 |
|
|
$ |
11,370,387,487.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered investment companies managed |
|
Other pooled investment vehicles |
|
Separate accounts managed (world- |
|
|
for which GMO receives a performance- |
|
managed (world-wide) for which GMO |
|
wide) for which GMO receives a |
|
|
based fee (including non-GMO mutual |
|
receives a performance-based fee |
|
performance-based fee |
|
|
fund subadvisory relationships) |
|
Number of |
|
|
|
|
|
Number of |
|
|
|
|
Number of accounts |
|
Total assets |
|
accounts |
|
Total assets |
|
accounts |
|
Total assets |
Amit Bhartia |
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
Thomas Cooper |
|
|
0 |
|
|
$ |
0 |
|
|
|
3 |
|
|
$ |
2,010,085,411.78 |
|
|
|
2 |
|
|
$ |
486,765,828.51 |
|
Arjun Divecha |
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
1 |
|
|
$ |
880,138,318.14 |
|
Domenic Esposito |
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
Thomas Hancock |
|
|
0 |
|
|
$ |
0 |
|
|
|
3 |
|
|
$ |
1,798,325,090.62 |
|
|
|
9 |
|
|
$ |
2,868,341,093.79 |
|
Anthony Hene |
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
Ben Inker |
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
151 |
|
|
$ |
11,543,918,225.41 |
|
William Joyce |
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
William Nemerever |
|
|
0 |
|
|
$ |
0 |
|
|
|
3 |
|
|
$ |
2,010,085,411.78 |
|
|
|
2 |
|
|
$ |
486,765,828.51 |
|
Drew Spangler |
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
3 |
|
|
$ |
2,560,548,546.45 |
|
Sam Wilderman |
|
|
0 |
|
|
$ |
0 |
|
|
|
3 |
|
|
$ |
1,798,325,090.62 |
|
|
|
9 |
|
|
$ |
2,868,341,093.79 |
|
|
|
|
1 |
|
Includes GMO Funds (including GMO Funds not offered through the Prospectuses) that had
commenced operations on or before February 28, 2011. |
|
2 |
|
For some senior members, Total assets includes assets invested by other GMO Funds. |
118
Because each senior member manages other accounts, including accounts that pay higher fees or
accounts that pay performance-based fees, potential conflicts of interest exist, including
potential conflicts between the investment strategy of a Fund and the investment strategy of the
other accounts managed by the senior member and potential conflicts in the allocation of investment
opportunities between a Fund and the other accounts.
Senior members of each division are generally members (partners) of GMO. As of February 28, 2011,
the compensation of each senior member consisted of a fixed annual base salary, a partnership
interest in the firms profits and, possibly, an additional, discretionary, bonus related to the
senior members contribution to GMOs success. The compensation program does not
disproportionately reward outperformance by higher fee/performance fee products. Base salary is
determined by taking into account current industry norms and market data to ensure that GMO pays a
competitive base salary. The level of partnership interest is determined by taking into account
the individuals contribution to GMO and its mission statement. A discretionary bonus may also be
paid to recognize specific business contributions and to ensure that the total level of
compensation is competitive with the market. Because each persons compensation is based on his or
her individual performance, GMO does not have a typical percentage split among base salary, bonus
and other compensation. A GMO membership interest is the primary incentive for persons to maintain
employment with GMO. GMO believes this is the best incentive to maintain stability of portfolio
management personnel.
Senior Member Fund Ownership. The following table sets forth the dollar range of each senior
members direct beneficial share ownership, as of February 28, 2011, of Funds offered in the
Prospectuses that were overseen or managed by the senior member as of February 28, 2011:
|
|
|
|
|
Name of Senior Member |
|
Dollar Range of Shares Directly Owned in the Fund1 |
|
|
Domestic Bond Fund
|
|
None |
|
|
Core Plus Bond Fund
|
|
None |
|
|
International Bond Fund
|
|
Over $1,000,000 |
|
|
Strategic Fixed Income Fund
|
|
None |
|
|
Currency Hedged International Bond Fund
|
|
None |
|
|
Global Bond Fund
|
|
None |
Thomas Cooper
|
|
Emerging Country Debt Fund
|
|
None |
|
|
Short-Duration Investment Fund
|
|
None |
|
|
Short-Duration Collateral Fund
|
|
None |
|
|
Short-Duration Collateral Share Fund
|
|
Over $1,000,000 |
|
|
Inflation Indexed Plus Bond Fund
|
|
None |
|
|
U.S. Treasury Fund
|
|
None |
|
|
Asset Allocation Bond Fund
|
|
None |
|
|
|
|
|
|
|
Emerging Markets Fund
|
|
Over $1,000,000 |
Arjun Divecha
|
|
Emerging Countries Fund
|
|
None |
|
|
Taiwan Fund
|
|
None |
|
|
|
|
|
|
|
U.S. Core Equity Fund
|
|
$10,001-$50,000 |
|
|
Tobacco-Free Core Fund
|
|
None |
|
|
Quality Fund
|
|
$50,001-$100,000 |
Thomas Hancock
|
|
U.S. Intrinsic Value Fund
|
|
$10,001-$50,000 |
|
|
U.S. Growth Fund
|
|
None |
|
|
U.S. Small/Mid Cap Value Fund
|
|
$10,001-$50,000 |
119
|
|
|
|
|
Name of Senior Member |
|
Dollar Range of Shares Directly Owned in the Fund1 |
|
|
U.S. Small/Mid Cap Growth Fund
|
|
None |
|
|
Real Estate Fund
|
|
None |
|
|
Tax-Managed U.S. Equities Fund
|
|
None |
|
|
International Core Equity Fund
|
|
$1-$10,000 |
|
|
International Intrinsic Value Fund
|
|
$10,001-$50,000 |
|
|
International Growth Equity Fund
|
|
$10,001-$50,000 |
|
|
Developed World Stock Fund
|
|
None |
|
|
International Small Companies Fund
|
|
None |
|
|
Tax-Managed International Equities Fund
|
|
Over $1,000,000 |
|
|
Flexible Equities Fund
|
|
None |
|
|
|
|
|
Anthony Hene
|
|
Developed World Stock Fund
|
|
$10,001-$50,000 |
|
|
|
|
|
|
|
Flexible Equities Fund |
|
None |
|
|
Currency Hedged International Equity Fund
|
|
None |
|
|
Strategic Fixed Income Fund
|
|
None |
|
|
Asset Allocation Bond Fund
|
|
None |
|
|
U.S. Equity Allocation Fund
|
|
None |
|
|
International Equity Allocation Fund
|
|
None |
Ben Inker
|
|
International Opportunities Equity Allocation Fund
|
|
None |
|
|
Global Equity Allocation Fund
|
|
None |
|
|
World Opportunities Equity Allocation Fund
|
|
None |
|
|
Global Balanced Asset Allocation Fund
|
|
None |
|
|
Strategic Opportunities Allocation Fund
|
|
None |
|
|
Benchmark-Free Allocation Fund
|
|
$100,001-$500,000 |
|
|
Alpha Only Fund
|
|
None |
|
|
|
|
|
William Joyce
|
|
Quality Fund
|
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Domestic Bond Fund
|
|
None |
|
|
Core Plus Bond Fund
|
|
None |
|
|
International Bond Fund
|
|
None |
|
|
Strategic Fixed Income Fund
|
|
None |
|
|
Currency Hedged International Bond Fund
|
|
None |
|
|
Global Bond Fund
|
|
None |
William Nemerever
|
|
Emerging Country Debt Fund
|
|
None |
|
|
Short-Duration Investment Fund
|
|
None |
|
|
Short-Duration Collateral Fund
|
|
None |
|
|
Short-Duration Collateral Share Fund
|
|
Over $1,000,000 |
|
|
Inflation Indexed Plus Bond Fund
|
|
None |
|
|
U.S. Treasury Fund
|
|
None |
|
|
Asset Allocation Bond Fund
|
|
None |
|
|
|
|
|
|
|
Foreign Fund
|
|
$100,001-$500,000 |
Drew Spangler
|
|
Foreign Small Companies Fund
|
|
None |
|
|
Flexible Equities Fund
|
|
None |
|
|
|
|
|
|
|
U.S. Core Equity Fund
|
|
None |
|
|
Tobacco-Free Core Fund
|
|
None |
|
|
Quality Fund
|
|
None |
Sam Wilderman
|
|
U.S. Intrinsic Value Fund
|
|
None |
|
|
U.S. Growth Fund
|
|
None |
|
|
U.S. Small/Mid Cap Value Fund
|
|
None |
|
|
U.S. Small/Mid Cap Growth Fund
|
|
None |
120
|
|
|
|
|
Name of Senior Member |
|
Dollar Range of Shares Directly Owned in the Fund1 |
|
|
Real Estate Fund
|
|
$10,001-$50,000 |
|
|
Tax-Managed U.S. Equities Fund
|
|
None |
|
|
International Core Equity Fund
|
|
None |
|
|
International Intrinsic Value Fund
|
|
None |
|
|
International Growth Equity Fund
|
|
None |
|
|
Developed World Stock Fund
|
|
None |
|
|
International Small Companies Fund
|
|
None |
|
|
Tax-Managed International Equities Fund
|
|
None |
|
|
Flexible Equities Fund
|
|
None |
|
|
|
1 |
|
Emerging Domestic Opportunities Fund commenced operations after the most recent fiscal
year ended February 28, 2011, and, therefore, had not yet offered any shares for sale and the
senior members have no ownership of the Fund as of such date. Each of International Large/Mid Cap
Value Fund, Asset Allocation International Small Companies Fund, Asset Allocation International
Bond Fund, International Intrinsic Value Extended Markets Fund and Global Focused Equity Fund will
commence operations on or following the date of this SAI, and, therefore, have not yet offered any
shares for sale and the senior members have no ownership of these Funds as of this date. |
The following table sets forth the dollar range of each senior members indirect beneficial
share ownership in the Funds that were overseen or managed by the senior member, as of February 28,
2011, by virtue of the senior members direct ownership of shares of certain other Funds of the
Trust that invest in the Funds:
|
|
|
|
|
Name of Senior Member |
|
Dollar Range of Shares Indirectly Owned in the Fund1 |
|
|
Domestic Bond Fund
|
|
None |
|
|
Core Plus Bond Fund
|
|
None |
|
|
International Bond Fund
|
|
None |
|
|
Strategic Fixed Income Fund
|
|
None |
|
|
Currency Hedged International Bond Fund
|
|
None |
|
|
Global Bond Fund
|
|
None |
Thomas Cooper
|
|
Emerging Country Debt Fund
|
|
$10,001-$50,000 |
|
|
Short-Duration Investment Fund
|
|
None |
|
|
Short-Duration Collateral Fund
|
|
Over $1,000,000 |
|
|
Short-Duration Collateral Share Fund
|
|
None |
|
|
Inflation Indexed Plus Bond Fund
|
|
None |
|
|
U.S. Treasury Fund
|
|
$10,001-$50,000 |
|
|
Asset Allocation Bond Fund
|
|
None |
|
|
|
|
|
|
|
Emerging Markets Fund
|
|
Over $1,000,000 |
Arjun Divecha
|
|
Emerging Countries Fund
|
|
None |
|
|
Taiwan Fund
|
|
None |
|
|
|
|
|
|
|
U.S. Core Equity Fund
|
|
None |
|
|
Tobacco-Free Core Fund
|
|
None |
|
|
Quality Fund
|
|
$1-$10,000 |
|
|
U.S. Intrinsic Value Fund
|
|
None |
|
|
U.S. Growth Fund
|
|
None |
Thomas Hancock
|
|
U.S. Small/Mid Cap Value Fund
|
|
None |
|
|
U.S. Small/Mid Cap Growth Fund
|
|
None |
|
|
Real Estate Fund
|
|
None |
|
|
Tax-Managed U.S. Equities Fund
|
|
None |
|
|
International Core Equity Fund
|
|
None |
|
|
International Intrinsic Value Fund
|
|
None |
121
|
|
|
|
|
Name of Senior Member |
|
Dollar Range of Shares Indirectly Owned in the Fund1 |
|
|
International Growth Equity Fund
|
|
None |
|
|
Developed World Stock Fund
|
|
None |
|
|
International Small Companies Fund
|
|
None |
|
|
Tax-Managed International Equities Fund
|
|
None |
|
|
Flexible Equities Fund
|
|
None |
|
|
|
|
|
Anthony Hene
|
|
Developed World Stock Fund
|
|
None |
|
|
|
|
|
|
|
Flexible Equities Fund |
|
None |
|
|
Currency Hedged International Equity Fund
|
|
$10,001-$50,000 |
|
|
Strategic Fixed Income Fund
|
|
$50,001-$100,000 |
|
|
Asset Allocation Bond Fund
|
|
None |
|
|
U.S. Equity Allocation Fund
|
|
None |
|
|
International Equity Allocation Fund
|
|
None |
Ben Inker
|
|
International Opportunities Equity Allocation Fund
|
|
None |
|
|
Global Equity Allocation Fund
|
|
None |
|
|
World Opportunities Equity Allocation Fund
|
|
None |
|
|
Global Balanced Asset Allocation Fund
|
|
None |
|
|
Strategic Opportunities Allocation Fund
|
|
None |
|
|
Benchmark-Free Allocation Fund
|
|
None |
|
|
Alpha Only Fund
|
|
$50,001-$100,000 |
|
|
|
|
|
William Joyce
|
|
Quality Fund
|
|
$1-$10,000 |
|
|
|
|
|
|
|
Domestic Bond Fund
|
|
None |
|
|
Core Plus Bond Fund
|
|
None |
|
|
International Bond Fund
|
|
None |
|
|
Strategic Fixed Income Fund
|
|
None |
|
|
Currency Hedged International Bond Fund
|
|
None |
|
|
Global Bond Fund
|
|
None |
William Nemerever
|
|
Emerging Country Debt Fund
|
|
None |
|
|
Short-Duration Investment Fund
|
|
None |
|
|
Short-Duration Collateral Fund
|
|
Over $1,000,000 |
|
|
Short-Duration Collateral Share Fund
|
|
None |
|
|
Inflation Indexed Plus Bond Fund
|
|
None |
|
|
U.S. Treasury Fund
|
|
$1-$10,000 |
|
|
Asset Allocation Bond Fund
|
|
None |
|
|
|
|
|
|
|
Foreign Fund
|
|
None |
Drew Spangler
|
|
Foreign Small Companies Fund
|
|
None |
|
|
Flexible Equities Fund
|
|
None |
|
|
|
|
|
|
|
U.S. Core Equity Fund
|
|
$1-$10,000 |
|
|
Tobacco-Free Core Fund
|
|
None |
|
|
Quality Fund
|
|
$10,001-$50,000 |
|
|
U.S. Intrinsic Value Fund
|
|
None |
|
|
U.S. Growth Fund
|
|
None |
Sam Wilderman
|
|
U.S. Small/Mid Cap Value Fund
|
|
None |
|
|
U.S. Small/Mid Cap Growth Fund
|
|
None |
|
|
Real Estate Fund
|
|
None |
|
|
Tax-Managed U.S. Equities Fund
|
|
None |
|
|
International Core Equity Fund
|
|
None |
|
|
International Intrinsic Value Fund
|
|
$1-$10,000 |
|
|
International Growth Equity Fund
|
|
$1-$10,000 |
122
|
|
|
|
|
Name of Senior Member |
|
Dollar Range of Shares Indirectly Owned in the Fund1 |
|
|
Developed World Stock Fund
|
|
None |
|
|
International Small Companies Fund
|
|
None |
|
|
Tax-Managed International Equities Fund
|
|
None |
|
|
Flexible Equities Fund
|
|
None |
|
|
|
1 |
|
Emerging Domestic Opportunities Fund commenced operations after the most recent fiscal
year ended February 28, 2011, and, therefore, had not yet offered any shares for sale and the
senior members have no ownership of the Fund as of such date. Each of International Large/Mid Cap
Value Fund, Asset Allocation International Small Companies Fund, Asset Allocation International
Bond Fund, International Intrinsic Value Extended Markets Fund and Global Focused Equity Fund will
commence operations on or following the date of this SAI, and, therefore, have not yet offered any
shares for sale and the senior members have no ownership of these Funds as of this date. |
Custodial Arrangements and Fund Accounting Agents. As described in the Prospectuses, State
Street Bank and Trust Company (State Street Bank), One Lincoln Street, Boston, Massachusetts
02111, serves as the Trusts custodian and fund accounting agent on behalf of certain of the Funds,
and Brown Brothers Harriman & Co. (BBH), 40 Water Street, Boston, Massachusetts 02109, serves as
the Trusts custodian and fund accounting agent on behalf of the other Funds. As such, State
Street Bank or BBH holds in safekeeping certificated securities and cash belonging to a Fund and,
in such capacity, is the registered owner of securities in book-entry form belonging to a Fund.
Upon instruction, State Street Bank or BBH receives and delivers cash and securities of a Fund in
connection with Fund transactions and collects all dividends and other distributions made with
respect to Fund portfolio securities. Each of State Street Bank and BBH 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 each Fund on a daily basis.
Shareholder Service Arrangements. As disclosed in the Prospectuses, pursuant to the terms of a
single Servicing Agreement with the Funds of the Trust (except for U.S. Treasury Fund and
Short-Duration Collateral Fund), GMO provides direct client service, maintenance, and reporting to
shareholders of the Funds. 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 of more than one year from
the date of its execution only so long as its continuance is approved at least annually by (i) the
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 (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.
The Trust entered into the Servicing Agreement with GMO on May 30, 1996. Pursuant to the terms of
the Servicing Agreement, each Fund that commenced operations prior to the end of the most recent
fiscal year paid GMO the following amounts (after reimbursement by GMO) during the last three
fiscal years:
123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1, 2008 |
|
March 1, 2009 |
|
March 1, 2010 |
|
|
Through |
|
Through |
|
Through |
|
|
February 28, |
|
February 28, |
|
February 28, |
|
|
2009 |
|
2010 |
|
2011 |
U.S. Core Equity Fund |
|
$ |
2,463,206 |
|
|
$ |
1,762,705 |
|
|
$ |
1,541,838 |
|
Tobacco-Free Core Fund |
|
$ |
37,052 |
|
|
$ |
29,916 |
|
|
$ |
33,900 |
|
Quality Fund |
|
$ |
7,180,054 |
|
|
$ |
10,466,500 |
|
|
$ |
13,272,194 |
|
U.S. Intrinsic Value Fund |
|
$ |
30,839 |
|
|
$ |
9,456 |
|
|
$ |
11,078 |
|
U.S. Growth Fund |
|
$ |
123,660 |
|
|
$ |
61,985 |
|
|
$ |
11,211 |
|
U.S. Small/Mid Cap Value Fund |
|
$ |
34,506 |
|
|
$ |
22,541 |
|
|
$ |
17,618 |
|
U.S. Small/Mid Cap Growth Fund |
|
$ |
9,897 |
|
|
$ |
8,017 |
|
|
$ |
16,193 |
|
Real Estate Fund |
|
$ |
25,794 |
|
|
$ |
18,204 |
|
|
$ |
21,228 |
|
Tax-Managed U.S. Equities Fund |
|
$ |
90,089 |
|
|
$ |
17,113 |
|
|
$ |
24,062 |
|
International Core Equity Fund |
|
$ |
3,648,744 |
|
|
$ |
3,718,217 |
|
|
$ |
4,001,028 |
|
International Intrinsic Value Fund |
|
$ |
7,305,330 |
|
|
$ |
6,360,153 |
|
|
$ |
6,511,349 |
|
International Growth Equity Fund |
|
$ |
3,155,351 |
|
|
$ |
2,674,851 |
|
|
$ |
3,281,786 |
|
Developed World Stock Fund |
|
$ |
520,187 |
|
|
$ |
443,244 |
|
|
$ |
454,401 |
|
International Small Companies Fund |
|
$ |
826,431 |
|
|
$ |
1,403,264 |
|
|
$ |
859,586 |
|
Tax-Managed International
Equities Fund |
|
$ |
1,173,082 |
|
|
$ |
802,810 |
|
|
$ |
835,785 |
|
Foreign Fund |
|
$ |
8,275,293 |
|
|
$ |
5,265,140 |
|
|
$ |
4,069,546 |
|
Foreign Small Companies Fund |
|
$ |
842,859 |
|
|
$ |
425,524 |
|
|
$ |
629,961 |
|
Emerging Markets Fund |
|
$ |
8,833,678 |
|
|
$ |
10,174,137 |
|
|
$ |
11,977,615 |
|
Emerging Countries Fund |
|
$ |
350,077 |
|
|
$ |
222,128 |
|
|
$ |
314,859 |
|
Taiwan Fund |
|
$ |
238,017 |
|
|
$ |
181,374 |
|
|
$ |
130,380 |
|
Flexible Equities Fund |
|
$ |
46,314 |
(a) |
|
$ |
278,106 |
|
|
$ |
233,986 |
|
Currency Hedged International
Equity Fund |
|
$ |
15,943 |
|
|
$ |
17,082 |
|
|
$ |
206,723 |
|
Domestic Bond Fund |
|
$ |
786,564 |
|
|
$ |
700,358 |
|
|
$ |
493,812 |
|
Core Plus Bond Fund |
|
$ |
736,723 |
|
|
$ |
321,399 |
|
|
$ |
330,587 |
|
International Bond Fund |
|
$ |
566,827 |
|
|
$ |
303,705 |
|
|
$ |
215,197 |
|
Strategic Fixed Income Fund |
|
$ |
2,264,039 |
|
|
$ |
1,321,199 |
|
|
$ |
1,227,005 |
|
Currency Hedged International
Bond Fund |
|
$ |
204,914 |
|
|
$ |
188,570 |
|
|
$ |
184,624 |
|
Global Bond Fund |
|
$ |
453,775 |
|
|
$ |
383,630 |
|
|
$ |
304,862 |
|
Emerging Country Debt Fund |
|
$ |
2,669,869 |
|
|
$ |
2,323,902 |
|
|
$ |
2,159,308 |
|
Short-Duration Investment Fund |
|
$ |
10,438 |
|
|
$ |
9,858 |
|
|
$ |
9,531 |
|
Short-Duration Collateral Share Fund |
|
$ |
39,987 |
|
|
$ |
44,790 |
|
|
$ |
50,912 |
|
Inflation Indexed Plus Bond Fund |
|
$ |
181,602 |
|
|
$ |
298,295 |
|
|
$ |
247,317 |
|
Asset Allocation Bond Fund |
|
|
N/A |
|
|
$ |
374,898 |
(b) |
|
$ |
386,428 |
|
U.S. Equity Allocation Fund |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
International Equity Allocation Fund |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1, 2008 |
|
March 1, 2009 |
|
March 1, 2010 |
|
|
Through |
|
Through |
|
Through |
|
|
February 28, |
|
February 28, |
|
February 28, |
|
|
2009 |
|
2010 |
|
2011 |
International Opportunities Equity
Allocation Fund |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Global Equity Allocation
Fund |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
World Opportunities Equity
Allocation Fund |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Global Balanced Asset Allocation Fund |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Strategic Opportunities Allocation Fund |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Benchmark-Free Allocation Fund |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Alpha Only Fund |
|
$ |
1,159,964 |
|
|
$ |
516,212 |
|
|
$ |
689,477 |
|
|
|
|
(a) |
|
Reflects fees paid from the Funds commencement of operations on December 12,
2008 through February 28, 2009. |
|
(b) |
|
Reflects fees paid from the Funds commencement of operations on March 18, 2009
through February 28, 2010. |
Emerging Domestic Opportunities Fund commenced operations after the most recent fiscal year
ended February 28, 2011, and, therefore, had not yet paid any amounts to GMO pursuant to the terms
of the Servicing Agreement as of such date. International Large/Mid Cap Value Fund, Asset
Allocation International Small Companies Fund, Asset Allocation International Bond Fund,
International Intrinsic Value Extended Markets Fund and Global Focused Equity Fund will commence
operations on or following the date of this SAI, and, therefore, have not yet paid any amounts to
GMO pursuant to the terms of the Servicing Agreement as of this date.
Independent Registered Public Accounting Firm. The Trusts independent registered public
accounting firm is PricewaterhouseCoopers LLP, 125 High Street, Boston, Massachusetts 02110.
PricewaterhouseCoopers LLP conducts annual audits of the Trusts financial statements, assists in
the preparation of each Funds federal and state income tax returns, consults with the Trust as to
matters of accounting and federal and state income taxation, provides assistance in connection with
the preparation of various SEC filings, and consults with the Trust as to certain non-U.S. tax
matters.
Distributor. Funds Distributor, LLC, 10 High Street, Suite 302, Boston, Massachusetts 02110,
serves as the Trusts distributor on behalf of the Funds. GMO pays all distribution-related
expenses of the Funds (other than distribution fees paid pursuant to the Distribution and Service
(12b-1) Plan for Class M Shares or administrative fees related thereto).
Counsel. Ropes & Gray LLP, Prudential Tower, 800 Boylston Street, Boston, Massachusetts 02199,
serves as counsel to the Trust. Bingham McCutchen LLP, 150 Federal Street, Boston, Massachusetts
02110, serves as independent counsel to the non-interested Trustees of the Trust.
Transfer Agent. State Street Bank serves as the Trusts transfer agent on behalf of the Funds.
125
PORTFOLIO TRANSACTIONS
Decisions to buy and sell portfolio securities for each Fund and for each of its other investment
advisory clients are made by the Manager with a view to achieving each clients investment
objectives taking into consideration other account-specific factors such as, without limitation,
cash flows into or out of the account, current holdings, the accounts benchmark(s), applicable
regulatory limitations, liquidity, cash restrictions, applicable transaction documentation
requirements, market registration requirements and/or time constraints limiting the Managers
ability to confirm adequate transaction documentation or seek interpretation of investment
guideline ambiguities. Therefore, a particular security may be bought or sold only for certain
clients of the Manager even though it could have been bought or sold for other clients at the same
time. Also, a particular security may be bought/sold for one or more clients when one or more
other clients are selling/buying the security or taking a short position in the security, including
clients invested in the same investment strategy.
To the extent permitted by applicable law, the Managers compliance policies and procedures and a
clients investment guidelines, the Manager may engage in cross trades where, as investment
manager to a client account, the Manager causes that client account to purchase a security directly
from (or sell a security directly to) another client account.
In certain cases, the Manager may identify investment opportunities that are suitable for the Funds
and one or more private investment companies for which the Manager or one of its affiliates serves
as investment manager, general partner and/or managing member (GMO Private Funds). In most
cases, the Manager receives greater compensation in respect of a GMO Private Fund (including
incentive-based compensation) than it receives in respect of a Fund. In addition, senior members
or other portfolio managers frequently have a personal investment in a GMO Private Fund that is
greater than such persons investment in a similar Fund (or, in some cases, may have no investment
in the similar Fund). The Manager itself also makes investments in GMO Private Funds. To help
manage these potential conflicts, the Manager has developed and reviewed with the Trusts Board of
Trustees trade allocation policies that establish a framework for allocating initial public
offerings (IPOs) and other limited opportunities that takes into account the needs and objectives
of each Fund and the other GMO clients.
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: (i) such securities meet the investment
objectives and policies of the Fund; (ii) such securities are acquired for investment and not for
resale; and (iii) such securities can be valued pursuant to the Trusts pricing policies.
Brokerage and Research Services. In selecting brokers and dealers to effect portfolio transactions
for each Fund, the Manager seeks best execution. Best execution is not based solely on the
explicit commission charged by the broker/dealer and, consequently, a broker/dealer effecting a
transaction may be paid a commission higher than that charged by another broker/dealer for the same
transaction. Seeking best price and execution involves the weighing of qualitative as well as
quantitative factors, and evaluations of best execution are, to a large extent, possible, if at
all, only after multiple trades have been completed. The Manager does place trades with
broker/dealers that provide investment ideas and other research services, even
126
if the relevant broker has not yet demonstrated an ability to effect best price and execution;
however, trading with such a broker (as with any and all brokers) will typically be curtailed or
suspended, in due course, if the Manager is not reasonably satisfied with the quality of particular
trade executions, unless or until the broker has altered its execution capabilities in such a way
that the Manager can reasonably conclude that the broker is capable of achieving best price and
execution.
The determination of what may constitute best price and execution involves a number of
considerations, including, without limitation, the overall net economic result to a Fund; the
efficiency with which the transaction is effected; access to order flow; the ability of the
executing broker/dealer to effect the transaction where a large block is involved; reliability
(e.g., lack of failed trades); availability of the broker/dealer to stand ready to execute possibly
difficult transactions in the future; technological capabilities of the broker/dealer; the
broker/dealers inventory of securities sought; the financial strength and stability of the
broker/dealer; and the relative weighting of opportunity costs (i.e., timeliness of execution) by
different strategies. Additionally, regulations in certain markets, primarily emerging markets,
require the Manager to identify and trade with one or a limited number of brokers on behalf of
clients. In some instances, the Manager may utilize principal bids with consideration to such
factors as reported broker flow, past bids and a firms ability and willingness to commit capital.
