UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-04347
GMO Trust
(Exact name of the registrant as specified in charter)
| 40 Rowes Wharf, Boston, MA | 02110 | |
| (Address of principal executive offices) | (Zip Code) |
J.B. Kittredge, Chief Executive Officer, 40 Rowes Wharf, Boston, MA 02110
(Name and address of agent for services)
Registrant’s telephone number, including area code: 617-346-7646
Date of fiscal year end: 02/28/14
Date of reporting period: 08/31/13
Item 1. Reports to Stockholders.
The semiannual reports for each series of the registrant for the periods ended August 31, 2013 are filed herewith.
GMO Trust
Semiannual Report
August 31, 2013
Quality Fund
Real Estate Fund
U.S. Core Equity Fund
U.S. Flexible Equities Fund
U.S. Growth Fund
U.S. Intrinsic Value Fund
U.S. Small/Mid Cap Fund
For a free copy of the Funds’ proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) or visit the Securities and Exchange Commission’s website at www.sec.gov. 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 GMO’s website at www.gmo.com, or on the Securities and Exchange Commission’s website at www.sec.gov.
The Funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission’s website at www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Funds have a policy with respect to disclosure of portfolio holdings under which they may also make available on GMO’s website at www.gmo.com a complete schedule of portfolio holdings.
This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in these Funds and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.
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(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 1 |
GMO Quality Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 2 | See accompanying notes to the financial statements. |
GMO Quality Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 3 |
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 4 |
GMO Real Estate Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 5 |
GMO Real Estate Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 6 | See accompanying notes to the financial statements. |
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 7 |
GMO U.S. Core Equity Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 8 | See accompanying notes to the financial statements. |
GMO U.S. Core Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 9 |
GMO U.S. Core Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 10 | See accompanying notes to the financial statements. |
GMO U.S. Flexible Equities Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 11 |
GMO U.S. Flexible Equities Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 12 | See accompanying notes to the financial statements. |
GMO U.S. Flexible Equities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 13 |
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 14 |
GMO U.S. Growth Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 15 |
GMO U.S. Growth Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 16 | See accompanying notes to the financial statements. |
GMO U.S. Growth Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 17 |
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 18 |
GMO U.S. Intrinsic Value Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 19 |
GMO U.S. Intrinsic Value Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 20 | See accompanying notes to the financial statements. |
GMO U.S. Intrinsic Value Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 21 |
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 22 |
GMO U.S. Small/Mid Cap Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 23 |
GMO U.S. Small/Mid Cap Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 24 | See accompanying notes to the financial statements. |
GMO U.S. Small/Mid Cap Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 25 |
GMO U.S. Small/Mid Cap Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 26 | See accompanying notes to the financial statements. |
GMO U.S. Small/Mid Cap Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 27 |
GMO U.S. Small/Mid Cap Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 28 | See accompanying notes to the financial statements. |
GMO U.S. Small/Mid Cap Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 29 |
GMO Trust Funds
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
| 30 | See accompanying notes to the financial statements. |
Statements of Assets and Liabilities — August 31, 2013 (Unaudited)
| Quality Fund | Real Estate Fund |
U.S. Core Equity Fund |
U.S. Flexible Equities Fund |
|||||||||||||
| Assets: |
||||||||||||||||
| Investments in unaffiliated issuers, at value (Note 2)(a) |
$ | 13,238,778,643 | $ | 11,098,593 | $ | 1,348,576,222 | $ | 6,938,359,667 | ||||||||
| Investments in affiliated issuers, at value (Notes 2 and 10)(b) |
160,034,000 | 123,975 | 32,715,073 | 77,859,118 | ||||||||||||
| Receivable for Fund shares sold |
11,597,010 | — | 58,096 | — | ||||||||||||
| Dividends and interest receivable |
39,653,861 | 5,482 | 3,632,591 | 21,793,578 | ||||||||||||
| Foreign taxes receivable |
10,854,017 | — | — | 1,468,078 | ||||||||||||
| Receivable for expenses reimbursed and/or waived by Manager (Note 5) |
165,323 | 5,508 | 29,667 | 87,885 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
13,461,082,854 | 11,233,558 | 1,385,011,649 | 7,039,568,326 | ||||||||||||
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| Liabilities: |
||||||||||||||||
| Payable for Fund shares repurchased |
31,403,382 | — | — | 5,504,958 | ||||||||||||
| Payable to affiliate for (Note 5): |
||||||||||||||||
| Management fee |
3,877,469 | 3,240 | 372,158 | 2,026,620 | ||||||||||||
| Shareholder service fee |
1,282,086 | 1,473 | 82,530 | 372,554 | ||||||||||||
| Payable to agents unaffiliated with the Manager |
1,736 | 5 | 186 | 930 | ||||||||||||
| Payable to Trustees and related expenses |
13,792 | 4 | 1,388 | 8,024 | ||||||||||||
| Accrued expenses |
671,936 | 35,009 | 146,322 | 353,907 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total liabilities |
37,250,401 | 39,731 | 602,584 | 8,266,993 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net assets |
$ | 13,423,832,453 | $ | 11,193,827 | $ | 1,384,409,065 | $ | 7,031,301,333 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net assets consist of: |
||||||||||||||||
| Paid-in capital |
$ | 10,555,298,437 | $ | 12,132,243 | $ | 1,590,063,747 | $ | 5,986,837,185 | ||||||||
| Accumulated undistributed net investment income |
146,858,487 | 216,557 | 13,665,791 | 73,800,070 | ||||||||||||
| Accumulated net realized gain (loss) |
577,146,832 | (3,330,778 | ) | (395,644,807 | ) | 358,819,646 | ||||||||||
| Net unrealized appreciation (depreciation) |
2,144,528,697 | 2,175,805 | 176,324,334 | 611,844,432 | (c) | |||||||||||
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|
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|
|
|||||||||
| $ | 13,423,832,453 | $ | 11,193,827 | $ | 1,384,409,065 | $ | 7,031,301,333 | |||||||||
|
|
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|
|||||||||
| Net assets attributable to: |
||||||||||||||||
| Class III shares |
$ | 6,082,542,244 | $ | 11,193,827 | $ | 177,328,936 | $ | 290,356,307 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV shares |
$ | 2,676,163,370 | $ | — | $ | 45,642,090 | $ | 104,678,534 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class V shares |
$ | 340,221,188 | $ | — | $ | — | $ | 220,949,228 | ||||||||
|
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|
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|
|
|
|||||||||
| Class VI shares |
$ | 4,324,905,651 | $ | — | $ | 1,161,438,039 | $ | 6,415,317,264 | ||||||||
|
|
|
|
|
|
|
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|
|||||||||
| Shares outstanding: |
||||||||||||||||
| Class III |
245,401,753 | 1,209,227 | 11,297,015 | 26,691,099 | ||||||||||||
|
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|
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|
|
|
|
|
|||||||||
| Class IV |
107,860,293 | — | 2,912,347 | 9,621,963 | ||||||||||||
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|
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|
|||||||||
| Class V |
13,711,914 | — | — | 20,305,637 | ||||||||||||
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|
|
|
|
|
|||||||||
| Class VI |
174,361,292 | — | 74,186,100 | 589,482,187 | ||||||||||||
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|||||||||
| Net asset value per share: |
||||||||||||||||
| Class III |
$ | 24.79 | $ | 9.26 | $ | 15.70 | $ | 10.88 | ||||||||
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|
|||||||||
| Class IV |
$ | 24.81 | $ | — | $ | 15.67 | $ | 10.88 | ||||||||
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|
|||||||||
| Class V |
$ | 24.81 | $ | — | $ | — | $ | 10.88 | ||||||||
|
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|
|
|
|
|
|||||||||
| Class VI |
$ | 24.80 | $ | — | $ | 15.66 | $ | 10.88 | ||||||||
|
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|
|
|
|||||||||
| (a) Cost of investments – unaffiliated issuers: |
$ | 11,094,144,349 | $ | 8,922,763 | $ | 1,172,246,961 | $ | 6,326,506,104 | ||||||||
| (b) Cost of investments – affiliated issuers: |
$ | 160,034,000 | $ | 124,000 | $ | 32,720,000 | $ | 77,875,397 | ||||||||
| (c) As of August 31, 2013, net unrealized appreciation for U.S. federal income tax purposes exceed this amount by $522,185,132. See Note 2. |
|
|||||||||||||||
| See accompanying notes to the financial statements. | 31 |
GMO Trust Funds
Statements of Assets and Liabilities — August 31, 2013 (Unaudited) — (Continued)
| U.S. Growth Fund |
U.S. Intrinsic Value Fund |
U.S. Small/Mid Cap Fund |
||||||||||
| Assets: |
||||||||||||
| Investments in unaffiliated issuers, at value (Note 2)(a) |
$ | 2,446,990 | $ | 11,619,061 | $ | 9,072,686 | ||||||
| Investments in affiliated issuers, at value (Notes 2 and 10)(b) |
61,971 | 126,987 | 144,127 | |||||||||
| Dividends receivable |
4,590 | 34,699 | 10,417 | |||||||||
| Receivable for expenses reimbursed and/or waived by Manager (Note 5) |
7,719 | 6,014 | 7,843 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total assets |
2,521,270 | 11,786,761 | 9,235,073 | |||||||||
|
|
|
|
|
|
|
|||||||
| Liabilities: |
||||||||||||
| Payable to affiliate for (Note 5): |
||||||||||||
| Management fee |
660 | 3,171 | 3,750 | |||||||||
| Shareholder service fee |
319 | 1,535 | 1,238 | |||||||||
| Payable to agents unaffiliated with the Manager |
5 | 5 | 5 | |||||||||
| Payable to Trustees and related expenses |
3,868 | 482 | 537 | |||||||||
| Accrued expenses |
54,300 | 41,025 | 63,893 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total liabilities |
59,152 | 46,218 | 69,423 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net assets |
$ | 2,462,118 | $ | 11,740,543 | $ | 9,165,650 | ||||||
|
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|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 2,367,423 | $ | 10,592,887 | $ | 8,302,164 | ||||||
| Accumulated undistributed net investment income |
13,532 | 101,584 | 88,560 | |||||||||
| Accumulated net realized loss |
(265,076 | ) | (968,760 | ) | (727,478 | ) | ||||||
| Net unrealized appreciation |
346,239 | 2,014,832 | 1,502,404 | |||||||||
|
|
|
|
|
|
|
|||||||
| $ | 2,462,118 | $ | 11,740,543 | $ | 9,165,650 | |||||||
|
|
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|
|
|
|
|||||||
| Net assets attributable to: |
||||||||||||
| Class III shares |
$ | 2,462,118 | $ | 11,740,543 | $ | 9,165,650 | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstanding: |
||||||||||||
| Class III |
116,598 | 1,135,984 | 828,846 | |||||||||
|
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|
|
|
|||||||
| Net asset value per share: |
||||||||||||
| Class III |
$ | 21.12 | $ | 10.34 | $ | 11.06 | ||||||
|
|
|
|
|
|
|
|||||||
| (a) Cost of investments – unaffiliated issuers: |
$ | 2,100,733 | $ | 9,604,201 | $ | 7,570,259 | ||||||
| (b) Cost of investments – affiliated issuers: |
$ | 61,989 | $ | 127,015 | $ | 144,150 | ||||||
| 32 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Operations — Six Months Ended August 31, 2013 (Unaudited)
| Quality Fund | Real Estate Fund |
U.S. Core Equity Fund |
U.S. Flexible Equities Fund |
|||||||||||||
| Investment Income: |
|
|||||||||||||||
| Dividends from unaffiliated issuers (Net of withholding tax)(a) |
$ | 186,420,722 | $ | 252,305 | $ | 17,140,648 | $ | 89,594,658 | ||||||||
| Dividends from affiliated issuers (Note 10) |
44,830 | 26 | 6,480 | 18,600 | ||||||||||||
| Interest |
— | — | — | 6,790 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total investment income |
186,465,552 | 252,331 | 17,147,128 | 89,620,048 | ||||||||||||
|
|
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|
|
|
|
|
|
|||||||||
| Expenses: |
|
|||||||||||||||
| Management fee (Note 5) |
23,228,355 | 20,393 | 2,413,491 | 12,462,262 | ||||||||||||
| Shareholder service fee – Class III (Note 5) |
5,033,157 | 9,269 | 143,591 | 235,512 | ||||||||||||
| Shareholder service fee – Class IV (Note 5) |
1,288,782 | — | 23,406 | 54,715 | ||||||||||||
| Shareholder service fee – Class V (Note 5) |
166,865 | — | — | 107,200 | ||||||||||||
| Shareholder service fee – Class VI (Note 5) |
1,242,854 | — | 362,676 | 1,892,664 | ||||||||||||
| Audit and tax fees |
39,376 | 26,680 | 32,108 | 34,776 | ||||||||||||
| Custodian, fund accounting agent and transfer agent fees |
730,848 | 3,220 | 111,964 | 398,452 | ||||||||||||
| Legal fees |
132,940 | 184 | 19,504 | 71,668 | ||||||||||||
| Registration fees |
18,334 | 1,472 | 13,524 | — | ||||||||||||
| Trustees fees and related expenses (Note 5) |
70,877 | 13 | 7,990 | 39,228 | ||||||||||||
| Miscellaneous |
54,464 | 3,317 | 9,016 | 17,756 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total expenses |
32,006,852 | 64,548 | 3,137,270 | 15,314,233 | ||||||||||||
| Fees and expenses reimbursed by Manager (Note 5) |
(965,474 | ) | (34,868 | ) | (179,952 | ) | (517,132 | ) | ||||||||
| Expense reductions (Note 2) |
(1,018 | ) | — | (81 | ) | (4 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net expenses |
31,040,360 | 29,680 | 2,957,237 | 14,797,097 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net investment income (loss) |
155,425,192 | 222,651 | 14,189,891 | 74,822,951 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Realized and unrealized gain (loss): |
|
|||||||||||||||
| Net realized gain (loss) on: |
||||||||||||||||
| Investments in unaffiliated issuers |
711,205,356 | 480,559 | 131,326,604 | 226,805,279 | ||||||||||||
| Investments in affiliated issuers |
35,092 | — | — | — | ||||||||||||
| Realized gain distributions from affiliated issuers (Note 10) |
11,443 | 5 | 2,291 | 7,065 | ||||||||||||
| Futures contracts |
— | — | 630,294 | — | ||||||||||||
| Foreign currency, forward contracts and foreign currency related transactions |
9,009 | — | — | (3,932 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized gain (loss) |
711,260,900 | 480,564 | 131,959,189 | 226,808,412 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Change in net unrealized appreciation (depreciation) on: |
||||||||||||||||
| Investments in unaffiliated issuers |
(72,811,771 | ) | (1,294,286 | ) | (12,124,284 | ) | 147,458,098 | |||||||||
| Investments in affiliated issuers |
34,236 | (25 | ) | (4,927 | ) | (16,279 | ) | |||||||||
| Foreign currency, forward contracts and foreign currency related transactions |
(307,442 | ) | — | — | 41,840 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net unrealized gain (loss) |
(73,084,977 | ) | (1,294,311 | ) | (12,129,211 | ) | 147,483,659 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized and unrealized gain (loss) |
638,175,923 | (813,747 | ) | 119,829,978 | 374,292,071 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
$ | 793,601,115 | $ | (591,096 | ) | $ | 134,019,869 | $ | 449,115,022 | |||||||
|
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|
|
|
|
|
|
|||||||||
| (a) Withholding tax: |
$ | 4,234,670 | $ | — | $ | 4,118 | $ | 975,927 | ||||||||
| See accompanying notes to the financial statements. | 33 |
GMO Trust Funds
Statements of Operations — Six Months Ended August 31, 2013 (Unaudited) — (Continued)
| U.S. Growth Fund |
U.S. Intrinsic Value Fund |
U.S. Small/Mid Cap Fund |
||||||||||
| Investment Income: |
|
|||||||||||
| Dividends from unaffiliated issuers (Net of withholding tax)(a) |
$ | 22,190 | $ | 134,386 | $ | 123,085 | ||||||
| Dividends from affiliated issuers (Note 10) |
21 | 43 | 27 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
22,211 | 134,429 | 123,112 | |||||||||
|
|
|
|
|
|
|
|||||||
| Expenses: |
|
|||||||||||
| Management fee (Note 5) |
3,747 | 18,157 | 21,625 | |||||||||
| Shareholder service fee – Class III (Note 5) |
1,813 | 8,786 | 7,208 | |||||||||
| Audit and tax fees |
26,588 | 26,680 | 26,220 | |||||||||
| Custodian, fund accounting agent and transfer agent fees |
9,936 | 6,992 | 18,768 | |||||||||
| Legal fees |
92 | 184 | 184 | |||||||||
| Registration fees |
10,948 | 369 | 368 | |||||||||
| Trustees fees and related expenses (Note 5) |
11 | 25 | 17 | |||||||||
| Miscellaneous |
3,593 | 3,317 | 3,316 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
56,728 | 64,510 | 77,706 | |||||||||