Most of the foregoing are subjective considerations made in advance of the trade and are not always
borne out by the actual execution.
The Managers broker/dealer selection may, in addition to the factors listed above, also be based
on research services provided by the broker/dealer. In seeking best execution and in determining
the overall reasonableness of brokerage commissions, the Manager may consider research services
received by broker-dealers and therefore, may have an incentive to select or recommend a
broker-dealer based on the Managers interest in receiving the research or other products or
services, rather than on the lowest commission charged. The Manager may also direct trades to
broker/dealers based in part on the broker/dealers history of providing, and capability to
continue providing, pricing information for securities purchased. Best execution may be determined
for investment strategies without regard to client specific limitations.
Generally, the Manager determines the overall reasonableness of brokerage commissions paid upon
consideration of the relative merits of a number of factors, which may include: (i) the net
economic effect to the particular Fund; (ii) historical and current commission rates; (iii) the
kind and quality of the execution services rendered; (iv) the size and nature of the transactions
effected; and (v) research services received. These factors are considered mostly over multiple
transactions covering extended periods of time and are used to evaluate the relative performance of
the brokers and other institutions used to effect transactions for accounts. In some instances,
the Manager may evaluate best execution on principal bids based on the total commissions charged
(the bid for handling a trade as a principal trade) because the trades were filled at the price set
at an agreed upon time (e.g., previous nights close). In those cases, any additional impact or
cost is represented by the cents per share or basis points extra paid in addition to a typical
commission rate.
127
Because the Manager will frequently use broker/dealers that provide research in all markets and
that research is a factor in evaluating broker/dealers, the Manager relies on the statutory safe
harbor in Section 28(e) of the Securities Exchange Act of 1934, as amended (the 1934 Act).
However, the Manager does not participate in any formal soft dollar arrangements involving third
party research (i.e., research provided by someone other than the executing broker/dealer) or the
payment of any of the Managers out-of-pocket expenses. In all cases, the research services
received by the Manager are limited to the types of research contemplated by Section 28(e) of the
1934 Act. Research services provided by broker/dealers take various forms, including personal
interviews with analysts, written reports, pricing services in respect of securities, and meetings
arranged with various sources of information regarding particular issuers, industries, governmental
policies, specific information about local markets and applicable regulations, economic trends, and
other matters. To the extent that services of value are received by the Manager, the Manager may
avoid expenses which might otherwise be incurred. Such services furnished to the Manager may be
used in furnishing investment or other advice to all or some subset of the Managers clients,
including the Funds, and services received from a broker/dealer that executed transactions for a
particular Fund will not necessarily be used by the Manager specifically in servicing that
particular Fund.
The Trust paid, on behalf of the Funds that commenced operations prior to the end of the most
recent fiscal year, the following amounts in brokerage commissions during the three most recent
fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1, 2008 |
|
March 1, 2009 |
|
March 1, 2010 |
|
|
Through |
|
Through |
|
Through |
|
|
February 28, 2009 |
|
February 28, 2010 |
|
February 28, 2011 |
U.S. Core Equity Fund |
|
$ |
1,858,035 |
|
|
$ |
706,610 |
|
|
$ |
1,732,037 |
|
Tobacco-Free Core Fund |
|
$ |
16,867 |
|
|
$ |
8,045 |
|
|
$ |
18,316 |
|
Quality Fund |
|
$ |
4,377,468 |
|
|
$ |
3,043,002 |
|
|
$ |
1,997,623 |
|
U.S. Intrinsic Value Fund |
|
$ |
21,250 |
|
|
$ |
2,454 |
|
|
$ |
1,825 |
|
U.S. Growth Fund |
|
$ |
81,767 |
|
|
$ |
37,897 |
|
|
$ |
7,567 |
|
U.S. Small/Mid Cap Value Fund |
|
$ |
29,357 |
|
|
$ |
38,091 |
|
|
$ |
7,644 |
|
U.S. Small/Mid Cap Growth Fund |
|
$ |
8,287 |
|
|
$ |
7,853 |
|
|
$ |
7,972 |
|
Real Estate Fund |
|
$ |
3,087 |
|
|
$ |
4,041 |
|
|
$ |
2,129 |
|
Tax-Managed U.S. Equities Fund |
|
$ |
48,279 |
|
|
$ |
4,747 |
|
|
$ |
4,074 |
|
International Core Equity Fund |
|
$ |
2,417,140 |
|
|
$ |
1,929,932 |
|
|
$ |
2,414,210 |
|
International Intrinsic Value Fund |
|
$ |
3,992,583 |
|
|
$ |
2,075,151 |
|
|
$ |
2,424,550 |
|
International Growth Equity Fund |
|
$ |
2,322,342 |
|
|
$ |
1,739,412 |
|
|
$ |
2,112,199 |
|
Developed World Stock Fund |
|
$ |
208,517 |
|
|
$ |
145,634 |
|
|
$ |
101,377 |
|
International Small Companies
Fund |
|
$ |
541,433 |
|
|
$ |
826,721 |
|
|
$ |
829,160 |
|
Tax-Managed International
Equities Fund |
|
$ |
739,873 |
|
|
$ |
274,106 |
|
|
$ |
236,285 |
|
Foreign Fund |
|
$ |
8,651,031 |
|
|
$ |
6,010,580 |
|
|
$ |
4,879,234 |
|
Foreign Small Companies Fund |
|
$ |
1,127,462 |
|
|
$ |
745,971 |
|
|
$ |
837,822 |
|
Emerging Markets Fund |
|
$ |
25,092,347 |
|
|
$ |
26,902,429 |
|
|
$ |
29,368,389 |
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1, 2008 |
|
March 1, 2009 |
|
March 1, 2010 |
|
|
Through |
|
Through |
|
Through |
|
|
February 28, 2009 |
|
February 28, 2010 |
|
February 28, 2011 |
Emerging Countries Fund |
|
$ |
819,173 |
|
|
$ |
515,562 |
|
|
$ |
658,545 |
|
Taiwan Fund |
|
$ |
210,700 |
|
|
$ |
188,358 |
|
|
$ |
136,508 |
|
Flexible Equities Fund |
|
$ |
189,753 |
(a) |
|
$ |
212,182 |
|
|
$ |
299,767 |
|
Currency Hedged International
Equity Fund |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Bond Fund |
|
$ |
231,409 |
|
|
$ |
34,602 |
|
|
|
|
|
Core Plus Bond Fund |
|
$ |
145,372 |
|
|
$ |
22,384 |
|
|
|
37,679 |
|
International Bond Fund |
|
$ |
103,020 |
|
|
$ |
31,212 |
|
|
$ |
20,641 |
|
Strategic Fixed Income Fund |
|
$ |
243,738 |
|
|
$ |
8,131 |
|
|
$ |
673,715 |
|
Currency Hedged International
Bond Fund |
|
$ |
54,424 |
|
|
$ |
19,411 |
|
|
$ |
17,612 |
|
Global Bond Fund |
|
$ |
64,855 |
|
|
$ |
48,740 |
|
|
$ |
29,300 |
|
Emerging Country Debt Fund |
|
$ |
21,364 |
|
|
$ |
22,236 |
|
|
|
|
|
Short-Duration Investment Fund |
|
|
|
|
|
|
|
|
|
|
|
|
Short-Duration Collateral Fund |
|
$ |
7,971 |
|
|
|
|
|
|
|
|
|
Short-Duration Collateral Share
Fund |
|
|
|
|
|
|
|
|
|
|
|
|
Inflation Indexed Plus Bond
Fund |
|
$ |
25,747 |
|
|
$ |
20,436 |
|
|
$ |
27,186 |
|
U.S. Treasury Fund |
|
|
|
|
|
|
|
(b) |
|
|
|
|
Asset Allocation Bond Fund |
|
|
|
|
|
$ |
109,586 |
(c) |
|
$ |
487,995 |
|
U.S. Equity Allocation Fund |
|
|
|
|
|
|
|
|
|
|
|
|
International Equity Allocation
Fund |
|
|
|
|
|
|
|
|
|
|
|
|
International Opportunities
Equity Allocation Fund |
|
|
|
|
|
|
|
|
|
|
|
|
Global Equity Allocation
Fund |
|
|
|
|
|
|
|
|
|
|
|
|
World Opportunities Equity
Allocation Fund |
|
|
|
|
|
|
|
|
|
|
|
|
Global Balanced Asset Allocation
Fund |
|
|
|
|
|
|
|
|
|
|
|
|
Strategic Opportunities
Allocation Fund |
|
|
|
|
|
|
|
|
|
|
|
|
Benchmark-Free Allocation
Fund |
|
|
|
|
|
|
|
|
|
|
|
|
Alpha Only Fund |
|
$ |
1,060,189 |
|
|
$ |
497,222 |
|
|
$ |
647,459 |
|
|
|
|
(a) |
|
Reflects commissions generated from the Funds commencement of operations on
December 12, 2008 through February 28, 2009. |
|
(b) |
|
Reflects commissions generated from the Funds commencement of operations on March
17, 2009 through February 28, 2010. |
|
(c) |
|
Reflects commissions generated from the Funds commencement of operations on March
18, 2009 through February 28, 2010. |
129
Differences in the amount of brokerage commissions paid by a Fund during a Funds three most
recent fiscal years (as disclosed in the table above) are generally the result of (i) active
trading strategies employed by the Manager when responding to changes in market conditions, (ii)
management of cash flows into and out of a Fund as a result of shareholder purchases and
redemptions, (iii) rebalancing portfolios to reflect the results of the Managers portfolio
management models, (iv) changes in commission rates in the relevant markets or (v) the use of
principal trades. Changes in the amount of brokerage commissions paid by a Fund do not reflect
material changes in the Funds investment objective or strategies.
Emerging Domestic Opportunities Fund commenced operations after the most recent fiscal year ended
February 28, 2011, and, therefore, had not yet paid any brokerage commissions as of such date.
International Large/Mid Cap Value Fund, Asset Allocation International Small Companies Fund, Asset
Allocation International Bond Fund, International Intrinsic Value Extended Markets Fund and Global
Focused Equity Fund will commence operations on or following the date of this SAI, and, therefore,
have not yet paid any brokerage commissions as of this date.
The following table lists each Fund that acquired securities of its regular brokers or dealers (as
defined in the 1940 Act) or of their parents during the fiscal year ended February 28, 2011, the
name of each such broker or dealer, and the value of each Funds aggregate holdings of the
securities of each issuer as of February 28, 2011:
|
|
|
|
|
|
|
|
|
|
|
Aggregate Value of Holdings |
Name of Fund |
|
Name of Broker or Dealer |
|
as of February 28, 2011 |
U.S. Core Equity Fund |
|
Merrill Lynch |
|
$ |
2,591,549 |
|
Tobacco-Free Core Fund |
|
Merrill Lynch |
|
$ |
39,083 |
|
U.S. Intrinsic Value Fund |
|
Goldman Sachs |
|
$ |
9,827 |
|
|
|
Merrill Lynch |
|
$ |
67,163 |
|
|
|
Morgan Stanley |
|
$ |
14,840 |
|
International Core Equity Fund |
|
Barclays |
|
$ |
25,130,454 |
|
International Intrinsic Value Fund |
|
Barclays |
|
$ |
42,055,090 |
|
International Growth Equity Fund |
|
Barclays |
|
$ |
8,485,575 |
|
|
|
UBS |
|
$ |
6,282,766 |
|
Developed World Stock Fund |
|
Barclays |
|
$ |
1,761,431 |
|
Foreign Fund |
|
Deutsche Bank |
|
$ |
18,279,743 |
|
|
|
Macquarie Equities |
|
$ |
2,453,765 |
|
Tax-Managed International
Equities Fund |
|
Barclays |
|
$ |
2,654,135 |
|
Due to restrictions under the 1940 Act, it is possible that, as the result of certain affiliations
between a broker/dealer or its affiliates and a Fund, the Manager or the Funds distributor, all of
the Funds may refrain, or be required to refrain, from engaging in principal trades with such
broker/dealer. Additionally, the Funds may be restricted in their ability to purchase securities
issued by affiliates of the Funds distributor.
130
PROXY VOTING POLICIES AND PROCEDURES
The Trust has adopted a proxy voting policy under which responsibility to vote proxies related to
its portfolio securities has been delegated to the Manager. The Board of Trustees of the Trust has
reviewed and approved the proxy voting policies and procedures the Manager follows when voting
proxies on behalf of the Funds. The Trusts proxy voting policy and the Managers proxy voting
policies and procedures are attached to this Statement of Additional Information as Appendix
C.
The Managers proxy voting policies on a particular issue may or may not reflect the views of
individual members of the Board of Trustees of the Trust, or a majority of the Board of Trustees.
Information regarding how the Funds voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 will be available on the Trusts website at www.gmo.com and on
the Securities and Exchange Commissions website at www.sec.gov no later than August 31 of each
year.
DISCLOSURE OF PORTFOLIO HOLDINGS
The policy of the Trust is to protect the confidentiality of each Funds portfolio holdings and to
prevent inappropriate selective disclosure of those holdings. The Board of Trustees has approved
this policy and material amendments require its approval.
Registered investment companies that are sub-advised by GMO may be subject to different portfolio
holdings disclosure policies, and neither GMO nor the Board of Trustees exercises control over
those policies. In addition, separate account clients of GMO have access to their portfolio
holdings and are not subject to the Funds portfolio holdings disclosure policies. Some of the
funds that are sub-advised by GMO and some of the separate accounts managed by GMO have
substantially similar investment objectives and strategies and, therefore, potentially similar
portfolio holdings.
Neither GMO nor any Fund will receive any compensation or other consideration in connection with
its disclosure of a Funds portfolio holdings.
GMO may disclose a Funds portfolio holdings (together with any other information from which the
Funds portfolio holdings could reasonably be derived, as reasonably determined by GMO) (the
Portfolio Holdings Information) to shareholders, qualified potential shareholders as determined
by GMO, and their consultants and agents (collectively, Permitted Recipients) by means of the GMO
website. The Funds Prospectuses describe the type of information disclosed on GMOs website, as
well as the frequency with which it is disclosed and the lag between the date of the information
and the date of its disclosure. The largest fifteen holdings of some GMO Funds are posted monthly
on GMOs website and typically are available to shareholders without a confidentiality agreement.
In addition, from time to time position attribution information regarding one or more Funds may be
posted to GMOs website (e.g., best/worst performing
positions in the Fund over a specified time period). In response to market interest in specific
issuers, a Funds holdings in one or more issuers may be made available on a more frequent basis
131
as
circumstances warrant. Typically, no confidentiality agreement is needed to access this
information.
GMO also may make Portfolio Holdings Information available to Permitted Recipients by email, or by
any other means in such scope and form and with such frequency as GMO may reasonably determine, no
earlier than the day next following the day on which the Portfolio Holdings Information is posted
on the GMO website (provided that the Funds Prospectus describes the nature and scope of the
Portfolio Holdings Information that will be available on the GMO website, when the information will
be available and the period for which the information will remain available, and the location on
the Funds website where the information will be made available) or on the same day as a publicly
available, routine filing with the SEC that includes the Portfolio Holdings Information. A
confidentiality agreement is not required to access Portfolio Holdings Information filed with the
SEC as described in the preceding sentence.
GMO also may disclose portfolio holdings information to all shareholders of a Fund and their
consultants and agents from time-to-time. Such disclosure may be made by email, written notice or
any other means in such scope and form as GMO may reasonably determine, and generally will not be
subject to a confidentiality agreement and will not be required to be posted to GMOs website in
advance.
Except as otherwise noted, to receive Portfolio Holdings Information, Permitted Recipients must
enter into a confidentiality agreement with GMO and the Trust that requires that the Portfolio
Holdings Information be used solely for purposes determined by senior management of GMO to be in
the best interest of the shareholders of the Fund to which the information relates.
In some cases, GMO may disclose to a third party Portfolio Holdings Information that has not been
made available to Permitted Recipients on the GMO website or in a publicly available, routine
filing with the SEC. That disclosure may only be made if senior management of GMO determines that
it is in the best interests of the shareholders of the Fund to which the information relates. In
addition, the third party receiving the Portfolio Holdings Information must enter into a
confidentiality agreement with GMO and the Trust that requires that the Portfolio Holdings
Information be used solely for purposes determined by GMO senior management to be in the best
interest of the Funds shareholders.
If GMO becomes aware that a recipient has or is likely to violate the terms of a confidentiality
agreement regarding Portfolio Holdings Information, GMO shall cease providing such information to
such recipient.
The procedures pursuant to which GMO may disclose to a third party Portfolio Holdings Information
that has not been made available to Permitted Recipients do not apply to Portfolio Holdings
Information provided to entities who provide on-going services to the Funds in connection with
their day-to-day operations and management, including GMO, GMOs affiliates, the Funds custodians
and auditors, the Funds pricing service vendors, broker-dealers when requesting bids for or price
quotations on securities, brokers in the normal course of trading on a Funds behalf, and persons
assisting the Funds in the voting of proxies. In addition, (i) when an
investor indicates that it wants to purchase shares of a Fund in exchange for securities acceptable
to GMO, GMO may make available a list of securities that it would be willing to accept for the
132
Fund, and, from time to time, the securities on the list may overlap with securities currently held
by the Fund; and (ii) when the Fund determines to pay redemption proceeds wholly or partly in-kind
with securities, GMO may make available a list of securities it intends to deliver from the Fund.
No provision of this policy is intended to restrict or prevent the disclosure of Portfolio Holdings
Information as may be required by applicable law, rules or regulations.
GMOs General Counsel or Chief Compliance Officer may authorize exceptions to these procedures.
Exceptions must be disclosed to the Chief Compliance Officer of the Trust.
If senior management of GMO identifies a potential conflict with respect to the disclosure of
Portfolio Holdings Information between the interest of a Funds shareholders, on the one hand, and
GMO or an affiliated person of GMO or the Fund, on the other, GMO is required to inform the Trusts
Chief Compliance Officer of the potential conflict, and the Trusts Chief Compliance Officer has
the power to decide whether, in light of the potential conflict, disclosure should be permitted
under the circumstances. The Trusts Chief Compliance Officer also is required to report his
decision to the Board of Trustees.
GMO periodically reports the following information to the Board of Trustees:
|
|
|
Determinations made by senior management of GMO relating to the use of Portfolio
Holdings Information by Permitted Recipients and third parties; |
|
|
|
|
The nature and scope of disclosure of Portfolio Holdings Information to third parties; |
|
|
|
|
Exceptions to the disclosure policy authorized by GMOs General Counsel or Chief
Compliance Officer; and |
|
|
|
|
Any other information the Trustees may request relating to the disclosure of Portfolio
Holdings Information. |
Ongoing Arrangements To Make Portfolio Holdings Available. Senior management of GMO has authorized
disclosure of Portfolio Holdings Information on an on-going basis (generally, daily, except with
respect to PricewaterhouseCoopers LLP, which receives holdings semi-annually and as necessary in
connection with the services it provides to the Funds) to the following entities that provide
on-going services to the Funds in connection with their day-to-day operations and management,
provided that they agree or have a duty to maintain this information in confidence:
|
|
|
|
|
Name of Recipient |
|
Funds |
|
Purpose of Disclosure |
State Street Bank and Trust
Company
|
|
U.S. Equity Funds, Fixed
Income Funds, and Asset
Allocation Funds (other
than Alpha Only Fund)
|
|
Custodial services |
|
|
|
|
|
|
|
All Funds
|
|
Compliance testing |
|
|
|
|
|
Brown Brothers Harriman &
Co.
|
|
International Equity
Funds and Alpha Only Fund
|
|
Custodial services and
compliance testing |
133
|
|
|
|
|
Name of Recipient |
|
Funds |
|
Purpose of Disclosure |
|
|
U.S. Equity Funds
|
|
Compliance testing |
|
|
|
|
|
Boston Global Advisors
|
|
U.S. Equity Funds,
International Equity
Funds, and Fixed Income
Funds
|
|
Securities lending
services |
|
|
|
|
|
PricewaterhouseCoopers LLP
|
|
All Funds
|
|
Independent registered
public accounting firm |
|
|
|
|
|
Institutional Shareholder
Services Inc. (formerly
known as RiskMetrics Group,
Inc.)
|
|
All Funds
|
|
Corporate actions services |
|
|
|
|
|
Interactive Data Corporation
|
|
International Equity Funds
|
|
Fair value pricing |
|
|
|
|
|
FactSet
|
|
All Funds
|
|
Data service provider |
Senior management of GMO has authorized disclosure of Portfolio Holdings Information on an on-going
basis (daily) to the following recipients, provided that they agree or have a duty to maintain this
information in confidence and are limited to using the information for the specific purpose for
which it was provided:
|
|
|
|
|
Name of Recipient |
|
Funds |
|
Purpose of Disclosure |
|
|
|
|
|
Epstein & Associates, Inc.
|
|
All Funds
|
|
Software provider for Code
of Ethics monitoring system |
|
|
|
|
|
Financial Models Company Inc.
|
|
All Funds
|
|
Recordkeeping system |
134
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
The Trust, an open-end management investment company, 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, as amended and restated September 10, 2009, and as such Declaration of
Trust may be amended from time to time. A copy of the Declaration of Trust is on file with the
Secretary of The Commonwealth of Massachusetts. The Trust operates as a series investment
company that consists of separate series of investment portfolios, each of which is represented by
a separate series of shares of beneficial interest. Each Fund is a series of the Trust. The
fiscal year for each Fund ends on the last day of February.
Pursuant to the Declaration of Trust, the Trustees have currently authorized the issuance of an
unlimited number of full and fractional shares of sixty-eight series: Tobacco-Free Core Fund;
Quality Fund; Real Estate Fund; Tax-Managed U.S. Equities Fund; International Intrinsic Value Fund;
Currency Hedged International Equity Fund; Foreign Fund; Foreign Small Companies Fund;
International Small Companies Fund; Emerging Markets Fund; Emerging Countries Fund; Tax-Managed
International Equities Fund; Domestic Bond Fund; Core Plus Bond Fund; International Bond Fund;
Currency Hedged International Bond Fund; Global Bond Fund; Emerging Country Debt Fund;
Short-Duration Investment Fund; Alpha Only Fund; Benchmark-Free Allocation Fund; International
Equity Allocation Fund; Global Balanced Asset Allocation Fund; Global Equity Allocation Fund; U.S.
Equity Allocation Fund; Special Purpose Holding Fund; Short-Duration Collateral Fund; Taiwan Fund;
World Opportunity Overlay Fund; Alternative Asset Opportunity Fund; Strategic Opportunities
Allocation Fund; World Opportunities Equity Allocation Fund; Developed World Stock Fund; U.S.
Growth Fund; International Core Equity Fund; International Growth Equity Fund; U.S. Intrinsic Value
Fund; U.S. Small/Mid Cap Growth Fund; U.S. Small/Mid Cap Value Fund; U.S. Core Equity Fund;
Short-Duration Collateral Share Fund; Strategic Fixed Income Fund; International Opportunities
Equity Allocation Fund; Inflation Indexed Plus Bond Fund; Special Situations Fund; Flexible
Equities Fund; U.S. Treasury Fund; Asset Allocation Bond Fund; Arlington Fund; Berkeley Fund;
Clarendon Fund; Dartmouth Fund; Exeter Fund; Fairfield Fund; Gloucester Fund; Hereford Fund;
Ipswich Fund; St. James Fund; Asset Allocation International Bond Fund; World Opportunity Overlay
Share Fund; Debt Opportunities Fund; High Quality Short-Duration Bond Fund; Emerging Domestic
Opportunities Fund; Asset Allocation International Small Companies Fund; International Large/Mid
Cap Value Fund; Benchmark-Free Fund; International Intrinsic Value Extended Markets Fund; and
Global Focused Equity Fund.
Note that U.S. Core Equity Fund, U.S. Intrinsic Value Fund, U.S. Growth Fund, U.S. Small/Mid Cap
Value Fund, U.S. Small/Mid Cap Growth Fund, International Core Equity Fund, and International
Growth Equity Fund are successors to U.S. Core Fund, Intrinsic Value Fund, Growth Fund, Small/Mid
Cap Value Fund, Small/Mid Cap Growth Fund, International Disciplined Equity Fund, and International
Growth Fund, respectively (each, a Predecessor Fund). Each Predecessor Fund is a former series
of GMO Trust.
Interests in each portfolio (GMO 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 GMO Fund. The shares of such series do not have any preemptive
135
rights.
Upon liquidation of a GMO Fund, shareholders of the corresponding series are entitled to share pro
rata in the net assets of the GMO Fund available for distribution to shareholders. The Declaration
of Trust also permits the Trustees to charge shareholders directly for custodial, transfer agency,
and servicing expenses, but the Trustees have 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 effect of any future regulatory requirements that might
affect various classes of shareholders differently. The Trustees have currently authorized the
establishment and designation of up to nine classes of shares for each series of the Trust: Class I
Shares, Class II Shares, Class III Shares, Class IV Shares, Class V Shares, Class VI Shares, Class
VII Shares, Class VIII Shares, and Class M Shares.
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.
On June 2, 2011, the following shareholders held beneficially (unless otherwise indicated) greater
than 25% of the outstanding shares of a Fund offered in the Prospectuses. For each shareholder
listed that is not an individual, the jurisdiction under the laws of which the shareholder is
organized (if applicable) and any parent company of the shareholder are listed, if known:
|
|
|
|
|
|
|
|
|
|
|
Jurisdiction |
|
Parent |
Fund* |
|
Shareholders |
|
of Organization |
|
Company |
GMO Tobacco-Free
Core Fund
|
|
Council for World Mission
Ipalo House 32-34 Great Peter Street
London, SWIP 2DB
United Kingdom
|
|
England and Wales
|
|
N/A |
|
|
|
|
|
|
|
GMO Domestic Bond
Fund
|
|
Asset Allocation Trust
C/O Wells Fargo Funds Management
200 Berkeley Street
21st Floor, Fund Administration
Boston, MA 02116
|
|
DE
|
|
N/A |
136
|
|
|
|
|
|
|
|
|
|
|
Jurisdiction |
|
Parent |
Fund* |
|
Shareholders |
|
of Organization |
|
Company |
|
|
|
|
|
|
|
GMO Inflation
Indexed Plus Bond
Fund
|
|
Mayo Foundation Retirement Trust
200 First Street SW
Rochester, MN 55905
|
|
MN
|
|
N/A |
|
|
|
|
|
|
|
|
|
Mac & Co. FBO
Bell Atlantic Master Trust
P.O. Box 3198
525 William Penn Place
Pittsburgh, PA 15230
|
|
PA
|
|
N/A |
|
|
|
|
|
|
|
GMO Currency Hedged
International
Equity Fund
|
|
GMO Benchmark-Free Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
MA
|
|
N/A |
|
|
|
|
|
|
|
GMO Real Estate Fund
|
|
Mac & Co. FBO Princeton
P.O. Box 534005
Pittsburgh, PA 15253
|
|
N/A
|
|
N/A |
|
|
|
|
|
|
|
GMO Tax-Managed
U.S. Equity Fund
|
|
SEI Private Trust
C/O Mellon Bank FBO Princeton
One Freedom Valley Drive
Oaks, PA 19456
|
|
NJ
|
|
N/A |
|
|
|
|
|
|
|
GMO Tax-Managed
U.S. Equity Fund
|
|
Smith, Vicars Investments, LLC
1 Boars Head Pointe Suite 150
Charlottesville, VA 22903
|
|
VA
|
|
Smith, Vicars &
Company, LLC |
|
|
|
|
|
|
|
GMO Core Plus Bond
Fund
|
|
The Northern Trust Company FBO
Mayo
Foundation
P.O. Box 92956
Chicago, IL 60675
|
|
MN
|
|
N/A |
|
|
|
|
|
|
|
GMO Developed World
Stock Fund
|
|
Dow Employees Pension Plan
1320 Waldo Avenue
Dorinco 100
Midland, MI 48642
|
|
DE
|
|
N/A |
|
|
|
|
|
|
|
GMO Alpha Only Fund
|
|
Asset Allocation Trust
C/O Wells Fargo Funds Management
200 Berkeley Street
21st Floor, Fund Administration
Boston, MA 02116
|
|
DE
|
|
N/A |
|
|
|
|
|
|
|
|
|
GMO Benchmark-Free Allocation Fund
|
|
M/A
|
|
N/A |
|
|
C/O GMO LLC |
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
Jurisdiction |
|
Parent |
Fund* |
|
Shareholders |
|
of Organization |
|
Company |
|
|
40 Rowes Wharf |
|
|
|
|
|
|
Boston, MA 02110 |
|
|
|
|
|
|
|
|
|
|
|
GMO Strategic Fixed
Income Fund
|
|
Asset Allocation Trust
C/O Wells Fargo Funds Management
200 Berkeley Street
21st Floor, Fund Administration
Boston, MA 02116
|
|
DE
|
|
N/A |
|
|
|
|
|
|
|
GMO U.S. Intrinsic
Value Fund
|
|
Hopke Partnership
7422 Hampden Lane
Bethesda, MD 20814
|
|
MD
|
|
N/A |
|
|
|
|
|
|
|
GMO U.S. Equity
Allocation Fund
|
|
The Board of Trustees of
The University of Illinois
209 Henry Administration Building
506 South Wright Street
Urbana, IL 61801
|
|
N/A
|
|
N/A |
|
|
|
|
|
|
|
|
|
The Retirement Plan for Employees of
Millipore Corporation
290 Concord Road
Billerica, MA 01821
|
|
MA
|
|
N/A |
|
|
|
|
|
|
|
GMO Currency Hedged
International Bond
Fund
|
|
Teachers Retirement System of the
City of New York
55 Water Street 16th Floor
New York, NY 10041
|
|
NY
|
|
N/A |
|
|
|
|
|
|
|
GMO Asset
Allocation Bond
Fund
|
|
GMO Benchmark-Free Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
MA
|
|
N/A |
|
|
|
|
|
|
|
GMO International
Bond Fund
|
|
University of Southern California
851 Downey Way
Los Angeles, CA 90089
|
|
CA
|
|
N/A |
|
|
|
|
|
|
|
GMO Short-Duration
Collateral Share
Fund
|
|
Thomas F. Cooper
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
N/A
|
|
N/A |
|
|
William L. Nemerever
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
N/A
|
|
N/A |
138
|
|
|
|
|
|
|
|
|
|
|
Jurisdiction |
|
Parent |
Fund* |
|
Shareholders |
|
of Organization |
|
Company |
|
|
|
|
|
|
|
GMO Short-Duration
Investment Fund
|
|
GMO Global Balanced Asset Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
MA
|
|
N/A |
|
|
|
|
|
|
|
GMO U.S. Growth Fund
|
|
Quality Vision International Inc.
850 Hudson Avenue
Rochester, NY 14621
|
|
NY
|
|
N/A |
|
|
|
|
|
|
|
GMO Global Bond Fund
|
|
Mars Pension Trustees Ltd.
Discretionary Mandate
3D Dundee Road
Slough, Berkshire, SL14G
United Kingdom
|
|
England and Wales
|
|
N/A |
|
|
|
|
|
|
|
GMO Emerging
Domestic
Opportunities Fund
|
|
Roger L. Hungerford
10000 Mountain Rd.
Middleport, NY 14105
|
|
N/A
|
|
N/A |
|
|
|
|
|
|
|
GMO U.S. Treasury
Fund
|
|
GMO Special Situation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
MA
|
|
N/A |
|
|
|
|
|
|
|
|
|
GMO Strategic Fixed Income Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
MA
|
|
N/A |
|
|
|
|
|
|
|
GMO Short-Duration
Collateral Fund
|
|
GMO Strategic Fixed Income Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
MA
|
|
N/A |
|
|
|
|
|
|
|
GMO Taiwan Fund
|
|
Pension Reserves Investment Trust
84 State Street, Suite 250
Boston, MA 02109
|
|
MA
|
|
N/A |
|
|
|
|
|
|
|
|
|
State of Connecticut Retirement Plans
|
|
CT
|
|
N/A |
|
|
and Trust Funds
55 Elm street
Hartford, CT 06106 |
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
Jurisdiction |
|
Parent |
Fund* |
|
Shareholders |
|
of Organization |
|
Company |
|
|
|
|
|
|
|
GMO Flexible
Equities Fund
|
|
Asset Allocation Trust
C/O Wells Fargo Funds Management
200 Berkley Street
21st Floor, Fund Administration
Boston, MA 02116
|
|
MA
|
|
N/A |
|
|
|
|
|
|
|
GMO Strategic
Opportunities
Allocation Fund
|
|
South Carolina Retirement System
202 Arbor Lake Drive
Columbia, SC 29223
|
|
SC
|
|
N/A |
|
|
|
|
|
|
|
GMO Emerging
Countries Fund
|
|
Fidelity Investments Institutional
Operations Company as agent for Certain
Employee Benefit Plans
100 Magellan Way
Covington, KY 41015
|
|
N/A
|
|
N/A |
|
|
|
|
|
|
|
GMO U.S. Core
Equity Fund
|
|
The National Rural Electric Cooperative
Association
4301 Wilson Boulevard
Arlington, VA 22203
|
|
VA
|
|
N/A |
|
|
|
* |
|
International Large/Mid Cap Value Fund, Asset Allocation International Small Companies Fund,
Asset Allocation International Bond Fund, International Intrinsic Value Extended Markets Fund and
Global Focused Equity Fund will commence operations on or following the date of this SAI, and,
therefore, have not yet offered any shares for sale as of this date. |
As a result, such shareholders may be deemed to control their respective series as such term
is defined in the 1940 Act.
Shareholders should be aware that to the extent a shareholders investment in a Fund exceeds
certain threshold amounts or percentages, the investment may constitute a reportable acquisition
under the Hart-Scott-Rodino Act (HSR) and the shareholder may be required to make a corresponding
filing under HSR. HSR regulations are complex and shareholders should consult their legal advisers
about the precise HSR filing consequences of an investment in a Fund.
As of June 7, 2011, greater than 10% of the following Funds shares were held by accounts for which
the Manager has investment discretion: Core Plus Bond Fund, Emerging Country Debt Fund, Emerging
Markets Fund, International Bond Fund, International Core Equity Fund, Quality Fund, and World
Opportunities Equity Allocation Fund. As of June 7, 2011, a significant portion of the following
Funds shares were held by accounts for which the Manager has investment discretion: Global Bond
Fund, Inflation Indexed Plus Bond Fund, International Intrinsic Value Fund, Real Estate Fund,
Short-Duration Investment Fund, U.S. Core Equity Fund, and U.S. Small/Mid Cap Value Fund. As of
June 7, 2011, substantially all of the following Funds shares were held by accounts for which the
Manager has investment discretion: Alpha Only Fund, Asset Allocation Bond Fund, Benchmark-Free
Allocation Fund, Currency Hedged International Bond Fund, Currency Hedged International Equity
Fund, Domestic Bond Fund, Flexible Equities Fund, International Growth Equity Fund, Short-Duration
Collateral
140
Fund, Strategic Fixed Income Fund, Strategic Opportunities Allocation Fund, Taiwan Fund,
U.S. Small/Mid Cap Growth Fund, and U.S. Treasury Fund.
MULTIPLE CLASSES AND MINIMUM INVESTMENTS
The Manager makes all decisions relating to aggregation of accounts for purposes of determining
eligibility for a Fund or the various classes of shares offered by a Fund, as the case may be.
When making decisions regarding whether accounts should be aggregated because they are part of a
larger client relationship, the Manager considers several factors including, but not limited to,
whether: the multiple accounts are for one or more subsidiaries of the same parent company; the
multiple accounts have the same beneficial owner regardless of the legal form of ownership; the
investment mandate is the same or substantially similar across the relationship; the asset
allocation strategies are substantially similar across the relationship; GMO reports to the same
investment board; the consultant is the same for the entire relationship; GMO services the
relationship through a single GMO relationship manager; the relationships have substantially
similar reporting requirements; and/or the relationship can be serviced from a single geographic
location.
VOTING RIGHTS
Shareholders are entitled to one vote for each full share held (with fractional votes for
fractional shares held) and to vote by individual Fund (to the extent described below) 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
1940 Act, shares are voted in the aggregate and not by individual Fund, and (ii) when the Trustees
have determined that the matter affects the interests of more than one Fund, then shareholders of
the affected Funds are entitled to vote. Shareholders of one Fund are not entitled to vote on
matters exclusively affecting another Fund including, without limitation, such matters as the
adoption of or change in the investment objectives, policies, or restrictions of the other Fund and
the approval of the investment advisory contract of the other Fund. Shareholders of a particular
class of shares do not have separate class voting rights except for matters that affect only that
class of shares and as otherwise required by law.
Normally the Trust does not hold meetings of shareholders to elect Trustees except 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 Trusts custodian
or by a vote of the holders of two-thirds of the outstanding shares at a meeting duly called for
that 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
141
forth above, the Trustees will continue to hold office and may appoint successor Trustees. Voting
rights are not cumulative.
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 Trusts 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 some 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 that 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 a Fund for all
loss and expense of any shareholder of the 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 limited to circumstances in which the disclaimer is inoperative and the Fund in which
the shareholder holds shares is 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 for 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. Trustees and officers may not be indemnified against any liability to the
Trust or the Trust shareholders to which they would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of their office.
142
BENEFICIAL OWNERS OF 5% OR MORE OF THE FUNDS SHARES
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Tobacco-Free Core Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Council for World Mission |
|
|
89.2 |
|
IPALO House 32-34 Great Peter Street |
|
|
|
|
London, SWIP 2DB |
|
|
|
|
United Kingdom |
|
|
|
|
|
|
|
|
|
Periodic Partners I, LP |
|
|
5.7 |
|
Corporate Secretary |
|
|
|
|
P.O. Box 29550 |
|
|
|
|
San Francisco, CA 94129 |
|
|
|
|
|
|
|
|
|
Dana Hall School |
|
|
5.0 |
|
45 Dana Rd. |
|
|
|
|
Wellesley, MA 02482 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Real Estate Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Mac & Co. FBO Princeton |
|
|
75.5 |
|
P.O. Box 534005 |
|
|
|
|
Pittsburgh, PA 15253 |
|
|
|
|
|
|
|
|
|
Batterymarch Trust II Investments in GMO Funds |
|
|
20.2 |
|
63 Samoset Street |
|
|
|
|
S. Weymouth, MA 02190 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Tax-Managed U.S. Equities Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Smith, Vicars Investments, LLC |
|
|
35.0 |
|
1 Boars Head Pointe Suite 150 |
|
|
|
|
Charlottesville, VA 22903 |
|
|
|
|
|
|
|
|
|
SEI Private Trust |
|
|
29.9 |
|
C/O Mellon Bank FBO Princeton |
|
|
|
|
One Freedom Valley Drive |
|
|
|
|
Oaks, PA 19456 |
|
|
|
|
143
|
|
|
|
|
Name and Address |
|
% Ownership |
Laurance Hoagland Jr., Susan Briggs and Murray B. Dey |
|
|
12.9 |
|
Trustees of the Trust under |
|
|
|
|
the Will of Flora L. Hewlett 10/5/77 |
|
|
|
|
Los Trancos Management |
|
|
|
|
545 Middlefield Rd. Suite 170 |
|
|
|
|
Menlo Park, CA 94025 |
|
|
|
|
|
|
|
|
|
Richard B. Cheney & Lynn V. Cheney |
|
|
12.3 |
|
Trustees for the Cheney Living Trust |
|
|
|
|
3465 North Pines Way, 25192 |
|
|
|
|
Wilson, WY 83014 |
|
|
|
|
|
|
|
|
|
John D. Alexander Jr. |
|
|
6.2 |
|
700 North St Marys Suite 1200 |
|
|
|
|
Groves Alexander Group LLC |
|
|
|
|
San Antonio, TX 78205 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class II Shares of
the International Intrinsic Value Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
|
|
|
|
|
Mt. Cuba Center, Inc. |
|
|
10.9 |
|
100 West 10th Street, Suite 1109 |
|
|
|
|
Wilmington, DE 19801 |
|
|
|
|
|
|
|
|
|
Bank of New York as Trustee for Hilton Hotels Corporation |
|
|
9.9 |
|
111 Sanders Creek Parkway |
|
|
|
|
Client Services - 2nd Floor |
|
|
|
|
East Syracuse, NY 13057 |
|
|
|
|
|
|
|
|
|
Sisters of the Holy Cross Inc. |
|
|
9.5 |
|
313 Bertrand Hall Saint Marys |
|
|
|
|
Notre Dame, IN 46556 |
|
|
|
|
|
|
|
|
|
Sisters of Mercy of North Carolina Foundation Inc. |
|
|
9.1 |
|
2115 Rexford Road, Suite 401 |
|
|
|
|
Charlotte, NC 28211 |
|
|
|
|
|
|
|
|
|
SEI Private Trust Company FBO M&T Bank |
|
|
8.9 |
|
One Freedom Valley Drive |
|
|
|
|
Oaks, PA 19456 |
|
|
|
|
|
|
|
|
|
Canadian Blood Services Defined Benefit |
|
|
8.0 |
|
Pension Plan Board of Trustees |
|
|
|
|
1800 Alta Vista Dr. |
|
|
|
|
Ottawa, ON K1G 4J5 |
|
|
|
|
|
|
|
|
|
Mac & Co. |
|
|
6.2 |
|
P.O. Box 3198 |
|
|
|
|
Pittsburgh, PA 15230 |
|
|
|
|
144
|
|
|
|
|
Name and Address |
|
% Ownership |
The Rector Church Warden & Vestrymen |
|
|
5.3 |
|
of Trinity Church |
|
|
|
|
74 Trinity Place, 22nd Floor |
|
|
|
|
New York, NY 10006 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the International Intrinsic Value Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Goldman Sachs & Co. Profit Sharing Trust |
|
|
9.6 |
|
C/O State Street Bank and Trust |
|
|
|
|
180 Maiden Lane 24th Floor |
|
|
|
|
New York, NY 10038 |
|
|
|
|
|
|
|
|
|
Charles Schwab & Co. Inc. |
|
|
7.9 |
|
Special Custody Account for Exclusive Benefit of Customers |
|
|
|
|
101 Montgomery Street |
|
|
|
|
San Francisco, CA 94104 |
|
|
|
|
|
|
|
|
|
Fidelity Management Trust Company FBO |
|
|
6.0 |
|
The Air Products And Chemicals Inc. |
|
|
|
|
Salaried and Hourly Defined Benefit Plans Trust |
|
|
|
|
82 Devonshire Street 27M |
|
|
|
|
Boston, MA 02109 |
|
|
|
|
|
|
|
|
|
City of Phoenix Employees Retirement System |
|
|
5.4 |
|
101 South Central Ave Suite 600 |
|
|
|
|
Phoenix, AZ 85004 |
|
|
|
|
|
|
|
|
|
Milwaukee County Employees Retirement System |
|
|
5.0 |
|
C/O Mellon Trust |
|
|
|
|
135 Santilli Highway |
|
|
|
|
Everett, MA 02149 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class IV Shares of
the International Intrinsic Value Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
GMO Alpha Only Fund |
|
|
15.7 |
|
C/O GMO LLC |
|
|
|
|
40 Rowes Wharf |
|
|
|
|
Boston, MA 02110 |
|
|
|
|
145
|
|
|
|
|
Name and Address |
|
% Ownership |
GMO International Equity Allocation Fund |
|
|
12.5 |
|
C/O GMO LLC |
|
|
|
|
40 Rowes Wharf |
|
|
|
|
Boston, MA 02110 |
|
|
|
|
|
|
|
|
|
GMO International Opportunities Equity Allocation Fund |
|
|
10.3 |
|
C/O GMO LLC |
|
|
|
|
40 Rowes Wharf |
|
|
|
|
Boston, MA 02110 |
|
|
|
|
|
|
|
|
|
Asset Allocation Trust |
|
|
8.5 |
|
C/O Wells Fargo Funds Management |
|
|
|
|
200 Berkeley Street |
|
|
|
|
21st Floor, Fund Administration |
|
|
|
|
Boston, MA 02116 |
|
|
|
|
|
|
|
|
|
GMO World Opportunities Equity Allocation Fund |
|
|
8.4 |
|
C/O GMO LLC |
|
|
|
|
40 Rowes Wharf |
|
|
|
|
Boston, MA 02110 |
|
|
|
|
|
|
|
|
|
GMO Strategic Opportunities Allocation Fund |
|
|
8.3 |
|
C/O GMO LLC |
|
|
|
|
40 Rowes Warf |
|
|
|
|
Boston, Ma 02110 |
|
|
|
|
|
|
|
|
|
Contra Costa County Employees Retirement Association |
|
|
7.6 |
|
1355 Willow Way Suite 221 |
|
|
|
|
Concord, CA 94520 |
|
|
|
|
|
|
|
|
|
Workers Compensation Board of Nova Scotia |
|
|
6.0 |
|
5668 South Street |
|
|
|
|
Halifax, Nova Scotia, B3J2Y2 |
|
|
|
|
Canada |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Alpha Only Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Maximilian E. & Marion O. Hoffman Foundation |
|
|
28.5 |
|
970 Farmington Ave, Suite 203 |
|
|
|
|
West Hartford, CT 06107 |
|
|
|
|
|
|
|
|
|
Emerson Electric Company Retirement Master Trust |
|
|
26.8 |
|
8000 W. Florissant Ave. |
|
|
|
|
P.O. Box 4100 |
|
|
|
|
Saint Louis, MO 63136 |
|
|
|
|
146
|
|
|
|
|
Name and Address |
|
% Ownership |
Northern Trust Company as Custodian for the |
|
|
14.3 |
|
William and Mary Investment Trust |
|
|
|
|
P.O. Box 92956 |
|
|
|
|
Chicago, IL 60675 |
|
|
|
|
|
|
|
|
|
Stupski Foundation |
|
|
8.5 |
|
101 2nd Street, Suite 1100 |
|
|
|
|
San Francisco, CA 94105 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class IV Shares of
the Alpha Only Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Asset Allocation Trust |
|
|
9.7 |
|
C/O Wells Fargo Funds Management |
|
|
|
|
200 Berkeley Street |
|
|
|
|
21st Floor, Fund Administration |
|
|
|
|
Boston, MA 02116 |
|
|
|
|
|
|
|
|
|
GMO Benchmark-Free Allocation Fund |
|
|
30.0 |
|
C/O GMO LLC |
|
|
|
|
40 Rowes Wharf |
|
|
|
|
Boston, MA 02110 |
|
|
|
|
|
|
|
|
|
GMO Global Balanced Asset Allocation Fund |
|
|
22.4 |
|
C/O GMO LLC |
|
|
|
|
40 Rowes Wharf |
|
|
|
|
Boston, MA 02110 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class II Shares of
the Foreign Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
The American University in Cairo |
|
|
9.2 |
|
420 Fifth Avenue, 3rd Floor |
|
|
|
|
New York, New York 10018 |
|
|
|
|
|
|
|
|
|
Mac & Co. FBO Carleton College |
|
|
7.8 |
|
P.O. Box 3198 |
|
|
|
|
525 William Penn Place |
|
|
|
|
Pittsburgh, PA 15230 |
|
|
|
|
147
|
|
|
|
|
Name and Address |
|
% Ownership |
Gundersen Lutheran Administrative Services, Inc., |
|
|
7.2 |
|
individually and as agent for Gundersen Clinic, Ltd. &
Gundersen Lutheran Medical Center, Inc. |
|
|
|
|
1900 South Avenue |
|
|
|
|
La Crosse, WI 54601 |
|
|
|
|
|
|
|
|
|
Mac & Co. FBO Texas Childrens Hospital Cash Balance |
|
|
6.0 |
|
P.O. Box 3198 |
|
|
|
|
525 William Penn Place |
|
|
|
|
Pittsburgh, PA 15230 |
|
|
|
|
|
|
|
|
|
AAA East Central FBO Saxon & Co. |
|
|
5.7 |
|
8800 Tinicum Blvd |
|
|
|
|
Philadelphia, PA 19182 |
|
|
|
|
|
|
|
|
|
Keybank NA FBO LL Bean Inc. Pension Plan |
|
|
5.4 |
|
P.O. Box 94872 |
|
|
|
|
Cleveland, OH 44101 |
|
|
|
|
|
|
|
|
|
Reach Healthcare Foundation |
|
|
5.4 |
|
6700 Antioch Suite 200 |
|
|
|
|
Merriam, KS 66204 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Foreign Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
The J. Paul Getty Trust |
|
|
7.7 |
|
1200 Getty Center Drive, Suite 400 |
|
|
|
|
Los Angeles, CA 90049 |
|
|
|
|
|
|
|
|
|
The Kansas University Endowment Association |
|
|
6.8 |
|
P.O. Box 928 |
|
|
|
|
Lawrence, KS 66044 |
|
|
|
|
|
|
|
|
|
Northern Trust as Custodian FBO Annenberg Foundation |
|
|
6.8 |
|
P.O. Box 92956 |
|
|
|
|
Chicago, IL 60675 |
|
|
|
|
|
|
|
|
|
Ohio Health Corporation |
|
|
6.3 |
|
180 E. Broad St., Floor 32 |
|
|
|
|
Columbus, OH 43215 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class IV Shares of
the Foreign Fund as of June 2, 2011:
148
|
|
|
|
|
Name and Address |
|
% Ownership |
Nebraska Investment Council |
|
|
72.0 |
|
941 O Street, Suite 500 |
|
|
|
|
Lincoln, NE 68508 |
|
|
|
|
|
|
|
|
|
The Glenmede Trust Company as Trustee of the |
|
|
13.7 |
|
PEW Memorial Trust |
|
|
|
|
1650 Market Street, Suite 1200 |
|
|
|
|
Philadelphia, PA 19103 |
|
|
|
|
|
|
|
|
|
State Street Bank & Trust Company FBO |
|
|
5.5 |
|
Pinnacle West Capital Corporation Other |
|
|
|
|
Retirement Employee Benefit Trust |
|
|
|
|
2 Avenue De Lafayette |
|
|
|
|
Boston, MA 02111 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Foreign Small Companies Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Caisse de Retraite DHydro Quebec |
|
|
31.4 |
|
75 Rene-Levesque Blvd. West, 5th Floor |
|
|
|
|
Montreal, Quebec, H2Z 1A4 |
|
|
|
|
Canada |
|
|
|
|
|
|
|
|
|
Merck & Co. Inc. Master Retirement Trust |
|
|
29.8 |
|
One Merck Drive |
|
|
|
|
Whitehouse Station, NJ 08889 |
|
|
|
|
|
|
|
|
|
San Diego City Employees Retirement System |
|
|
23.2 |
|
401 A Street, Suite 400 |
|
|
|
|
San Diego, CA 92101 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class IV Shares of
the Foreign Small Companies Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Mac & Co. FBO Verizon FORS |
|
|
46.4 |
|
P.O. Box 3198 |
|
|
|
|
525 William Penn Place |
|
|
|
|
Pittsburgh, PA 15230 |
|
|
|
|
|
|
|
|
|
The Glenmede Trust Company as Trustee of the |
|
|
34.9 |
|
Pew Memorial Trust |
|
|
|
|
1650 Market Street, Suite 1200 |
|
|
|
|
Philadelphia, PA 19103 |
|
|
|
|
149
|
|
|
|
|
Name and Address |
|
% Ownership |
The Glenmede Trust Company as Trustee of the |
|
|
7.2 |
|
J. Howard PEW Freedom Trust |
|
|
|
|
1650 Market Street, Suite 1200 |
|
|
|
|
Philadelphia, PA 19103 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the International Small Companies Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Utah State Retirement Investment Fund |
|
|
20.5 |
|
540 East 200 South |
|
|
|
|
Salt Lake City, UT 84102 |
|
|
|
|
|
|
|
|
|
Milwaukee County Employees Retirement System |
|
|
16.5 |
|
C/O Mellon Trust |
|
|
|
|
135 Santilli Highway |
|
|
|
|
Everett, MA 02149 |
|
|
|
|
|
|
|
|
|
Anne Arundel County Retirement & Pension |
|
|
11.4 |
|
Systems/Anne Arundel County Maryland |
|
|
|
|
44 Calvert Street |
|
|
|
|
Annapolis, MD 21401 |
|
|
|
|
|
|
|
|
|
Meadwestvaco Corporation Master Retirement Trust |
|
|
6.8 |
|
299 Park Avenue |
|
|
|
|
New York, NY 10171 |
|
|
|
|
|
|
|
|
|
The Annie Casey Foundation |
|
|
6.7 |
|
701 St Paul Street |
|
|
|
|
Baltimore, MD 21202 |
|
|
|
|
|
|
|
|
|
State University of Iowa Foundation |
|
|
6.0 |
|
P.O. Box 4550 |
|
|
|
|
One West Park Road |
|
|
|
|
Iowa City, IA 52244 |
|
|
|
|
150
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Emerging Markets Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Northern Trust Global Advisors Inc. as named fiduciary of the |
|
|
7.7 |
|
Central States Southeast & Southwest Areas Pension Plan |
|
|
|
|
300 Atlantic Street, Suite 400 |
|
|
|
|
Stamford, CT 06901 |
|
|
|
|
|
|
|
|
|
The William and Flora Hewlett Foundation |
|
|
7.7 |
|
2121 Sand Hill Road |
|
|
|
|
Menlo Park, CA 94025 |
|
|
|
|
|
|
|
|
|
Mac & Co. |
|
|
5.3 |
|
P.O. Box 3198 |
|
|
|
|
525 William Penn Place |
|
|
|
|
Pittsburgh, PA 15230 |
|
|
|
|
|
|
|
|
|
Investment Emerging Markets Fund, LP |
|
|
5.1 |
|
126 Garrett Street, Suite J |
|
|
|
|
Charlottesville, VA 22902 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class IV Shares of
the Emerging Markets Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Leland Stanford Junior University II-AA |
|
|
13.8 |
|
Stanford Management Company |
|
|
|
|
2770 Sand Hill Road |
|
|
|
|
Menlo Park, CA 94025 |
|
|
|
|
|
|
|
|
|
Missouri State Employees Retirement System |
|
|
10.4 |
|
907 Wildwood Drive |
|
|
|
|
P.O. Box 209 |
|
|
|
|
Jefferson City, MO 65102 |
|
|
|
|
|
|
|
|
|
Strategic Advisors Emerging Markets Fund |
|
|
8.9 |
|
82 Devonshire Street |
|
|
|
|
Boston, MA 02109 |
|
|
|
|
|
|
|
|
|
SEI Private Trust FBO Searle Family |
|
|
8.4 |
|
One Freedom Valley Drive |
|
|
|
|
Oaks, PA 19456 |
|
|
|
|
|
|
|
|
|
The Washington University |
|
|
7.5 |
|
Attn: Alternative Equity |
|
|
|
|
7425 Forsyth Boulevard Campus Box 1047 |
|
|
|
|
St Louis, MO 63105 |
|
|
|
|
151
|
|
|
|
|
Name and Address |
|
% Ownership |
The Church Pension Fund |
|
|
5.3 |
|
445 Fifth Avenue |
|
|
|
|
New York, NY 10016 |
|
|
|
|
|
|
|
|
|
State Street Bank & Trust Co. as Trustee for the |
|
|
5.0 |
|
J.C. Penney Corp Pension Plan Trust |
|
|
|
|
Lafayette Corporate Center |
|
|
|
|
2 Avenue De Lafayette |
|
|
|
|
Boston, MA 02111 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class V Shares of
the Emerging Markets Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
International Paper Retirement Plans Master Trust |
|
|
29.1 |
|
400 Atlantic Street |
|
|
|
|
Stamford, CT 06921 |
|
|
|
|
|
|
|
|
|
The Regents of the University of California |
|
|
23.8 |
|
1111 Broadway Suite 1400 |
|
|
|
|
Oakland, CA 94607 |
|
|
|
|
|
|
|
|
|
The Northern Trust Company FBO Mayo Foundation |
|
|
15.4 |
|
P.O. Box 92956 |
|
|
|
|
Chicago, IL 60675 |
|
|
|
|
|
|
|
|
|
Ontario Power Generation Inc. |
|
|
13.0 |
|
700 University Avenue |
|
|
|
|
18th Floor Treasury |
|
|
|
|
Toronto, Ontario, M5G 1X6 |
|
|
|
|
Canada |
|
|
|
|
|
|
|
|
|
Ontario Power Generation Inc. |
|
|
11.5 |
|
700 University Avenue |
|
|
|
|
18th Floor Treasury |
|
|
|
|
Toronto, Ontario, M5G 1X6 |
|
|
|
|
Canada |
|
|
|
|
|
|
|
|
|
The Northern Trust Company FBO Mayo Foundation |
|
|
7.2 |
|
P.O. Box 92956 |
|
|
|
|
Chicago, IL 60675 |
|
|
|
|
152
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class VI Shares of
the Emerging Markets Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Virginia Retirement System |
|
|
18.1 |
|
P.O. Box 2500 |
|
|
|
|
Richmond, VA 23218 |
|
|
|
|
|
|
|
|
|
Asset Allocation Trust |
|
|
16.2 |
|
C/O Wells Fargo Funds Management |
|
|
|
|
200 Berkeley Street |
|
|
|
|
21st Floor, Fund Administration |
|
|
|
|
Boston, MA 02116 |
|
|
|
|
|
|
|
|
|
Washington State Investment Board |
|
|
9.7 |
|
P.O. Box 40916 |
|
|
|
|
2100 Evergreen Park Dr. SW |
|
|
|
|
Olympia, WA 98504 |
|
|
|
|
|
|
|
|
|
GMO Global Balanced Asset Allocation Fund |
|
|
7.1 |
|
C/O GMO LLC |
|
|
|
|
40 Rowes Wharf |
|
|
|
|
Boston, MA 02110 |
|
|
|
|
|
|
|
|
|
State Street Bank and Trust as Trustee for the |
|
|
6.5 |
|
Northrop Grumman Pension Master Trust |
|
|
|
|
Lafayette Corporate Center |
|
|
|
|
2 Avenue de Lafayette |
|
|
|
|
Boston, MA 02111 |
|
|
|
|
|
|
|
|
|
GMO International Equity Allocation Fund |
|
|
5.8 |
|
C/O GMO LLC |
|
|
|
|
40 Rowes Wharf |
|
|
|
|
Boston, MA 02110 |
|
|
|
|
|
|
|
|
|
GMO Benchmark-Free Allocation Fund |
|
|
5.6 |
|
C/O GMO LLC |
|
|
|
|
40 Rowes Wharf |
|
|
|
|
Boston, MA 02110 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Emerging Countries Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Fidelity Investments Institutional Operations Company |
|
|
30.8 |
|
as Agent for Certain Employee Benefit Plans |
|
|
|
|
100 Magellan Way |
|
|
|
|
Covington, KY 41015 |
|
|
|
|
153
|
|
|
|
|
Name and Address |
|
% Ownership |
Trust Company of Illinois |
|
|
20.7 |
|
1901 Butterfield Road, Suite 1000 |
|
|
|
|
Downers Grove, IL 60515 |
|
|
|
|
|
|
|
|
|
Wells Fargo Bank NA FBO NPPD Emerging Markets Fund |
|
|
10.1 |
|
P.O. Box 1533 |
|
|
|
|
733 Marquette Ave. |
|
|
|
|
Minneapolis, MN 55480 |
|
|
|
|
|
|
|
|
|
Mac & Co. |
|
|
7.2 |
|
P.O. Box 3198 |
|
|
|
|
525 William Penn Place |
|
|
|
|
Pittsburgh, PA 15230 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Tax-Managed International Equities Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Hugheson Limited |
|
|
11.5 |
|
1200 McGill College Avenue, Suite 1720 |
|
|
|
|
Montreal, Quebec, H3B 4G7 |
|
|
|
|
Canada |
|
|
|
|
|
|
|
|
|
Northern Trust Company FBO |
|
|
11.0 |
|
The Cheyne Walk Trust |
|
|
|
|
P.O. Box 92956 |
|
|
|
|
Chicago, IL 60675 |
|
|
|
|
|
|
|
|
|
The Northern Trust FBO Mars Benefit Trust |
|
|
9.0 |
|
P.O. Box 92956 |
|
|
|
|
Chicago, IL 60675 |
|
|
|
|
|
|
|
|
|
Dumaines |
|
|
5.4 |
|
C/O Gerard J. Sarnie CPA |
|
|
|
|
201 Devonshire Street, 4th Floor |
|
|
|
|
Boston, MA 02110 |
|
|
|
|
|
|
|
|
|
Jeffrey LLC |
|
|
5.2 |
|
C/O The Jeffrey Company |
|
|
|
|
88 East Broad Street |
|
|
|
|
Columbus, OH 43215 |
|
|
|
|
154
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Domestic Bond Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Teachers Retirement System of the City of New York |
|
|
85.3 |
|
55 Water Street 16th Floor |
|
|
|
|
New York, NY 10041 |
|
|
|
|
|
|
|
|
|
Municipal Fire & Police Retirement System of Iowa |
|
|
9.3 |
|
7155 Lake Drive, Suite 201 |
|
|
|
|
West Des Moines, IA 50266 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class VI Shares of
the Domestic Bond Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Asset Allocation Trust |
|
|
63.6 |
|
C/O Wells Fargo Funds Management |
|
|
|
|
200 Berkeley Street |
|
|
|
|
21st Floor, Fund Administration |
|
|
|
|
Boston, MA 02116 |
|
|
|
|
|
|
|
|
|
GMO Global Balanced Asset Allocation Fund |