| Fees and expenses reimbursed by Manager (Note 5) |
(51,060 | ) | (37,445 | ) | (48,760 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net expenses |
5,668 | 27,065 | 28,946 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income (loss) |
16,543 | 107,364 | 94,166 | |||||||||
|
|
|
|
|
|
|
|||||||
| Realized and unrealized gain (loss): |
|
|||||||||||
| Net realized gain (loss) on: |
||||||||||||
| Investments in unaffiliated issuers |
200,898 | 640,611 | 974,174 | |||||||||
| Investments in affiliated issuers |
16 | 20 | — | |||||||||
| Realized gain distributions from affiliated issuers (Note 10) |
10 | 11 | 5 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net realized gain (loss) |
200,924 | 640,642 | 974,179 | |||||||||
|
|
|
|
|
|
|
|||||||
| Change in net unrealized appreciation (depreciation) on: |
||||||||||||
| Investments in unaffiliated issuers |
26,351 | 286,272 | 67,890 | |||||||||
| Investments in affiliated issuers |
(18 | ) | (28 | ) | (23 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net unrealized gain (loss) |
26,333 | 286,244 | 67,867 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized gain (loss) |
227,257 | 926,886 | 1,042,046 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net increase (decrease) in net assets resulting from operations |
$ | 243,800 | $ | 1,034,250 | $ | 1,136,212 | ||||||
|
|
|
|
|
|
|
|||||||
| (a) Withholding tax: |
$ | — | $ | 99 | $ | 2 | ||||||
| 34 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Changes in Net Assets
| Quality Fund | Real Estate Fund | |||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 155,425,192 | $ | 315,771,405 | $ | 222,651 | $ | 379,166 | ||||||||
| Net realized gain (loss) |
711,260,900 | 2,045,996,302 | 480,564 | 3,018,592 | ||||||||||||
| Change in net unrealized appreciation (depreciation) |
(73,084,977 | ) | (719,788,500 | ) | (1,294,311 | ) | (1,017,892 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
793,601,115 | 1,641,979,207 | (591,096 | ) | 2,379,866 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income: |
||||||||||||||||
| Class III |
(16,796,606 | ) | (137,196,073 | ) | (69,253 | ) | (363,749 | ) | ||||||||
| Class IV |
(6,621,507 | ) | (44,679,254 | ) | — | — | ||||||||||
| Class V |
(936,209 | ) | (14,094,928 | ) | — | — | ||||||||||
| Class VI |
(12,079,246 | ) | (158,091,736 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net investment income |
(36,433,568 | ) | (354,061,991 | ) | (69,253 | ) | (363,749 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized gains: |
||||||||||||||||
| Class III |
(88,342,453 | ) | (483,233,958 | ) | — | — | ||||||||||
| Class IV |
(33,694,376 | ) | (147,678,743 | ) | — | — | ||||||||||
| Class V |
(4,813,792 | ) | (59,475,556 | ) | — | — | ||||||||||
| Class VI |
(59,961,096 | ) | (562,432,264 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net realized gains |
(186,811,717 | ) | (1,252,820,521 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Class III |
(902,397,482 | ) | 19,370,394 | (25,138 | ) | (6,517,944 | ) | |||||||||
| Class IV |
532,066,009 | (7,262,944 | ) | — | — | |||||||||||
| Class V |
(133,710,772 | ) | (109,175,865 | ) | — | — | ||||||||||
| Class VI |
670,416 | (5,550,855,897 | ) | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase (decrease) in net assets resulting from net share transactions |
(503,371,829 | ) | (5,647,924,312 | ) | (25,138 | ) | (6,517,944 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
66,984,001 | (5,612,827,617 | ) | (685,487 | ) | (4,501,827 | ) | |||||||||
| Net assets: | ||||||||||||||||
| Beginning of period |
13,356,848,452 | 18,969,676,069 | 11,879,314 | 16,381,141 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 13,423,832,453 | $ | 13,356,848,452 | $ | 11,193,827 | $ | 11,879,314 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated undistributed net investment income |
$ | 146,858,487 | $ | 27,866,863 | $ | 216,557 | $ | 63,159 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| See accompanying notes to the financial statements. | 35 |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| U.S. Core Equity Fund | U.S. Flexible Equities Fund | |||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Period from July 20, 2012 (commencement of operations) through February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 14,189,891 | $ | 29,448,199 | $ | 74,822,951 | $ | 90,847,720 | ||||||||
| Net realized gain (loss) |
131,959,189 | 181,929,616 | 226,808,412 | 58,426,198 | ||||||||||||
| Change in net unrealized appreciation (depreciation) |
(12,129,211 | ) | (32,431,599 | ) | 147,483,659 | 464,360,773 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
134,019,869 | 178,946,216 | 449,115,022 | 613,634,691 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income |
||||||||||||||||
| Class III |
(585,334 | ) | (4,527,823 | ) | (608,516 | ) | (3,426,484 | ) | ||||||||
| Class IV |
(149,258 | ) | (921,941 | ) | (254,564 | ) | (890,607 | ) | ||||||||
| Class V |
— | — | (504,511 | ) | (2,831,312 | ) | ||||||||||
| Class VI |
(4,672,547 | ) | (24,844,302 | ) | (15,997,437 | ) | (67,911,797 | ) | ||||||||
| Class M* |
— | (14,539 | ) | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net investment income |
(5,407,139 | ) | (30,308,605 | ) | (17,365,028 | ) | (75,060,200 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized gains |
||||||||||||||||
| Class III |
— | — | (3,616,997 | ) | (10,566,065 | ) | ||||||||||
| Class IV |
— | — | (1,409,815 | ) | (2,673,452 | ) | ||||||||||
| Class V |
— | — | (2,839,677 | ) | (8,429,706 | ) | ||||||||||
| Class VI |
— | — | (86,852,223 | ) | (199,479,502 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net realized gains |
— | — | (94,718,712 | ) | (221,148,725 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Class III |
(26,450,860 | ) | (94,495,604 | ) | (65,547,635 | ) | 320,872,313 | |||||||||
| Class IV |
(2,740,354 | ) | (12,709,327 | ) | 15,147,457 | 81,458,975 | ||||||||||
| Class V |
— | — | (71,754,497 | ) | 263,621,518 | |||||||||||
| Class VI |
(197,342,188 | ) | 33,705,448 | (376,550,283 | ) | 6,209,596,437 | ||||||||||
| Class M* |
— | (1,316,104 | ) | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase (decrease) in net assets resulting from net share transactions |
(226,533,402 | ) | (74,815,587 | ) | (498,704,958 | ) | 6,875,549,243 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
(97,920,672 | ) | 73,822,024 | (161,673,676 | ) | 7,192,975,009 | ||||||||||
| Net assets: | ||||||||||||||||
| Beginning of period |
1,482,329,737 | 1,408,507,713 | 7,192,975,009 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 1,384,409,065 | $ | 1,482,329,737 | $ | 7,031,301,333 | $ | 7,192,975,009 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated undistributed net investment income |
$ | 13,665,791 | $ | 4,883,039 | $ | 73,800,070 | $ | 16,342,147 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | Class M liquidated on January 31, 2013. |
| 36 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| U.S. Growth Fund | U.S. Intrinsic Value Fund | |||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 | |||||||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||||||
| Operations: |
||||||||||||||||||||
| Net investment income (loss) |
$ | 16,543 | $ | 36,589 | $ | 107,364 | $ | 221,239 | ||||||||||||
| Net realized gain (loss) |
200,924 | 407,809 | 640,642 | 584,610 | ||||||||||||||||
| Change in net unrealized appreciation (depreciation) |
26,333 | (138,954 | ) | 286,244 | 767,306 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net increase (decrease) in net assets from operations |
243,800 | 305,444 | 1,034,250 | 1,573,155 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Distributions to shareholders from: |
||||||||||||||||||||
| Net investment income |
||||||||||||||||||||
| Class III |
(4,022 | ) | (41,222 | ) | (25,052 | ) | (233,283 | ) | ||||||||||||
| Class M* |
— | (10,643 | ) | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total distributions from net investment income |
(4,022 | ) | (51,865 | ) | (25,052 | ) | (233,283 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net realized gains |
||||||||||||||||||||
| Class III |
(10,271 | ) | (330,487 | ) | — | — | ||||||||||||||
| Class M* |
— | (99,092 | ) | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total distributions from net realized gains |
(10,271 | ) | (429,579 | ) | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net share transactions (Note 9): |
||||||||||||||||||||
| Class III |
10,970 | 500,197 | 41,084 | 193,516 | ||||||||||||||||
| Class M* |
— | (552,162 | ) | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Increase (decrease) in net assets resulting from net share transactions |
10,970 | (51,965 | ) | 41,084 | 193,516 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total increase (decrease) in net assets |
240,477 | (227,965 | ) | 1,050,282 | 1,533,388 | |||||||||||||||
| Net assets: | ||||||||||||||||||||
| Beginning of period |
2,221,641 | 2,449,606 | 10,690,261 | 9,156,873 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| End of period |
$ | 2,462,118 | $ | 2,221,641 | $ | 11,740,543 | $ | 10,690,261 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Accumulated undistributed net investment income |
$ | 13,532 | $ | 1,011 | $ | 101,584 | $ | 19,272 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| * | Class M liquidated on January 31, 2013. |
| See accompanying notes to the financial statements. | 37 |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| U.S. Small/Mid Cap Fund | ||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||
| Increase (decrease) in net assets: |
||||||||
| Operations: |
||||||||
| Net investment income (loss) |
$ | 94,166 | $ | 195,131 | ||||
| Net realized gain (loss) |
974,179 | 552,979 | ||||||
| Change in net unrealized appreciation (depreciation) |
67,867 | 718,673 | ||||||
|
|
|
|
|
|||||
| Net increase (decrease) in net assets from operations |
1,136,212 | 1,466,783 | ||||||
|
|
|
|
|
|||||
| Distributions to shareholders from: |
||||||||
| Net investment income |
||||||||
| Class III |
(34,384 | ) | (168,939 | ) | ||||
|
|
|
|
|
|||||
| Total distributions from net investment income |
(34,384 | ) | (168,939 | ) | ||||
|
|
|
|
|
|||||
| Net share transactions (Note 9): |
||||||||
| Class III |
(1,734,312 | ) | (1,110,116 | ) | ||||
|
|
|
|
|
|||||
| Increase (decrease) in net assets resulting from net share transactions |
(1,734,312 | ) | (1,110,116 | ) | ||||
|
|
|
|
|
|||||
| Purchase premiums and redemption fees (Notes 2 and 9): |
||||||||
| Class III |
5,412 | 7,655 | ||||||
|
|
|
|
|
|||||
| Total increase (decrease) in net assets resulting from net share transactions, purchase premiums and redemption fees |
(1,728,900 | ) | (1,102,461 | ) | ||||
|
|
|
|
|
|||||
| Total increase (decrease) in net assets |
(627,072 | ) | 195,383 | |||||
| Net assets: | ||||||||
| Beginning of period |
9,792,722 | 9,597,339 | ||||||
|
|
|
|
|
|||||
| End of period |
$ | 9,165,650 | $ | 9,792,722 | ||||
|
|
|
|
|
|||||
| Accumulated undistributed net investment income |
$ | 88,560 | $ | 28,778 | ||||
|
|
|
|
|
|||||
| 38 | See accompanying notes to the financial statements. |
GMO Trust Funds
(For a share outstanding throughout each period)
QUALITY FUND
| Class III Shares | Class IV Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 23.81 | $ | 23.41 | $ | 20.81 | $ | 18.99 | $ | 14.17 | $ | 20.56 | $ | 23.83 | $ | 23.42 | $ | 20.83 | $ | 19.01 | $ | 14.19 | $ | 20.57 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Income (loss) from investment operations: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment income (loss)† |
0.27 | 0.47 | 0.43 | 0.36 | 0.33 | 0.37 | 0.29 | 0.49 | 0.44 | 0.38 | 0.34 | 0.39 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
1.12 | 2.24 | 2.58 | 1.82 | 4.83 | (6.30 | ) | 1.10 | 2.24 | 2.57 | 1.81 | 4.83 | (6.30 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Total from investment operations |
1.39 | 2.71 | 3.01 | 2.18 | 5.16 | (5.93 | ) | 1.39 | 2.73 | 3.01 | 2.19 | 5.17 | (5.91 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Less distributions to shareholders: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From net investment income |
(0.07 | ) | (0.51 | ) | (0.41 | ) | (0.36 | ) | (0.34 | ) | (0.34 | ) | (0.07 | ) | (0.52 | ) | (0.42 | ) | (0.37 | ) | (0.35 | ) | (0.35 | ) | ||||||||||||||||||||||||||||||||||||
| From net realized gains |
(0.34 | ) | (1.80 | ) | — | — | — | (0.12 | ) | (0.34 | ) | (1.80 | ) | — | — | — | (0.12 | ) | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Total distributions |
(0.41 | ) | (2.31 | ) | (0.41 | ) | (0.36 | ) | (0.34 | ) | (0.46 | ) | (0.41 | ) | (2.32 | ) | (0.42 | ) | (0.37 | ) | (0.35 | ) | (0.47 | ) | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Net asset value, end of period |
$ | 24.79 | $ | 23.81 | $ | 23.41 | $ | 20.81 | $ | 18.99 | $ | 14.17 | $ | 24.81 | $ | 23.83 | $ | 23.42 | $ | 20.83 | $ | 19.01 | $ | 14.19 | ||||||||||||||||||||||||||||||||||||
|
|
|
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|||||||||||||||||||||||||||||||||||||
| Total Return(a) |
5.81 | %** | 12.39 | % | 14.71 | % | 11.67 | % | 36.73 | % | (29.37 | )% | 5.81 | %** | 12.47 | % | 14.70 | % | 11.71 | % | 36.73 | % | (29.27 | )% | ||||||||||||||||||||||||||||||||||||
| Ratios/Supplemental Data: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 6,082,542 | $ | 6,682,281 | $ | 6,539,510 | $ | 5,288,776 | $ | 4,119,119 | $ | 1,952,579 | $ | 2,676,163 | $ | 2,079,055 | $ | 2,035,597 | $ | 1,662,542 | $ | 1,132,006 | $ | 787,276 | ||||||||||||||||||||||||||||||||||||
| Net expenses to average daily net assets(b) |
0.48 | %(c)* | 0.48 | %(c) | 0.48 | %(c) | 0.48 | %(c) | 0.48 | % | 0.48 | % | 0.44 | %(c)* | 0.44 | %(c) | 0.44 | %(c) | 0.44 | %(c) | 0.44 | % | 0.44 | % | ||||||||||||||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets |
2.16 | %* | 2.02 | % | 2.01 | % | 1.88 | % | 1.88 | % | 2.03 | % | 2.24 | %* | 2.09 | % | 2.04 | % | 1.95 | % | 1.97 | % | 2.11 | % | ||||||||||||||||||||||||||||||||||||
| Portfolio turnover rate |
21 | %** | 34 | % | 40 | % | 32 | % | 28 | % | 36 | % | 21 | %** | 34 | % | 40 | % | 32 | % | 28 | % | 36 | % | ||||||||||||||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.01 | %* | 0.02 | % | 0.02 | % | 0.02 | % | 0.02 | % | 0.02 | % | 0.01 | %* | 0.02 | % | 0.02 | % | 0.02 | % | 0.02 | % | 0.02 | % | ||||||||||||||||||||||||||||||||||||
| Class V Shares | Class VI Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 23.82 | $ | 23.42 | $ | 20.82 | $ | 19.00 | $ | 14.17 | $ | 20.56 | $ | 23.82 | $ | 23.41 | $ | 20.82 | $ | 19.00 | $ | 14.18 | $ | 20.57 | ||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Income (loss) from investment operations: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment income (loss)† |
0.28 | 0.48 | 0.44 | 0.38 | 0.34 | 0.39 | 0.29 | 0.49 | 0.45 | 0.38 | 0.35 | 0.40 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
1.12 | 2.25 | 2.58 | 1.81 | 4.84 | (6.30 | ) | 1.10 | 2.25 | 2.57 | 1.81 | 4.82 | (6.31 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Total from investment operations |
1.40 | 2.73 | 3.02 | 2.19 | 5.18 | (5.91 | ) | 1.39 | 2.74 | 3.02 | 2.19 | 5.17 | (5.91 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Less distributions to shareholders: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From net investment income |
(0.07 | ) | (0.53 | ) | (0.42 | ) | (0.37 | ) | (0.35 | ) | (0.36 | ) | (0.07 | ) | (0.53 | ) | (0.43 | ) | (0.37 | ) | (0.35 | ) | (0.36 | ) | ||||||||||||||||||||||||||||||||||||
| From net realized gains |
(0.34 | ) | (1.80 | ) | — | — | — | (0.12 | ) | (0.34 | ) | (1.80 | ) | — | — | — | (0.12 | ) | ||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Total distributions |
(0.41 | ) | (2.33 | ) | (0.42 | ) | (0.37 | ) | (0.35 | ) | (0.48 | ) | (0.41 | ) | (2.33 | ) | (0.43 | ) | (0.37 | ) | (0.35 | ) | (0.48 | ) | ||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Net asset value, end of period |
$ | 24.81 | $ | 23.82 | $ | 23.42 | $ | 20.82 | $ | 19.00 | $ | 14.17 | $ | 24.80 | $ | 23.82 | $ | 23.41 | $ | 20.82 | $ | 19.00 | $ | 14.18 | ||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Total Return(a) |
5.85 | %** | 12.45 | % | 14.74 | % | 11.73 | % | 36.87 | % | (29.31 | )% | 5.82 | %** | 12.53 | % | 14.76 | % | 11.77 | % | 36.81 | % | (29.28 | )% | ||||||||||||||||||||||||||||||||||||
| Ratios/Supplemental Data: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 340,221 | $ | 455,097 | $ | 578,367 | $ | 371,927 | $ | 551,272 | $ | 637,834 | $ | 4,324,906 | $ | 4,140,416 | $ | 9,816,202 | $ | 8,913,391 | $ | 9,156,696 | $ | 5,273,791 | ||||||||||||||||||||||||||||||||||||
| Net expenses to average daily net assets(b) |
0.42 | %(c)* | 0.41 | %(c) | 0.42 | %(c) | 0.42 | %(c) | 0.42 | % | 0.42 | % | 0.39 | %(c)* | 0.38 | %(c) | 0.39 | %(c) | 0.39 | %(c) | 0.39 | % | 0.39 | % | ||||||||||||||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets |
2.23 | %* | 2.05 | % | 2.08 | % | 1.96 | % | 1.98 | % | 2.11 | % | 2.26 | %* | 2.10 | % | 2.09 | % | 1.99 | % | 2.00 | % | 2.16 | % | ||||||||||||||||||||||||||||||||||||
| Portfolio turnover rate |