|
|
27.0 |
|
C/O GMO LLC |
|
|
|
|
40 Rowes Wharf |
|
|
|
|
Boston, MA 02110 |
|
|
|
|
|
|
|
|
|
GMO Strategic Opportunities Allocation Fund |
|
|
6.8 |
|
C/O GMO LLC |
|
|
|
|
40 Rowes Wharf |
|
|
|
|
Boston, MA 02110 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Core Plus Bond Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Kansas City, Missouri Employees Retirement System |
|
|
97.7 |
|
City Hall, 414 E. 12th Street, 12th Floor |
|
|
|
|
Kansas City, MO 64106 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class IV Shares of
the Core Plus Bond Fund as of June 2, 2011:
155
|
|
|
|
|
Name and Address |
|
% Ownership |
The Northern Trust Company FBO Mayo Foundation |
|
|
41.5 |
|
P.O. Box 92956 |
|
|
|
|
Chicago, IL 60675 |
|
|
|
|
|
|
|
|
|
Teachers Retirement System of the City of New York |
|
|
27.3 |
|
55 Water Street 16th Floor |
|
|
|
|
New York, NY 10041 |
|
|
|
|
|
|
|
|
|
The Northern Trust Company FBO Mayo Foundation |
|
|
21.6 |
|
P.O. Box 92956 |
|
|
|
|
Chicago, IL 60675 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the International Bond Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
University of Southern California |
|
|
44.4 |
|
851 Downey Way |
|
|
|
|
Los Angeles, CA 90089 |
|
|
|
|
|
|
|
|
|
Mars Pension Trustees Ltd. |
|
|
19.1 |
|
Discretionary Mandate |
|
|
|
|
3D Dundee Road |
|
|
|
|
Slough, Berkshire, SL14LG |
|
|
|
|
United Kingdom |
|
|
|
|
|
|
|
|
|
Wells Fargo Bank NA FBO University of Arizona |
|
|
13.3 |
|
P.O. Box 1533 |
|
|
|
|
733 Marquette Avenue 5th Floor |
|
|
|
|
Minneapolis, MN 55480 |
|
|
|
|
|
|
|
|
|
Stitching MasterFoods Pensioenfonds Discretionary Mandate |
|
|
5.4 |
|
Taylorweg 5 |
|
|
|
|
5466 AE Veghel |
|
|
|
|
The Netherlands |
|
|
|
|
156
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Global Bond Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Mars Pension Trustees Ltd. |
|
|
34.1 |
|
Discretionary Mandate |
|
|
|
|
3D Dundee Road |
|
|
|
|
Slough, Berkshire, SL14G |
|
|
|
|
United Kingdom |
|
|
|
|
|
|
|
|
|
General Retirement System of the City of Detroit |
|
|
19.3 |
|
2 Woodward Avenue, Suite 908 |
|
|
|
|
Detroit, MI 48226 |
|
|
|
|
|
|
|
|
|
Stitching MasterFoods Pensioenfonds Discretionary Mandate |
|
|
9.5 |
|
Taylorweg 5 |
|
|
|
|
5466 AE Veghel |
|
|
|
|
The Netherlands |
|
|
|
|
|
|
|
|
|
The Retirement Trust Fund of Lifeway Christian |
|
|
7.1 |
|
Resources of the Southern Baptist Convention |
|
|
|
|
One Lifeway Plaza |
|
|
|
|
Nashville, TN 37234 |
|
|
|
|
|
|
|
|
|
Mac & Co. FBO Silicon Valley |
|
|
6.2 |
|
525 William Penn Place |
|
|
|
|
P.O. Box 3198 |
|
|
|
|
Pittsburgh, PA 15230 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Emerging Country Debt Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
CIBC Mellon Trust Company as Trustee of |
|
|
18.7 |
|
The CN Canadian Master Trust Fund |
|
|
|
|
320 Bay Street, Ground Floor |
|
|
|
|
Toronto, Ontario, Canada, M5H 4A6 |
|
|
|
|
|
|
|
|
|
JP Morgan Nominees Australia Limited FBO ACF Funds SA |
|
|
15.8 |
|
Level 3, 63 Pirie Street |
|
|
|
|
Adelaide, SA 5000 |
|
|
|
|
Australia |
|
|
|
|
|
|
|
|
|
Embarq Master Retirement Trust |
|
|
13.4 |
|
C/O The Northern Trust Company |
|
|
|
|
50 La Salle St. |
|
|
|
|
Chicago, IL 60603 |
|
|
|
|
157
|
|
|
|
|
Name and Address |
|
% Ownership |
Lombard Odier Darier Hentsch & CIE/MBS Capital FBO
CIEPP |
|
|
10.6 |
|
Rue De la Corraterie 11 |
|
|
|
|
1204 Geneve, Switzerland |
|
|
|
|
|
|
|
|
|
University of Southern California |
|
|
8.5 |
|
851 Downey Way |
|
|
|
|
Los Angeles, CA 90089 |
|
|
|
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class IV Shares of
the Emerging Country Debt Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
San Francisco City & County Retirement System |
|
|
28.1 |
|
30 Van Ness Avenue, Suite 3000 |
|
|
|
|
San Francisco, CA 94102 |
|
|
|
|
|
|
|
|
|
State Street Bank & Trust Co. as Trustee |
|
|
21.5 |
|
for GMAM Group Pension Trust II |
|
|
|
|
for the Account of GM Hourly Rate Employees Pension Trust |
|
|
|
|
2 Avenue De Lafayette |
|
|
|
|
Boston, MA 02111 |
|
|
|
|
|
|
|
|
|
State Street Bank & Trust Co. as Trustee |
|
|
9.4 |
|
for GMAM Group Pension Trust II |
|
|
|
|
for the Account of GM Salaried Employees Pension Trust |
|
|
|
|
2 Avenue De Lafayette |
|
|
|
|
Boston, MA 02111 |
|
|
|
|
|
|
|
|
|
Asset Allocation Trust |
|
|
8.3 |
|
C/O Wells Fargo Funds Management |
|
|
|
|
200 Berkeley Street |
|
|
|
|
21st Floor, Fund Administration |
|
|
|
|
Boston, MA 02116 |
|
|
|
|
|
|
|
|
|
Praxair Pension Plan |
|
|
8.1 |
|
39 Old Ridebury Road |
|
|
|
|
Danbury, CT 06810 |
|
|
|
|
|
|
|
|
|
GMO Strategic Fixed Income |
|
|
7.1 |
|
C/O GMO LLC |
|
|
|
|
40 Rowes Warf |
|
|
|
|
Boston, MA 02110 |
|
|
|
|
|
|
|
|
|
GMO Benchmark-Free Allocation Fund |
|
|
5.6 |
|
C/O GMO LLC |
|
|
|
|
40 Rowes Warf |
|
|
|
|
Boston, MA 02110 |
|
|
|
|
158
The following chart sets forth the names, addresses and percentage ownership of those
shareholders owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class
III Shares of the Short-Duration Investment Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
GMO Global Balanced Asset Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
50.5 |
|
Holstein Association USA Inc.
1 Holstein Place
P.O. Box 808
Brattleboro, VT 05302
|
|
|
17.3 |
|
Sam Wilderman & Beatrice Wilderman Joint Tenancy
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
9.7 |
|
Protestant Episcopal Cathedral Foundation/ Beauvoir
Mount Saint Alban
Washington, DC 20016
|
|
|
5.8 |
|
Holstein Association USA Inc. Pension Plan
1 Holstein Place
P.O. Box 808
Brattleboro, VT 05302
|
|
|
5.2 |
|
R. Jeremy Grantham
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
5.0 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Inflation Indexed Plus Bond Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Mayo Foundation Retirement Trust
200 First Street SW
Rochester, MN 55905
|
|
|
89.6 |
|
159
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class VI Shares of
the Inflation Indexed Plus Bond Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Mac & Co. FBO Bell Atlantic Master Trust
525 William Penn Place
P.O. Box 3198
Pittsburgh, PA 15230
|
|
|
81.1 |
|
|
Veba Partnership N LP
One Verizon Way
Basking Ridge, NJ 07920
|
|
|
17.7 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Currency Hedged International Equity Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
GMO Benchmark-Free Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
70.4 |
|
The Northern Trust Company as Custodian
for the Texas Prepaid Higher Education Tuition Board
50 South La Salle Street
Chicago, IL 60603
|
|
|
22.3 |
|
Phillips Exeter Academy
20 Main Street
Exeter, NH 03833
|
|
|
6.1 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the International Equity Allocation Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Mac & Co. FBO Metropolitan Government of Nashville & Davidson
County
P.O. Box 3198
525 William Penn Place
Pittsburgh, PA 15230
|
|
|
8.8 |
|
Houston Endowment Inc.
600 Travis, Suite 6400
Houston, TX 77002
|
|
|
8.2 |
|
160
|
|
|
|
|
Name and Address |
|
% Ownership |
Saskatchewan Telecommunications Pension Plan
2121 Saskatchewan Drive, 6th Floor
Regina, Saskatchewan, S4P 3Y2
Canada
|
|
|
7.1 |
|
International Equity General Partnership II of the Rotary
Foundation of Rotary International and Rotary International
One Rotary Center
1560 Sherman Ave.
Evanston, IL 60201
|
|
|
5.7 |
|
Texas Christian University
TCU Box 297055
Fort Worth, TX 76129
|
|
|
5.1 |
|
Mcauley Portfolio Management Company
14528 S. Outer Forty
Chesterfield, MO 63017
|
|
|
5.1 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Global Balanced Asset Allocation Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Mac & Co. FBO Highmark
P.O. Box 3198
525 William Penn Place
Pittsburgh, PA 15230
|
|
|
5.5 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Benchmark-Free Allocation Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
JP Morgan Chase Bank as Trustee for the
Boeing Company Employee Retirement Plans Master Trust
100 N. Riverside Plaza
Chicago, IL 60606
|
|
|
8.7 |
|
Abbott Laboratories Annuity Retirement Trust
C/O The Northern Trust Company
P.O. Box 92956
Chicago, IL 60607
|
|
|
8.4 |
|
Screen Actors Guild Producers Pension Plan
3601 West Olive Avenue, 2nd Floor
Burbank, CA 91505
|
|
|
7.4 |
|
161
|
|
|
|
|
Name and Address |
|
% Ownership |
Maine Public Employees Retirement System
46 State House Station
Augusta, ME 04333
|
|
|
6.0 |
|
The Northern Trust Company on behalf of
the Motion Picture Industry Pension Plan
Public & Taft Hartley Funds
50 South LaSalle Street
Chicago, IL 60675
|
|
|
5.9 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class IV Shares of
the Quality Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Intel Corporation Retirement Plans Master Trust
Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95054
|
|
|
16.4 |
|
Chase Nominees Limited
P.O. Box 18171
London Wall, London EC2Y 5AJ
Guernsey, United Kingdom
|
|
|
11.9 |
|
SEI Private Trust FBO Searle Family
C/O Harris Bank
One Freedom Valley Drive
Oak, PA 19456
|
|
|
6.8 |
|
Mac & Co. FBO 2006 Barron Hilton Trust
P.O. Box 3198
525 William Penn Place
Pittsburgh, PA 15230
|
|
|
5.8 |
|
Mac & Co. FBO William Barron Hilton Trust
P.O. Box 3198
525 William Penn Place
Pittsburgh, PA 15230
|
|
|
5.8 |
|
162
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class V Shares of
the Quality Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Teachers Retirement System of the City of New York
55 Water Street, 16th Floor
New York, NY 10041
|
|
|
100.0 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class VI Shares of
the Quality Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Asset Allocation Trust
C/O Wells Fargo Funds Management
200 Berkeley Street
21st Floor, Fund Administration
Boston, MA 02116
|
|
|
21.5 |
|
GMO Benchmark-Free Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
9.6 |
|
GMO Global Balanced Asset Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
9.2 |
|
GMO Alpha Only Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
8.8 |
|
Virginia Retirement System
P.O. Box 2500
Richmond, VA 23218
|
|
|
6.6 |
|
GMO Strategic Opportunities Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
6.4 |
|
GMO Global Equity Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
6.1 |
|
163
|
|
|
|
|
Name and Address |
|
% Ownership |
The David and Lucile Packard Foundation
300 Second Street
Los Altos, CA 94022
|
|
|
5.3 |
|
GMO World Opportunities Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
5.2 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the U.S. Equity Allocation Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
The Board of Trustees of the University of Illinois
247 Henry Administration Building
506 South Wright Street
Urbana, IL 61801
|
|
|
35.3 |
|
The Retirement Plan for Employees of Millipore Corporation
290 Concord Road
Billerica, MA 01821
|
|
|
31.8 |
|
Wadsworth Atheneum Museum of Art
699 Main Street
Hartford, CT 06103
|
|
|
7.7 |
|
Wells Fargo Bank NA FBO IMC Nurses
P.O. Box 1533
Minneapolis, MN 55480
|
|
|
6.9 |
|
Regime de Retraite des Employees et des Organismes Publics
Employes de La Ville de Sherbrooke
145 Wellington Nord
Sherbrooke, Quebec J1H 5C1
Canada
|
|
|
6.9 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Developed World Stock Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Irving Oil Limited Master Trust
10 Sydney Street
P.O. Box 1421
Saint John, New Brunswick, E2L4K1
Canada
|
|
|
30.7 |
|
164
|
|
|
|
|
Name and Address |
|
% Ownership |
Dow Services Trustees UK Limited
Diamond House, Lotus Park, Kingsbury Crescent
Staines, TW18 3AG
United Kingdom
|
|
|
23.6 |
|
Lexmark Retirement Growth Account Plan
740 West New Circle Road
Lexington, KY 40550
|
|
|
17.4 |
|
Sisters of St. Joseph of Peace St. Joseph Province
Shalom Center
399 Hudson Terrance
Englewood Cliffs, NJ 07632
|
|
|
8.4 |
|
Pension Plan for Clergy and Lay Workers of the
Evangelical Lutheran Church in Canada
Member Accumulation Account
302-393 Portage Ave.
Winnipeg Manitoba, R3B 3H6
Canada
|
|
|
8.0 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class IV Shares of
the Developed World Stock Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Dow Employees Pension Plan
1320 Waldo Avenue
Dorinco 100
Midland, MI 48642
|
|
|
71.7 |
|
|
Union Carbide Employees Pension Plan
1320 Waldo Avenue
Dorinco 100
Midland, MI 48642
|
|
|
28.3 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Strategic Opportunities Allocation Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
South Carolina Retirement System
202 Arbor Lake Drive
Columbia, SC 29223
|
|
|
29.7 |
|
|
Indiana State Teachers Retirement Fund
1 North Capitol Avenue, Suite 001
Indianapolis, IN 46204
|
|
|
5.6 |
|
165
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the U.S. Core Equity Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
The Northern Trust Company as Trustee of the
Aerospace Corporation Employees Retirement Plan Trust
P.O. Box 92956
Chicago, IL 60675
|
|
|
13.6 |
|
Minnesota Mutual Life Insurance Company
C/O Securian Financial Group
400 Robert Street North
St. Paul, MN 55101
|
|
|
10.0 |
|
Corning Retirement Master Trust
C/O Corning Inc.
One Riverfront Plaza
Corning, NY 14831
|
|
|
9.7 |
|
Fidelity Investments Institutional Operations Company as Agent
for Certain Employee Benefit Plans
100 Magellan Way
Covington, KY 41015
|
|
|
9.3 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class IV Shares of
the U.S. Core Equity Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Teachers Retirement System of the City of New York
55 Water Street 16th Floor
New York, NY 10041
|
|
|
72.2 |
|
Screen Actors Guild-Producers Pension Plan
3601 West Olive Avenue, 2nd Floor
Burbank, CA 91505
|
|
|
20.5 |
|
Municipal Fire & Police Retirement System of Iowa
7155 Lake Drive, Suite 201
West Des Moines, IA 50266
|
|
|
7.3 |
|
166
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class VI Shares of
the U.S. Core Equity Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
The National Rural Electric Cooperative Association
4301 Wilson Boulevard
Arlington, VA 22203
|
|
|
34.2 |
|
GMO Alpha Only Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
33.6 |
|
GMO World Opportunities Equity Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
9.5 |
|
State Street Bank And Trust Company as Trustee for the
Northrop Grumman Corporation Pension Master Trust
2 Avenue De Lafayette
Boston, MA 02111
|
|
|
6.9 |
|
GMO Global Equity Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
6.7 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the U.S. Small Mid Cap Value Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
World Wildlife Fund Inc.
1250 24th Street NW
Washington, DC 20037
|
|
|
19.1 |
|
GMO U.S. Equity Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
19.1 |
|
Mac & Co. FBO Princeton
P.O. Box 534005
Pittsburgh, PA 15253
|
|
|
18.3 |
|
Surdna Foundation Inc. Global AA
330 Madison Ave., 30th Fl.
New York, NY 10017
|
|
|
18.1 |
|
167
|
|
|
|
|
Name and Address |
|
% Ownership |
State Street Bank & Trust Co. as Custodian for
Kay Watson Conv Roth IRA
P.O. Box 600099
Dallas, TX 75360
|
|
|
5.6 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the U.S. Small Mid Cap Growth Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Mac & Co. FBO Princeton
P.O. Box 534005
Pittsburgh, PA 15253
|
|
|
23.1 |
|
GMO U.S. Equity Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
22.5 |
|
Surdna Foundation Inc. Global AA
330 Madison Ave., 30th Floor
New York, NY 10017
|
|
|
21.4 |
|
World Wildlife Fund Inc.
1250 24th Street NW
Washington, DC 20037
|
|
|
21.2 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the U.S. Growth Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Quality Vision International Inc.
850 Hudson Ave.
Rochester, NY 14621
|
|
|
63.5 |
|
|
The Rockfall Foundation
DE Koven House
27 Washington St
Middleton, CT 06457
|
|
|
24.5 |
|
168
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the U.S. Intrinsic Value Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Hopke Partnership
7422 Hampden Lane
Bethesda, MD 20814
|
|
|
97.6 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the International Core Equity Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Minnesota Mutual Life Insurance Company
C/O Securian Financial Group
400 Robert Street North A6- 4105
St. Paul, MN 55101
|
|
|
21.0 |
|
Patterson and Co. FBO American Express
Retirement Plan
1525 West W.T. Harris Blvd.
Charlotte, NC 28288
|
|
|
16.4 |
|
Pace Industry Union Management Pension Fund
3320 Perimeter Hill Drive
Nashville, TN 37211
|
|
|
12.1 |
|
State Street Bank & Trust Co. as Trustee of
Invensys Master Retirement Trust
100 Plaza One
Jersey City, NJ 07311
|
|
|
10.0 |
|
The Hershey Foods Corporation Master Retirement Trust
100 Crystal A Drive
Hershey, PA 17033
|
|
|
7.8 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class IV Shares of
the International Core Equity Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Wells Fargo Bank, NA FBO WFC CBP
P.O. Box 1533
Minneapolis, MN 55480
|
|
|
18.9 |
|
169
|
|
|
|
|
Name and Address |
|
% Ownership |
BB&T Corporation Pension Plan
223 W Nash Street 3rd Floor
Wilson, NC 27893
|
|
|
18.1 |
|
UMWA 1974 Pension Trust
2121 K Street NW, Suite 350
Washington, DC 20037
|
|
|
17.9 |
|
Praxair Pension Plan
39 Old Ridebury Road
Danbury, CT 06810
|
|
|
12.7 |
|
Teachers Retirement System of the City of New York
55 Water Street 16th Floor
New York, NY 10041
|
|
|
12.2 |
|
The Paul Hamlyn Foundation
18 Queen Annes Gate
London SWH 9AA
United Kingdom
|
|
|
12.1 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class VI Shares of
the International Core Equity Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Asset Allocation Trust
C/O Wells Fargo Funds Management
200 Berkeley Street
21st Floor, Fund Administration
Boston, MA 02116
|
|
|
37.1 |
|
GMO Global Balanced Asset Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
15.2 |
|
Northern Trust Company as Trustee FBO
Exelon Corporation Pension Master Retirement Trust
P.O. Box 92956
Chicago, IL 60675
|
|
|
12.7 |
|
GMO Global Equity Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
11.5 |
|
Mac & Co. FBO Siemens Corp.
P.O. Box 3198
525 William Penn Place
Pittsburgh, PA 15230
|
|
|
7.1 |
|
170
|
|
|
|
|
Name and Address |
|
% Ownership |
State Street Bank and Trust Company as Trustee for the
Northrop Grumman Corporation Pension Master Trust
2 Avenue de Lafayette
Boston, MA 02111
|
|
|
5.1 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Strategic Fixed Income Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Stichting Pensioenfonds Atos Origin
Papendorpseweg 93
3528 BJ Utrecht
Netherlands
|
|
|
36.8 |
|
The Edna McConnell Clark Foundation
415 Madison Ave. 10th Floor
New York, NY 10017
|
|
|
19.6 |
|
Municipal Fire & Police Retirement System of Iowa
7155 Lake Drive, Suite 201
West Des Moines, IA 50266
|
|
|
17.4 |
|
Maximilian E. & Marion O. Hoffman Foundation
Treasurer and Chief Financial Officer
970 Farmington Ave, Suite 203
West Hartford, CT 06107
|
|
|
9.2 |
|
Northern Trust Company as Custodian for
the William & Mary Investment Trust
P.O. Box 92956
Chicago, IL 60675
|
|
|
7.3 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class VI Shares of
the Strategic Fixed Income Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Asset Allocation Trust
C/O Wells Fargo Funds Management
200 Berkeley Street
21st Floor, Fund Administration
Boston, MA 02116
|
|
|
53.3 |
|
GMO Benchmark-Free Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
17.8 |
|
171
|
|
|
|
|
Name and Address |
|
% Ownership |
GMO Global Balanced Asset Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
14.7 |
|
GMO Strategic Opportunities Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
5.1 |
|
Mac & Co. FBO Bell Atlantic Master Trust
Verizon SFIF
P.O. Box 3198
525 William Penn Place
Pittsburgh, PA 15230
|
|
|
5.0 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the International Growth Equity Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
The Oregon Community Foundation
1221 SW Yamhill #100
Portland, OR 97205
|
|
|
7.9 |
|
Mellon Trust of New England NA FBO
Ameren Master Retirement Trust
135 Santilli Highway
Everett, MA 02149
|
|
|
7.5 |
|
Northern Trust Company FBO
IOVA Health System Foundation
P.O. Box 92956
Chicago, IL 60675
|
|
|
5.0 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class IV Shares of
the International Growth Equity Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
GMO Alpha Only Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
19.7 |
|
GMO International Equity Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
15.7 |
|
172
|
|
|
|
|
Name and Address |
|
% Ownership |
GMO International Opportunities Equity Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
12.9 |
|
GMO World Opportunities Equity Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
10.7 |
|
Asset Allocation Trust
C/O Wells Fargo Funds Management
200 Berkeley Street
21st Floor, Fund Administration
Boston, MA 02116
|
|
|
10.7 |
|
GMO Strategic Opportunities Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
10.5 |
|
GMO Currency Hedged International Equity Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
6.0 |
|
GMO Global Balanced Asset Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
5.3 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
International Opportunities Equity Allocation Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Mac & Co. FBO
Lehigh Valley Hospital Non Pension Trust
Mutual Funds Operations
P.O. Box 3198
525 William Penn Place
Pittsburgh, PA 15230
|
|
|
14.8 |
|
McMaster University Master Trust
Employees Treasury Operations
1280 Main Street W
Hamilton, Ontario L8S 4L8 Canada
|
|
|
12.4 |
|
Wells Fargo Bank NA as Custodian for the
Farm Credit Fund Retirement Group Trust
608 2nd Avenue South Street
Minneapolis, MN 55479
|
|
|
10.1 |
|
173
|
|
|
|
|
Name and Address |
|
% Ownership |
Mac & Co. FBO Lehigh Valley Hospital Pension
P.O. Box 3198
525 William Penn Place
Pittsburgh, PA 15230
|
|
|
8.9 |
|
Yale-New Haven Health System Investment Trust
Treasury Department
20 York Street
New Haven, CT 06504
|
|
|
7.7 |
|
Merced County Employees Retirement Association
3199 M Street
Merced, CA 95348
|
|
|
5.8 |
|
PCS Administration (USA), Inc. Master Trust
1101 Skokie Blvd. Suite 400
Northbrook, IL 60062
|
|
|
5.7 |
|
Horizon Healthcare Services Inc. D/B/A
Horizon BCBS of New Jersey Management
Employees Retirement Fund
3 Penn Plaza East
Newark, NJ 07105
|
|
|
5.7 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
Global Equity Allocation Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
National Retirement Trust of the Blue Cross Blue Shield
Association
225 North Michigan Avenue
Chicago, IL 60601
|
|
|
9.9 |
|
Navy Federal Credit Union Employees Retirement Plan
Navy Federal Credit Union
820 Follin Lane
Vienna, VA 22180
|
|
|
7.8 |
|
Trustees of the Cope 378/ICBC Pension Plan
151 West Esplanade Avenue
North Vancouver, BC V7M 3H9
Canada
|
|
|
6.5 |
|
Perimeter Institute
31 Caroline Street North
Waterloo, Ontario, N2L 2Y5
Canada
|
|
|
6.3 |
|
Fidelity Management Trust Company as Trustee for
Chevron Phillips Chemical, LP
82 Devonshire Street
Boston, MA 02109
|
|
|
6.1 |
|
174
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Short-Duration Collateral Share Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Thomas F. Cooper
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
43.6 |
|
William L. Nemerever
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
30.6 |
|
R. Jeremy Grantham
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
11.8 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the U.S Treasury Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
GMO Strategic Fixed Income Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
35.7 |
|
GMO Special Situations Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
30.7 |
|
GMO Alpha Only Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
7.6 |
|
GMO Emerging Markets Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
5.2 |
|
175
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the World Opportunity Equity Allocation Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Stichting Bedrgfstakpensioenfonds
Voor de Zoetwaren Industrie
Molenwerf 2-8
1014AG Amsterdam
The Netherlands
|
|
|
13.4 |
|
JP Morgan as Directed Trustee FBO Ernst & Young Defined
Benefit Retirement Plan Trust
C/O JP Morgan
4 New York Plaza
New York, NY 10004
|
|
|
10.1 |
|
Orange Country Employees Retirement System
2223 Wellington Avenue
Santa Ana, CA 92701
|
|
|
10.1 |
|
Lehigh University Endowment Fund
27 Memorial Drive West
Bethlehem, PA 18015
|
|
|
7.4 |
|
Motion Picture Industry Individual Account Plan
Motion Picture Industry Pension & Health
11365 Ventura Boulevard
Studio City, CA 91604
|
|
|
7.2 |
|
Virginia Hospital Center Arlington Health System
1701 N George Mason Drive
Arlington, VA 22205
|
|
|
5.7 |
|
Vancouver Foundation
Ste. 1200, 555 W. Hastings St.