21 | %** | 34 | % | 40 | % | 32 | % | 28 | % | 36 | % | 21 | %** | 34 | % | 40 | % | 32 | % | 28 | % | 36 | % | ||||||||||||||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.01 | %* | 0.02 | % | 0.02 | % | 0.02 | % | 0.02 | % | 0.02 | % | 0.01 | %* | 0.02 | % | 0.02 | % | 0.02 | % | 0.02 | % | 0.02 | % | ||||||||||||||||||||||||||||||||||||
| (a) | The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown, if applicable, and assumes the effect of reinvested distributions, if any. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder purchasing or redeeming Fund shares, if any. |
| (b) | The net expense ratio does not include the effect of expense reductions (Note 2). |
| (c) | Net expenses exclude expenses incurred indirectly through investment in the underlying funds (Note 5). |
| † | Calculated using average shares outstanding throughout the period. |
| * | Annualized. |
| ** | Not annualized. |
| See accompanying notes to the financial statements. | 39 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
REAL ESTATE FUND
| 40 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
U.S. CORE EQUITY FUND
| Class III Shares | Class IV Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 14.51 | $ | 13.06 | $ | 12.00 | $ | 10.57 | $ | 7.65 | $ | 12.05 | $ | 14.48 | $ | 13.04 | $ | 11.98 | $ | 10.55 | $ | 7.63 | $ | 12.02 | ||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Income (loss) from investment operations: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment income (loss)† |
0.14 | 0.26 | 0.22 | 0.18 | 0.17 | 0.18 | 0.14 | 0.27 | 0.22 | 0.18 | 0.17 | 0.19 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
1.10 | 1.47 | 1.08 | 1.43 | 2.93 | (4.40 | ) | 1.10 | 1.46 | 1.08 | 1.43 | 2.93 | (4.39 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Total from investment operations |
1.24 | 1.73 | 1.30 | 1.61 | 3.10 | (4.22 | ) | 1.24 | 1.73 | 1.30 | 1.61 | 3.10 | (4.20 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
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| Less distributions to shareholders: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From net investment income |
(0.05 | ) | (0.28 | ) | (0.24 | ) | (0.18 | ) | (0.18 | ) | (0.18 | ) | (0.05 | ) | (0.29 | ) | (0.24 | ) | (0.18 | ) | (0.18 | ) | (0.19 | ) | ||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Total distributions |
(0.05 | ) | (0.28 | ) | (0.24 | ) | (0.18 | ) | (0.18 | ) | (0.18 | ) | (0.05 | ) | (0.29 | ) | (0.24 | ) | (0.18 | ) | (0.18 | ) | (0.19 | ) | ||||||||||||||||||||||||||||||||||||
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| Net asset value, end of period |
$ | 15.70 | $ | 14.51 | $ | 13.06 | $ | 12.00 | $ | 10.57 | $ | 7.65 | $ | 15.67 | $ | 14.48 | $ | 13.04 | $ | 11.98 | $ | 10.55 | $ | 7.63 | ||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Total Return(a) |
8.54 | %** | 13.40 | % | 11.00 | % | 15.42 | % | 40.85 | % | (35.39 | )% | 8.57 | %** | 13.40 | % | 11.05 | % | 15.47 | % | 41.04 | % | (35.36 | )% | ||||||||||||||||||||||||||||||||||||
| Ratios/Supplemental Data: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 177,329 | $ | 188,363 | $ | 259,751 | $ | 393,523 | $ | 519,309 | $ | 509,120 | $ | 45,642 | $ | 44,849 | $ | 52,486 | $ | 163,627 | $ | 415,267 | $ | 286,333 | ||||||||||||||||||||||||||||||||||||
| Net expenses to average daily net assets(b) |
0.46 | %(c)* | 0.46 | %(c) | 0.46 | %(c) | 0.46 | %(c) | 0.46 | % | 0.46 | % | 0.41 | %(c)* | 0.41 | %(c) | 0.41 | %(c) | 0.41 | %(c) | 0.41 | % | 0.41 | % | ||||||||||||||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets |
1.74 | %* | 1.95 | % | 1.82 | % | 1.68 | % | 1.73 | % | 1.70 | % | 1.78 | %* | 2.01 | % | 1.88 | % | 1.68 | % | 1.76 | % | 1.78 | % | ||||||||||||||||||||||||||||||||||||
| Portfolio turnover rate |
34 | %** | 79 | % | 61 | % | 96 | % | 52 | % | 62 | % | 34 | %** | 79 | % | 61 | % | 96 | % | 52 | % | 62 | % | ||||||||||||||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.02 | %* | 0.02 | % | 0.03 | % | 0.03 | % | 0.03 | % | 0.02 | % | 0.02 | %* | 0.02 | % | 0.03 | % | 0.03 | % | 0.03 | % | 0.02 | % | ||||||||||||||||||||||||||||||||||||
| See accompanying notes to the financial statements. | 41 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
U.S. FLEXIBLE EQUITIES FUND
| Class III Shares | Class IV Shares | |||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Period from July 23, 2012 (commencement of operations) through February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Period from July 23, 2012 (commencement of operations) through February 28, 2013 | |||||||||||||||||
| Net asset value, beginning of period |
$ | 10.42 | $ | 9.90 | $ | 10.42 | $ | 9.90 | ||||||||||||
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|||||||||||||
| Income (loss) from investment operations: |
||||||||||||||||||||
| Net investment income (loss)† |
0.10 | 0.13 | 0.11 | 0.13 | ||||||||||||||||
| Net realized and unrealized gain (loss) |
0.52 | 0.83 | 0.51 | 0.83 | ||||||||||||||||
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|||||||||||||
| Total from investment operations |
0.62 | 0.96 | 0.62 | 0.96 | ||||||||||||||||
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|||||||||||||
| Less distributions to shareholders: |
||||||||||||||||||||
| From net investment income |
(0.02 | ) | (0.11 | ) | (0.02 | ) | (0.11 | ) | ||||||||||||
| From net realized gains |
(0.14 | ) | (0.33 | ) | (0.14 | ) | (0.33 | ) | ||||||||||||
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|||||||||||||
| Total distributions |
(0.16 | ) | (0.44 | ) | (0.16 | ) | (0.44 | ) | ||||||||||||
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|||||||||||||
| Net asset value, end of period |
$ | 10.88 | $ | 10.42 | $ | 10.88 | $ | 10.42 | ||||||||||||
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|||||||||||||
| Total Return(a) |
5.93 | %** | 9.91 | %** | 5.95 | %** | 9.94 | %** | ||||||||||||
| Ratios/Supplemental Data: |
||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 290,356 | $ | 340,489 | $ | 104,679 | $ | 86,508 | ||||||||||||
| Net expenses to average daily net assets(b)(c) |
0.48 | %* | 0.48 | %* | 0.44 | %* | 0.44 | %* | ||||||||||||
| Net investment income (loss) to average daily net assets |
1.88 | %* | 2.05 | %* | 1.98 | %* | 2.09 | %* | ||||||||||||
| Portfolio turnover rate |
16 | %** | 21 | %** | 16 | %** | 21 | %** | ||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.01 | %* | 0.02 | %* | 0.01 | %* | 0.02 | %* | ||||||||||||
| Class V Shares | Class VI Shares | |||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Period from July 23, 2012 (commencement of operations) through February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Period from July 20, 2012 (commencement of operations) through February 28, 2013 | |||||||||||||||||
| Net asset value, beginning of period |
$ | 10.42 | $ | 9.90 | $ | 10.42 | $ | 10.00 | ||||||||||||
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|||||||||||||
| Income (loss) from investment operations: |
||||||||||||||||||||
| Net investment income (loss)† |
0.11 | 0.13 | 0.11 | 0.13 | ||||||||||||||||
| Net realized and unrealized gain (loss) |
0.51 | 0.83 | 0.52 | 0.73 | ||||||||||||||||
|
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|||||||||||||
| Total from investment operations |
0.62 | 0.96 | 0.63 | 0.86 | ||||||||||||||||
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|
|||||||||||||
| Less distributions to shareholders: |
||||||||||||||||||||
| From net investment income |
(0.02 | ) | (0.11 | ) | (0.03 | ) | (0.11 | ) | ||||||||||||
| From net realized gains |
(0.14 | ) | (0.33 | ) | (0.14 | ) | (0.33 | ) | ||||||||||||
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|||||||||||||
| Total distributions |
(0.16 | ) | (0.44 | ) | (0.17 | ) | (0.44 | ) | ||||||||||||
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|||||||||||||
| Net asset value, end of period |
$ | 10.88 | $ | 10.42 | $ | 10.88 | $ | 10.42 | ||||||||||||
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|||||||||||||
| Total Return(a) |
5.94 | %** | 9.95 | %** | 5.95 | %** | 8.87 | %** | ||||||||||||
| Ratios/Supplemental Data: |
||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 220,949 | $ | 279,589 | $ | 6,415,317 | $ | 6,486,389 | ||||||||||||
| Net expenses to average daily net assets(b)(c) |
0.42 | %* | 0.42 | %* | 0.39 | %* | 0.39 | %* | ||||||||||||
| Net investment income (loss) to average daily net assets |
1.91 | %* | 2.11 | %* | 1.99 | %* | 2.10 | %* | ||||||||||||
| Portfolio turnover rate |
16 | %** | 21 | %** | 16 | %** | 21 | %** | ||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.01 | %* | 0.02 | %* | 0.01 | %* | 0.02 | %* | ||||||||||||
| (a) | The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown, if applicable, and assumes the effect of reinvested distributions, if any. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder purchasing or redeeming Fund shares, if any. |
| (b) | Net expenses exclude expenses incurred indirectly through investment in the underlying funds (Note 5). |
| (c) | The net expense ratio does not include the effect of expense reductions (Note 2). |
| † | Calculated using average shares outstanding throughout the period. |
| * | Annualized. |
| ** | Not annualized. |
| 42 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
U.S. GROWTH FUND
| See accompanying notes to the financial statements. | 43 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
U.S. INTRINSIC VALUE FUND
| 44 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
U.S. SMALL/MID CAP FUND
| See accompanying notes to the financial statements. | 45 |
GMO Trust Funds
August 31, 2013 (Unaudited)
| 1. | Organization |
Each of Quality Fund, Real Estate Fund, U.S. Core Equity Fund, U.S. Flexible Equities Fund, U.S. Growth Fund, U.S. Intrinsic Value Fund, and U.S. Small/Mid Cap Fund (each a “Fund” and collectively the “Funds”) is a series of GMO Trust (the “Trust”). The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust was established as a Massachusetts business trust under the laws of The Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees of the Trust (“Trustees”) to create an unlimited number of series of shares (Funds) and to subdivide Funds into classes. The Funds are advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager” or “GMO”).
The Funds may invest in U.S. Treasury Fund and unaffiliated money market funds. The Funds may also invest in other GMO Funds (“underlying funds”).
The following table provides information about the Funds’ principal investment objectives and benchmarks (if any):
| Fund Name | Benchmark | Principal Investment Objective | ||
| Quality Fund | Not Applicable | Total return | ||
| Real Estate Fund | MSCI U.S. REIT Index | High total return | ||
| U.S. Core Equity Fund | S&P 500 Index | High total return | ||
| U.S. Flexible Equities Fund | Russell 3000 Index | Total return in excess of benchmark | ||
| U.S. Growth Fund | Russell 1000 Growth Index | Long-term capital growth | ||
| U.S. Intrinsic Value Fund | Russell 1000 Value Index | Long-term capital growth | ||
| U.S. Small/Mid Cap Fund | Russell 2500 Index | Long-term capital growth | ||
U.S. Flexible Equities Fund currently limits subscriptions.
| 2. | Significant accounting policies |
The following is a summary of significant accounting policies followed by each Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently followed by the Funds in preparing these financial statements. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The accounting records of the Funds are maintained in U.S. Dollars.
Portfolio valuation
Exchange-traded securities (other than exchange-traded options) for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price or (iii) most recent quoted price published by the exchange (if no reported last sale or official closing price) or (iv) the quoted price provided by a pricing source (in the event the Manager deems the private market to be a more reliable indicator of market value than the exchange). Exchange-traded 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. Cleared derivatives are valued using the quote (which may be based on a model) published by the relevant clearing house. If an updated quote for a cleared derivative is not available by the time that a Fund calculates its net asset value on any business day, then that derivative will generally be valued using an industry standard model, which may differ from the model used by the relevant clearing house. Unlisted securities (including debt instruments) for which market quotations are readily available are generally valued at the most recent quoted price. In the case of non-emerging market debt instruments with a remaining maturity of sixty days or less, the instrument may be valued at amortized cost, which approximates market value, if the issuer is deemed to present minimal credit risk. Shares of open-end registered investment companies are valued at their most recent net asset value. If quotations are not readily available or circumstances make an existing valuation methodology or procedure unreliable, derivatives and other securities are valued at fair value as determined in good faith by the Trustees or persons acting at their direction pursuant to procedures approved by the Trustees. Because of the uncertainty inherent in pricing, and in particular fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. See the table below for information about securities and derivatives, if any, that were fair valued using methods determined in good faith by or at the direction of the Trustees. The Funds classify such securities as Level 3 (levels defined below). For the period ended August 31, 2013, the Funds did not reduce the value of any of their over-the-counter (“OTC”) derivatives contracts, if any, based on the creditworthiness of their counterparties. See Note 4 “Derivative financial instruments” for a further discussion on valuation of derivatives.
The foregoing valuation methodologies are modified for equity securities listed on foreign exchanges and that trade in securities markets that close prior to the close of the New York Stock Exchange (“NYSE”) due to time zone differences, including the value of equity securities that
| 46 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
underlie futures, options and other derivatives (to the extent the market for those derivatives closes prior to the close of the NYSE). In those cases, the value will generally be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees to reflect estimated valuation changes through the NYSE close. The table below shows the percentage of the net assets of the Funds that were valued using fair value inputs obtained from that independent pricing service as of August 31, 2013. These securities listed on foreign exchanges (including the value of equity securities that underlie futures, options and other derivatives (to the extent the market for such instruments closes prior to the close of the NYSE)) are classified as Level 2 (levels defined below) in the table below.
“Quotation” or “quoted price” typically means the bid price for securities held long and the ask price for securities sold short. If the pricing convention for a security does not involve a bid or an ask, “quotation” or “quoted price” may be a market quotation provided by a market participant or other third party pricing source in accordance with the convention for that security. If an updated quote for a security is not available by the time that the Funds calculate their net asset value on any business day, the Funds will generally use a quoted price from a prior day to value that security.
As discussed above, certain of the Funds invest in securities and/or derivatives which may have been fair valued using inputs obtained from an independent pricing service. The net aggregate direct and/or indirect exposure to these valuation methodologies (based on each Fund’s net assets) as of August 31, 2013 is as follows:
Securities
| Fund Name | Fair valued using inputs obtained from an independent pricing service |
|||
| Quality Fund |
11 | % | ||
| U.S. Flexible Equities Fund |
5 | % | ||
U.S. GAAP requires the Funds to disclose the fair value of their investments in a three-level hierarchy (Levels 1, 2, and 3). The valuation hierarchy is based upon the relative observability of inputs to the valuation of the Funds’ investments. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Changes in valuation techniques may result in transfers into or out of an investment’s assigned level within the fair value hierarchy. In addition, in periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition, as well as changes related to the liquidity of investments, could cause a security to be reclassified between levels.
U.S. GAAP requires additional disclosures about fair value measurements for material Level 3 securities and derivatives, if any (determined by each category of asset or liability as compared to a Fund’s total net assets separately identified in the “Valuation Inputs” table below). At August 31, 2013, there were no direct material Level 3 classes of investments or derivatives with significant unobservable inputs subject to this additional disclosure.
The three levels are defined as follows:
Level 1 – Valuations based on quoted prices for identical securities in active markets.