Box 12132
Harbour Centre, Vancouver, BC V6B 4N6
Canada
|
|
|
5.1 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Currency Hedged International Bond Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Teachers Retirement System of The City New York
55 Water Street ,16th Floor
New York, NY 10041
|
|
|
94.5 |
|
176
|
|
|
|
|
Name and Address |
|
% Ownership |
SEI Private Trust Co.
C/O Mellon Bank FBO Yale Trust
One Freedom Valley Drive
Oaks, PA 19456
|
|
|
5.1 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
the Asset Allocation Bond Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Teachers Retirement System of the City New York
55 Water Street, 16th Floor
New York, NY 10041
|
|
|
52.5 |
|
Emerson Electric Co. Retirement Master Fund
8000 W. Florissant Ave.
P.O. Box 4100
Saint Louis, MO 63136
|
|
|
28.8 |
|
Stichting Pensioenfonds Atos Origin
Papendorpseweg 93
3528 BJ Utrecht
Netherlands
|
|
|
15.9 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class VI Shares of
the Asset Allocation Bond Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
GMO Benchmark-Free Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
45.4 |
|
GMO Global Balanced Asset Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
23.8 |
|
Asset Allocation Trust
C/O Wells Fargo Funds Management
200 Berkeley Street
21st Floor, Fund Administration
Boston, MA 02116
|
|
|
16.3 |
|
Mac & Co. FBO Verizon, Bell Atlantic Master Trust
P.O. Box 3198 525 William Penn Place
Pittsburgh, PA 15230
|
|
|
7.6 |
|
177
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding Class III Shares of
Taiwan Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Pension Reserves Investment Trust
84 State Street Suite 250
Boston, MA 02109
|
|
|
61.2 |
|
|
State of Connecticut Retirement Plans and Trust Funds
55 Elm Street
Hartford, CT 06106
|
|
|
38.8 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding of Class III Shares
of Short-Duration Collateral Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
GMO Strategic Fixed Income Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
53.1 |
|
|
GMO Domestic Bond Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
23.0 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding of Class III Shares
of Flexible Equities Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Teacher Retirement System of Texas
1000 Red River Street
Austin, TX 78701
|
|
|
16.3 |
|
Municipal Fire and Police Retirement System of Iowa
7155 Lake Drive, Suite 201
West Des Moines, IA 50266
|
|
|
11.8 |
|
Bucknell University
121 Marts Hall
Lewisburg, PA 17837
|
|
|
6.9 |
|
Surdna Foundation Inc. Global AA
330 Madison Avenue, 30th Floor
New York, NY 10017
|
|
|
5.8 |
|
178
|
|
|
|
|
Name and Address |
|
% Ownership |
Ventura County Employees Retirement Association
1190 S. Victoria Avenue, Suite 200
Ventura, CA 93003
|
|
|
5.2 |
|
Stichting Pensioenfonds Atos Origin
Papendorpseweg 93
3528 BJ Utrecht
Netherlands
|
|
|
5.2 |
|
The following chart sets forth the names, addresses and percentage ownership of those shareholders
owning beneficially (unless otherwise indicated) 5% or more of the outstanding of Class VI Shares
of Flexible Equities Fund as of June 2, 2011:
|
|
|
|
|
Name and Address |
|
% Ownership |
Asset Allocation Trust
C/O Wells Fargo Funds Management
21st Floor, Fund Administration
200 Berkeley Street
Boston, MA 02116
|
|
|
31.5 |
|
GMO Benchmark-Free Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
18.6 |
|
GMO Global Balanced Asset Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
13.4 |
|
GMO Strategic Opportunities Allocation Fund
C/O GMO LLC
40 Rowes Wharf
Boston, MA 02110
|
|
|
8.9 |
|
179
Asset Allocation International Bond Fund, World Opportunity Overlay Share Fund, Emerging Domestic
Opportunities Fund, International Intrinsic Value Extended Markets Fund and Global Focused Equity
Funds will commence operations on or following September 13, 2011, and, therefore, no shareholder
owns beneficially more than 5% of the outstanding shares of these Funds as of this date.
OTHER MATTERS
In July 2008, Emerging Country Debt Fund filed claims in the High Court of Justice in Accra, Ghana
against GNPA Limited (GNPA) seeking payment on an unconditional promissory note issued by GNPA in
an amount of $5.3 million. A judgment was awarded in the Funds favor on February 25, 2010;
however, the Funds ability to collect on that judgment remains uncertain. The defaulted
promissory note represented less than 0.1% of the net assets of Emerging Country Debt Fund as of
May 31, 2011.
In addition, Indian regulators have alleged that in 2002 Emerging Markets Fund violated certain
conditions under which it was granted permission to operate in India and have restricted Emerging
Markets Funds locally held assets pending resolution of the dispute. Although these locally held
assets remain the property of Emerging Markets Fund, a portion of the assets are not permitted to
be withdrawn from the Funds local custodial account located in India. The amount of restricted
assets is small relative to the size of the Fund, representing approximately 0.1% of the Funds
total assets as of May 31, 2011. The effect of this claim on the value of the restricted assets,
and all matters relating to the Funds response to these allegations are subject to the supervision
and control of the Trusts Board of Trustees. Emerging Markets Funds costs in respect of this
matter are being borne by the Fund.
In addition, certain Funds (Core Plus Bond Fund, Global Bond Fund, International Bond Fund,
Currency Hedged International Bond Fund, Inflation Indexed Plus Bond Fund, Emerging Country Debt
Fund, Short-Duration Investment Fund, GMO Domestic Bond Fund, Global Equity Allocation Fund, and
Emerging Markets Fund) (collectively, the NPF Funds) have indirect investments in three
asset-backed securities (the NPF Securities) issued by NPF VI, Inc. and NPF XII, Inc. (the
Issuers) as a result of the NPF Funds holdings in GMO Special Purpose Holding Fund, a series of
the Trust offered through a separate private placement memorandum, and/or interests in GMO SPV I,
LLC, a special purpose vehicle. The Issuers are special purpose corporations organized and
administered by National Premier Financial Services (NPFS), a subsidiary of National Century
Financial Enterprises (NCFE). On November 1, 2002, the Issuers, together with NCFE and NPFS,
voluntarily filed petitions for relief under Chapter 11 of the Bankruptcy Code with the United
States Bankruptcy Court for the Southern District of Ohio (Bankruptcy Court). In April 2004, a
plan of liquidation (the Plan) was approved by the Bankruptcy Court with respect to NCFE, NPFS,
and the Issuers. Under the Plan, GMO SPV I, LLC became eligible to receive, on account of the NPF
Securities, one or more cash distributions and interests in certain trusts and/or escrows through
which additional distributions subsequently may be received. GMO SPV I, LLC received an initial
cash distribution and periodic additional distributions on account of the NPF Securities, the
proceeds of which were distributed, less expenses, to holders of GMO SPV I, LLC, including GMO
Special Purpose Holding Fund.
180
In addition, the Trust, on behalf of GMO Special Purpose Holding Fund, has joined with certain
other holders of the NPF Securities in filing an action against NPFS, NCFE, and certain other
parties in connection with the issuance and default of the NPF Securities. In July 2005 and April
2006, GMO Special Purpose Holding Fund entered into settlement agreements with two of the
defendants in the lawsuit and GMO SPV I, LLC received cash settlements in connection therewith,
which were distributed to holders of GMO SPV I, LLC, including GMO Special Purpose Holding Fund.
Each NPF Fund received a proportionate amount of such cash settlements based on the size of their
holdings in GMO Special Purpose Holding Fund or GMO SPV I, LLC, as applicable. The outcome of
lawsuits against the remaining defendants is not predictable and any potential recoveries, as of
the date of this Statement of Additional Information, have not been reflected in the net asset
value of GMO Special Purpose Holding Fund. GMO Special Purpose Holding Funds costs in respect of
these matters are being treated as extraordinary expenses and are being borne by that Fund. The
valuation of the NPF Securities and all matters relating to the GMO Special Purpose Holding Funds
participation in these actions are subject to the supervision and control of the Trusts Board of
Trustees.
In addition, in December 2005, Emerging Country Debt Fund entered into litigation against the
Government of Argentina (Argentina) relating to Argentinas failure to make payments on certain
of its sovereign debt. On September 24, 2007, judgment was awarded in the Funds favor.
Valuations of the Funds holdings of the applicable Argentine debt do not reflect any adjustment
related to the judgment because of uncertainties associated with enforcement of the judgment.
Costs in respect of this matter are being treated as extraordinary expenses and are being borne
by the Fund. In late December 2010, Argentina commenced a public debt exchange in which certain
defaulted debts, including legal judgments on those debts, were eligible to be exchanged for a
combination of currently performing Argentina bonds, GDP-linked securities, and cash. The Funds
judgment and other defaulted Argentine debts were tendered in the debt exchange and the Fund
anticipates receiving the new securities and cash in 2011, subject to certain conditions of the
exchange being satisfied. The valuation of the judgment and all matters relating to the defaulted
Argentine securities are subject to the supervision and control of the Trusts Board of Trustees.
The Funds judgment represented approximately 1.7% of the net assets of Emerging Country Debt Fund
as of May 31, 2011.
FINANCIAL STATEMENTS
The Trusts audited financial statements, financial highlights, and report of the independent
registered public accounting firm of the Funds, included in the Annual Report for the fiscal year
ended February 28, 2011 for each Fund and filed with the SEC pursuant to Section 30(d) of the 1940
Act and the rules promulgated thereunder, are hereby incorporated in this Statement of Additional
Information by reference. The Funds Annual Reports for the fiscal year ended February 28, 2011
were filed electronically with the SEC on Form N-CSR on May 4, 2011 (Accession No.
0000950123-11-044409).
181
Appendix A
GMO TRUST
SPECIMEN PRICE MAKE-UP SHEETS
Following are computations for each Fund of the total offering price per share of each class of
shares of beneficial interest of the Fund that are offered through the Prospectuses and that had
shares of beneficial interest outstanding as of February 28, 2011, in each case based upon their
respective net asset values and shares of beneficial interest outstanding as of the close of
business on February 28, 2011. Emerging Domestic Opportunities Fund commenced operations after the
most recent fiscal year ended February 28, 2011, and, therefore, did not yet have any shares of
beneficial interest outstanding as of such date. International Large/Mid Cap Value Fund, Asset
Allocation International Small Companies Fund, Asset Allocation International Bond Fund,
International Intrinsic Value Extended Markets Fund and Global Focused Equity Fund will commence
operations on or following the date of this SAI, and, therefore, do not yet have any shares of
beneficial interest outstanding as of this date.
|
|
|
|
|
U.S. Core Equity Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$12.00 per share based on 32,785,192
shares of beneficial interest
outstanding)
|
|
$ |
393,523,466 |
|
Offering Price
|
|
$ |
12.00 |
|
U.S. Core Equity Fund-Class IV |
|
|
|
|
Net Assets at Value (Equivalent to
$11.98 per share based on 13,656,154
shares of beneficial interest
outstanding)
|
|
$ |
163,627,367 |
|
Offering Price
|
|
$ |
11.98 |
|
U.S. Core Equity Fund-Class VI |
|
|
|
|
Net Assets at Value (Equivalent to
$11.97 per share based on 94,384,741
shares of beneficial interest
outstanding)
|
|
$ |
1,129,977,625 |
|
Offering Price
|
|
$ |
11.97 |
|
Tobacco-Free Core Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$10.55 per share based on 2,379,447
shares of beneficial interest
outstanding)
|
|
$ |
25,103,277 |
|
Offering Price
|
|
$ |
10.55 |
|
Quality Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$20.81 per share based on
254,090,923 shares of beneficial
interest outstanding)
|
|
$ |
5,288,776,466 |
|
Offering Price
|
|
$ |
20.81 |
|
Quality Fund-Class IV |
|
|
|
|
Net Assets at Value (Equivalent to
$20.83 per share based on 79,810,452
shares of beneficial interest
outstanding)
|
|
$ |
1,662,542,111 |
|
Offering Price
|
|
$ |
20.83 |
|
Quality Fund-Class V |
|
|
|
|
Net Assets at Value (Equivalent to
$20.82 per share based on 17,865,940
shares of beneficial interest
outstanding)
|
|
$ |
371,927,271 |
|
Offering Price
|
|
$ |
20.82 |
|
A-1
Appendix A
|
|
|
|
|
Quality Fund-Class VI |
|
|
|
|
Net Assets at Value (Equivalent to
$20.82 per share based on
428,096,995 shares of beneficial
interest outstanding)
|
|
$ |
8,913,390,568 |
|
Offering Price
|
|
$ |
20.82 |
|
U.S. Intrinsic Value Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$7.83 per share based on 1,094,306
shares of beneficial interest
outstanding)
|
|
$ |
8,573,723 |
|
Offering Price
|
|
$ |
7.83 |
|
U.S. Growth Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$17.59 per share based on 108,487
shares of beneficial interest
outstanding)
|
|
$ |
1,908,380 |
|
Offering Price
|
|
$ |
17.59 |
|
U.S. Small/Mid Cap Value Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$8.24 per share based on 1,585,446
shares of beneficial interest
outstanding)
|
|
$ |
13,059,668 |
|
Offering Price (8.24 x 100 / 99.50)*
|
|
$ |
8.28 |
|
U.S. Small/Mid Cap Growth Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$15.87 per share based on 833,805
shares of beneficial interest
outstanding)
|
|
$ |
13,233,752 |
|
Offering Price (15.87 x 100 / 99.50)*
|
|
$ |
15.95 |
|
Real Estate Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$8.23 per share based on 1,911,824
shares of beneficial interest
outstanding)
|
|
$ |
15,736,111 |
|
Offering Price
|
|
$ |
8.23 |
|
Tax-Managed U.S. Equities Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$11.88 per share based on 1,374,377
shares of beneficial interest
outstanding)
|
|
$ |
16,329,017 |
|
Offering Price
|
|
$ |
11.88 |
|
International Core Equity Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$30.77 per share based on 27,876,457
shares of beneficial interest
outstanding)
|
|
$ |
857,774,266 |
|
Offering Price
|
|
$ |
30.77 |
|
International Core Equity Fund-Class IV |
|
|
|
|
Net Assets at Value (Equivalent to
$30.75 per share based on 40,168,568
shares of beneficial interest
outstanding)
|
|
$ |
1,235,302,845 |
|
Offering Price
|
|
$ |
30.75 |
|
International Core Equity Fund-Class VI |
|
|
|
|
Net Assets at Value (Equivalent to
$30.72 per share based on
114,167,591 shares of beneficial
interest outstanding)
|
|
$ |
3,507,676,859 |
|
Offering Price
|
|
$ |
30.72 |
|
International Intrinsic Value Fund-Class II |
|
|
|
|
Net Assets at Value (Equivalent to
$23.07 per share based on 9,408,477
shares of beneficial interest
outstanding)
|
|
$ |
217,090,351 |
|
Offering Price
|
|
$ |
23.07 |
|
A-2
Appendix A
|
|
|
|
|
International Intrinsic Value Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$23.31 per share based on 96,824,769
shares of beneficial interest
outstanding)
|
|
$ |
2,257,077,864 |
|
Offering Price
|
|
$ |
23.31 |
|
International Intrinsic Value Fund-Class IV |
|
|
|
|
Net Assets at Value (Equivalent to
$23.30 per share based on
148,432,387 shares of beneficial
interest outstanding)
|
|
$ |
3,458,201,775 |
|
Offering Price
|
|
$ |
23.30 |
|
International Growth Equity Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$23.86 per share based on 29,911,521
shares of beneficial interest
outstanding)
|
|
$ |
713,815,134 |
|
Offering Price
|
|
$ |
23.86 |
|
International Growth Equity Fund-Class IV |
|
|
|
|
Net Assets at Value (Equivalent to
$23.88 per share based on
118,506,324 shares of beneficial
interest outstanding)
|
|
$ |
2,829,392,561 |
|
Offering Price
|
|
$ |
23.88 |
|
Developed World Stock Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$19.24 per share based on 10,955,905
shares of beneficial interest
outstanding)
|
|
$ |
210,780,177 |
|
Offering Price (19.24 x 100 / 99.75)*
|
|
$ |
19.29 |
|
Developed World Stock Fund-Class IV |
|
|
|
|
Net Assets at Value (Equivalent to
$19.26 per share based on 10,443,647
shares of beneficial interest
outstanding)
|
|
$ |
201,121,001 |
|
Offering Price (19.26 x 100 / 99.75)*
|
|
$ |
19.31 |
|
International Small Companies Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$8.48 per share based on 55,170,077
shares of beneficial interest
outstanding)
|
|
$ |
467,733,390 |
|
Offering Price (8.48 x 100 / 99.50)*
|
|
$ |
8.52 |
|
Tax-Managed International Equities Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$15.41 per share based on 38,929,206
shares of beneficial interest
outstanding)
|
|
$ |
599,875,593 |
|
Offering Price
|
|
$ |
15.41 |
|
Foreign Fund-Class II |
|
|
|
|
Net Assets at Value (Equivalent to
$12.88 per share based on 32,423,527
shares of beneficial interest
outstanding)
|
|
$ |
417,684,824 |
|
Offering Price
|
|
$ |
12.88 |
|
Foreign Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$12.95 per share based on
111,304,884 shares of beneficial
interest outstanding)
|
|
$ |
1,440,951,758 |
|
Offering Price
|
|
$ |
12.95 |
|
Foreign Fund-Class IV |
|
|
|
|
Net Assets at Value (Equivalent to
$13.25 per share based on 62,888,335
shares of beneficial interest
outstanding)
|
|
$ |
833,582,044 |
|
Offering Price
|
|
$ |
13.25 |
|
A-3
Appendix A
|
|
|
|
|
Foreign Small Companies Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$14.22 per share based on 28,039,142
shares of beneficial interest
outstanding)
|
|
$ |
398,647,516 |
|
Offering Price (14.22 x 100 / 99.50)*
|
|
$ |
14.29 |
|
Foreign Small Companies Fund-Class IV |
|
|
|
|
Net Assets at Value (Equivalent to
$14.20 per share based on 10,358,311
shares of beneficial interest
outstanding)
|
|
$ |
147,131,410 |
|
Offering Price (14.20 x 100 / 99.50)*
|
|
$ |
14.27 |
|
Emerging Markets Fund-Class II |
|
|
|
|
Net Assets at Value (Equivalent to
$14.46 per share based on
159,351,532 shares of beneficial
interest outstanding)
|
|
$ |
2,304,696,958 |
|
Offering Price (14.46 x 100 / 99.20)*
|
|
$ |
14.58 |
|
Emerging Markets Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$14.49 per share based on 99,758,428
shares of beneficial interest
outstanding)
|
|
$ |
1,445,915,987 |
|
Offering Price (14.49 x 100 / 99.20)*
|
|
$ |
14.61 |
|
Emerging Markets Fund-Class IV |
|
|
|
|
Net Assets at Value (Equivalent to
$14.40 per share based on
114,559,852 shares of beneficial
interest outstanding)
|
|
$ |
1,649,840,135 |
|
Offering Price (14.40 x 100 / 99.20)*
|
|
$ |
14.52 |
|
Emerging Markets Fund-Class V |
|
|
|
|
Net Assets at Value (Equivalent to
$14.39 per share based on 58,085,148
shares of beneficial interest
outstanding)
|
|
$ |
835,560,814 |
|
Offering Price (14.39 x 100 / 99.20)*
|
|
$ |
14.51 |
|
Emerging Markets Fund-Class VI |
|
|
|
|
Net Assets at Value (Equivalent to
$14.41 per share based on
402,528,677 shares of beneficial
interest outstanding)
|
|
$ |
5,800,427,000 |
|
Offering Price (14.41 x 100 / 99.20)*
|
|
$ |
14.53 |
|
Emerging Countries Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$11.50 per share based on 20,164,849
shares of beneficial interest
outstanding)
|
|
$ |
231,920,751 |
|
Offering Price
|
|
$ |
11.50 |
|
Taiwan Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$23.85 per share based on 6,157,437
shares of beneficial interest
outstanding)
|
|
$ |
146,857,228 |
|
Offering Price (23.85 x 100 / 99.85)*
|
|
$ |
23.89 |
|
Flexible Equities Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$19.61 per share based on 1,491,878
shares of beneficial interest
outstanding)
|
|
$ |
29,258,746 |
|
Offering Price
|
|
$ |
19.61 |
|
Flexible Equities Fund-Class VI |
|
|
|
|
Net Assets at Value (Equivalent to
$19.62 per share based on 15,979,127
shares of beneficial interest
outstanding)
|
|
$ |
313,467,997 |
|
Offering Price
|
|
$ |
19.62 |
|
A-4
Appendix A
|
|
|
|
|
Currency Hedged International Equity Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$24.11 per share based on 20,324,432
shares of beneficial interest
outstanding)
|
|
$ |
490,046,632 |
|
Offering Price
|
|
$ |
24.11 |
|
Domestic Bond Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$4.57 per share based on 26,334,882
shares of beneficial interest
outstanding)
|
|
$ |
120,397,354 |
|
Offering Price
|
|
$ |
4.57 |
|
Domestic Bond Fund Class VI |
|
|
|
|
Net Assets at Value (Equivalent to
$4.58 per share based on 91,421,261
shares of beneficial interest
outstanding)
|
|
$ |
418,685,772 |
|
Offering Price
|
|
$ |
4.58 |
|
Core Plus Bond Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$7.26 per share based on 6,581,389
shares of beneficial interest
outstanding)
|
|
$ |
47,772,705 |
|
Offering Price
|
|
$ |
7.26 |
|
Core Plus Bond Fund-Class IV |
|
|
|
|
Net Assets at Value (Equivalent to
$7.27 per share based on 25,213,597
shares of beneficial interest
outstanding)
|
|
$ |
183,333,450 |
|
Offering Price
|
|
$ |
7.27 |
|
International Bond Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$7.11 per share based on 15,280,958
shares of beneficial interest
outstanding)
|
|
$ |
108,683,972 |
|
Offering Price
|
|
$ |
7.11 |
|
Strategic Fixed Income Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$15.39 per share based on 5,009,106
shares of beneficial interest
outstanding)
|
|
$ |
77,084,188 |
|
Offering Price
|
|
$ |
15.39 |
|
Strategic Fixed Income Fund-Class VI |
|
|
|
|
Net Assets at Value (Equivalent to
$15.38 per share based on
160,945,361 shares of beneficial
interest outstanding)
|
|
$ |
2,476,072,915 |
|
Offering Price
|
|
$ |
15.38 |
|
Currency Hedged International Bond Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$8.18 per share based on 8,655,221
shares of beneficial interest
outstanding)
|
|
$ |
70,799,071 |
|
Offering Price
|
|
$ |
8.18 |
|
Global Bond Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$7.91 per share based on 26,539,404
shares of beneficial interest
outstanding)
|
|
$ |
209,891,262 |
|
Offering Price
|
|
$ |
7.91 |
|
Emerging Country Debt Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$9.10 per share based on 62,068,588
shares of beneficial interest
outstanding)
|
|
$ |
564,569,785 |
|
Offering Price (9.10 x 100 / 99.50)*
|
|
$ |
9.15 |
|
A-5
Appendix A
|
|
|
|
|
Emerging Country Debt Fund-Class IV |
|
|
|
|
Net Assets at Value (Equivalent to
$9.09 per share based on 123,531,697
shares of beneficial interest
outstanding)
|
|
$ |
1,122,409,004 |
|
Offering Price (9.09 x 100 / 99.50)*
|
|
$ |
9.14 |
|
Short-Duration Investment Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$8.36 per share based on 717,777
shares of beneficial interest
outstanding)
|
|
$ |
5,997,398 |
|
Offering Price
|
|
$ |
8.36 |
|
Short-Duration Collateral Fund |
|
|
|
|
Net Assets at Value (Equivalent to
$10.38 per share based on
197,912,675 shares of beneficial
interest outstanding)
|
|
$ |
2,053,584,223 |
|
Offering Price
|
|
$ |
10.38 |
|
Short-Duration Collateral Share Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$18.65 per share based on 1,874,479
shares of beneficial interest
outstanding)
|
|
$ |
34,958,611 |
|
Offering Price
|
|
$ |
18.65 |
|
Inflation Indexed Plus Bond Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$19.52 per share based on 3,681,586
shares of beneficial interest
outstanding)
|
|
$ |
71,855,648 |
|
Offering Price
|
|
$ |
19.52 |
|
Inflation Indexed Plus Bond Fund-Class VI |
|
|
|
|
Net Assets at Value (Equivalent to
$19.52 per share based on 4,091,242
shares of beneficial interest
outstanding)
|
|
$ |
79,877,201 |
|
Offering Price
|
|
$ |
19.52 |
|
U.S. Treasury Fund |
|
|
|
|
Net Assets at Value (Equivalent to
$25.00 per share based on 72,575,689
shares of beneficial interest
outstanding)
|
|
$ |
1,814,553,077 |
|
Offering Price
|
|
$ |
25.00 |
|
Asset Allocation Bond Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$25.01 per share based on 1,946,411
shares of beneficial interest
outstanding)
|
|
$ |
48,675,690 |
|
Offering Price
|
|
$ |
25.01 |
|
Asset Allocation Bond Fund-Class VI |
|
|
|
|
Net Assets at Value (Equivalent to
$25.01 per share based on 19,560,496
shares of beneficial interest
outstanding)
|
|
$ |
489,202,465 |
|
Offering Price
|
|
$ |
25.01 |
|
U.S. Equity Allocation Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$25.51 per share based on 3,760,506
shares of beneficial interest
outstanding)
|
|
$ |
95,923,146 |
|
Offering Price
|
|
$ |
25.51 |
|
International Equity Allocation Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$10.80 per share based on
118,311,149 shares of beneficial
interest outstanding)
|
|
$ |
1,277,550,912 |
|
Offering Price (10.80 x 100 / 99.79)*
|
|
$ |
10.82 |
|
A-6
Appendix A
|
|
|
|
|
International Opportunities Equity Allocation Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$15.23 per share based on 52,253,152
shares of beneficial interest
outstanding)
|
|
$ |
796,026,269 |
|
Offering Price
|
|
$ |
15.23 |
|
Global Equity Allocation Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$8.60 per share based on 172,764,824
shares of beneficial interest
outstanding)
|
|
$ |
1,485,712,253 |
|
Offering Price (8.60 x 100 / 99.87)*
|
|
$ |
8.61 |
|
World Opportunities Equity Allocation Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$19.32 per share based on 62,887,904
shares of beneficial interest
outstanding)
|
|
$ |
1,215,042,733 |
|
Offering Price
|
|
$ |
19.32 |
|
Global Balanced Asset Allocation Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$10.22 per share based on
338,412,986 shares of beneficial
interest outstanding)
|
|
$ |
3,457,703,235 |
|
Offering Price (10.22 x 100 / 99.91)*
|
|
$ |
10.23 |
|
Strategic Opportunities Allocation Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$20.78 per share based on 84,338,083
shares of beneficial interest
outstanding)
|
|
$ |
1,752,167,790 |
|
Offering Price
|
|
$ |
20.78 |
|
Benchmark-Free Allocation Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$22.72 per share based on
139,574,816 shares of beneficial
interest outstanding)
|
|
$ |
3,170,573,257 |
|
Offering Price (22.72 x 100 / 99.91)*
|
|
$ |
22.74 |
|
Alpha Only Fund-Class III |
|
|
|
|
Net Assets at Value (Equivalent to
$23.49 per share based on 2,543,709
shares of beneficial interest
outstanding)
|
|
$ |
59,746,452 |
|
Offering Price
|
|
$ |
23.49 |
|
Alpha Only Fund-Class IV |
|
|
|
|
Net Assets at Value (Equivalent to
$23.50 per share based on 82,156,915
shares of beneficial interest
outstanding)
|
|
$ |
1,930,346,642 |
|
Offering Price
|
|
$ |
23.50 |
|
Footnotes to Specimen Price Make-Up Sheets
|
|
|
* |
|
Represents maximum offering price charged on certain cash purchases. See
How to Purchase Shares and Purchase Premiums and Redemption Fees in the Funds Prospectus. |
A-7
Appendix B
COMMERCIAL PAPER AND CORPORATE DEBT RATINGS
Commercial Paper Ratings
Standard & Poors. Standard & Poors short-term ratings are generally assigned to those
obligations considered short-term in the relevant market. In the U.S., for example, that means
obligations with an original maturity of no more than 365 days including commercial paper. The
following are excerpts from Standard & Poors short-term issue credit ratings definitions:
A-1 A short-term obligation rated A-1 is rated in the highest category by Standard & Poors.