The types of assets and liabilities categorized in Level 1 generally include actively traded domestic and certain foreign equity securities, certain U.S. government obligations with a remaining maturity of greater than 60 days, derivatives actively traded on a national securities exchange (such as some futures and options), and shares of open-end mutual funds (even if their investments are valued using Level 2 or Level 3 inputs).
Level 2 – Valuations determined using other significant direct or indirect observable inputs.
The types of assets and liabilities categorized in Level 2 generally include debt securities such as U.S. government securities with a remaining maturity of 60 days or less valued at amortized cost; cleared derivatives and certain OTC derivatives such as swaps, options, swaptions, and forward currency contracts valued using industry standard models; certain restricted securities valued at the most recent available market or quoted price; and certain foreign equity securities that are adjusted based on inputs from an independent pricing service approved by the Trustees, including the value of equity securities that underlie futures, options and other derivatives (to the extent the market for such instruments closes prior to the close of the NYSE) to reflect estimated valuation changes through the NYSE close.
Level 3 – Valuations based primarily on inputs that are unobservable and significant.
| 47 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The following is a summary of the respective levels assigned to the Funds’ direct securities and derivatives, if any, as of August 31, 2013:
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Quality Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 17,350,809 | $ | — | $ | 17,350,809 | ||||||||
| Belgium |
— | 32,595,113 | — | 32,595,113 | ||||||||||||
| Denmark |
— | 16,542,003 | — | 16,542,003 | ||||||||||||
| France |
— | 134,581,895 | — | 134,581,895 | ||||||||||||
| Germany |
— | 45,123,264 | — | 45,123,264 | ||||||||||||
| Japan |
— | 227,491,670 | — | 227,491,670 | ||||||||||||
| Netherlands |
— | 85,270,690 | — | 85,270,690 | ||||||||||||
| Switzerland |
— | 314,699,544 | — | 314,699,544 | ||||||||||||
| United Kingdom |
— | 551,089,825 | — | 551,089,825 | ||||||||||||
| United States |
11,764,696,045 | — | — | 11,764,696,045 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
11,764,696,045 | 1,424,744,813 | — | 13,189,440,858 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
160,034,000 | — | — | 160,034,000 | ||||||||||||
| Short-Term Investments |
49,337,785 | — | — | 49,337,785 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
11,974,067,830 | 1,424,744,813 | — | 13,398,812,643 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 11,974,067,830 | $ | 1,424,744,813 | $ | — | $ | 13,398,812,643 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Real Estate Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks (Real Estate Investment Trusts) |
$ | 11,054,154 | $ | — | $ | — | $ | 11,054,154 | ||||||||
| Mutual Funds |
123,975 | — | — | 123,975 | ||||||||||||
| Short-Term Investments |
44,439 | — | — | 44,439 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
11,222,568 | — | — | 11,222,568 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 11,222,568 | $ | — | $ | — | $ | 11,222,568 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| U.S Core Equity Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
$ | 1,344,750,192 | $ | — | $ | — | $ | 1,344,750,192 | ||||||||
| Mutual Funds |
32,715,073 | — | — | 32,715,073 | ||||||||||||
| Short-Term Investments |
3,826,030 | — | — | 3,826,030 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
1,381,291,295 | — | — | 1,381,291,295 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 1,381,291,295 | $ | — | $ | — | $ | 1,381,291,295 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 48 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| U.S. Flexible Equities Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 8,118,440 | $ | — | $ | 8,118,440 | ||||||||
| France |
— | 55,652,433 | — | 55,652,433 | ||||||||||||
| Switzerland |
— | 111,545,260 | — | 111,545,260 | ||||||||||||
| United Kingdom |
— | 169,350,221 | — | 169,350,221 | ||||||||||||
| United States |
6,460,755,904 | — | — | 6,460,755,904 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
6,460,755,904 | 344,666,354 | — | 6,805,422,258 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
77,859,118 | — | — | 77,859,118 | ||||||||||||
| Short-Term Investments |
132,937,409 | — | — | 132,937,409 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
6,671,552,431 | 344,666,354 | — | 7,016,218,785 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 6,671,552,431 | $ | 344,666,354 | $ | — | $ | 7,016,218,785 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| U.S. Growth Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
$ | 2,433,341 | $ | — | $ | — | $ | 2,433,341 | ||||||||
| Mutual Funds |
61,971 | — | — | 61,971 | ||||||||||||
| Short-Term Investments |
13,649 | — | — | 13,649 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
2,508,961 | — | — | 2,508,961 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 2,508,961 | $ | — | $ | — | $ | 2,508,961 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| U.S. Intrinsic Value Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
$ | 11,592,226 | $ | — | $ | — | $ | 11,592,226 | ||||||||
| Mutual Funds |
126,987 | — | — | 126,987 | ||||||||||||
| Rights/Warrants |
2,992 | — | — | 2,992 | ||||||||||||
| Short-Term Investments |
23,843 | — | — | 23,843 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
11,746,048 | — | — | 11,746,048 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 11,746,048 | $ | — | $ | — | $ | 11,746,048 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| U.S. Small/Mid Cap Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
$ | 9,041,795 | $ | — | $ | — | $ | 9,041,795 | ||||||||
| Mutual Funds |
144,127 | — | — | 144,127 | ||||||||||||
| Short-Term Investments |
30,891 | — | — | 30,891 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
9,216,813 | — | — | 9,216,813 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 9,216,813 | $ | — | $ | — | $ | 9,216,813 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
All of the Funds’ common stocks except for Quality Fund and U.S. Flexible Equities Fund held at period end are classified as Level 1. The classifications for Quality Fund and U.S. Flexible Equities Fund are shown in the tables above. Please refer to the Schedule of Investments for a more detailed categorization of common stocks.
The underlying funds held at period end are classified above as Level 1. For the summary of valuation inputs of the underlying funds, please refer to the underlying funds’ Notes to Financial Statements.
For all Funds for the period ended August 31, 2013, there were no material transfers between Level 1 and Level 2.
| 49 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Cash
Cash and Foreign Currency, if any, on the Statements of Assets and Liabilities consists of cash balances held with the custodian.
Due to/from broker
Due to/from broker in the Statements of Assets and Liabilities includes collateral on swap contracts, futures contracts, option contracts and forward currency contracts, if any, and may include mark-to-market amounts related to foreign currency.
Foreign currency translation
The market values of foreign securities, currency holdings and related assets and liabilities are typically translated into U.S. Dollars at the close of regular trading on the NYSE, generally at 4:00 pm Boston time. Income and expenses denominated in foreign currencies are typically translated into U.S. Dollars at the close of regular trading on the NYSE. Fluctuations in the value of currency holdings and other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains or losses. Realized gains or losses and unrealized appreciation or depreciation on investment securities and income and expenses are translated on the respective dates of such transactions. The effects of changes in foreign currency exchange rates on investments in securities are not separated on the Statements of Operations from the effects of changes in market prices of those securities, but are included with the net realized and unrealized gain or loss on investment securities.
Taxes and distributions
Each Fund intends to qualify each tax year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). Each Fund intends to distribute substantially all of its net investment income, if any, and all of its net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryforwards for U.S. federal income tax purposes. Therefore, each Fund makes no provision for U.S. federal income or excise taxes. Taxes on foreign interest and dividend income are generally withheld in accordance with the applicable country’s tax treaty with the United States. The foreign withholding rates applicable to a Fund’s investments in certain jurisdictions may be higher if a significant portion of the Fund is held by non-U.S. shareholders.
Each Fund’s policy is to declare and pay distributions of its net investment income, if any, semi-annually. Each Fund also intends to distribute net realized short-term and long-term capital gains, if any, at least annually. Typically, distributions are reinvested in additional shares of each Fund, at net asset value, unless the shareholder elects to receive cash distributions. Distributions to shareholders are recorded by each Fund on the ex-dividend date.
Foreign taxes paid by each Fund may be treated, to the extent permissible under the Code and if that Fund so elects, as if paid by U.S. shareholders of that Fund.
Each Fund may be subject to taxation on realized capital gains, repatriation proceeds and other transaction-based taxes imposed by certain countries in which it invests. Taxes related to capital gains realized during the period ended August 31, 2013, if any, are reflected as part of Net realized gain (loss) in the Statements of Operations. Changes in tax liabilities related to capital gain taxes on unrealized investment gains, if any, are reflected as part of Change in net unrealized appreciation (depreciation) in the Statements of Operations. Transaction-based charges are generally calculated as a percentage of the transaction amount.
Income and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will likely reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over-distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
U.S. Flexible Equities Fund’s initial holdings consisted of securities contributed to it by Quality Fund, another series of the Trust. The aggregate value of these securities significantly exceeded their aggregate tax basis. As a result, absent offsetting losses, if any, U.S. Flexible Equities Fund will likely make material capital gain distributions (both long-term and short-term) during the early years of its operations. Such distributions will generally be taxable to shareholders, as either ordinary income or long-term capital gains, to the extent U.S. Flexible Equities Fund’s shares are held in a taxable account. Accordingly, the capital accounts for U.S. Flexible Equities Fund reflect U.S. GAAP and tax accounting differences related to this contribution in-kind transactions and losses on wash sale transactions.
Distributions in excess of tax basis earnings and profits, if significant, are reported in the Funds’ financial statements as a return of capital.
| 50 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
As of February 28, 2013, the Funds listed below elected to defer to March 1, 2013 post-October capital losses as follows:
| Fund Name | Post-October Capital Losses ($) |
|||
| U.S. Intrinsic Value Fund |
(6,102) | |||
As of February 28, 2013, the Funds listed below had capital loss carryforwards available to offset future realized gains, if any, to the extent permitted by the Code. Net capital losses recognized in taxable years beginning on or after March 1, 2011 are carried forward without expiration and generally retain their short-term and/or long-term tax character, as applicable. In addition, such losses should be utilized prior to losses scheduled to expire on or before February 28, 2019. As a result of this ordering rule, losses that are subject to expiration may expire unused. Utilization of the capital loss carryforwards, post-October capital losses, late-year ordinary losses, and losses realized subsequent to February 28, 2013, if any, could be subject to further limitations imposed by the Code related to share ownership activity. The Funds’ capital loss carryforwards are as follows:
| Short-Term ($) | Total Short Term ($) |
Long- Term ($) |
||||||||||||||||||||||
| Fund Name | Expiration Date 2/28/2017 |
Expiration Date 2/28/2018 |
Expiration Date 2/28/2019 |
No Expiration Date |
No Expiration Date |
|||||||||||||||||||
| Real Estate Fund |
— | (943,303) | (2,351,537) | — | (3,294,840) | — | ||||||||||||||||||
| U.S. Core Equity Fund |
— | (488,201,634) | — | — | (488,201,634) | — | ||||||||||||||||||
| U.S. Growth Fund |
(365,468) | (91,367) | — | — | (456,835) | — | ||||||||||||||||||
| U.S. Intrinsic Value Fund |
(1,208,022) | (290,942) | (44,588) | — | (1,543,552) | — | ||||||||||||||||||
| U.S. Small/Mid Cap Fund |
(1,065,118) | (586,840) | — | — | (1,651,958) | — | ||||||||||||||||||
As of August 31, 2013, the approximate cost for U.S. federal income tax purposes and the aggregate investment-level gross and net unrealized appreciation (depreciation) in the value of investments were as follows:
| Fund Name | Aggregate Cost ($) |
Gross Unrealized Appreciation ($) |
Gross Unrealized (Depreciation) ($) |
Net Unrealized Appreciation (Depreciation) ($) |
||||||||||||
| Quality Fund |
11,365,908,064 | 2,056,132,434 | (23,227,855) | 2,032,904,579 | ||||||||||||
| Real Estate Fund |
9,512,919 | 1,907,342 | (197,693) | 1,709,649 | ||||||||||||
| U.S. Core Equity Fund |
1,228,978,118 | 160,316,697 | (8,003,520) | 152,313,177 | ||||||||||||
| U.S. Flexible Equities Fund |
5,882,196,369 | 1,144,019,287 | (9,996,871) | 1,134,022,416 | ||||||||||||
| U.S. Growth Fund |
2,168,876 | 355,741 | (15,656) | 340,085 | ||||||||||||
| U.S. Intrinsic Value Fund |
9,781,860 | 2,064,061 | (99,873) | 1,964,188 | ||||||||||||
| U.S. Small/Mid Cap Fund |
7,751,472 | 1,611,770 | (146,429) | 1,465,341 | ||||||||||||
The Funds are subject to authoritative guidance related to the accounting and disclosure of uncertain tax positions under U.S. GAAP. This guidance sets forth a minimum threshold for the financial statement recognition of tax positions taken based on the technical merits of such positions. United States and non-U.S. tax rules (including the interpretation and application of tax laws) are subject to change. The Funds file tax returns and/or adopt certain tax positions in various jurisdictions. Non-U.S. taxes are provided for based on the Funds’ understanding of the prevailing tax rules of the non-U.S. markets in which they invest. Recently enacted tax rules, including interpretations of tax laws (e.g., regulations pertaining to the U.S. Foreign Account Tax Compliance Act) and proposed legislation currently under consideration in various jurisdictions, including the U.S., might affect the way the Funds and their investors are taxed prospectively and/or retroactively. Prior to the expiration of the relevant statutes of limitations, if any, the Funds are subject to examination by U.S. federal, state, local and non-U.S. jurisdictions with respect to the tax returns they have filed and the tax positions they have adopted. The Funds’ U.S. federal income tax returns are generally subject to examination by the Internal Revenue Service for a period of three years after they are filed. State, local and/or non-U.S. tax returns and/or other filings may be subject to examination for different periods, depending upon the tax rules of each applicable jurisdiction.
| 51 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Security transactions and related investment income
Security transactions are accounted for in the financial statements on trade date. For purposes of daily net asset value calculations, the Funds’ policy is that security transactions are generally accounted for on the following business day. The Manager may override that policy and a Fund may account for security transactions on trade date if it experiences significant purchases or redemptions or engages in significant portfolio transactions. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when a Fund is informed of the ex-dividend date. Income dividends and capital gain distributions from the underlying funds are recorded on the ex-dividend date. Interest income is recorded on the accrual basis and is adjusted for the amortization of premiums and accretion of discounts. Coupon income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Funds use the identified cost basis.
Expenses
Most of the expenses of the Trust are directly identifiable to an individual Fund. Common expenses are allocated among the Funds based on, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses, purchase premiums and redemption fees, if any, and realized and unrealized gains and losses are allocated among the classes of shares of the Funds, if applicable, based on the relative net assets of each class. Shareholder service fees, 12b-1 and administration fees, if any, which are directly attributable to a class of shares, are charged to that class’s operations. In addition, the Funds may incur fees and expenses indirectly as a shareholder in the underlying funds (See Note 5).
State Street Bank and Trust Company (“State Street”) serves as the Funds’ custodian, fund accounting agent and transfer agent. State Street’s transfer agent fees may be reduced by an earnings allowance calculated on the average daily cash balances each Fund maintains in a State Street transfer agent account. Earnings allowances are reported as a reduction of expenses in the Statement of Operations. Prior to December 31, 2012, State Street’s custodian fees may have been reduced by an earnings allowance calculated on the average daily cash balance each Fund maintained in a State Street custodial account. Earnings allowances were reported as a reduction of expenses in the Statements of Operations. Effective January 1, 2013, any cash balances maintained at the custodian are held in a Demand Deposit Account and interest income earned, if any, is shown as interest income in the Statements of Operations.
Purchases and redemptions of Fund shares
Purchase premiums and redemption fees (if applicable) are paid to and retained by a Fund to help offset estimated portfolio transaction costs and other related costs (e.g., bid to ask spreads, stamp duties and transfer fees) incurred by the Fund (directly or indirectly through investments in underlying funds) as a result of the purchase or redemption by allocating estimated transaction costs to the purchasing or redeeming shareholder. Such fees are recorded as a component of the Funds’ net share transactions. A Fund may impose a new purchase premium and/or redemption fee or modify an existing fee at any time.
Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of a Fund’s shares if the Fund will not incur transaction costs or will incur reduced transaction costs.
The Manager will waive or reduce the purchase premium when securities are used to purchase a Fund’s shares except to the extent that the Fund incurs transaction costs (e.g., stamp duties or transfer fees) in connection with its acquisition of those securities. The Funds may waive or reduce redemption fees when they use portfolio securities to redeem their shares. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may nonetheless charge a redemption fee equal to known or estimated costs.
Purchase premiums or redemption fees generally will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with the Trust to transmit orders for purchases and redemptions the day after those orders are received.