The obligors capacity to meet its financial commitment on the obligation is strong. Within this
category, certain obligations are designated with a plus sign (+). This indicates that the
obligors capacity to meet its financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher rating categories.
However, the obligors capacity to meet its financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having significant speculative
characteristics. Ratings of B-1, B-2, and B-3 may be assigned to indicate finer distinctions
within the B category. The obligor currently has the capacity to meet its financial commitment
on the obligation; however, it faces major ongoing uncertainties which could lead to the obligors
inadequate capacity to meet its financial commitment on the obligation.
B-1 A short-term obligation rated B-1 is regarded as having significant speculative
characteristics, but the obligor has a relatively stronger capacity to meet its financial
commitments over the short-term compared to other speculative-grade obligors.
B-2 A short-term obligation rated B-2 is regarded as having significant speculative
characteristics, and the obligor has an average speculative-grade capacity to meet its financial
commitments over the short-term compared to other speculative-grade obligors.
B-3 A short-term obligation rated B-3 is regarded as having significant speculative
characteristics, and the obligor has a relatively weaker capacity to meet its financial commitments
over the short-term compared to other speculative-grade obligors.
C A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon
favorable business, financial, and economic conditions for the obligor to meet its financial
commitment on the obligation.
D A short-term obligation rated D is in payment default. The D rating category is used
when payments on an obligation, including a regulatory capital instrument, are not made on the date
due even
B-1
Appendix B
if the applicable grace period has not expired, unless Standard & Poors believes that
such payments will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are
jeopardized.
Moodys. Moodys short-term ratings are opinions of the ability of issuers to honor short-term
financial obligations. Ratings may be assigned to issuers, short-term programs, or to individual
short-term debt instruments. Such obligations generally have an original maturity not exceeding
thirteen months, unless explicitly noted. The following are excerpts from Moodys short-term
ratings definitions:
P-1 Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay
short-term debt obligations.
P-2 Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay
short-term debt obligations.
P-3 Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay
short-term obligations.
NP Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime
rating categories.
Note: Canadian issuers rated P-1 or P-2 have their short-term ratings enhanced by the senior-most
long-term rating of the issuer, its guarantor or support-provider.
Corporate Debt Ratings
Standard & Poors. A Standard & Poors issue credit rating is a forward-looking opinion about the
creditworthiness of an obligor with respect to a specific financial obligation, a specific class of
financial obligations, or a specific financial program. The following are excerpts from Standard &
Poors long-term issue credit ratings definitions:
AAA An obligation rated AAA has the highest rating assigned by Standard & Poors. The
obligors capacity to meet its financial commitment on the obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only to a small degree.
The obligors capacity to meet its financial commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher-rated categories. However, the
obligors capacity to meet its financial commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
B-2
Appendix B
BB, B, CCC, CC, and C Obligations rated BB, B, CCC, CC, and C are regarded as having
significant speculative characteristics. BB indicates the least degree of speculation and C the
highest. While such obligations will likely have some quality and protective characteristics,
these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other speculative issues.
However, it faces major ongoing uncertainties or exposure to adverse business, financial, or
economic conditions, which could lead to the obligors inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the
obligor currently has the capacity to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair the obligors capacity or
willingness to meet its financial commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon
favorable business, financial, and economic conditions for the obligor to meet its financial
commitment on the obligation. In the event of adverse business, financial, or economic conditions,
the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C A C rating is assigned to obligations that are currently highly vulnerable to nonpayment,
obligations that have payment arrearages allowed by the terms of the documents, or obligations of
an issuer that is the subject of a bankruptcy petition or similar action which have not experienced
a payment default. Among others, the C rating may be assigned to subordinated debt, preferred
stock or other obligations on which cash payments have been suspended in accordance with the
instruments terms or when preferred stock is the subject of a distressed exchange offer, whereby
some or all of the issue is either repurchased for an amount of cash or replaced by other
instruments having a total value that is less than par.
D An obligation rated D is in payment default. The D rating category is used when payments
on an obligation, including a regulatory capital instrument, are not made on the date due even if
the applicable grace period has not expired, unless Standard & Poors believes that such payments
will be made during such grace period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of similar action if payments on an obligation are jeopardized.
An obligations rating is lowered to D upon completion of a distressed exchange offer, whereby
some or all of the issue is either repurchased for an amount of cash or replaced by other
instruments having a total value that is less than par.
Plus (+) or Minus (-) The ratings from AA to CCC may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within the major rating categories.
B-3
Appendix B
NR This indicates that no rating has been requested, that there is insufficient information on
which to base a rating, or that Standard & Poors does not rate a particular obligation as a matter
of policy.
Moodys. Moodys long-term ratings are opinions of the relative credit risk of financial
obligations with an original maturity of one year or more. They address the possibility that a
financial obligation will not be honored as promised. Such ratings use Moodys Global Scale and
reflect both the likelihood of default and any financial loss suffered in the event of default.
The following are excerpts from Moodys long-term obligation ratings definitions:
Aaa Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk.
Aa Obligations rated Aa are judged to be of high quality and are subject to very low credit
risk.
A Obligations rated A are considered upper-medium grade and are subject to low credit risk.
Baa Obligations rated Baa are subject to moderate credit risk. They are considered
medium-grade and as such may possess certain speculative characteristics.
Ba Obligations rated Ba are judged to have speculative elements and are subject to
substantial credit risk.
B Obligations rated B are considered speculative and are subject to high credit risk.
Caa Obligations rated Caa are judged to be of poor standing and are subject to very high
credit risk.
Ca Obligations rated Ca are highly speculative and are likely in, or very near, default, with
some prospect of recovery of principal and interest.
C Obligations rated C are the lowest rated class and are typically in default, with little
prospect for recovery of principal or interest.
Note: Moodys appends numerical modifiers 1, 2, and 3 to each generic rating classification from
Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a
ranking in the lower end of that generic rating category.
B-4
Appendix C
GMO TRUST
PROXY VOTING POLICY
I. Statement of Policy
GMO Trust (the Trust) delegates the authority and responsibility to vote proxies related to
portfolio securities held by the series of the Trust (each, a Fund, and collectively, the
Funds) to Grantham, Mayo, Van Otterloo & Co. LLC, its investment adviser (the Adviser).
The Board of Trustees (the Board) of the Trust has reviewed and approved the use of the proxy
voting policies and procedures of the Adviser (Proxy Voting Procedures) on behalf of the Funds
when exercising voting authority on behalf of the Funds.
II. Standard
The Adviser shall vote proxies related to portfolio securities in the best interests of the Funds
and their shareholders. In the event of any conflicts of interest between the Adviser and the
Funds, the Adviser shall follow procedures that enable it to cause the proxy to be voted in the
best interests of the Funds and their shareholders, which may include (1) causing the proxy to be
voted pursuant to the recommendation of an independent third party, pursuant to pre-established
proxy voting guidelines, or (2) seeking instructions from the Board on the manner in which the
proxy should be voted.
III. Review of Proxy Voting Procedures
The Board shall periodically review the Proxy Voting Procedures presented by the Adviser.
The Adviser shall provide periodic reports to the Board regarding any proxy votes where a material
conflict of interest was identified except in circumstances where the Adviser caused the proxy to
be voted consistent with the recommendation of the independent third party.
The Adviser shall notify the Board promptly of any material change to its Proxy Voting Procedures.
IV. Securities Lending
When a Fund lends its portfolio securities, the Adviser pursuant to the authority delegated to it
by the Fund retains an obligation with respect to voting proxies relating to such securities.
However, while such securities are on loan, a Fund will not have the right to vote the proxies
relating to those securities. As a result, a Fund will only loan its portfolio securities pursuant
to securities lending arrangements that permit the Fund to recall a loaned security or to exercise
voting rights associated with the security. However, the Adviser generally will not arrange to
have a security recalled or to exercise voting rights associated with a security unless the Adviser
both (1) receives adequate notice of a proposal upon which shareholders are being asked to vote
(which the Adviser often does not receive, particularly in the case of non-U.S. issuers) and (2)
the Adviser believes that the benefits to the Fund of voting on such proposal outweigh the benefits
to the Fund of having the security remain out on loan. The Adviser may use third-party service providers to assist it in identifying and evaluating proposals, and to assist it in
recalling loaned securities for proxy voting purposes.
C-1
Appendix C
V. Certain Non-U.S. Markets
In certain non-U.S. markets, shareholders who vote proxies of a non-U.S. issuer may not be able to
trade in the issuers stock for a period of time around the shareholder meeting date. In addition,
there may be other costs or impediments to voting proxies in certain non-U.S. markets (e.g.,
receiving adequate notice, arranging for a proxy, and re-registration requirements). In non-U.S.
markets with the foregoing attributes, the Adviser generally will determine not to vote proxies
unless it believes that the potential benefits to the Fund of voting outweigh the impairment of
portfolio management flexibility and the expected costs/impediments associated with voting.
VI. Disclosure
The following disclosure shall be provided:
|
A. |
|
Each Funds proxy voting record shall annually be included in the Funds Form
N-PX. |
|
|
B. |
|
The Adviser shall cause each Fund to include the Trusts proxy voting policies
and procedures in the Trusts statement of additional information. |
|
|
C. |
|
Each Funds shareholder report shall include a statement that a description of
the Funds proxy voting policies and procedures is available (i) without charge, upon
request, by calling a specified toll-free or collect telephone number; (ii) on the
Funds website, if applicable; and (iii) on the Commissions website at
http://www.sec.gov. |
|
|
D. |
|
The Trusts statement of additional information and each Funds shareholder
report shall include a statement that information regarding how the Fund voted proxies
relating to portfolio securities during the most recent 12-month period ended June 30
is available (i) without charge, upon request, by calling a specified toll-free or
collect telephone number, or on or through the Funds website, or both; and (ii) on the
Commissions website at http://www.sec.gov. |
Adopted effective September 16, 2003, as revised March 11, 2010.
C-2
Appendix C
GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC
GMO AUSTRALASIA LLC
(TOGETHER GMO)
PROXY VOTING POLICIES AND PROCEDURES
Amended and Restated as of May 12, 2011
I. Introduction and General Principles
GMO provides investment advisory services primarily to institutional, including both ERISA and
non-ERISA clients, and commercial clients. GMO understands that proxy voting is an integral aspect
of security ownership. Accordingly, in cases where GMO has been delegated authority to vote
proxies, that function must be conducted with the same degree of prudence and loyalty accorded any
fiduciary or other obligation of an investment manager.
This policy permits clients of GMO to: (1) delegate to GMO the responsibility and authority to vote
proxies on their behalf according to GMOs proxy voting polices and guidelines; (2) delegate to GMO
the responsibility and authority to vote proxies on their behalf according to the particular
clients own proxy voting policies and guidelines; or (3) elect to vote proxies themselves. In
instances where clients elect to vote their own proxies, GMO shall not be responsible for voting
proxies on behalf of such clients.
GMO believes that the following policies and procedures are reasonably designed to ensure that
proxy matters are conducted in the best interest of its clients, in accordance with GMOs fiduciary
duties, applicable rules under the Investment Advisers Act of 1940 and fiduciary standards and
responsibilities for ERISA clients set out in the Department of Labor interpretations.
II. Proxy Voting Guidelines
GMO has engaged Institutional Shareholder Services Group, Inc. (ISS) as its proxy voting agent
to:
|
(1) |
|
research and make voting recommendations or, for matters for which GMO has so
delegated, to make the voting determinations; |
|
|
(2) |
|
ensure that proxies are voted and submitted in a timely manner; |
|
|
(3) |
|
handle other administrative functions of proxy voting; |
|
|
(4) |
|
maintain records of proxy statements received in connection with proxy votes
and provide copies of such proxy statements promptly upon request; |
|
|
(5) |
|
maintain records of votes cast; and |
|
|
(6) |
|
provide recommendations with respect to proxy voting matters in general. |
C-3
Appendix C
Proxies generally will be voted in accordance with the voting recommendations contained in the
applicable domestic or global ISS Proxy Voting Manual, as in effect from time to time, subject to
such modifications as may be determined by GMO (as described below). Copies of concise summaries
of the current domestic and global ISS proxy voting guidelines are attached to these Proxy Voting
Policies and Procedures as Exhibit A. To the extent GMO determines to adopt proxy voting
guidelines that differ from the ISS proxy voting recommendations, such guidelines will be set forth
on Exhibit B and proxies with respect to such matters will be voted in accordance with the
guidelines set forth on Exhibit B. GMO reserves the right to modify any of the recommendations set
forth in the ISS Proxy Voting Manual in the future. If any such changes are made, an amended
Exhibit B to these Proxy Voting Policies and Procedures will be made available for clients.
Except in instances where a GMO client retains voting authority, GMO will instruct custodians of
client accounts to forward all proxy statements and materials received in respect of client
accounts to ISS.
In certain non-U.S. markets, shareholders who vote proxies of a non-U.S. issuer may not be able to
trade in the issuers stock for a period of time around the shareholder meeting date. In addition,
there may be other costs or impediments to voting proxies in certain non-U.S. markets (e.g.,
receiving adequate notice, arranging for a proxy, and re-registration requirements). In non-U.S.
markets with the foregoing attributes, GMO generally will determine to not vote proxies unless it
believes that the potential benefits to the client of voting outweigh the impairment of portfolio
management flexibility and the expected costs/impediments associated with voting. In addition, if
a portfolio security is out on loan, GMO generally will not arrange to have the security recalled
or to exercise voting rights associated with the security unless GMO both (1) receives adequate
notice of a proposal upon which shareholders are being asked to vote (which GMO often does not
receive, particularly in the case of non-U.S. issuers) and (2) GMO believes that the benefits to
the client of voting on such proposal outweigh the benefits to the client of having the security
remain out on loan. GMO may use third-party service providers to assist it in identifying and
evaluating proposals, and to assist it in recalling loaned securities for proxy voting purposes.
III. Proxy Voting Procedures
GMO has a Corporate Actions Group with responsibility for administering the proxy voting process,
including:
|
1. |
|
Implementing and updating the applicable domestic and global ISS proxy voting
guidelines set forth in the ISS Proxy Voting Manual, as modified from time to time by
Exhibit B hereto; |
|
|
2. |
|
Overseeing the proxy voting process; and |
|
|
3. |
|
Providing periodic reports to GMOs Compliance Department and clients as
requested. |
There may be circumstances under which a portfolio manager or other GMO investment professional
(GMO Investment Professional) believes that it is in the best interest of a client or clients to
vote
C-4
Appendix C
proxies in a manner inconsistent with the proxy voting guidelines described in Section II. In such
an event, the GMO Investment Professional will inform GMOs Corporate Actions Group of its decision
to vote such proxy in a manner inconsistent with the proxy voting guidelines described in Section
II. GMOs Corporate Actions Group will report to GMOs Compliance Department no less than
quarterly any instance where a GMO Investment Professional has decided to vote a proxy on behalf of
a client in that manner.
IV. Conflicts of Interest
As ISS will vote proxies in accordance with the proxy voting guidelines described in Section II,
GMO believes that this process is reasonably designed to address conflicts of interest that may
arise between GMO and a client as to how proxies are voted.
In addition, if GMO is aware that one of the following conditions exists with respect to a proxy,
GMO shall consider such event a potential material conflict of interest:
|
1. |
|
GMO has a business relationship or potential relationship with the issuer; |
|
|
2. |
|
GMO has a business relationship with the proponent of the proxy proposal; or |
|
|
3. |
|
GMO members, employees or consultants have a personal or other business
relationship with the participants in the proxy contest, such as corporate directors or
director candidates. |
In the event of a potential material conflict of interest, GMO will (i) vote such proxy according
to Exhibit B (if applicable) or the specific recommendation of ISS; (ii) seek instructions from the
client or request that the client votes such proxy, or (iii) abstain. All such instances shall be
reported to GMOs Compliance Department at least quarterly.
V. Special Procedures for Voting Shares of GMO Trust
GMOs responsibility and authority to vote proxies on behalf of its clients for shares of GMO
Trust, a family of registered mutual funds for which GMO serves as the investment adviser, may give
rise to conflicts of interest. Accordingly, GMO will (i) vote such proxies in the best interests
of its clients with respect to routine matters, including proxies relating to the election of
Trustees; and (ii) with respect to matters where a conflict of interest exists between GMO and GMO
Trust, such as proxies relating to a new or amended investment management contract between GMO
Trust and GMO, or a re-organization of a series of GMO Trust, GMO will either (a) vote such proxies
in the same proportion as the votes cast with respect to that proxy, or (b) seek instructions from
its clients and vote on accordance with those instructions.
VI. Recordkeeping
GMO will maintain records relating to the implementation of these proxy voting policies and
procedures, including:
C-5
Appendix C
|
(1) |
|
a copy of these policies and procedures which shall be made available to
clients, upon request; |
|
|
(2) |
|
a record of each vote cast (which ISS maintains on GMOs behalf); and |
|
|
(3) |
|
each written client request for proxy records and GMOs written response to any
client request for such records. |
Such proxy voting records shall be maintained for a period of five years.
VII. Disclosure
Except as otherwise required by law, GMO has a general policy of not disclosing to any issuer or
third party how GMO or its voting delegate voted a clients proxy.
C-6
Appendix C
Exhibit A
2011 U.S. Proxy Voting Guidelines Concise Summary
(Digest of Selected Key Guidelines)
January 3, 2011
Institutional Shareholder Services Inc.
Copyright © 2011 by ISS.
The policies contained herein are a sampling of select, key proxy voting guidelines and are not
exhaustive. A full listing of ISSs 2011 proxy voting guidelines can be found in the Jan. 15, 2011,
edition of the U.S. Proxy Voting Manual, and in the 2011 U.S. Proxy Voting Guidelines Summary.
www.issgovernance.com
C-7
Appendix C
Routine/Miscellaneous
Auditor Ratification
Vote FOR proposals to ratify auditors, unless any of the following apply:
|
|
|
An auditor has a financial interest in or association with the company, and is
therefore not independent; |
|
|
|
|
There is reason to believe that the independent auditor has rendered an
opinion which is neither accurate nor indicative of the companys financial position; |
|
|
|
|
Poor accounting practices are identified that rise to a serious level of
concern, such as: fraud; misapplication of GAAP; and material weaknesses identified in
Section 404 disclosures; or |
|
|
|
|
Fees for non-audit services (Other fees) are excessive. |
Non-audit fees are excessive if:
|
|
|
Non-audit (other) fees >audit fees + audit-related fees + tax
compliance/preparation fees |
Ø Ø Ø Ø
Board of Directors
Voting on Director Nominees in Uncontested Elections
Votes on director nominees should be determined CASE-BY-CASE.
Four fundamental principles apply when determining votes on director nominees:
|
1. |
|
Board Accountability |
|
|
2. |
|
Board Responsiveness |
|
|
3. |
|
Director Independence |
|
|
4. |
|
Director Competence |
1. Board Accountability
VOTE WITHHOLD/AGAINST1 the entire board of directors (except new
nominees2, who should be considered CASE-BY-CASE), for the following:
Problematic Takeover Defenses:
|
1.1. |
|
The board is classified, and a continuing director responsible for a
problematic governance issue at the board/committee level that would warrant a
withhold/against vote recommendation is not up for election any or all appropriate
nominees (except new) may be held accountable; |
|
|
1.2. |
|
The board lacks accountability and oversight, coupled with sustained poor
performance relative to peers. Sustained poor performance is measured by one- and
three-year total shareholder returns
in the bottom half of a companys four-digit GICS industry group (Russell 3000
companies only). |
|
|
|
1 |
|
In general, companies with a plurality
vote standard use Withhold as the valid contrary vote option in director
elections; companies with a majority vote standard use Against. However, it
will vary by company and the proxy must be checked to determine the valid
contrary vote option for the particular company. |
|
2 |
|
A new nominee is any current nominee
who has not already been elected by shareholders and who joined the board after
the problematic action in question transpired. If ISS cannot determine whether
the nominee joined the board before or after the problematic action transpired,
the nominee will be considered a new nominee if he or she joined the board
within the 12 months prior to the upcoming shareholder meeting. |
C-8
Appendix C
|
|
|
Take into consideration the companys five-year total shareholder
return and five-year operational metrics. Problematic provisions include but are not
limited to: |
|
|
|
A classified board structure; |
|
|
|
|
A supermajority vote requirement; |
|
|
|
|
Majority vote standard for director elections with no carve out
for contested elections; |
|
|
|
|
The inability for shareholders to call special meetings; |
|
|
|
|
The inability for shareholders to act by written consent; |
|
|
|
|
A dual-class structure; and/or |
|
|
|
|
A non-shareholder approved poison pill. |
|
1.3. |
|
The companys poison pill has a dead-hand or modified dead-hand feature.
Vote withhold/against every year until this feature is removed; |
|
|
1.4. |
|
The board adopts a poison pill with a term of more than 12 months (long-term
pill), or renews any existing pill, including any short-term pill (12 months or
less), without shareholder approval. A commitment or policy that puts a newly-adopted
pill to a binding shareholder vote may potentially offset an adverse vote
recommendation. Review such companies with classified boards every year, and such
companies with annually-elected boards at least once every three years, and vote
AGAINST or WITHHOLD votes from all nominees if the company still maintains a
non-shareholder-approved poison pill. This policy applies to all companies adopting or
renewing pills after the announcement of this policy (Nov 19, 2009); |
|
|
1.5. |
|
The board makes a material adverse change to an existing poison pill without
shareholder approval. |
Vote CASE-BY-CASE on all nominees if:
|
1.6. |
|
the board adopts a poison pill with a term of 12 months or less (short-term
pill) without shareholder approval, taking into account the following factors: |
|
|
|
The date of the pills adoption relative to the date of the next
meeting of shareholders- i.e. whether the company had time to put the pill on
ballot for shareholder ratification given the circumstances; |
|
|
|
The issuers rationale; |
|
|
|
The issuers governance structure and practices; and |
|
|
|
The issuers track record of accountability to shareholders. |
Problematic Audit-Related Practice
Generally, vote AGAINST or WITHHOLD from the members of the Audit Committee if:
|
1.7. |
|
The non-audit fees paid to the auditor are excessive (see discussion under
Auditor Ratification); |
|
|
1.8. |
|
The company receives an adverse opinion on the companys financial statements
from its auditor; or |
|
|
1.9. |
|
There is persuasive evidence that the audit committee entered into an
inappropriate indemnification agreement with its auditor that limits the ability of the
company, or its shareholders, to pursue legitimate legal recourse against the audit
firm. |
Vote CASE-BY-CASE on members of the Audit Committee and/or the full board if:
|
1.10. |
|
Poor accounting practices are identified that rise to a level of serious
concern, such as: fraud; misapplication of GAAP; and material weaknesses identified in
Section 404 disclosures. Examine the severity, breadth, chronological sequence and
duration, as well as the companys efforts at remediation or corrective actions, in
determining whether WITHHOLD/AGAINST votes are
warranted. |
C-9
Appendix C
Problematic Compensation Practices
Vote WITHHOLD/AGAINST the members of the Compensation Committee and potentially the full board if:
|
1.11. |
|
There is a negative correlation between chief executive pay and company
performance (see Pay for Performance Policy); |
|
|
1.12. |
|
The company reprices underwater options for stock, cash, or other
consideration without prior shareholder approval, even if allowed in the companys
equity plan; |
|
|
1.13. |
|
The company fails to submit one-time transfers of stock options to a
shareholder vote; |
|
|
1.14. |
|
The company fails to fulfill the terms of a burn rate commitment made to
shareholders; |
|
|
1.15. |
|
The company has problematic pay practices. Problematic pay practices may
warrant withholding votes from the CEO and potentially the entire board as well. |
Governance Failures
Under extraordinary circumstances, vote AGAINST or WITHHOLD from directors individually, committee
members, or the entire board, due to:
|
1.16. |
|
Material failures of governance, stewardship, or fiduciary responsibilities at
the company; |
|
|
1.17. |
|
Failure to replace management as appropriate; or |
|
|
1.18. |
|
Egregious actions related to the director(s) service on other boards that
raise substantial doubt about his or her ability to effectively oversee management and
serve the best interests of shareholders at any company. |
2. Board Responsiveness
Vote WITHHOLD/AGAINST the entire board of directors (except new nominees, who should be considered
CASE-BY-CASE), if:
|
2.1. |
|
The board failed to act on a shareholder proposal that received approval by a
majority of the shares outstanding the previous year; or |
|
|
2.2. |
|
The board failed to act on a shareholder proposal that received approval of the
majority of shares cast in the last year and one of the two previous years. |
|
|
2.3. |
|
The board failed to act on takeover offers where the majority of the
shareholders tendered their shares; or |
|
|
2.4. |
|
At the previous board election, any director received more than 50 percent
withhold/against votes of the shares cast and the company has failed to address the
issue(s) that caused the high withhold/against vote. |
3. Director Independence
Vote WITHHOLD/AGAINST Inside Directors and Affiliated Outside Directors (per the Categorization
of Directors) when:
|
3.1. |
|
The inside or affiliated outside director serves on any of the three key
committees: audit, compensation, or nominating; |
|
|
3.2. |
|
The company lacks an audit, compensation, or nominating committee so that the
full board functions as that committee; |
|
|
3.3. |
|
The company lacks a formal nominating committee, even if the board attests that
the independent directors fulfill the functions of such a committee; or |
|
|
3.4. |
|
The full board is less than majority independent. |
C-10
Appendix C
4. Director Competence
VOTE WITHHOLD/AGAINST the entire board of directors (except new nominees, who should be considered
CASE-BY-CASE), if:
|
4.1. |
|
The companys proxy indicates that not all directors attended 75 percent of the
aggregate board and committee meetings, but fails to provide the required disclosure of
the names of the director(s) involved. |
Generally vote AGAINST or WITHHOLD from individual directors who:
|
4.2. |
|
Attend less than 75 percent of the board and committee meetings (with the
exception of new nominees). Acceptable reasons for director(s) absences are generally
limited to the following: |
|
|
|
Medical issues/illness; |
|
|
|
|
Family emergencies; and |
|
|
|
|
If the directors total service was three meetings or fewer and
the director missed only one meeting. |
|
|
|
These reasons for directors absences will only be considered by ISS if disclosed in
the proxy or another SEC filing. If the disclosure is insufficient to determine
whether a director attended at least 75 percent of board and committee meetings in
aggregate, vote AGAINST/WITHHOLD from the director. |
Vote AGAINST or WITHHOLD from individual directors who:
|
4.3. |
|
Sit on more than six public company boards; or |
|
|
4.4. |
|
Are CEOs of public companies who sit on the boards of more than two public
companies besides their own withhold only at their outside boards. |
Ø Ø Ø Ø
Voting for Director Nominees in Contested Elections
Vote CASE-BY-CASE on the election of directors in contested elections, considering the following
factors:
|
|
|
Long-term financial performance of the target company relative to its
industry; |
|
|
|
|
Managements track record; |
|
|
|
|
Background to the proxy contest; |
|
|
|
|
Qualifications of director nominees (both slates); |
|
|
|
|
Strategic plan of dissident slate and quality of critique against management; |
|
|
|
|
Likelihood that the proposed goals and objectives can be achieved (both
slates); |
|
|
|
|
Stock ownership positions. |
Ø Ø Ø Ø
Independent Chair (Separate Chair/CEO)
Generally vote FOR shareholder proposals requiring that the chairmans position be filled by an
independent director, unless the company satisfies all of the following criteria:
The company maintains the following counterbalancing governance structure:
C-11
Appendix C
|
|
|
Designated lead director, elected by and from the independent board members
with clearly delineated and comprehensive duties. (The role may alternatively reside with a
presiding director, vice chairman, or rotating lead director; however the director must
serve a minimum of one year in order to qualify as a lead director.) The duties should
include, but are not limited to, the following: |
|
|
|
presides at all meetings of the board at which the chairman is not
present, including executive sessions of the independent directors; |
|
|
|
|
serves as liaison between the chairman and the independent directors; |
|
|
|
|
approves information sent to the board; |
|
|
|
|
approves meeting agendas for the board; |
|
|
|
|
approves meeting schedules to assure that there is sufficient time for discussion of all agenda items; |
|
|
|
|
has the authority to call meetings of the independent directors; |
|
|
|
|
if requested by major shareholders, ensures that he is available for
consultation and direct communication; |
|
|
|
Two-thirds independent board; |
|
|
|
|
All independent key committees; |
|
|
|
|
Established governance guidelines; |
|
|
|
|
A company in the Russell 3000 universe must not have exhibited sustained poor
total shareholder return (TSR) performance, defined as one- and three-year TSR in the
bottom half of the companys four-digit GICS industry group (using Russell 3000 companies
only), unless there has been a change in the Chairman/CEO position within that time. For
companies not in the Russell 3000 universe, the company must not have underperformed both
its peers and index on the basis of both one-year and three-year total shareholder returns,
unless there has been a change in the Chairman/CEO position within that time; |
|
|
|
|
The company does not have any problematic governance or management issues,
examples of which include, but are not limited to: |
|
|
|
|
Egregious compensation practices; |
|
|
|
|
Multiple related-party transactions or other issues putting director independence at risk; |
|
|
|
|
Corporate and/or management scandals; |
|
|
|
|
Excessive problematic corporate governance provisions; or |
|
|
|
|
Flagrant actions by management or the board with potential or realized
negative impacts on shareholders. |
Ø Ø Ø Ø
Shareholder Rights & Defenses
Net Operating Loss (NOL) Protective Amendments
Vote AGAINST proposals to adopt a protective amendment for the stated purpose of protecting a
companys net operating losses (NOLs) if the effective term of the protective amendment would
exceed the shorter of three years and the exhaustion of the NOL.
Vote CASE-BY-CASE, considering the following factors, for management proposals to adopt an NOL
protective amendment that would remain in effect for the shorter of three years (or less) and the
exhaustion of the NOL:
|
|
|
The ownership threshold (NOL protective amendments generally prohibit stock
ownership transfers that would result in a new 5-percent holder or increase the stock
ownership percentage of an existing 5-percent holder); |
|
|
|
|
The value of the NOLs; |
|
|
|
|
Shareholder protection mechanisms (sunset provision or commitment to cause
expiration of the protective amendment upon exhaustion or expiration of the NOL); |
C-12
Appendix C
|
|
|
The companys existing governance structure including: board independence,
existing takeover defenses, track record of responsiveness to shareholders, and any other
problematic governance concerns; and |
|
|
|
|
Any other factors that may be applicable. |
Ø Ø Ø Ø
Poison Pills- Management Proposals to Ratify Poison Pill
Vote CASE-BY-CASE on management proposals on poison pill ratification, focusing on the features of
the shareholder rights plan. Rights plans should contain the following attributes:
|
|
|
No lower than a 20% trigger, flip-in or flip-over; |
|
|
|
|
A term of no more than three years; |
|
|
|
|
No dead-hand, slow-hand, no-hand or similar feature that limits the ability of
a future board to redeem the pill; |
|
|
|
|
Shareholder redemption feature (qualifying offer clause); if the board refuses
to redeem the pill 90 days after a qualifying offer is announced, 10 percent of the shares
may call a special meeting or seek a written consent to vote on rescinding the pill. |
In addition, the rationale for adopting the pill should be thoroughly explained by the company. In
examining the request for the pill, take into consideration the companys existing governance
structure, including: board independence, existing takeover defenses, and any problematic
governance concerns.
Ø Ø Ø Ø
Poison Pills- Management Proposals to Ratify a Pill to Preserve Net Operating Losses (NOLs)
Vote AGAINST proposals to adopt a poison pill for the stated purpose of protecting a companys net
operating losses (NOLs) if the term of the pill would exceed the shorter of three years and the
exhaustion of the NOL.
Vote CASE-BY-CASE on management proposals for poison pill ratification, considering the following
factors, if the term of the pill would be the shorter of three years (or less) and the exhaustion
of the NOL:
|
|
|
The ownership threshold to transfer (NOL pills generally have a trigger
slightly below 5 percent); |
|
|
|
|
The value of the NOLs; |
|
|
|
|
Shareholder protection mechanisms (sunset provision, or commitment to cause
expiration of the pill upon exhaustion or expiration of NOLs); |
|
|
|
|
The companys existing governance structure including: board independence,
existing takeover defenses, track record of responsiveness to shareholders, and any other
problematic governance concerns; and |
|
|
|
|
Any other factors that may be applicable. |
Ø Ø Ø Ø
Shareholder Ability to Act by Written Consent
Generally vote AGAINST management and shareholder proposals to restrict or prohibit shareholders
ability to act by written consent.
Generally vote FOR management and shareholder proposals that provide shareholders with the ability
to act by written consent, taking into account the following factors:
|
|
|
Shareholders current right to act by written consent; |
|
|
|
|
The consent threshold; |
C-13
Appendix C
|
|
|
The inclusion of exclusionary or prohibitive language; |
|
|
|
|
Investor ownership structure; and |
|
|
|
|
Shareholder support of, and managements response to, previous shareholder
proposals. |
Vote CASE-BY-CASE on shareholder proposals if, in addition to the considerations above, the company
has the following governance and antitakeover provisions:
|
|
|
An unfettered3 right for shareholders to call special
meetings at a 10 percent threshold; |
|
|
|
|
A majority vote standard in uncontested director elections; |
|
|
|
|
No non-shareholder-approved pill; and |
|
|
|
|
An annually elected board. |
Ø Ø Ø Ø
Shareholder Ability to Call Special Meetings
Vote AGAINST management or shareholder proposals to restrict or prohibit shareholders ability to
call special meetings.
Generally vote FOR management or shareholder proposals that provide shareholders with the ability
to call special meetings taking into account the following factors:
|
|
|
Shareholders current right to call special meetings; |
|
|
|
|
Minimum ownership threshold necessary to call special meetings (10%
preferred); |
|
|
|
|
The inclusion of exclusionary or prohibitive language; |
|
|
|
|
Investor ownership structure; and |
|
|
|
|
Shareholder support of, and managements response to, previous shareholder
proposals. |
Ø Ø Ø Ø
CAPITAL/RESTRUCTURING
Common Stock Authorization
Vote FOR proposals to increase the number of authorized common shares where the primary purpose of
the increase is to issue shares in connection with a transaction on the same ballot that warrants
support.
Vote AGAINST proposals at companies with more than one class of common stock to increase the number
of authorized shares of the class of common stock that has superior voting rights.
Vote AGAINST proposals to increase the number of authorized common shares if a vote for a reverse
stock split on the same ballot is warranted despite the fact that the authorized shares would not
be reduced proportionally.
Vote CASE-BY-CASE on all other proposals to increase the number of shares of common stock
authorized for issuance. Take into account company-specific factors that include, at a minimum, the
following:
|
|
|
Past Board Performance: |
|
o |
|
The companys use of authorized shares during the last three years |
|
|
|
3 |
|
Unfettered means no restrictions on
agenda items, no restrictions on the number of shareholders who can group
together to reach the 10 percent threshold, and only reasonable limits on when
a meeting can be called: no greater than 30 days after the last annual meeting
and no greater than 90 prior to the next annual meeting. |
C-14
Appendix C
|
o |
|
Disclosure in the proxy statement of the specific purposes of the proposed increase; |
|
|
o |
|
Disclosure in the proxy statement of specific and severe risks to
shareholders of not approving the request; and |
|
|
o |
|
The dilutive impact of the request as determined by an allowable increase
calculated by ISS (typically 100 percent of existing authorized shares) that reflects
the companys need for shares and total shareholder returns. |
Ø Ø Ø Ø
Preferred Stock Authorization
Vote FOR proposals to increase the number of authorized preferred shares where the primary purpose
of the increase is to issue shares in connection with a transaction on the same ballot that
warrants support.
Vote AGAINST proposals at companies with more than one class or series of preferred stock to
increase the number of authorized shares of the class or series of preferred stock that has
superior voting rights.
Vote CASE-BY-CASE on all other proposals to increase the number of shares of preferred stock
authorized for issuance. Take into account company-specific factors that include, at a minimum, the
following:
|
|
|
Past Board Performance: |
|
o |
|
The companys use of authorized preferred shares during the last three years; |
|
o |
|
Disclosure in the proxy statement of the specific purposes for the proposed increase; |
|
|
o |
|
Disclosure in the proxy statement of specific and severe risks to
shareholders of not approving the request; |
|
|
o |
|
In cases where the company has existing authorized preferred stock, the
dilutive impact of the request as determined by an allowable increase calculated by
ISS (typically 100 percent of existing authorized shares) that reflects the companys
need for shares and total shareholder returns; and |
|
|
o |
|
Whether the shares requested are blank check preferred shares that can be
used for antitakeover purposes. |
Ø Ø Ø Ø
Mergers and Acquisitions
Vote CASE-BY-CASE on mergers and acquisitions. Review and evaluate the merits and drawbacks of the
proposed transaction, balancing various and sometimes countervailing factors including:
|
|
|
Valuation Is the value to be received by the target shareholders (or paid by
the acquirer) reasonable? While the fairness opinion may provide an initial starting point
for assessing valuation reasonableness, emphasis is placed on the offer premium, market
reaction and strategic rationale. |
|
|
|
|
Market reaction How has the market responded to the proposed deal? A
negative market reaction should cause closer scrutiny of a deal. |
|
|
|
|
Strategic rationale Does the deal make sense strategically? From where is
the value derived? Cost and revenue synergies should not be overly aggressive or
optimistic, but reasonably achievable. Management should also have a favorable track record
of successful integration of historical acquisitions. |
|
|
|
|
Negotiations and process Were the terms of the transaction negotiated at
arms-length? Was the process fair and equitable? A fair process helps to ensure the best
price for shareholders. Significant negotiation wins can also signify the deal makers
competency. The comprehensiveness of the sales process (e.g., full auction, partial
auction, no auction) can also affect shareholder value. |
C-15
Appendix C
|
|
|
Conflicts of interest Are insiders benefiting from the transaction
disproportionately and inappropriately as compared to non-insider shareholders? As the
result of potential conflicts, the directors and officers of the company may be more likely
to vote to approve a merger than if they did not hold these interests. Consider whether
these interests may have influenced these directors and officers to support or recommend
the merger. The CIC figure presented in the ISS Transaction Summary section of this
report is an aggregate figure that can in certain cases be a misleading indicator of the
true value transfer from shareholders to insiders. Where such figure appears to be
excessive, analyze the underlying assumptions to determine whether a potential conflict
exists. |
|
|
|
|
Governance Will the combined company have a better or worse governance
profile than the current governance profiles of the respective parties to the transaction?
If the governance profile is to change for the worse, the burden is on the company to prove
that other issues (such as valuation) outweigh any deterioration in governance. |
Ø Ø Ø Ø
COMPENSATION
Executive Pay Evaluation
Underlying all evaluations are five global principles that most investors expect corporations to
adhere to in designing and administering executive and director compensation programs:
|
1. |
|
Maintain appropriate pay-for-performance alignment, with emphasis on long-term
shareholder value: This principle encompasses overall executive pay practices, which
must be designed to attract, retain, and appropriately motivate the key employees who
drive shareholder value creation over the long term. It will take into consideration,
among other factors, the link between pay and performance; the mix between fixed and
variable pay; performance goals; and equity-based plan costs. |
|
|
2. |
|
Avoid arrangements that risk pay for failure: This principle addresses the
appropriateness of long or indefinite contracts, excessive severance packages, and
guaranteed compensation; |
|
|
3. |
|
Maintain an independent and effective compensation committee: This principle
promotes oversight of executive pay programs by directors with appropriate skills,
knowledge, experience, and a sound process for compensation decision-making (e.g.,
including access to independent expertise and advice when needed); |
|
|
4. |
|
Provide shareholders with clear, comprehensive compensation disclosures: This
principle underscores the importance of informative and timely disclosures that enable
shareholders to evaluate executive pay practices fully and fairly; |
|
|
5. |
|
Avoid inappropriate pay to non-executive directors: This principle recognizes
the interests of shareholders in ensuring that compensation to outside directors does
not compromise their independence and ability to make appropriate judgments in
overseeing managers pay and performance. At the market level, it may incorporate a
variety of generally accepted best practices. |
Advisory Votes on Executive Compensation- Management Proposals (Management Say-on-Pay)
Evaluate executive pay and practices, as well as certain aspects of outside director compensation
CASE-BY-CASE.
Vote AGAINST management say on pay (MSOP) proposals, AGAINST/WITHHOLD on compensation committee
members (or, in rare cases where the full board is deemed responsible, all directors including the
CEO), and/or AGAINST an equity-based incentive plan proposal if:
|
|
|
There is a misalignment between CEO pay and company performance (pay for
performance); |
|
|
|
|
The company maintains problematic pay practices; |
C-16
Appendix C
|
|
|
The board exhibits poor communication and responsiveness to shareholders. |
Voting Alternatives
In general, the management say on pay (MSOP) ballot item is the primary focus of voting on
executive pay practices dissatisfaction with compensation practices can be expressed by voting
against MSOP rather than withholding or voting against the compensation committee. However, if
there is no MSOP on the ballot, then the negative vote will apply to members of the compensation
committee. In addition, in egregious cases, or if the board fails to respond to concerns raised by
a prior MSOP proposal, then vote withhold or against compensation committee members (or, if the
full board is deemed accountable, all directors). If the negative factors involve equity-based
compensation, then vote AGAINST an equity-based plan proposal presented for shareholder approval.
Additional CASE-BY-CASE considerations for the management say on pay (MSOP) proposals:
|
|
|
Evaluation of performance metrics in short-term and long-term plans, as
discussed and explained in the Compensation Discussion & Analysis (CD&A). Consider the
measures, goals, and target awards reported by the company for executives short- and
long-term incentive awards: disclosure, explanation of their alignment with the companys
business strategy, and whether goals appear to be sufficiently challenging in relation to
resulting payouts; |
|
|
|
|
Evaluation of peer group benchmarking used to set target pay or award
opportunities. Consider the rationale stated by the company for constituents in its pay
benchmarking peer group, as well as the benchmark targets it uses to set or validate
executives pay (e.g., median, 75th percentile, etc.,) to ascertain whether the
benchmarking process is sound or may result in pay ratcheting due to inappropriate peer
group constituents (e.g., much larger companies) or targeting (e.g., above median); and |
|
|
|
|
Balance of performance-based versus non-performance-based pay. Consider the
ratio of performance-based (not including plain vanilla stock options) vs.
non-performance-based pay elements reported for the CEOs latest reported fiscal year
compensation, especially in conjunction with concerns about other factors such as
performance metrics/goals, benchmarking practices, and pay-for-performance disconnects. |
Primary Evaluation Factors for Executive Pay
Pay for Performance
Evaluate the alignment of the CEOs pay with performance over time, focusing particularly on
companies that have underperformed their peers over a sustained period. From a shareholders
perspective, performance is predominantly gauged by the companys stock performance over time. Even
when financial or operational measures are utilized in incentive awards, the achievement related to
these measures should ultimately translate into superior shareholder returns in the long-term.
Focus on companies with sustained underperformance relative to peers, considering the following key
factors:
|
|
|
Whether a companys one-year and three-year total shareholder returns (TSR)
are in the bottom half of its industry group (i.e., four-digit GICS Global Industry
Classification Group); and |
|
|
|
Whether the total compensation of a CEO who has served at least two
consecutive fiscal years is aligned with the companys total shareholder return over time,
including both recent and long-term periods. |
If a company falls in the bottom half of its four-digit GICS, further analysis of the CD&A is
required to better understand the various pay elements and whether they create or reinforce
shareholder alignment. Also assess the CEOs pay relative to the companys TSR over a time horizon
of at least five years. The most recent year-over-year increase or decrease in pay remains a key
consideration, but there will be additional emphasis on the long term trend of CEO total
compensation relative to shareholder return. Also consider the mix of performance-
C-17
Appendix C
based
compensation relative to total compensation. In general, standard stock options or time-vested
restricted stock are not considered to be performance-based. If a company provides
performance-based incentives to its executives, the company is highly encouraged to provide the
complete disclosure of the performance measure and goals (hurdle rate) so that shareholders can
assess the rigor of the performance program. The use of non-GAAP financial metrics also makes it
very challenging for shareholders to ascertain the rigor of the program as shareholders often
cannot tell the type of adjustments being made and if the adjustments were made consistently.
Complete and transparent disclosure helps shareholders to better understand the companys pay for
performance linkage.
Problematic Pay Practices
If the company maintains problematic pay practices, generally vote:
|
|
|
AGAINST management say on pay (MSOP) proposals; |
|
|
|
|
AGAINST/WITHHOLD on compensation committee members (or in rare cases where the
full board is deemed responsible, all directors including the CEO): |
|
o |
|
In egregious situations; |
|
|
o |
|
When no MSOP item is on the ballot; or |
|
|
o |
|
When the board has failed to respond to concerns raised in prior MSOP evaluations; and/or |
|
|
|
AGAINST an equity incentive plan proposal if excessive non-performance-based
equity awards are the major contributors to a pay-for-performance misalignment. |
The focus is on executive compensation practices that contravene the global pay principles,
including:
|
|
|
Problematic practices related to non-performance-based compensation elements; |
|
|
|
|
Incentives that may motivate excessive risk-taking; and |
|
|
|
|
Options Backdating. |
Problematic Pay Practices related to Non-Performance-Based Compensation Elements
Pay elements that are not directly based on performance are generally evaluated CASE-BY-CASE
considering the context of a companys overall pay program and demonstrated pay-for-performance
philosophy. Please refer to ISS Compensation FAQ document for detail on specific pay practices
that have been identified as potentially problematic and may lead to negative recommendations if
they are deemed to be inappropriate or unjustified relative to executive pay best practices. The
list below highlights the problematic practices that carry significant weight in this overall
consideration and may result in adverse vote recommendations:
|
|
|
Repricing or replacing of underwater stock options/SARS without prior
shareholder approval (including cash buyouts and voluntary surrender of underwater
options); |
|
|
|
|
Excessive perquisites or tax gross-ups, including any gross-up related to a
secular trust or restricted stock vesting; |
|
|
|
|
New or extended agreements that provide for: |
|
o |
|
CIC payments exceeding 3 times base salary and average/target/most recent
bonus; |
|
o |
|
CIC severance payments without involuntary job loss or substantial
diminution of duties (single or modified single triggers); |
|
o |
|
CIC payments with excise tax gross-ups (including modified gross-ups). |
Incentives that may Motivate Excessive Risk-Taking
Assess company policies and disclosure related to compensation that could incentivize excessive
risk-taking, for example:
|
|
|
Multi-year guaranteed bonuses; |
C-18
Appendix C
|
|
|
A single performance metric used for short- and long-term plans; |
|
|
|
|
Lucrative severance packages; |
|
|
|
|
High pay opportunities relative to industry peers; |
|
|
|
|
Disproportionate supplemental pensions; or |
|
|
|
|
Mega annual equity grants that provide unlimited upside with no downside risk. |
Factors that potentially mitigate the impact of risky incentives include rigorous claw-back
provisions and robust stock ownership/holding guidelines.
Options Backdating
Vote CASE-BY-CASE on options backdating issues. Generally, when a company has recently
practiced options backdating, WITHHOLD from or vote AGAINST the compensation committee, depending
on the severity of the practices and the subsequent corrective actions on the part of the board.
When deciding on votes on compensation committee members who oversaw questionable options grant
practices or current compensation committee members who fail to respond to the issue proactively,
consider several factors, including, but not limited to, the following:
|
|
|
Reason and motive for the options backdating issue, such as inadvertent vs.
deliberate grant date changes; |
|
|
|
|
Duration of options backdating; |
|
|
|
|
Size of restatement due to options backdating; |
|
|
|
|
Corrective actions taken by the board or compensation committee, such as
canceling or re-pricing backdated options, the recouping of option gains on backdated
grants; and |
|
|
|
|
Adoption of a grant policy that prohibits backdating, and creates a fixed
grant schedule or window period for equity grants in the future. |
A CASE-BY-CASE analysis approach allows distinctions to be made between companies that had sloppy
plan administration versus those that acted deliberately and/or committed fraud, as well as those
companies that subsequently took corrective action. Cases where companies have committed fraud are
considered most egregious.
Board Communications and Responsiveness
Consider the following factors CASE-BY-CASE when evaluating ballot items related to executive pay:
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Poor disclosure practices, including: |
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Unclear explanation of how the CEO is involved in the pay setting process; |
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Retrospective performance targets and methodology not discussed; |
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Methodology for benchmarking practices and/or peer group not disclosed and explained. |
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Boards responsiveness to investor input and engagement on compensation issues, for example: |
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Failure to respond to majority-supported shareholder proposals on executive pay topics; or |
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Failure to respond to concerns raised in connection with significant opposition to MSOP proposals. |
Ø Ø Ø Ø
Frequency of Advisory Vote on Executive Compensation (Management Say on Pay)
Vote FOR annual advisory votes on compensation, which provide the most consistent and clear
communication channel for shareholder concerns about companies executive pay programs.
C-19
Appendix C
Ø Ø Ø Ø
Voting on Golden Parachutes in an Acquisition, Merger, Consolidation, or Proposed Sale
Vote CASE-BY-CASE on proposals to approve the companys golden parachute compensation, consistent
with ISS policies on problematic pay practices related to severance packages. Features that may
lead to a vote AGAINST include:
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Recently adopted or materially amended agreements that include excise tax
gross-up provisions (since prior annual meeting); |
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Recently adopted or materially amended agreements that include modified single
triggers (since prior annual meeting); |
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Single trigger payments that will happen immediately upon a change in control,
including cash payment and such items as the acceleration of performance-based equity
despite the failure to achieve performance measures; |
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|
Single-trigger vesting of equity based on a definition of change in control
that requires only shareholder approval of the transaction (rather than consummation); |
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Potentially excessive severance payments; |
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Recent amendments or other changes that may make packages so attractive as to
influence merger agreements that may not be in the best interests of shareholders; |
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|
In the case of a substantial gross-up from pre-existing/grandfathered
contract: the element that triggered the gross-up (i.e., option mega-grants at low point in
stock price, unusual or outsized payments in cash or equity made or negotiated prior to the
merger); or |
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The companys assertion that a proposed transaction is conditioned on
shareholder approval of the golden parachute advisory vote. ISS would view this as
problematic from a corporate governance perspective. |
In cases where the golden parachute vote is incorporated into a companys separate advisory vote on
compensation (management say on pay), ISS will evaluate the say on pay proposal in accordance
with these guidelines, which may give higher weight to that component of the overall evaluation.
Equity-Based and Other Incentive Plans
Vote CASE-BY-CASE on equity-based compensation plans. Vote AGAINST the equity plan if any of
the following factors apply:
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The total cost of the companys equity plans is unreasonable; |
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The plan expressly permits the repricing of stock options/stock appreciate
rights (SARs) without prior shareholder approval; |
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The CEO is a participant in the proposed equity-based compensation plan and
there is a disconnect between CEO pay and the companys performance where over 50 percent
of the year-over-year increase is attributed to equity awards (see Pay-for-Performance); |
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The companys three year burn rate exceeds the greater of 2% or the mean plus
one standard deviation of its industry group but no more than two percentage points (+/-)
from the prior-year industry group cap; |
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Liberal Change of Control Definition: The plan provides for the acceleration
of vesting of equity awards even though an actual change in control may not occur (e.g.,
upon shareholder approval of a transaction or the announcement of a tender offer); or |
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The plan is a vehicle for problematic pay practices. |
Ø Ø Ø Ø
C-20
Appendix C
Shareholder Proposals on Compensation
Golden Coffins/Executive Death Benefits
Generally vote FOR proposals calling companies to adopt a policy of obtaining shareholder approval
for any future agreements and corporate policies that could oblige the company to make payments or
awards following the death of a senior executive in the form of unearned salary or bonuses,
accelerated vesting or the continuation in force of unvested equity grants, perquisites and other
payments or awards made in lieu of compensation. This would not apply to any benefit programs or
equity plan proposals that the broad-based employee population is eligible.
Ø Ø Ø Ø
Hold Equity Past Retirement or for a Significant Period of Time
Vote CASE-BY-CASE on shareholder proposals asking companies to adopt policies requiring senior
executive officers to retain all or a significant portion of the shares acquired through
compensation plans, either:
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|
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while employed and/or for two years following the termination of their
employment; or |
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|
for a substantial period following the lapse of all other vesting requirements
for the award (lock-up period), with ratable release of a portion of the shares annually
during the lock-up period. |
The following factors will be taken into account:
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Whether the company has any holding period, retention ratio, or officer
ownership requirements in place. These should consist of: |
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|
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Rigorous stock ownership guidelines; |
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|
A holding period requirement coupled with a significant long-term ownership requirement; or |
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|
A meaningful retention ratio; |
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Actual officer stock ownership and the degree to which it meets or exceeds the
proponents suggested holding period/retention ratio or the companys own stock ownership
or retention requirements; |
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|
Post-termination holding requirement policies or any policies aimed at
mitigating risk taking by senior executives; |
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Problematic pay practices, current and past, which may promote a short-term
versus a long-term focus. |
A rigorous stock ownership guideline should be at least 10x base salary for the CEO, with the
multiple declining for other executives. A meaningful retention ratio should constitute at least 50
percent of the stock received from equity awards (on a net proceeds basis) held on a long-term
basis, such as the executives tenure with the company or even a few years past the executives
termination with the company.
Vote CASE-BY-CASE on shareholder proposals asking companies to adopt policies requiring Named
Executive Officers to retain 75% of the shares acquired through compensation plans while employed
and/or for two years following the termination of their employment, and to report to shareholders
regarding this policy. The following factors will be taken into account:
|
|
|
Whether the company has any holding period, retention ratio, or officer
ownership requirements in place. These should consist of: |
|
|
|
Rigorous stock ownership guidelines, or |
|
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|
A holding period requirement coupled with a significant long-term ownership requirement, or |
|
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|
A meaningful retention ratio, |
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Actual officer stock ownership and the degree to which it meets or exceeds the
proponents suggested holding period/retention ratio or the companys own stock ownership
or retention requirements. |
C-21
Appendix C
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|
Problematic pay practices, current and past, which may promote a short-term
versus a long-term focus. |
A rigorous stock ownership guideline should be at least 10x base salary for the CEO, with the
multiple declining for other executives. A meaningful retention ratio should constitute at least 50
percent of the stock received from equity awards (on a net proceeds basis) held on a long-term
basis, such as the executives tenure with the company or even a few years past the executives
termination with the company.
Generally vote AGAINST shareholder proposals that mandate a minimum amount of stock that directors
must own in order to qualify as a director or to remain on the board. While ISS favors stock
ownership on the part of directors, the company should determine the appropriate ownership
requirement.