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GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
As of August 31, 2013, the premium on cash purchases and the fee on cash redemptions were as follows:
| Quality Fund |
Real Estate Fund |
U.S. Core Equity Fund |
U.S. Flexible Equities Fund |
U.S. Growth Fund |
U.S. Intrinsic Value Fund |
U.S. Small / Mid Cap Fund | ||||||||
| Purchase Premium | — | — | — | — | — | — | 0.30% | |||||||
| Redemption Fee | — | — | — | — | — | — | 0.30% | |||||||
| 3. | Investment and other risks |
The following chart identifies selected risks associated with each Fund. Risks not marked for a particular Fund may, however, still apply to some extent to that Fund at various times:
| Quality Fund | Real Estate Fund | U.S. Core Equity Fund | U.S. Flexible Equities Fund | U.S. Growth Fund | U.S. Intrinsic Value Fund | U.S. Small/Mid Cap Fund | ||||||||
| Market Risk – Equities | X | X | X | X | X | X | X | |||||||
| Market Risk – Fixed Income Investments | X | |||||||||||||
| Market Risk – Asset-Backed Securities | X | |||||||||||||
| Credit Risk | X | |||||||||||||
| Liquidity Risk | X | X | ||||||||||||
| Smaller Company Risk | X | X | X | X | X | |||||||||
| Derivatives Risk | X | X | X | X | X | X | X | |||||||
| Non-U.S. Investment Risk | X | X | ||||||||||||
| Currency Risk | X | X | ||||||||||||
| Focused Investment Risk | X | X | X | X | X | X | X | |||||||
| Real Estate Risk | X | |||||||||||||
| Leveraging Risk | X | X | X | X | X | X | X | |||||||
| Counterparty Risk | X | X | X | X | X | X | X | |||||||
| Market Disruption and Geopolitical Risk | X | X | X | X | X | X | X | |||||||
| Large Shareholder Risk | X | X | X | X | X | X | X | |||||||
| Management and Operational Risk | X | X | X | X | X | X | X | |||||||
| Fund of Funds Risk | X | |||||||||||||
| Non-Diversified Funds | X | X | X | X | X | |||||||||
Investing in mutual funds involves many risks. The risks of investing in a particular Fund depend on the types of investments in its portfolio and the investment strategies the Manager employs on its behalf. This section does not describe every potential risk of investing in the Funds. Funds could be subject to additional risks because of the types of investments they make and market conditions, which may change over time.
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GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Each Fund that invests in other GMO Funds and other investment companies is exposed to the risks to which the underlying funds in which it invests are exposed. Therefore, unless otherwise noted, the selected risks summarized below include both direct and indirect risks, and, references in this section to investments made by a Fund include those made both directly by the Fund and indirectly by the Fund through other GMO Funds and other investment companies.
An investment in a Fund is not a bank deposit and, therefore, is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
• MARKET RISK. All of the Funds are subject to market risk, which is the risk that the market value of their holdings will decline. Market risks include:
Equities. Funds that invest in equities run the risk that the market prices of those investments will decline. The market prices of equities may decline for reasons that directly relate to the issuing company, such as poor management performance or reduced demand for its goods or services. They also may decline due to factors that affect a particular industry, such as a decline in demand, labor or raw material shortages, or increased production costs. In addition, market prices may decline as a result of general market conditions 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. Equities generally have significant price volatility, and the market prices of equities can decline in a rapid or unpredictable manner.
The Funds invest a substantial portion of their assets in equities and, as a result, declines in stock market prices generally are likely to reduce the net asset values of those Funds’ shares.
If a Fund purchases equities 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 appreciate or will decline for a variety of reasons, one of which may be the Manager’s overestimation of the value of those investments.
The market prices of equities trading at high multiples of current earnings often are more sensitive to changes in future earnings expectations than the market prices of equities trading at lower multiples.
Fixed Income Investments — Funds that invest in fixed income securities (including bonds, notes, bills, synthetic debt instruments and asset-backed securities) are subject to various market risks. The market price of a fixed income investment can decline due to a number of market-related factors, including rising interest rates and widening credit spreads, or decreased liquidity stemming from the market’s uncertainty about the value of a fixed income investment (or class of fixed income investments). In addition, the market price of fixed income investments with complex structures, such as asset-backed securities and sovereign and quasi-sovereign debt instruments, can decline due to market uncertainty about their credit quality and the reliability of their payment streams. Some fixed income securities also are subject to unscheduled prepayment, and a Fund may be unable to invest prepayments at as high a yield as was provided by the fixed income security. When interest rates rise, these securities also may be repaid more slowly than anticipated, which could cause the market price of the Fund’s investment to decrease. During periods of economic uncertainty and change, the market price of a Fund’s investments in below investment grade securities (commonly referred to as “junk bonds”) may be particularly volatile. Often junk bonds are subject to greater sensitivity to interest rate and economic changes than higher rated bonds and can be more difficult to value, exposing a Fund to the risk that the price at which it sells them will be less than the value placed on them when they were held by the Fund. See “Credit Risk” and “Liquidity Risk” below for more information about these risks
A risk run by each Fund with a significant investment in fixed income securities is that an increase in prevailing interest rates will cause the market price of those securities to decline. The risk associated with increases in interest rates (also called “interest rate risk”) is generally greater for Funds investing in fixed income securities with longer durations and in some cases duration can increase.
The extent to which a fixed income security’s price changes with changes in interest rates is referred to as interest rate duration, which can be measured mathematically or empirically. A longer-maturity investment generally has longer interest rate duration because the investment’s fixed rate is locked in for a longer period of time. Floating-rate or adjustable-rate securities, however, generally have shorter interest rate durations because their interest rates are not fixed but rather float up and down as interest rates change. Conversely, inverse floating-rate securities have durations that move in the opposite direction from short-term interest rates and thus tend to underperform fixed rate securities when interest rates rise but outperform them when interest rates decline. Fixed income securities paying no interest, such as zero coupon and principal-only securities, create additional interest rate risk.
The market price of inflation-indexed bonds (including Inflation-Protected Securities issued by the U.S. Treasury (“TIPS”)) normally changes when real interest rates change. Their value typically will decline during periods of rising real interest rates (i.e., nominal interest rate minus inflation) and increase during periods of declining real interest rates. Real interest rates may not fluctuate in the same manner as nominal interest rates. In some interest rate environments, such as when real interest rates are rising faster than nominal interest rates, the market price of
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GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
inflation-indexed bonds may decline more than the price of non-inflation-indexed (or nominal) fixed income bonds with similar maturities. The market price of a Fund’s inflation-indexed bonds, however, will not necessarily change in the same proportion as changes in nominal interest rates, and short term increases in inflation may lead to a decline in their price. Moreover, if the index measuring inflation falls, the principal value of inflation-indexed bond investments will be adjusted downward, and, consequently, the interest they pay (calculated with respect to a smaller principal amount) will be reduced. In the case of TIPS, the U.S. government guarantees the repayment of the original bond principal upon maturity (as adjusted for inflation).
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.
Market risk for fixed income securities denominated in non-U.S. currencies is also affected by currency risk. See “Currency Risk” below.
Asset-Backed Securities — Investments in asset-backed securities not only are subject to all of the market risks described above for fixed income securities but to other market risks as well.
Funds investing in asset-backed securities are exposed to the risk that these securities experience severe credit downgrades, illiquidity, defaults, and declines in market value. These risks are particularly acute during periods of adverse market conditions, such as those that occurred in 2008. Asset-backed securities may be backed by many types of assets, including pools of residential and commercial mortgages, automobile loans, educational loans, home equity loans, and credit-card receivables. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as “collateralized debt obligations” or “collateralized loan obligations”) and by the fees earned by service providers.
As described under “Market Risk — Fixed Income Investments” above, the market price of fixed income investments with complex structures, such as asset-backed securities, can decline due to a number of factors, including market uncertainty about their credit quality and the reliability of their payment streams. Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flow generated by the assets backing the securities, as well as the deal structure (e.g., 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 and the credit quality of the credit-support provider, if any, and the reliability of various other service providers with access to the payment stream. A problem in any one of these areas can lead to a reduction in the payment stream the Manager expected a Fund to receive at the time the Fund purchased the asset-backed security. Asset-backed securities involve risk of loss of principal if obligors of the underlying obligations default and the value of the defaulted obligations exceeds whatever credit support the securities may have. Asset-backed securities backed by sub-prime mortgage loans, in particular, may cause a Fund to suffer significantly greater declines in value due to defaults, as sub-prime mortgage loans are typically made to less creditworthy borrowers and thus have a higher risk of default than conventional mortgage loans. The obligations of issuers (and obligors of asset-backed securities) also are subject to bankruptcy, insolvency and other laws affecting the rights and remedies of creditors. See “Credit Risk” below for more information about credit risk.
With the deterioration of worldwide economic and liquidity conditions that occurred and became acute in 2008, the markets for asset-backed securities became fractured, and uncertainty about the creditworthiness of those securities (and underlying assets) caused credit spreads (the difference between yields on asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of financial institutions to make markets in many fixed income securities. These events reduced liquidity and contributed to substantial declines in the market prices of asset-backed and other fixed income securities. 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., sub-prime mortgages) have had, and may continue to have, adverse valuation and liquidity effects on asset-backed securities.
The market price of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying assets. The insolvency of an entity that generated the assets underlying an asset-backed security is likely to result in a decline in the market price of that security, as well as costs and delays. The obligations underlying asset-backed securities, in particular securities backed by pools of residential and commercial mortgages, also are subject to unscheduled prepayment, and a Fund may be unable to invest prepayments at as high a yield as was provided by the asset-backed security. When interest rates rise, these obligations also may be repaid more slowly than anticipated, which could cause the market price of the Fund’s investment to decrease.
In addition, the existence of insurance on an asset-backed security does not guarantee that the 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.
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GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The risk of investing in asset-backed securities has increased since the deterioration in worldwide economic and liquidity conditions referred to above 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 correlated. See “Focused Investment Risk” below for more information about risks of investing in correlated sectors. A single financial institution may serve as a trustee for many asset-backed securities. As a result, a disruption in that institution’s business may have a material impact on many investments.
• CREDIT RISK. This is the risk that the issuer or guarantor of a fixed income investment or the obligor of an obligation underlying an asset-backed security will be unable or unwilling to satisfy its obligation to pay principal and interest or otherwise to honor its obligations in a timely manner. The market price of a fixed income investment will normally decline as a result of the issuer’s, guarantor’s, or obligor’s failure to meet its payment obligations or the downgrading of its credit rating. This risk is particularly acute in environments (like those of 2008) in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions.
All fixed income securities are subject to credit risk. Financial strength and solvency of an issuer are the primary factors influencing credit risk. The risk varies depending upon whether the issuer is a corporation or U.S. or non-U.S. government (or sub-division or instrumentality) and whether the particular security has a priority over other obligations of the issuer in payment of principal and interest and whether it has any collateral backing or credit enhancement. Credit risk may change over the life of a fixed income security. U.S. government securities are subject to varying degrees of credit risk depending upon whether the securities are supported by the full faith and credit of the United States, supported by the ability to borrow from the U.S. Treasury, supported only by the credit of the issuing U.S. government agency, instrumentality, or corporation, or otherwise supported by the United States. For example, issuers of many types of U.S. government securities (e.g., the Federal Home Loan Mortgage Corporation (“Freddie Mac”), Federal National Mortgage Association (“Fannie Mae”), and Federal Home Loan Banks), although chartered or sponsored by Congress, are not funded by Congressional appropriations and their fixed income securities, including mortgage-backed and other asset-backed securities, are neither guaranteed nor insured by the U.S. government. These securities are subject to more credit risk than U.S. government securities that are supported by the full faith and credit of the United States (e.g., U.S. Treasury bonds). Investments in sovereign debt involve the risk that the governmental entities responsible for repayment may be unable or unwilling to pay interest and repay principal when due. A governmental entity’s willingness or ability to pay interest and repay principal in a timely manner may be affected by a variety of factors, including its cash flow, the size of its reserves, its access to foreign exchange, the relative size of its debt service burden to its economy as a whole, and political constraints. In addition, payment of principal of fixed income securities guaranteed by the U.S. government can be delayed because the guarantee generally only requires payment upon maturity of the securities. Investments in quasi-sovereign issuers are subject to the additional risk that the issuer may default independently of its sovereign. Sovereign debt risk is greater for fixed income securities issued or guaranteed by emerging countries.
In some cases, the credit risk of a fixed income security is reflected in its credit ratings, and a Fund holding such a security is subject to the risk that its rating will be downgraded.
Securities issued by the U.S. Treasury historically have presented minimal credit risk. However, recent events have led to a downgrade in the long-term U.S. credit rating by at least one major rating agency and have introduced greater uncertainty about the ability of the U.S. to repay its obligations. A further credit rating downgrade or a U.S. credit default could decrease the value and increase the volatility of a Fund’s investments.
As described under “Market Risk — Asset-Backed Securities” above, asset-backed securities may be backed by many types of assets and their payment of interest and repayment of principal largely depend on the cash flows generated by the assets backing them. The credit risk of a particular asset-backed security depends on many factors, as described in “Market Risk — Asset-Backed Securities” above.
The obligations of issuers also are subject to bankruptcy, insolvency and other laws affecting the rights and remedies of creditors. A Fund also is exposed to credit risk on a reference security to the extent it writes protection under credit default swaps. See “Derivatives Risk” below for more information regarding risks associated with the use of credit default swaps.
The extent to which the market price of a fixed income security changes in response to a credit event depends on a number of factors and can be difficult to predict. For example, floating rate securities may have final maturities of ten or more years, but their effective durations will tend to be very short. If the issuer of floating rate securities experiences an adverse credit event, or a change occurs in its perceived creditworthiness, the market price of its securities could decline much more than would be predicted by a change in their yield relative to their effective duration.
Credit risk is particularly pronounced for below investment grade securities (commonly referred to as “junk bonds”). The sovereign debt of many non-U.S. governments, including their sub-divisions and instrumentalities, is below investment grade. Many asset-backed securities also are below investment grade. Below investment grade securities have speculative characteristics, often are less liquid than higher quality securities, present a greater risk of default and are more susceptible to real or perceived adverse industry conditions. In the event of default of sovereign debt, the Funds may be unable to pursue legal action against the sovereign issuer.
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GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
• LIQUIDITY RISK. Liquidity risk is the risk that low trading volume, lack of a market maker, large position size or legal restrictions (including daily price fluctuation limits or “circuit breakers”) limits or prevents a Fund from selling particular securities or unwinding derivative positions at desirable prices. In addition to these risks, a Fund is 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 a short position). All of the Funds are subject to liquidity risk, but those with the greatest risk have principal investment strategies that involve investment in asset-backed securities, emerging country debt securities, securities of companies with smaller market capitalizations or smaller total float-adjusted market capitalizations and emerging market securities. These types of investments can be difficult to value, exposing a Fund to the risk that the price at which it sells them will be less than the value placed on them when they were held by the Fund. In addition, TIPS have exhibited periods of greatly reduced liquidity when disruptions in fixed income markets have occurred, such as the events surrounding the bankruptcy of Lehman Brothers in 2008. Less liquid securities are more susceptible than other securities to price declines when market prices decline generally.
All of the Funds with benchmarks may buy securities that are less liquid than those in their benchmarks.
• SMALLER COMPANY RISK. Companies with smaller market capitalizations, including small- and mid-cap 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 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. In addition, market risk and liquidity risk are particularly pronounced for securities of these companies.
• DERIVATIVES RISK. All of the Funds 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 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. Derivatives include futures, non-U.S. 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 use of derivatives involves risks that are in addition to, and potentially greater than, the risks of investing directly in securities and other more traditional assets. In particular, a Fund’s use of OTC derivatives exposes it to the risk that the counterparties will be unable or unwilling to make timely settlement payments or otherwise honor their obligations. An OTC derivatives contract typically can be closed only with the consent of 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 it does, the Fund may decide not to pursue its claims against the counterparty to avoid incurring the cost and unpredictability of legal proceedings. The Fund, therefore, may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts, or those payments may be delayed or made only after the Fund has incurred the costs of litigation.
A Fund may invest in derivatives that (i) do not require the counterparty to post collateral (e.g., forward currency contracts), (ii) require collateral but that do not provide for the Fund’s security interest in it to be perfected, (iii) require a significant upfront deposit by the Fund unrelated to the derivative’s intrinsic value, or (iv) do not require that collateral be regularly marked-to-market. When a counterparty’s obligations are not fully secured by collateral, a Fund runs the risk of having limited recourse if the counterparty defaults. Even when obligations are required by contract to be collateralized, a Fund often will not receive the collateral the day the collateral is called for.
The Funds 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 Funds. Derivatives risk is particularly acute in environments (like those of 2008) in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. In addition, during those periods, a Fund may have a greater need for cash to provide collateral for large swings in its mark-to-market obligations under the derivatives in which it has invested.
Derivatives also present other risks described in this section, including market risk, liquidity risk, currency risk, credit 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 may not produce valuations that are consistent with the values a Fund realizes when it closes or sells an OTC derivative. Valuation risk is more pronounced when a 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 a Fund’s net asset value.
A Fund’s 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 a Fund, the Funds will not be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund’s risk exposures, potentially resulting in losses for the Fund.
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GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Swap contracts and other OTC derivatives are highly susceptible to liquidity risk (see “Liquidity Risk” above) 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.
A Fund’s use of derivatives may be subject to one or more special tax rules and could generate additional taxable income for shareholders.
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 (and many of the rules are not yet final), its ultimate impact remains unclear.
Under recently adopted rules and regulations, transactions in some types of swaps (including interest rate swaps and credit default swaps on North American and European indices) are required to be centrally cleared. In a transaction involving those swaps (“cleared derivatives”), a Fund’s counterparty is a clearing house, rather than a bank or broker. Since the Funds are not members of clearing houses and only members of a clearing house (“clearing members”) can participate directly in the clearing house, the Funds will hold cleared derivatives through accounts at clearing members. In cleared derivatives transactions, the Funds will make payments (including margin payments) to and receive payments from a clearing house through their accounts at clearing members. Clearing members guarantee performance of their clients’ obligations to the clearing house.
In many ways, cleared derivative arrangements are less favorable to mutual funds than bilateral arrangements. For example, the Funds may be required to provide more margin for cleared derivatives transactions than for bilateral derivatives transactions. Also, in contrast to a bilateral derivatives transaction, following a period of notice to a Fund, a clearing member generally can require termination of an existing cleared derivatives transaction at any time or an increase in margin requirements above the margin that the clearing member required at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions or to terminate those transactions at any time. Any increase in margin requirements or termination of existing cleared derivatives transactions by the clearing member or the clearing house could interfere with the ability of a Fund to pursue its investment strategy. Further, any increase in margin requirements by a clearing member could expose a Fund to greater credit risk to its clearing member, because (as described under “Counterparty Risk” below) margin for cleared derivatives transactions in excess of a clearing house’s margin requirements typically is held by the clearing member. Also, a Fund is subject to risk if it enters into a derivatives transaction that is required to be cleared (or that the Manager expects to be cleared), and no clearing member is willing or able to clear the transaction on the Fund’s behalf. While the documentation in place between the Funds and their clearing members generally provides that the clearing members will accept for clearing all cleared derivatives transactions that are within credit limits (specified in advance) for each Fund, the Funds are still subject to the risk that no clearing member will be willing or able to clear a transaction. In those cases, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of the transaction, including loss of an increase in the value of the transaction and/or loss of hedging protection. In addition, the documentation governing the relationship between the Funds and clearing members is drafted by the clearing members and generally is less favorable to the Funds than typical bilateral derivatives documentation. For example, documentation relating to cleared derivatives generally includes a one-way indemnity by the Funds in favor of the clearing member for losses the clearing member incurs as the Funds’ clearing member and typically does not provide the Funds any remedies if the clearing member defaults or becomes insolvent.
These and other new rules and regulations could, among other things, further restrict a Fund’s ability to engage in, or increase the cost to the Fund of, derivatives transactions, for example, by making some types of derivatives no longer available to the Fund, increasing margin or capital requirements, or otherwise limiting liquidity or increasing transaction costs. These regulations are new and evolving, so their potential impact on the Funds and the financial system are not yet known. While the new regulations and central clearing of some derivatives transactions are designed to reduce systemic risk (i.e., the risk that the interdependence of large derivatives dealers could cause them to suffer liquidity, solvency or other challenges simultaneously), there is no assurance that the new clearing mechanisms will achieve that result, and in the meantime, as noted above, central clearing exposes the Funds to new kinds of risks and costs.
• NON-U.S. INVESTMENT RISK. Funds that invest in non-U.S. securities are subject to additional and more varied risks than Funds whose investments are limited to U.S. securities. The securities markets of many non-U.S. countries include 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 non-U.S. securities often are not subject to the same degree of regulation as U.S. issuers. Reporting, accounting, custody and auditing standards of non-U.S. countries differ, in some cases significantly, from U.S. standards. Non-U.S. portfolio transactions generally involve higher commission rates, transfer taxes and custodial costs. In addition, some jurisdictions may limit a Fund’s ability to profit from short-term trading (as defined in the relevant jurisdiction).
A Fund may be subject to non-U.S. taxation, including potentially on a retroactive basis, on (i) capital gains it realizes or dividends or interest it receives on non-U.S. investments, (ii) transactions in those investments and (iii) the repatriation of proceeds generated from the sale of those investments. A Fund may seek to collect a refund on taxes paid to a non-U.S. country. In those cases, all or a portion of those taxes could
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ultimately be recovered by a Fund. However, the recovery process could take several years and the Fund will incur expenses in its efforts to collect the refund, which will reduce the benefit of any recovery. A Fund’s efforts to collect a refund may not be successful, in which case the Fund will have incurred additional expenses for no economic benefit. A Fund’s decision to pursue a refund is in its sole discretion, and it may decide not to pursue a refund, even if eligible.
Also, investing in non-U.S. securities exposes a Fund to the risk of nationalization, expropriation, or confiscatory taxation of assets of their issuers, 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.
In some non-U.S. markets, custody arrangements for securities provide significantly less protection 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 a Fund to credit and other risks it does not have in the U.S. with respect to participating brokers, custodians, clearing banks or other clearing agents, escrow agents, and issuers. Fluctuations in non-U.S. currency exchange rates also will affect the market value of a Fund’s non-U.S. investments (see “Currency Risk” below).
U.S. investors are required to maintain a license to invest directly in many non-U.S. markets. These licenses are often subject to limitations, including maximum investment amounts. Once a license is obtained, a Fund’s 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, to obtain exposure to the market the Fund will be required to purchase American Depositary Receipts, Global Depositary Receipts, shares of other funds that are licensed to invest directly, or derivative instruments. The receipt of a non-U.S. license by one of the Manager’s clients may preclude other clients, including a Fund, from obtaining a similar license, and this could limit the Fund’s investment opportunities. In addition, the activities of another of the Manager’s clients could cause the suspension or revocation of a license and thereby limit the Funds’ investment opportunities.
Funds that invest a significant portion of their assets in securities of issuers tied economically to emerging countries (or investments related to emerging markets) are subject to greater non-U.S. investment risk than Funds investing primarily in more developed non-U.S. countries (or markets). 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 of securities in a Fund’s portfolio; greater governmental involvement in the economy; less governmental supervision and regulation of the securities markets and participants in those markets; controls on non-U.S. investment, capital controls and limitations on repatriation of invested capital, dividends, interest and other income and on a Fund’s 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. Currency risk is the risk that fluctuations in exchange rates will adversely affect the market value of a Fund’s investments. Currency risk includes the risk that the non-U.S. currencies in which a Fund’s investments are traded, in which a Fund receives income, or in which a Fund has taken a position, will decline in value relative to the U.S. Dollar. Currency risk also includes the risk that the currency to which the Fund has obtained exposure through hedging declines in value relative to the currency being hedged, in which event the Fund may realize a loss both on the hedging instrument and 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 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.
Many of the Funds use derivatives to take overweighted or underweighted currency positions relative to the currency exposure of their portfolios. As a result, their currency exposure may differ (in some cases significantly) from the currency exposure of their benchmarks. If the exchange rates of the currencies involved do not move as expected, a Fund could lose money both on its holdings of a particular currency and on the derivative. See also “Non-U.S. Investment Risk” above.
Some currencies are illiquid (e.g., some emerging country currencies), and a Fund may not be able to convert them into U.S. Dollars, in which case the Manager may decide to purchase U.S. Dollars in a parallel market in which 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 non-U.S. 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).
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• FOCUSED INVESTMENT RISK. Funds whose investments are focused in particular countries, regions, sectors, companies or industries with high positive correlations to one another (e.g., different industries within broad sectors, such as technology or financial services) or in securities from issuers with high positive correlations to one another (such as U.S. Treasury Fund’s investments in securities issued by the U.S. Treasury and other fixed income securities that are backed by the full faith and credit of the U.S. government) 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 price of a particular security held by the Fund is likely to affect the Fund’s performance more than if the Fund invested in the securities of a larger number of issuers.
A Fund that 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, 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. See also “Real Estate Risk” below.
Similarly, Funds having a significant portion of their assets in investments tied economically to (or related to) a particular geographic region, non-U.S. country (e.g., Taiwan or Japan) or particular market (e.g., emerging markets) have more exposure to regional and country economic risks than funds making non-U.S. investments throughout the world. The political and economic prospects of one country or group of countries within the same geographic region may affect other countries in that region, and a recession, debt crisis or decline in currency valuation in one country can spread to other countries. Furthermore, companies in a particular geographic region or country are vulnerable to events affecting other companies in that region or country because they often share common characteristics, are exposed to similar business risks and regulatory burdens, and react similarly to specific economic, market, political or other developments. See also “Non-U.S. Investment Risk” above.
• REAL ESTATE RISK. Because Real Estate Fund concentrates its assets in real estate-related investments, the value of its portfolio is subject to factors affecting the real estate industry and may fluctuate more than the value of a portfolio that consists of securities of companies in a broader range of industries. 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 operating costs and property taxes, levels of occupancy, adequacy of rent to cover operating costs, 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, some mortgage REITs may hold mortgages that the mortgagors elect to prepay, which prepayment may reduce 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 subject to the risk of fluctuations in income from underlying real estate assets, their inability to manage effectively the cash flows generated by those assets, prepayments and defaults by borrowers, and their failure to qualify for the special tax treatment granted to REITs under the Internal Revenue Code of 1986, as amended, or to maintain their exemption from investment company status under the 1940 Act.
• LEVERAGING RISK. The use of reverse repurchase agreements and other derivatives and securities lending creates leverage (i.e., a Fund’s investment exposures exceed its net asset value). Leverage increases a Fund’s losses when the value of its investments (including derivatives) declines. Because many derivatives have a leverage component (i.e., a notional value in excess of the assets needed to establish 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. A Fund’s use of reverse repurchase agreements also subjects it to interest costs based on the difference between the sale and repurchase price of the security involved. A Fund’s portfolio also will be leveraged if it borrows money to meet redemption requests or settle investment transactions or if it exercises its right to delay payment on a redemption.
A 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, a Fund may perform as if it were leveraged.
• COUNTERPARTY RISK. Funds that enter into contracts with counterparties, such as repurchase or reverse repurchase agreements or OTC derivatives contracts, or that lend their securities run the risk that the counterparty 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. The Funds are not subject to any limits on their exposure to any one counterparty nor to a requirement that counterparties maintain a specific rating by a nationally recognized rating organization to be considered for potential transactions. To the extent that GMO’s view with respect to a particular counterparty changes (whether due to external events or otherwise), existing transactions are not required to be terminated or modified. Additionally, new transactions may be entered into with a counterparty that is no longer considered eligible if the transaction is primarily designed to reduce the overall risk of potential exposure to that counterparty (for example, re-establishing the transaction with a lesser notional amount).
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Counterparty risk is pronounced during unusually adverse market conditions and is particularly acute in environments (like those of 2008) in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers 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 a Fund to greater counterparty risk than exchange-traded derivatives. A Fund is subject to the risk that a counterparty will not settle a derivative in accordance with its terms because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem. If a counterparty’s obligation to a Fund is not collateralized, then the Fund is essentially an unsecured creditor of the counterparty. If a counterparty defaults, the Fund will have contractual remedies, but the Fund may be unable to enforce them, thus causing the Fund to suffer a loss. Counterparty risk is greater for derivatives with longer maturities because of the longer time that events may occur that prevent settlement. Counterparty risk also is 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. Significant exposure to a single counterparty increases a Fund’s counterparty risk. Funds that use swap contracts are subject, in particular, to the creditworthiness of the counterparties because some types of swap contracts have durations longer than six months (and, in some cases, decades). The creditworthiness of a counterparty may be adversely affected by greater than average volatility in the markets, even if the counterparty’s net market exposure is small relative to its capital. Counterparty risk still exists even if a counterparty’s obligations are secured by collateral because the Fund’s interest in the collateral may not be perfected or additional collateral may not be promptly posted as required.
The Funds also are subject to counterparty risk because they execute their 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 Funds could miss investment opportunities or be unable to dispose of investments they would prefer to sell, resulting in losses for the Funds.
Counterparty risk with respect to derivatives will be affected by new rules and regulations affecting the derivatives market. As described under “Derivatives Risk” above, some derivatives transactions are required to be centrally cleared, and a party to a cleared derivatives transaction is subject to the credit risk of the clearing house and the clearing member through which it holds its cleared position, rather than the credit risk of its original counterparty to the derivatives transaction. Credit risk of market participants with respect to derivatives that are centrally cleared is concentrated in a few clearing houses, and it is not clear how an insolvency proceeding of a clearing house would be conducted and what impact an insolvency of a clearing house would have on the financial system. A clearing member is obligated by contract and by applicable regulation to segregate all funds received from customers with respect to cleared derivatives transactions from the clearing member’s proprietary assets. However, all funds and other property received by a clearing member from its customers with respect to cleared derivatives are generally held by the clearing member on a commingled basis in an omnibus account, and the clearing member may invest those funds in certain instruments permitted under the applicable regulations. Therefore, a Fund might not be fully protected in the event of the bankruptcy of a Fund’s clearing member because the Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the clearing member’s customers for a relevant account class. Also, the clearing member is required to transfer to the clearing house the amount of margin required by the clearing house for cleared derivatives, which amounts are generally held in an omnibus account at the clearing house for all customers of the clearing member. Regulations promulgated by the Commodities Futures Trading Commission require that the clearing member notify the clearing house of the initial margin provided by the clearing member to the clearing house that is attributable to each customer. However, if the clearing member does not accurately report the Funds’ initial margin, the Funds are subject to the risk that a clearing house will use a Fund’s assets held in an omnibus account at the clearing house to satisfy payment obligations of a defaulting customer of the clearing member to the clearing house. In addition, clearing members generally provide the clearing house the net amount of variation margin required for cleared swaps for all of its customers in the aggregate, rather than individually for each customer. The Funds are therefore subject to the risk that a clearing house will not make variation margin payments owed to a Fund if another customer of the clearing member has suffered a loss and is in default, and the risk that a Fund will be required to provide additional variation margin to the clearing house before the clearing house will move the Fund’s cleared derivatives transactions to another clearing member. In addition, if a clearing member does not comply with the applicable regulations or its agreement with the Funds, or in the event of fraud or misappropriation of customer assets by a clearing member, a Fund could have only an unsecured creditor claim in an insolvency of the clearing member with respect to the margin held by the clearing member.
• MARKET DISRUPTION AND GEOPOLITICAL RISK. The Funds are subject to the risk that geopolitical and other events will disrupt securities markets, adversely affect global economies and markets and thereby decrease the value of the Funds’ investments. 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. Securities markets may be susceptible to market manipulation (e.g., the potential manipulation of the London Interbank Offered Rate (LIBOR)) or other fraudulent trade practices, which could disrupt the orderly functioning of these markets or adversely affect the value of investments traded in these markets, including investments of the Funds. While the U.S. government has honored its credit obligations continuously for the last 200 years, it remains possible that the U.S. could default on its obligations. While it is impossible to predict the consequences of such an unprecedented event, it is likely that a default by the U.S. would be highly disruptive to the U.S. and global securities markets and could significantly impair the value of the Funds’ investments. Similarly, political events within the U.S. at times have resulted, and may in the future result, in a shutdown of government services, which could
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negatively affect the U.S. economy, decrease the value of many Fund investments, and increase uncertainty in or impair the operation of the U.S. or other securities markets. The uncertainty surrounding the sovereign debt of a significant number of European Union countries, as well as the continued existence of the European Union itself, have disrupted and may continue to disrupt markets in the U.S. and around the world. If one or more countries leave the European Union or the European Union dissolves, the world’s securities markets likely will be significantly disrupted. Substantial government interventions (e.g., currency controls) also could negatively impact the Funds. War, terrorism, economic uncertainty, 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, adversely affecting individual companies and industries, 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 “Investment and other risks” section will likely increase. Market disruptions, including sudden government interventions, can also prevent the Funds from implementing their investment programs for a period of time and achieving their investment objectives. For example, a market disruption may adversely affect the orderly functioning of the securities markets and may cause the Funds’ derivatives counterparties to discontinue offering derivatives on some underlying commodities, securities, reference rates, or indices, or to offer them on a more limited basis. To the extent that a Fund has focused its investments in the stock index of a particular region, adverse geopolitical and other events could have a disproportionate impact on the Fund.
• LARGE SHAREHOLDER RISK. To the extent that a large number of shares of a Fund is held by a single shareholder (e.g., an institutional investor or another GMO Fund) or a group of shareholders with a common investment strategy (e.g., GMO asset allocation accounts), the Fund is subject to the risk that a redemption by those shareholders of all or a large portion of their Fund shares will adversely affect the Fund’s performance if it is forced to sell portfolio securities to raise the cash needed to satisfy the redemption request. In addition, GMO Funds and other accounts over which GMO has investment discretion that invest in the Funds are not subject to restrictions on the frequency of trading of Fund shares. Asset Allocation Funds and separate accounts managed by the Manager for its clients hold substantial percentages of the shares of many Funds, and asset allocation decisions by the Manager may result in substantial redemptions from (or investments in) those Funds. These transactions may adversely affect the Fund’s performance to the extent that the Fund is required to sell investments (or invest cash) at times when it would not otherwise do so. Redemptions of a large number of shares also may increase transaction costs or, by necessitating a sale of portfolio securities, accelerate the realization of taxable income to shareholders. They also potentially limit the use of any capital loss carryforwards and certain other losses to offset future realized capital gains (if any). In addition, each Fund that invests in other GMO Funds subject to large shareholder risk is indirectly subject to this risk.
• MANAGEMENT AND OPERATIONAL RISK. Each Fund is subject to management risk because it relies on the Manager’s ability to achieve its investment objective. Each Fund runs the risk that the Manager’s investment techniques will fail to produce desired results and cause the Fund to incur significant losses. The Manager also may fail to use derivatives effectively, choosing to hedge or not to hedge positions at disadvantageous times.