Ø Ø Ø Ø
Social/Environmental Issues
Overall Approach
When evaluating social and environmental shareholder proposals, ISS considers the following
factors:
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Whether adoption of the proposal is likely to enhance or protect shareholder
value; |
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Whether the information requested concerns business issues that relate to a
meaningful percentage of the companys business as measured by sales, assets, and earnings; |
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The degree to which the companys stated position on the issues raised in the
proposal could affect its reputation or sales, or leave it vulnerable to a boycott or
selective purchasing; |
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Whether the issues presented are more appropriately/effectively dealt with
through governmental or company-specific action; |
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|
Whether the company has already responded in some appropriate manner to the
request embodied in the proposal; |
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Whether the companys analysis and voting recommendation to shareholders are
persuasive; |
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What other companies have done in response to the issue addressed in the
proposal; |
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Whether the proposal itself is well framed and the cost of preparing the
report is reasonable; |
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Whether implementation of the proposals request would achieve the proposals
objectives; |
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Whether the subject of the proposal is best left to the discretion of the
board; |
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Whether the requested information is available to shareholders either from the
company or from a publicly available source; and |
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Whether providing this information would reveal proprietary or confidential
information that would place the company at a competitive disadvantage. |
Ø Ø Ø Ø
Board Diversity
Generally vote FOR requests for reports on the companys efforts to diversify the board, unless:
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The gender and racial minority representation of the companys board is
reasonably inclusive in relation to companies of similar size and business; and |
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The board already reports on its nominating procedures and gender and racial
minority initiatives on the board and within the company. |
Vote CASE-BY-CASE on proposals asking the company to increase the gender and racial minority
representation on its board, taking into account:
C-22
Appendix C
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The degree of existing gender and racial minority diversity on the companys
board and among its executive officers; |
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The level of gender and racial minority representation that exists at the
companys industry peers; |
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The companys established process for addressing gender and racial minority
board representation; |
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Whether the proposal includes an overly prescriptive request to amend
nominating committee charter language; |
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The independence of the companys nominating committee; |
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The company uses an outside search firm to identify potential director
nominees; and |
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Whether the company has had recent controversies, fines, or litigation
regarding equal employment practices. |
Ø Ø Ø Ø
Gender Identity, Sexual Orientation, and Domestic Partner Benefits
Generally vote FOR proposals seeking to amend a companys EEO statement or diversity policies to
prohibit discrimination based on sexual orientation and/or gender identity, unless the change would
result in excessive costs for the company.
Generally vote AGAINST proposals to extend company benefits to, or eliminate benefits from domestic
partners. Decisions regarding benefits should be left to the discretion of the company.
Ø Ø Ø Ø
Greenhouse Gas (GHG) Emissions
Generally vote FOR proposals requesting a report on greenhouse gas (GHG) emissions from company
operations and/or products and operations, unless:
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|
The company already provides current, publicly-available information on the
impacts that GHG emissions may have on the company as well as associated company policies
and procedures to address related risks and/or opportunities; |
|
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The companys level of disclosure is comparable to that of industry peers; and |
|
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There are no significant, controversies, fines, penalties, or litigation
associated with the companys GHG emissions. |
Vote CASE-BY-CASE on proposals that call for the adoption of GHG reduction goals from products and
operations, taking into account:
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Overly prescriptive requests for the reduction in GHG emissions by specific
amounts or within a specific time frame; |
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Whether company disclosure lags behind industry peers; |
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Whether the company has been the subject of recent, significant violations,
fines, litigation, or controversy related to GHG emissions; |
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The feasibility of reduction of GHGs given the companys product line and
current technology and; |
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Whether the company already provides meaningful disclosure on GHG emissions
from its products and operations. |
Ø Ø Ø Ø
C-23
Appendix C
Environmental, Social, and Governance (ESG) Compensation-Related Proposals
Generally vote AGAINST proposals to link, or report on linking, executive compensation to
environmental and social criteria such as corporate downsizings, customer or employee satisfaction,
community involvement, human rights, environmental performance, or predatory lending. However, the
following factors will be considered:
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|
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Whether the company has significant and persistent controversies or violations
regarding social and/or environmental issues; |
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Whether the company has management systems and oversight mechanisms in place
regarding its social and environmental performance; |
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The degree to which industry peers have incorporated similar non-financial
performance criteria in their executive compensation practices; and |
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The companys current level of disclosure regarding its environmental and
social performance. |
Generally vote AGAINST proposals calling for an analysis of the pay disparity between corporate
executives and other non-executive employees. The value of the information sought by such proposals
is unclear.
Ø Ø Ø Ø
Political Contributions and Trade Associations Spending
Generally vote AGAINST proposals asking the company to affirm political nonpartisanship in the
workplace so long as:
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There are no recent, significant controversies, fines or litigation regarding
the companys political contributions or trade association spending; and |
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|
The company has procedures in place to ensure that employee contributions to
company-sponsored political action committees (PACs) are strictly voluntary and prohibits
coercion. |
Vote AGAINST proposals to publish in newspapers and public media the companys political
contributions. Such publications could present significant cost to the company without providing
commensurate value to shareholders.
Vote CASE-BY-CASE on proposals to improve the disclosure of a companys political contributions and
trade association spending considering:
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|
|
Recent significant controversy or litigation related to the companys
political contributions or governmental affairs; and |
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|
The public availability of a company policy on political contributions and
trade association spending including information on the types of organizations supported,
the business rationale for supporting these organizations, and the oversight and compliance
procedures related to such expenditures of corporate assets. |
Vote AGAINST proposals barring the company from making political contributions. Businesses are
affected by legislation at the federal, state, and local level and barring political contributions
can put the company at a competitive disadvantage.
Vote AGAINST proposals asking for a list of company executives, directors, consultants, legal
counsels, lobbyists, or investment bankers that have prior government service and whether such
service had a bearing on the business of the company. Such a list would be burdensome to prepare
without providing any meaningful information to shareholders.
Ø Ø Ø Ø
C-24
Appendix C
Labor and Human Rights Standards
Generally vote FOR proposals requesting a report on company or company supplier labor and/or human
rights standards and policies unless such information is already publicly disclosed.
Vote CASE-BY-CASE on proposals to implement company or company supplier labor and/or human rights
standards and policies, considering:
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The degree to which existing relevant policies and practices are disclosed; |
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Whether or not existing relevant policies are consistent with internationally
recognized standards; |
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Whether company facilities and those of its suppliers are monitored and how; |
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Company participation in fair labor organizations or other internationally
recognized human rights initiatives; |
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Scope and nature of business conducted in markets known to have higher risk of
workplace labor/human rights abuse; |
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Recent, significant company controversies, fines, or litigation regarding
human rights at the company or its suppliers; |
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The scope of the request; and |
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Deviation from industry sector peer company standards and practices. |
Ø Ø Ø Ø
Sustainability Reporting
Generally vote FOR proposals requesting the company to report on its policies, initiatives, and
oversight mechanisms related to social, economic, and environmental sustainability, unless:
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|
The company already discloses similar information through existing reports or
policies such as an Environment, Health, and Safety (EHS) report; a comprehensive Code of
Corporate Conduct; and/or a Diversity Report; or |
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|
The company has formally committed to the implementation of a reporting
program based on Global Reporting Initiative (GRI) guidelines or a similar standard within
a specified time frame. |
Ø Ø Ø Ø
C-25
Appendix C
2011 International Proxy Voting Guidelines Summary
March 25, 2011
Institutional Shareholder Services Inc.
Copyright© 2011 by ISS
www.issgovernance.com
C-26
Appendix C
ISS 2011 International Proxy Voting Guidelines Summary
Effective for Meetings on or after Feb. 1, 2011
Published March, 25, 2011
The following is a condensed version of the proxy voting recommendations contained in ISS
International Proxy Voting Manual. Note that markets covered in this document exclude the US,
Canada, Western European markets, Australia, New Zealand, and China, which are presented
separately. In addition, ISS has country- and market-specific policies, which are not captured
below.
Disclosure/Disclaimer
This document and all of the information contained in it, including without limitation all
text, data, graphs, and charts (collectively, the Information) is the property of Institutional
Shareholder Services Inc. (ISS), its subsidiaries, or, in some cases third party suppliers.
The Information has not been submitted to, nor received approval from, the United States Securities
and Exchange Commission or any other regulatory body. None of the Information constitutes an offer
to sell (or a solicitation of an offer to buy), or a promotion or recommendation of, any security,
financial product or other investment vehicle or any trading strategy, and ISS does not endorse,
approve or otherwise express any opinion regarding any issuer, securities, financial products or
instruments or trading strategies.
The user of the Information assumes the entire risk of any use it may make or permit to be made of
the Information.
ISS MAKES NO EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE INFORMATION AND
EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES
OF ORIGINALITY, ACCURACY, TIMELINESS, NON-INFRINGEMENT, COMPLETENESS, MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE) WITH RESPECT TO ANY OF THE INFORMATION.
Without limiting any of the foregoing and to the maximum extent permitted by law, in no event shall
ISS have any liability regarding any of the Information for any direct, indirect, special,
punitive, consequential (including lost profits) or any other damages even if notified of the
possibility of such damages. The foregoing shall not exclude or limit any liability that may not by
applicable law be excluded or limited.
► ► ► ► ►
C-27
Appendix C
1. Operational Items
Financial Results/Director and Auditor Reports
Vote FOR approval of financial statements and director and auditor reports, unless:
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|
|
There are concerns about the accounts presented or audit procedures used; or |
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|
The company is not responsive to shareholder questions about specific items that
should be publicly disclosed. |
► ► ► ► ►
Appointment of Auditors and Auditor Fees
Vote FOR the (re)election of auditors and/or proposals authorizing the board to fix auditor fees,
unless:
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|
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There are serious concerns about the procedures used by the auditor; |
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|
There is reason to believe that the auditor has rendered an opinion, which is
neither accurate nor indicative of the companys financial position; |
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|
External auditors have previously served the company in an executive capacity or can
otherwise be considered affiliated with the company; |
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|
Name of the proposed auditors has not been published; |
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|
The auditors are being changed without explanation; or |
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|
Fees for non-audit services exceed standard annual audit-related fees (only applies
to companies on the MSCI EAFE index and/or listed on any country main index). |
In circumstances where fees for non-audit services include fees related to significant one-time
capital structure events (initial public offerings, bankruptcy emergencies, and spin-offs) and the
company makes public disclosure of the amount and nature of those fees, which are an exception to
the standard non-audit fee category, then such fees may be excluded from the non-audit fees
considered in determining the ratio of non-audit to audit fees.
For concerns related to the audit procedures, independence of auditors, and/or name of auditors,
ISS may recommend AGAINST the auditor (re)election. For concerns related to fees paid to the
auditors, ISS may recommend AGAINST remuneration of auditors if this is a separate voting item;
otherwise ISS may recommend AGAINST the auditor election.
► ► ► ► ►
Appointment of Internal Statutory Auditors
Vote FOR the appointment or (re)election of statutory auditors, unless:
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|
|
There are serious concerns about the statutory reports presented or the audit
procedures used; |
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|
Questions exist concerning any of the statutory auditors being appointed; or |
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|
The auditors have previously served the company in an executive capacity or can
otherwise be considered affiliated with the company. |
► ► ► ► ►
C-28
Appendix C
Allocation of Income
Vote FOR approval of the allocation of income, unless:
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|
|
The dividend payout ratio has been consistently below 30 percent without adequate
explanation; or |
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|
The payout is excessive given the companys financial position. |
► ► ► ► ►
Stock (Scrip) Dividend Alternative
Vote FOR most stock (scrip) dividend proposals.
Vote AGAINST proposals that do not allow for a cash option unless management demonstrates that the
cash option is harmful to shareholder value.
► ► ► ► ►
Amendments to Articles of Association
Vote amendments to the articles of association on a CASE-BY-CASE basis.
► ► ► ► ►
Change in Company Fiscal Term
Vote FOR resolutions to change a companys fiscal term unless a companys motivation for the change
is to postpone its AGM.
► ► ► ► ►
Lower Disclosure Threshold for Stock Ownership
Vote AGAINST resolutions to lower the stock ownership disclosure threshold below 5 percent unless
specific reasons exist to implement a lower threshold.
► ► ► ► ►
Amend Quorum Requirements
Vote proposals to amend quorum requirements for shareholder meetings on a CASE-BY-CASE basis.
► ► ► ► ►
Transact Other Business
Vote AGAINST other business when it appears as a voting item.
► ► ► ► ►
C-29
Appendix C
2. Board of Directors
Director Elections
Vote FOR management nominees in the election of directors, unless:
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|
|
Adequate disclosure has not been provided in a timely manner; |
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|
There are clear concerns over questionable finances or restatements; |
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|
There have been questionable transactions with conflicts of interest; |
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There are any records of abuses against minority shareholder interests; or |
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|
The board fails to meet minimum corporate governance standards. |
Vote FOR individual nominees unless there are specific concerns about the individual, such as
criminal wrongdoing or breach of fiduciary responsibilities.
Vote AGAINST individual directors if repeated absences at board meetings have not been explained
(in countries where this information is disclosed).
Vote on a CASE-BY-CASE basis for contested elections of directors, e.g. the election of shareholder
nominees or the dismissal of incumbent directors, determining which directors are best suited to
add value for shareholders.
Vote FOR employee and/or labor representatives if they sit on either the audit or compensation
committee and are required by law to be on those committees. Vote AGAINST employee and/or labor
representatives if they sit on either the audit or compensation committee, if they are not required
to be on those committees.
Under extraordinary circumstances, vote AGAINST or WITHHOLD from directors individually, on a
committee, or the entire board, due to:
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|
|
Material failures of governance, stewardship, or fiduciary responsibilities at the
company; or |
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|
Failure to replace management as appropriate; or |
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|
Egregious actions related to the director(s) service on other boards that raise
substantial doubt about his or her ability to effectively oversee management and serve
the best interests of shareholders at any company. |
► ► ► ► ►
[Please see the ISS International Classification of Directors on the following page.]
C-30
Appendix C
ISS Classification of Directors International Policy 2011
Executive Director
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|
|
Employee or executive of the company; |
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|
|
Any director who is classified as a non-executive, but receives salary, fees, bonus,
and/or other benefits that are in line with the highest-paid executives of the company. |
Non-Independent Non-Executive Director (NED)
|
|
|
Any director who is attested by the board to be a non-independent NED; |
|
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|
Any director specifically designated as a representative of a significant
shareholder of the company; |
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|
Any director who is also an employee or executive of a significant shareholder of
the company; |
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|
Any director who is nominated by a dissenting significant shareholder, unless there
is a clear lack of material [5] connection with the dissident, either currently or
historically; |
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|
Beneficial owner (direct or indirect) of at least 10% of the companys stock, either
in economic terms or in voting rights (this may be aggregated if voting power is
distributed among more than one member of a defined group, e.g., family members who
beneficially own less than 10% individually, but collectively own more than 10%),
unless market best practice dictates a lower ownership and/or disclosure threshold (and
in other special market-specific circumstances); |
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Government representative; |
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Currently provides (or a relative[1] provides) professional services[2] to the
company, to an affiliate of the company, or to an individual officer of the company or
of one of its affiliates in excess of $10,000 per year; |
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|
Represents customer, supplier, creditor, banker, or other entity with which company
maintains transactional/commercial relationship (unless company discloses information
to apply a materiality test[3]); |
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|
Any director who has conflicting or cross-directorships with executive directors or
the chairman of the company; |
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|
Relative[1] of a current employee of the company or its affiliates; |
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|
Relative[1] of a former executive of the company or its affiliates; |
|
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|
A new appointee elected other than by a formal process through the General Meeting
(such as a contractual appointment by a substantial shareholder); |
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|
Founder/co-founder/member of founding family but not currently an employee; |
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Former executive (5 year cooling off period); |
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Years of service is generally not a determining factor unless it is recommended best
practice in a market and/or in extreme circumstances, in which case it may be
considered.[4] |
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Any additional relationship or principle considered to compromise independence under
local corporate governance best practice guidance. |
Independent NED
|
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|
No material[5] connection, either directly or indirectly, to the company (other than
a board seat) or the dissenting significant shareholder. |
Employee Representative
|
|
|
Represents employees or employee shareholders of the company (classified as
employee representative but considered a non-independent NED). |
C-31
Appendix C
|
|
|
Footnotes: |
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[1] |
|
Relative follows the definition of immediate family members which covers spouses,
parents, children, stepparents, step-children, siblings, in-laws, and any person (other than a
tenant or employee) sharing the household of any director, nominee for director, executive officer,
or significant shareholder of the company. |
|
[2] |
|
Professional services can be characterized as advisory in nature and generally include the
following: investment banking/financial advisory services; commercial banking (beyond deposit
services); investment services; insurance services; accounting/audit services; consulting services;
marketing services; and legal services. The case of participation in a banking syndicate by a
non-lead bank should be considered a transaction (and hence subject to the associated materiality
test) rather than a professional relationship. |
|
[3] |
|
A business relationship may be material if the transaction value (of all outstanding
transactions) entered into between the company and the company or organization with which the
director is associated is equivalent to either 1 percent of the companys turnover or 1 percent of
the turnover of the company or organization with which the director is associated. OR, A business
relationship may be material if the transaction value (of all outstanding financing operations)
entered into between the company and the company or organization with which the director is
associated is more than 10 percent of the companys shareholder equity or the transaction value,
(of all outstanding financing operations), compared to the companys total assets, is more than 5
percent. |
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[4] |
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For example, in continental Europe, directors with a tenure exceeding 12 years will be
considered non-independent. In the United Kingdom and Ireland, directors with a tenure exceeding
nine years will be considered non-independent, unless the company provides sufficient and clear
justification that the director is independent despite his long tenure. |
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[5] |
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For purposes of ISS director independence classification, material will be defined as a
standard of relationship financial, personal or otherwise that a reasonable person might conclude
could potentially influence ones objectivity in the boardroom in a manner that would have a
meaningful impact on an individuals ability to satisfy requisite fiduciary standards on behalf of
shareholders. |
► ► ► ► ►
Contested Director Elections
For contested elections of directors, e.g. the election of shareholder nominees or the dismissal of
incumbent directors, ISS will make its recommendation on a case-by-case basis, determining which
directors are best suited to add value for shareholders.
The analysis will generally be based on, but not limited to, the following major decision factors:
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Company performance relative to its peers; |
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Strategy of the incumbents versus the dissidents; |
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Independence of directors/nominees; |
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Experience and skills of board candidates; |
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Governance profile of the company; |
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Evidence of management entrenchment; |
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Responsiveness to shareholders; |
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Whether a takeover offer has been rebuffed; |
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Whether minority or majority representation is being sought. |
When analyzing a contested election of directors, ISS will generally focus on two central
questions: (1) Have the dissidents proved that board change is warranted? And (2) if so, are the
dissident board nominees likely to effect positive change (i.e., maximize long-term shareholder
value).
► ► ► ► ►
C-32
Appendix C
Discharge of Directors
Generally vote FOR the discharge of directors, including members of the management board and/or
supervisory board, unless there is reliable information about significant and compelling
controversies that the board is not fulfilling its fiduciary duties warranted by:
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A lack of oversight or actions by board members which invoke shareholder distrust
related to malfeasance or poor supervision, such as operating in private or company
interest rather than in shareholder interest; or |
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Any legal issues (e.g. civil/criminal) aiming to hold the board responsible for
breach of trust in the past or related to currently alleged actions yet to be confirmed
(and not only the fiscal year in question), such as price fixing, insider trading,
bribery, fraud, and other illegal actions; or |
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Other egregious governance issues where shareholders will bring legal action against
the company or its directors. |
For markets which do not routinely request discharge resolutions (e.g. common law countries or
markets where discharge is not mandatory), analysts may voice concern in other appropriate agenda
items, such as approval of the annual accounts or other relevant resolutions, to enable
shareholders to express discontent with the board.
► ► ► ► ►
Director, Officer, and Auditor Indemnification and Liability Provisions
Vote proposals seeking indemnification and liability protection for directors and officers on a
CASE-BY-CASE basis.
Vote AGAINST proposals to indemnify external auditors.
► ► ► ► ►
Board Structure
Vote FOR proposals to fix board size.
Vote AGAINST the introduction of classified boards and mandatory retirement ages for directors.
Vote AGAINST proposals to alter board structure or size in the context of a fight for control of
the company or the board.
► ► ► ► ►
C-33
Appendix C
3. Capital Structure
Share Issuance Requests
General Issuances
Vote FOR issuance requests with preemptive rights to a maximum of 100 percent over currently issued
capital.
Vote FOR issuance requests without preemptive rights to a maximum of 20 percent of currently issued
capital.
Specific Issuances
Vote on a CASE-BY-CASE basis on all requests, with or without preemptive rights.
► ► ► ► ►
Increases in Authorized Capital
Vote FOR non-specific proposals to increase authorized capital up to 100 percent over the current
authorization unless the increase would leave the company with less than 30 percent of its new
authorization outstanding.
Vote FOR specific proposals to increase authorized capital to any amount, unless:
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The specific purpose of the increase (such as a share-based acquisition or merger)
does not meet ISS guidelines for the purpose being proposed; or |
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The increase would leave the company with less than 30 percent of its new
authorization outstanding after adjusting for all proposed issuances. |
Vote AGAINST proposals to adopt unlimited capital authorizations.
► ► ► ► ►
Reduction of Capital
Vote FOR proposals to reduce capital for routine accounting purposes unless the terms are
unfavorable to shareholders.
Vote proposals to reduce capital in connection with corporate restructuring on a CASE-BY-CASE
basis.
► ► ► ► ►
Capital Structures
Vote FOR resolutions that seek to maintain or convert to a one-share, one-vote capital structure.
Vote AGAINST requests for the creation or continuation of dual-class capital structures or the
creation of new or additional super voting shares.
► ► ► ► ►
C-34
Appendix C
Preferred Stock
Vote FOR the creation of a new class of preferred stock or for issuances of preferred stock up to
50 percent of issued capital unless the terms of the preferred stock would adversely affect the
rights of existing shareholders.
Vote FOR the creation/issuance of convertible preferred stock as long as the maximum number of
common shares that could be issued upon conversion meets ISS guidelines on equity issuance
requests.
Vote AGAINST the creation of a new class of preference shares that would carry superior voting
rights to the common shares.
Vote AGAINST the creation of blank check preferred stock unless the board clearly states that the
authorization will not be used to thwart a takeover bid.
Vote proposals to increase blank check preferred authorizations on a CASE-BY-CASE basis.
► ► ► ► ►
Debt Issuance Requests
Vote non-convertible debt issuance requests on a CASE-BY-CASE basis, with or without preemptive
rights.
Vote FOR the creation/issuance of convertible debt instruments as long as the maximum number of
common shares that could be issued upon conversion meets ISS guidelines on equity issuance
requests.
Vote FOR proposals to restructure existing debt arrangements unless the terms of the restructuring
would adversely affect the rights of shareholders.
► ► ► ► ►
Pledging of Assets for Debt
Vote proposals to approve the pledging of assets for debt on a CASE-BY-CASE basis.
► ► ► ► ►
Increase in Borrowing Powers
Vote proposals to approve increases in a companys borrowing powers on a CASE-BY-CASE basis.
► ► ► ► ►
Share Repurchase Plans
Generally vote FOR market repurchase authorities (share repurchase programs) if the terms comply
with the following criteria:
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A repurchase limit of up to 10 percent of outstanding issued share capital (15
percent in UK/Ireland); |
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A holding limit of up to 10 percent of a companys issued share capital in treasury
(on the shelf); and |
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A duration of no more than 5 years, or such lower threshold as may be set by
applicable law, regulation or code of governance best practice. |
C-35
Appendix C
Authorities to repurchase shares in excess of the 10 percent repurchase limit will be assessed on a
case-by-case basis. ISS may support such share repurchase authorities under special circumstances,
which are required to be publicly disclosed by the company, provided that, on balance, the proposal
is in shareholders interests. In such cases, the authority must comply with the following
criteria:
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A holding limit of up to 10 percent of a companys issued share capital in treasury
(on the shelf); and |
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A duration of no more than 18 months. |
In markets where it is normal practice not to provide a repurchase limit, ISS will evaluate the
proposal based on the companys historical practice. However, ISS expects companies to disclose
such limits and, in the future, may recommend a vote against companies that fail to do so. In such
cases, the authority must comply with the following criteria:
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A holding limit of up to 10 percent of a companys issued share capital in treasury
(on the shelf); and |
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A duration of no more than 18 months. |
In addition, ISS will recommend AGAINST any proposal where:
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The repurchase can be used for takeover defenses; |
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There is clear evidence of abuse; |
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There is no safeguard against selective buybacks; and/or |
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Pricing provisions and safeguards are deemed to be unreasonable in light of market
practice. |
► ► ► ► ►
Reissuance of Repurchased Shares
Vote FOR requests to reissue any repurchased shares unless there is clear evidence of abuse of this
authority in the past.
► ► ► ► ►
Capitalization of Reserves for Bonus Issues/Increase in Par Value
Vote FOR requests to capitalize reserves for bonus issues of shares or to increase par value.
► ► ► ► ►
C-36
Appendix C
4. Compensation
Compensation Plans
Vote compensation plans on a CASE-BY-CASE basis.
► ► ► ► ►
Director Compensation
Vote FOR proposals to award cash fees to non-executive directors unless the amounts are excessive
relative to other companies in the country or industry.
Vote non-executive director compensation proposals that include both cash and share-based
components on a CASE-BY-CASE basis.
Vote proposals that bundle compensation for both non-executive and executive directors into a
single resolution on a CASE-BY-CASE basis.
Vote AGAINST proposals to introduce retirement benefits for non-executive directors.
► ► ► ► ►
C-37
Appendix C
5. Other Items
Reorganizations/Restructurings
Vote reorganizations and restructurings on a CASE-BY-CASE basis.
► ► ► ► ►
Mergers and Acquisitions
Vote CASE-BY-CASE on mergers and acquisitions taking into account the following:
For every M&A analysis, ISS reviews publicly available information as of the date of the report and
evaluates the merits and drawbacks of the proposed transaction, balancing various and sometimes
countervailing factors including:
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Valuation Is the value to be received by the target shareholders (or paid by the
acquirer) reasonable? While the fairness opinion may provide an initial starting point
for assessing valuation reasonableness, ISS places emphasis on the offer premium,
market reaction, and strategic rationale. |
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Market reaction How has the market responded to the proposed deal? A negative
market reaction will cause ISS to scrutinize a deal more closely. |
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Strategic rationale Does the deal make sense strategically? From where is the
value derived? Cost and revenue synergies should not be overly aggressive or
optimistic, but reasonably achievable. Management should also have a favourable track
record of successful integration of historical acquisitions. |
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Conflicts of interest Are insiders benefiting from the transaction
disproportionately and inappropriately as compared to non-insider shareholders? ISS
will consider whether any special interests may have influenced these directors and
officers to support or recommend the merger. |
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Governance Will the combined company have a better or worse governance profile
than the current governance profiles of the respective parties to the transaction? If
the governance profile is to change for the worse, the burden is on the company to
prove that other issues (such as valuation) outweigh any deterioration in governance. |
Vote AGAINST if the companies do not provide sufficient information upon request to make an
informed voting decision.
► ► ► ► ►
Mandatory Takeover Bid Waivers
Vote proposals to waive mandatory takeover bid requirements on a CASE-BY-CASE basis.
► ► ► ► ►
Reincorporation Proposals
Vote reincorporation proposals on a CASE-BY-CASE basis.
► ► ► ► ►
C-38
Appendix C
Expansion of Business Activities
Vote FOR resolutions to expand business activities unless the new business takes the company into
risky areas.
► ► ► ► ►
Related-Party Transactions
In evaluating resolutions that seek shareholder approval on related party transactions (RPTs), vote
on a case-by-case basis, considering factors including, but not limited to, the following:
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The parties on either side of the transaction; |
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The nature of the asset to be transferred/service to be provided; |
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The pricing of the transaction (and any associated professional valuation); |
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The views of independent directors (where provided); |
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The views of an independent financial adviser (where appointed); |
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Whether any entities party to the transaction (including advisers) is conflicted;
and |
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The stated rationale for the transaction, including discussions of timing. |
If there is a transaction that ISS deemed problematic and that was not put to a shareholder vote,
ISS may recommend against the election of the director involved in the related-party transaction or
the full board.
► ► ► ► ►
Antitakeover Mechanisms
Generally vote AGAINST all antitakeover proposals, unless they are structured in such a way that
they give shareholders the ultimate decision on any proposal or offer.
► ► ► ► ►
Shareholder Proposals
Vote all shareholder proposals on a CASE-BY-CASE basis.
Vote FOR proposals that would improve the companys corporate governance or business profile at a
reasonable cost.
Vote AGAINST proposals that limit the companys business activities or capabilities or result in
significant costs being incurred with little or no benefit.
► ► ► ► ►
C-39
Appendix C
Exhibit B (as amended February 2, 2009)
Modifications to recommendations set forth in the ISS Proxy Voting Manual
Shareholder Ability to Act by Written Consent
Vote FOR proposals to restrict or prohibit shareholder activity to take action by written consent.
Vote AGAINST proposals to allow or make easier shareholder action by written consent.
Cumulative Voting
Vote FOR proposals to eliminate cumulative voting.
Vote AGAINST proposals to restore or provide for cumulative voting.
Incumbent Director Nominees
Vote WITH managements recommendations regarding incumbent director nominees.
C-40