For some Funds the Manager’s portfolio managers use quantitative analyses and models. Any imperfections, errors or limitations in those analyses and models could affect the ability of the portfolio managers to implement a Fund’s strategies. By necessity, these analyses and models make simplifying assumptions that limit their effectiveness. Models that appear to explain prior market data can fail to predict future market events. Further, the data used in models may be inaccurate or may not include the most recent information about a company or a security. The Funds also run the risk that GMO’s assessment of an investment may be wrong. There can be no assurance that key personnel of the Manager will continue to be employed by the Manager. The loss of their services could have an adverse impact on the Manager’s ability to achieve the Funds’ investment objectives.
The Funds also are subject to the risk of loss as a result of other services provided by the Manager and other service providers, including pricing, administrative, accounting, tax, legal, custody, transfer agency, and other services. Operational risk includes the possibility of loss caused by 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 a Fund from benefiting from potential investment gains or avoiding losses on the security. The Manager is not contractually liable to the Funds for losses associated with operational risk absent the Manager’s willful misfeasance, bad faith, gross negligence, or reckless disregard of its contractual obligations to provide services to the Funds. Other Fund service providers also have limitations on their liability to the Funds for losses resulting from their errors.
• FUND OF FUNDS RISK AND RELATED CONSIDERATIONS. Funds that invest in shares of other investment companies, including other GMO Funds, money market funds, and Exchange-Traded Funds (“ETFs”) (for purposes of this risk disclosure, “underlying Funds”), are exposed to the risk that the underlying Funds will not perform as expected.
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Because a Fund bears the fees and expenses of the underlying Funds in which it invests (absent reimbursement of those expenses), the Fund will incur additional expenses when investing in underlying Funds. In addition, total Fund expenses will increase if a Fund makes a new or further investment in underlying Funds with higher fees or expenses than the average fees and expenses of the underlying Funds then in the Fund’s portfolio.
The Funds also are indirectly exposed to all of the risks of an investment in the underlying Funds. Because some of their underlying Funds (e.g., many of the Fixed Income Funds) invest a substantial portion of their assets in other GMO Funds (pursuant to an exemptive order obtained from the SEC), the Asset Allocation Funds have more tiers of investments than funds in many other groups of investment companies. Funds that invest in shares of other GMO Funds also are subject indirectly to Large Shareholder Risk because those other GMO Funds are more likely to have large shareholders (e.g., other GMO Funds). See “Large Shareholder Risk” above.
Investments in ETFs involve the risk that the ETF’s performance may not track the performance of the index the ETF is designed to track. Unlike the index, an ETF incurs administrative expenses and transaction costs in trading securities. In addition, the timing and magnitude of cash inflows and outflows from and to investors buying and redeeming shares in the ETF could create cash balances that cause the ETF’s performance to deviate from the index (which remains “fully invested” at all times). Performance of an ETF and the index it is designed to track also may diverge because the composition of the index and the securities held by the ETF may occasionally differ. In addition, ETFs often use derivatives to track the performance of the relevant index, and, therefore, investments in those ETFs are subject to the same derivatives risks discussed above.
• NON-DIVERSIFIED FUNDS. Some of the Funds are not “diversified” investment companies within the meaning of the 1940 Act. This means they are allowed to invest in the securities of a relatively small number of issuers and/or non-U.S. currencies. As a result, they may be subject to greater credit, market and other risks, and poor performance by a single issuer may have a greater impact on their performance, than if they were “diversified.”
The following Funds are not diversified investment companies under the 1940 Act:
| • | Quality Fund |
| • | Real Estate Fund |
| • | U.S. Flexible Equities Fund |
| • | U.S. Growth Fund |
| • | U.S. Intrinsic Value Fund |
Temporary Defensive Positions. The Funds (other than Quality Fund) normally do not take temporary defensive positions. Quality Fund reserves the right to make tactical allocations of up to 20% of its net assets to investments in cash and high quality debt investments. To the extent a Fund takes a temporary defensive position, or otherwise holds cash, cash equivalents, or high quality debt investments on a temporary basis, the Fund may not achieve its investment objective.
| 4. | Derivative financial instruments |
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 a Fund’s portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and related indices, and include foreign currency contracts, swap contracts, reverse repurchase agreements, and other exchange-traded and OTC contracts.
The Funds may 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. Quality Fund and U.S. Flexible Equities Fund 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). Quality Fund and U.S. Flexible Equities Fund also may use currency derivatives in an attempt to reduce some aspect of the currency exposure in its portfolio. For these purposes, the Funds 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 in the case of Quality Fund and U.S. Flexible Equities Fund, 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 Fund’s portfolio) in combination with a long futures contract on another index (to synthetically “buy” exposure to that
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index). In adjusting their investment exposures, Quality Fund and U.S. Flexible Equities Fund 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.
The Funds may have investment exposures in excess of their net assets. (i.e., they may be leveraged).
Certain derivatives transactions used by the Funds, including certain interest rate swaps and certain credit default index swaps, are required to be transacted through a central clearing organization. The Funds hold cleared derivatives transactions through clearing members, who are members of derivatives clearing houses. In contrast to bilateral derivatives transactions, following a period of advance notice to the Fund, clearing members generally can require termination of existing cleared derivatives transactions at any time and increases in margin above the margin that it required at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions and to terminate transactions. Any such increase or termination could interfere with the ability of a Fund to pursue its investment strategy. Also, a Fund is subject to execution risk if it enters into a derivatives transaction that is required to be cleared (or that the Manager expects to be cleared), and no clearing member is willing or able to clear the transaction on the Fund’s behalf. In that case, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of any increase in the value of the transaction after the time of the transaction.
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. See “Investment and other risks” above for further information.
For Funds that held derivatives during the period ended August 31, 2013, the following table shows how the Fund used these derivatives (marked with an X):
| Type of Derivative and Objective for Use | U.S. Core Equity Fund |
U.S. Intrinsic Value Fund |
||||||
| Futures contracts | ||||||||
| Maintain the diversity and liquidity of the portfolio |
X | |||||||
| Rights and/or warrants | ||||||||
| Received as a result of corporate actions |
X | |||||||
Forward currency contracts
The Funds may enter into forward currency contracts, including forward cross currency contracts. A forward currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date (or to pay or receive the amount of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund’s forward currency contracts is marked-to-market daily using rates supplied by a quotation service and changes in value are recorded by each Fund as unrealized gains or losses. Realized gains or losses on the contracts are equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose a Fund to the market risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. Most forward currency contracts are not collateralized. Forward currency contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Futures contracts
The Funds may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price at a specified time in the future. Some futures contracts are net (cash) settled. Upon entering into a futures contract, a Fund is required to deposit cash, U.S. government and agency obligations or other liquid assets with the futures clearing broker in accordance with the initial margin requirements of the broker or exchange. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded (and if the futures are traded outside the U.S. and the market for such futures is closed prior to the close of NYSE due to time zone differences, the values will be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees to reflect estimated valuation changes through the NYSE close). The value of each of the Fund’s futures contracts is marked-to-market daily and an appropriate payable or receivable for the change in value (“variation margin”) is recorded by each Fund. The payable or receivable is settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statements of Assets and Liabilities. Under some circumstances, futures exchanges may
| 64 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
establish daily limits on the amount that the price of a futures contract can vary from the previous day’s settlement price, thereby effectively preventing liquidation of unfavorable positions. Futures contracts expose the Funds to the risk that they may not be able to enter into a closing transaction due to an illiquid market. Futures contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Options
The Funds may purchase call and put options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options a Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset at a set price to the writer of the option. A Fund pays a premium for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently reflected in the marked-to-market value of the option. The potential loss associated with purchasing put and call options is limited to the premium paid. Purchased option contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
The Funds may write (i.e., sell) call and put options on futures, swaps (“swaptions”), securities or currencies they own or in which they may invest. Writing options alters a Fund’s exposure to the underlying asset by, in the case of a call option, obligating that Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating that Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g., index options), settlement will be in cash, based on a formula price. When a Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, a Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that a Fund writes call options without an offsetting exposure (e.g., call options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. OTC options expose a Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. Written option contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
When an option contract is closed, that Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction in the cost of investments purchased. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statements of Operations.
Exchange-traded 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 (and if the underlying reference security closes or the official closing time of the underlying index occurs prior to the close of the NYSE due to time zone differences, the values will be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees to reflect estimated valuation changes through the NYSE close). The Funds value OTC options using inputs provided by primary pricing sources and industry models.
Swap contracts
The Funds may enter into various types of swap contracts, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap contract is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap contract and during the term of the transaction, a Fund and/or the swap counterparty may post or receive cash or securities as collateral.
Initial upfront payments received or made upon entering into a swap contract are included in the fair market value of the swap. The Funds do not amortize upfront payments. Net periodic payments made or received to compensate for differences between the stated terms of the swap contract and prevailing market conditions (credit spreads, currency exchange rates, interest rates, and other relevant factors) are recorded as realized gains or losses on the Statements of Operations. A liquidation payment received or made at the termination of the swap contract is recorded as realized gain or loss in the Statements of Operations.
Interest rate swap contracts involve an exchange by the parties of their respective commitments to pay or right to receive interest (e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal).
Total return swap contracts involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security, basket of securities, or futures contract), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.
| 65 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
In a credit default swap contract, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g., default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives periodic payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations so long as there is no early termination.
For credit default swap contracts on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer’s failure to pay interest or principal on a reference security, 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 contracts on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer’s bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.
Variance swap contracts 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 payable 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 be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to make a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to 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.
Generally, the Funds price their OTC swap contracts daily using industry standard models that may incorporate quotations from market makers or pricing vendors and record the change in value, if any, as unrealized gain or loss in the Statements of Operations. Gains or losses are realized upon the termination of the swap contracts or reset dates, as appropriate. Cleared swap contracts are valued using the quote (which might be based on a model) published by the relevant clearing house. If an updated quote for a cleared swap contract is not available by the time that a Fund calculates its net asset value on any business day, then that swap contract will generally be valued using an industry standard model, which may differ from the model used by the relevant clearing house.
The values assigned to swap contracts may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap contracts involves counterparty credit, legal, and documentation risk that is generally not reflected in the value assigned to the swap contract. Such risks include the possibility that the counterparty defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that a Fund has amounts on deposit in excess of amounts owed by that Fund, or that any collateral the other party posts is insufficient or not timely received by a Fund. Credit risk is particularly acute in economic environments 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. Swap contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Rights and warrants
The Funds 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 set price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in the section entitled “Options” above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. However, warrants and rights often do not have standardized terms, and may have longer maturities and may be less liquid than exchange-traded options. In addition, the terms of warrants or rights may limit a Fund’s ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. Rights and/or warrants outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
As provided by U.S. GAAP, the table below is based on market values or unrealized appreciation/(depreciation) rather than the notional amounts of derivatives. Changes to market values of reference asset(s) will tend to have a greater impact on the Funds (with correspondingly greater risk) the greater the notional amount. For further information on notional amounts, see the Schedule of Investments.
| 66 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The following is a summary of the valuations of derivative instruments categorized by risk exposure:
The Effect of Derivative Instruments on the Statements of Assets and Liabilities as of August 31, 2013 and the Statements of Operations for the period ended August 31, 2013^:
| Credit Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate Contracts |
Other Contracts |
Total | |||||||||||||||||||
| U.S. Core Equity Fund |
||||||||||||||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||
| Futures Contracts |
$ | — | $ | 630,294 | $ | — | $ | — | $ | — | $ | 630,294 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| U.S. Intrinsic Value Fund |
||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||
| Investments, at value (rights and/or warrants) |
$ | — | $ | 2,992 | $ | — | $ | — | $ | — | $ | 2,992 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | 2,992 | $ | — | $ | — | $ | — | $ | 2,992 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | (226 | ) | $ | — | $ | — | $ | — | $ | (226 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Change in Net Unrealized Appreciation (Depreciation) on: |
||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | 987 | $ | — | $ | — | $ | — | $ | 987 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The risks referenced in the tables above are not intended to be inclusive of all risks. Please see the “Investment and other risks” and “Portfolio valuation” sections for a further discussion of risks.
| ^ | Because the Funds recognize changes in value through the Statements of Operations, they do not qualify for hedge accounting under authoritative guidance for derivative instruments. The Funds’ investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables. |
The derivative financial instruments outstanding as of period end, if any, (as disclosed in the Funds’ Schedule of Investments) serve as an indicator of the volume of derivative activity for the Funds during the period.
| 5. | Fees and other transactions with affiliates |
GMO receives a management fee for the services it provides to each Fund. That fee, if any, is paid monthly at the annual rate equal to the percentage of each Fund’s average daily net assets set forth in the table below:
| Quality Fund |
Real Estate Fund |
U.S. Core Equity Fund |
U.S. Flexible Equities Fund |
U.S. Growth Fund |
U.S. Intrinsic Value Fund |
U.S. Small/Mid Cap Fund |
||||||||||||||||||||||
| Management Fee |
0.33% | 0.33% | 0.31% | 0.33% | 0.31% | 0.31% | 0.45% | |||||||||||||||||||||
In addition, each class of shares of certain Funds (except Class M shares which are described below (U.S. Growth and U.S. Core Equity Fund Class M liquidated on January 31, 2013)) 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. Class M shares of a Fund pay the Manager an administration fee, which is used by the Manager to defray its expenses (or the expenses of a third party) in providing administration and record keeping services to certain marketplaces where Class M shares of each Fund may be purchased. The Manager may pay part or all of the administration fee to third parties for providing administration and record keeping services. In some cases, these third parties also receive compensation from the Fund’s
| 67 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
distributor pursuant to the Trust’s Distribution and Service (12b-1) Plan. Shareholder service fees are paid monthly equal to the percentage of each applicable Fund’s average daily net assets set forth in the table below:
| Fund Name | Class III | Class IV | Class V | Class VI | ||||||||||||
| Quality Fund |
0.15% | 0.105% | 0.085% | 0.055% | ||||||||||||
| Real Estate Fund |
0.15% | |||||||||||||||
| U.S. Core Equity Fund |
0.15% | 0.10% | 0.085% | * | 0.055% | |||||||||||
| U.S. Flexible Equities Fund |
0.15% | 0.105% | 0.085% | 0.055% | ||||||||||||
| U.S. Growth Fund |
0.15% | |||||||||||||||
| U.S. Intrinsic Value Fund |
0.15% | |||||||||||||||
| U.S. Small/Mid Cap Fund |
0.15% | |||||||||||||||
| * | Class is offered but has no shareholders as of August 31, 2013. |
For each Fund, the Manager has contractually agreed to reimburse the Fund for its “Specified Operating Expenses” (as defined below). Any such reimbursements are paid to a Fund concurrently with the Fund’s payment of management fees to the Manager. “Specified Operating Expenses” means only the following expenses to the extent that they are borne by a Fund: audit expenses, fund accounting expenses, pricing service expenses, expenses of non-investment related tax services, transfer agency expenses, expenses of non-investment related legal services provided to the Funds by or at the direction of the Manager, federal securities law filing expenses, printing expenses, state and federal registration fees and custody expenses.
For each Fund that charges a management fee, the Manager will waive and/or reduce the Fund’s management fee, but not below zero, to the extent necessary to offset the management fees directly or indirectly paid by the Fund to the Manager as a result of the Fund’s direct or indirect investments in other GMO Funds.
For each Fund that charges a shareholder service fee, the Manager will waive and/or reduce the shareholder service fee charged by each class of shares of the Fund, but not below zero, to the extent necessary to offset the shareholder service fees directly or indirectly paid by the class of shares of the Fund to the Manager as a result of the Fund’s direct or indirect investments in other GMO Funds.
These contractual waivers and reimbursements will continue through at least June 30, 2014 for each Fund unless the Funds’ Board of Trustees authorizes their modification or termination, or reduces the fee rates paid to the Manager under the Fund’s management contract or servicing and supplement support agreement.
The Funds’ portion of the gross fees paid by the Trust to the Trust’s independent Trustees and their legal counsel and any agents unaffiliated with the Manager during the period ended August 31, 2013 is shown in the table below and included in the Statements of Operations.
| Fund Name | Independent Trustees and their legal counsel ($) |
Agents unaffiliated with the Manager ($) |
||||||
| Quality Fund |
70,877 | 10,396 | ||||||
| Real Estate Fund |
13 | 5 | ||||||
| U.S. Core Equity Fund |
7,990 | 1,104 | ||||||
| U.S. Flexible Equities Fund |
39,228 | 5,520 | ||||||
| U.S. Growth Fund |
11 | 5 | ||||||
| U.S. Intrinsic Value Fund |
25 | 5 | ||||||
| U.S. Small/Mid Cap Fund |
17 | 5 | ||||||
| 68 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Certain Funds incur fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2013, these indirect fees and expenses expressed as an annualized percentage of each Fund’s average daily net assets were as follows:
| Fund Name | Indirect Net Expenses (excluding shareholder service fees) |
Indirect Shareholder Service Fees |
Total Indirect Expenses | |||||||||
| Quality Fund |
<0.001% | 0.000% | <0.001% | |||||||||
| Real Estate Fund |
<0.001% | 0.000% | <0.001% | |||||||||
| U.S. Core Equity Fund |
<0.001% | 0.000% | <0.001% | |||||||||
| U.S. Flexible Equities Fund |
<0.001% | 0.000% | <0.001% | |||||||||
| U.S. Growth Fund |
<0.001% | 0.000% | <0.001% | |||||||||
| U.S. Intrinsic Value Fund |
<0.001% | 0.000% | <0.001% | |||||||||
| U.S. Small/Mid Cap Fund |
<0.001% | 0.000% | <0.001% | |||||||||
| 6. | Purchases and sales of securities |
Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2013 are noted in the table below:
| Purchases ($) | Purchases ($) | Sales ($) | Sales ($) | |||||||||||||
| Fund Name | U.S. Government Securities |
Investments (Non-U.S. Government Securities) |
U.S. Government Securities |
Investments (Non-U.S. Government Securities) |
||||||||||||
| Quality Fund |
— | 2,865,034,804 | — | 3,743,083,907 | ||||||||||||
| Real Estate Fund |
— | 2,022,382 | — | 1,702,300 | ||||||||||||
| U.S. Core Equity Fund |
— | 511,178,333 | — | 715,434,677 | ||||||||||||
| U.S. Flexible Equities Fund |
— | 1,140,772,987 | — | 1,711,778,814 | ||||||||||||
| U.S. Growth Fund |
— | 914,871 | — | 820,887 | ||||||||||||
| U.S. Intrinsic Value Fund |
— | 3,251,960 | — | 3,022,967 | ||||||||||||
| U.S. Small/Mid Cap Fund |
— | 3,147,898 | — | 4,593,757 | ||||||||||||
Cost of purchases and proceeds from sales of securities for in-kind transactions, excluding short-term investments, in accordance with U.S. GAAP for the period ended August 31, 2013 are noted in the table below:
| Fund Name | Purchases ($) | Sales ($) | ||||||
| Quality Fund |
295,541,382 | — | ||||||
| 7. | Guarantees |
In the normal course of business the Funds enter into contracts with third-party service providers that contain a variety of representations and warranties and that provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown, as it involves possible future claims that may or may not be made against the Funds. Based on experience, the Manager is of the view that the risk of loss to the Funds in connection with the Funds’ indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Funds.
| 69 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| 8. | Principal shareholders and related parties as of August 31, 2013 |
| Fund Name | Number of shareholders that held more than 10% of the outstanding shares of the Fund |
Percentage of outstanding shares of the Fund held by those shareholders owning greater than 10% of the outstanding shares of the Fund (%) |
Percentage of the shares of the Fund held by senior management of the Manager and GMO Trust officers (%) |
Percentage of the Fund’s shares held by accounts for which the Manager has investment discretion (%) |
||||||||||||
| Quality Fund |
— | — | 0.26 | 9.00 | ||||||||||||
| Real Estate Fund |
2 | 90.69 | 0.24 | 58.80 | ||||||||||||
| U.S. Core Equity Fund |
2 | * | 66.32 | 0.01 | 56.09 | |||||||||||
| U.S. Flexible Equities Fund |
5 | ** | 72.48 | — | 100.00 | |||||||||||
| U.S. Growth Fund |
1 | 72.82 | 0.57 | — | ||||||||||||
| U.S. Intrinsic Value Fund |
1 | 98.34 | 0.16 | — | ||||||||||||
| U.S. Small/Mid Cap Fund |
4 | * | 85.81 | 0.84 | 88.87 | |||||||||||
| * | One of these shareholders is another fund of the Trust. |
| ** | Four of these shareholders are other funds of the Trust. |
| 9. | Share transactions |
The Declaration of Trust permits each Fund to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Funds’ shares were as follows:
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Quality Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
9,144,436 | $ | 231,681,251 | 63,700,248 | $ | 1,491,949,925 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
3,903,844 | 98,572,051 | 25,508,027 | 576,497,416 | ||||||||||||
| Shares repurchased |
(48,341,563 | ) | (1,232,650,784 | ) | (87,919,746 | )(b) | (2,049,076,947 | )(b) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(35,293,283 | ) | $ | (902,397,482 | ) | 1,288,529 | $ | 19,370,394 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV: |
||||||||||||||||
| Shares sold |
32,581,592 | (a) | $ | 837,241,987 | (a) | 53,745,204 | $ | 1,252,455,988 | ||||||||
| Shares issued to shareholders in reinvestment of distributions |
1,414,966 | 35,770,341 | 7,149,206 | 161,564,380 | ||||||||||||
| Shares repurchased |
(13,397,001 | ) | (340,946,319 | ) | (60,540,630 | )(c) | (1,421,283,312 | )(c) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
20,599,557 | $ | 532,066,009 | 353,780 | $ | (7,262,944 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class V: |
||||||||||||||||
| Shares sold |
119,808 | $ | 3,000,000 | 19,127,950 | $ | 458,305,265 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
222,736 | 5,630,755 | 3,154,208 | 71,322,133 | ||||||||||||
| Shares repurchased |
(5,732,495 | ) | (142,341,527 | ) | (27,877,208 | )(d) | (638,803,263 | )(d) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(5,389,951 | ) | $ | (133,710,772 | ) | (5,595,050 | ) | $ | (109,175,865 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 70 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Quality Fund (continued) |
||||||||||||||||
| Class VI: |
||||||||||||||||
| Shares sold |
11,503,554 | (e) | $ | 278,789,088 | (e) | 66,181,957 | $ | 1,548,860,685 | ||||||||
| Shares issued to shareholders in reinvestment of distributions |
2,814,633 | 71,125,770 | 31,309,909 | 709,189,378 | ||||||||||||
| Shares repurchased |
(13,810,628 | ) | (349,244,442 | ) | (342,899,522 | )(f) | (7,808,905,960 | )(f) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
507,559 | $ | 670,416 | (245,407,656 | ) | $ | (5,550,855,897 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Real Estate Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
— | $ | — | 36,902 | $ | 338,374 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
651 | 6,418 | 2,670 | 24,795 | ||||||||||||
| Shares repurchased |
(3,093 | ) | (31,556 | ) | (725,836 | ) | (6,881,113 | ) | ||||||||
|
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|
|
|||||||||
| Net increase (decrease) |
(2,442 | ) | $ | (25,138 | ) | (686,264 | ) | $ | (6,517,944 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| U.S. Core Equity Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
205,655 | $ | 3,162,242 | 2,260,401 | $ | 30,975,057 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
33,572 | 533,131 | 296,373 | 4,019,796 | ||||||||||||
| Shares repurchased |
(1,925,493 | ) | (30,146,233 | ) | (9,461,243 | ) | (129,490,457 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(1,686,266 | ) | $ | (26,450,860 | ) | (6,904,469 | ) | $ | (94,495,604 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV: |
||||||||||||||||
| Shares sold |
359,388 | $ | 5,635,201 | — | $ | — | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
8,496 | 134,749 | 68,092 | 921,941 | ||||||||||||
| Shares repurchased |
(552,374 | ) | (8,510,304 | ) | (997,176 | ) | (13,631,268 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(184,490 | ) | $ | (2,740,354 | ) | (929,084 | ) | $ | (12,709,327 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class VI: |
||||||||||||||||
| Shares sold |
7,473,405 | $ | 116,977,186 | 21,051,489 | $ | 287,565,237 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
294,984 | 4,672,547 | 1,836,320 | 24,844,302 | ||||||||||||
| Shares repurchased |
(19,934,362 | ) | (318,991,921 | ) | (20,615,486 | ) | (278,704,091 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(12,165,973 | ) | $ | (197,342,188 | ) | 2,272,323 | $ | 33,705,448 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class M***: |
||||||||||||||||
| Shares issued to shareholders in reinvestment of distributions |
1,072 | 14,539 | ||||||||||||||
| Shares repurchased |
(94,324 | ) | (1,330,643 | ) | ||||||||||||
|
|
|
|
|
|||||||||||||
| Net increase (decrease) |
(93,252 | ) | $ | (1,316,104 | ) | |||||||||||
|
|
|
|
|
|||||||||||||
| U.S. Flexible Equities Fund |
||||||||||||||||
| Class III*: |
||||||||||||||||
| Shares sold |
745,578 | $ | 8,249,752 | 77,895,051 | (g) | $ | 772,410,711 | (g) | ||||||||
| Shares issued to shareholders in reinvestment of distributions |
371,481 | 4,119,722 | 1,342,909 | 13,173,937 | ||||||||||||
| Shares repurchased |
(7,117,197 | ) | (77,917,109 | ) | (46,546,723 | ) | (464,712,335 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(6,000,138 | ) | $ | (65,547,635 | ) | 32,691,237 | $ | 320,872,313 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 71 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| U.S. Flexible Equities Fund (continued) |
||||||||||||||||
| Class IV*: |
||||||||||||||||
| Shares sold |
2,814,496 | $ | 31,406,937 | 19,277,294 | (h) | $ | 190,859,052 | (h) | ||||||||
| Shares issued to shareholders in reinvestment of distributions |
143,818 | 1,594,940 | 363,309 | 3,564,059 | ||||||||||||
| Shares repurchased |
(1,641,454 | ) | (17,854,420 | ) | (11,335,500 | ) | (112,964,136 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
1,316,860 | $ | 15,147,457 | 8,305,103 | $ | 81,458,975 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class V*: |
||||||||||||||||
| Shares sold |
— | $ | — | 59,559,593 | (i) | $ | 589,682,736 | (i) | ||||||||
| Shares issued to shareholders in reinvestment of distributions |
301,550 | 3,344,188 | 1,147,912 | 11,261,018 | ||||||||||||
| Shares repurchased |
(6,836,314 | ) | (75,098,685 | ) | (33,867,104 | ) | (337,322,236 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(6,534,764 | ) | $ | (71,754,497 | ) | 26,840,401 | $ | 263,621,518 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class VI**: |
||||||||||||||||
| Shares sold |
48,813,355 | $ | 539,475,156 | 1,459,955,534 | (j) | $ | 14,561,201,981 | (j) | ||||||||
| Shares issued to shareholders in reinvestment of distributions |
9,273,405 | 102,842,060 | 27,251,486 | 267,337,078 | ||||||||||||
| Shares repurchased |
(91,271,175 | ) | (1,018,867,499 | ) | (864,540,418 | ) | (8,618,942,622 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(33,184,415 | ) | $ | (376,550,283 | ) | 622,666,602 | $ | 6,209,596,437 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| U.S. Growth Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
— | $ | — | 9,992 | $ | 197,283 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
676 | 14,293 | 19,310 | 371,709 | ||||||||||||
| Shares repurchased |
(161 | ) | (3,323 | ) | (3,354 | ) | (68,795 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
515 | $ | 10,970 | 25,948 | $ | 500,197 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class M***: | ||||||||||||||||
| Shares issued to shareholders in reinvestment of distributions |
5,709 | 109,734 | ||||||||||||||
| Shares repurchased |
(35,082 | ) | (661,896 | ) | ||||||||||||
|
|
|
|
|
|||||||||||||
| Net increase (decrease) |
(29,373 | ) | $ | (552,162 | ) | |||||||||||
|
|
|
|
|
|||||||||||||
| U.S. Intrinsic Value Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
1,966 | $ | 18,990 | 2,387 | $ | 20,573 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
2,411 | 25,052 | 26,740 | 233,283 | ||||||||||||
| Shares repurchased |
(285 | ) | (2,958 | ) | (6,816 | ) | (60,340 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
4,092 | $ | 41,084 | 22,311 | $ | 193,516 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| U.S. Small/Mid Cap Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
2,227 | $ | 23,050 | 54,420 | $ | 463,955 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
2,151 | 23,550 | 13,889 | 122,491 | ||||||||||||
| Shares repurchased |
(166,817 | ) | (1,780,912 | ) | (204,737 | ) | (1,696,562 | ) | ||||||||
| Purchase premiums |
— | 69 | — | 951 | ||||||||||||
| Redemption fees |
— | 5,343 | — | 6,704 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(162,439 | ) | $ | (1,728,900 | ) | (136,428 | ) | $ | (1,102,461 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 72 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| (a) | 6,495,158 shares and $167,185,390 were purchased in-kind. |
| (b) | 15,480,942 shares and $350,049,355 were redeemed in-kind. |
| (c) | 4,217,175 shares and $95,429,526 were redeemed in-kind. |
| (d) | 13,031,535 shares and $294,841,368 were redeemed in-kind. |
| (e) | 5,372,627 shares and $128,352,069 were purchased in-kind. |
| (f) | 287,187,391 shares and $6,502,556,921 were redeemed in-kind. |
| (g) | 35,355,956 shares and $350,049,355 were purchased in-kind. |
| (h) | 9,638,647 shares and $95,429,526 were purchased in-kind. |
| (i) | 29,779,796 shares and $294,841,368 were purchased in-kind. |
| (j) | 656,058,687 shares and $6,502,556,921 were purchased in-kind. |
| * | The period under the heading “Year Ended February 28, 2013” represents the period from July 23, 2012 (commencement of operations) through February 28, 2013. |
| ** | The period under the heading “Year Ended February 28, 2013” represents the period from July 20, 2012 (commencement of operations) through February 28, 2013. |
| *** | Class M liquidated on January 31, 2013. |
| 10. | Investments in affiliated issuers |
A summary of the Funds’ transactions in the shares of other funds of the Trust during the period ended August 31, 2013 is set forth below:
| Affiliate | Value, beginning of period |
Purchases | Sales Proceeds |
Dividend Income* |
Distributions of Realized Gains* |
Value, end of period |
||||||||||||||||||
| Quality Fund |
||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 129,198,867 | $ | 628,932,000 | $ | 598,166,194 | $ | 44,830 | $ | 11,443 | $ | 160,034,000 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Real Estate Fund |
||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | — | $ | 208,000 | $ | 84,000 | $ | 26 | $ | 5 | $ | 123,975 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| U.S. Core Equity Fund |
||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 23,294,000 | $ | 54,985,000 | $ | 45,559,000 | $ | 6,480 | $ | 2,291 | $ | 32,715,073 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| U.S. Flexible Equities Fund |
||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 58,187,959 | $ | 117,482,000 | $ | 97,782,959 | $ | 18,600 | $ | 7,065 | $ | 77,859,118 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| U.S. Growth Fund |
||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 40,973 | $ | 113,000 | $ | 92,000 | $ | 21 | $ | 10 | $ | 61,971 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| U.S. Intrinsic Value Fund |
||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 83,995 | $ | 127,000 | $ | 84,000 | $ | 43 | $ | 11 | $ | 126,987 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| U.S. Small/Mid Cap Fund |
||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 14,998 | $ | 211,000 | $ | 81,848 | $ | 27 | $ | 5 | $ | 144,127 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| * | The table above includes estimated sources of all distributions paid by the underlying funds during the period March 1, 2013 through August 31, 2013. The actual tax characterization of distributions paid by the underlying funds will be determined at the end of the fiscal year ending February 28, 2014. |
| 73 |
GMO Trust Funds
Board Review of Management Agreements
August 31, 2013 (Unaudited)
Quality Fund
Approval of renewal of management agreement for GMO Quality Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 74 |
GMO Trust Funds
Board Review of Management Agreements
August 31, 2013 (Unaudited)
Real Estate Fund
Approval of renewal of management agreement for GMO Real Estate Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 75 |
GMO Trust Funds
Board Review of Management Agreements
August 31, 2013 (Unaudited)
U.S. Core Equity Fund
Approval of renewal of management agreement for GMO U.S. Core Equity Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with fees paid to the Manager for providing sub-advisory services to funds managed by third parties and the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides, on the one hand, to the Fund and, on the other, to the third-party funds for which the Manager serves as subadviser and to the Manager’s separately managed accounts. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 76 |
GMO Trust Funds
Board Review of Management Agreements
August 31, 2013 (Unaudited)
U.S. Flexible Equities Fund
Approval of renewal of management agreement for GMO U.S. Flexible Equities Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. In addition, the Trustees took into account their discussion with representatives of the Manager regarding ways to evaluate the performance of the Fund, given that the Fund is not a standalone investment and the investment strategies the Manager pursues for the Fund are intended to complement the strategies being pursued by the Manager in other GMO funds or accounts. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 77 |
GMO Trust Funds
Board Review of Management Agreements
August 31, 2013 (Unaudited)
U.S. Growth Fund
Approval of renewal of management agreement for GMO U.S. Growth Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 78 |
GMO Trust Funds
Board Review of Management Agreements
August 31, 2013 (Unaudited)
U.S. Intrinsic Value Fund
Approval of renewal of management agreement for GMO U.S. Intrinsic Value Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with fees paid to the Manager for providing sub-advisory services to funds managed by third parties and the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides, on the one hand, to the Fund and, on the other, to the third-party funds for which the Manager serves as subadviser and to the Manager’s separately managed accounts. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 79 |
GMO Trust Funds
(A Series of GMO Trust)
August 31, 2013 (Unaudited)
Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2013.
As a shareholder of the Funds, you may incur two types of costs: (1) transactions costs, including purchase premium and redemption fees, if applicable; and (2) ongoing costs, including direct and/or indirect management fees, direct and/or indirect shareholder services fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in Dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2013 through August 31, 2013.
Actual Expenses
This section of the table for each class below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
This section of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Funds’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, this section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Actual | Hypothetical |
|
||||||||||||||||||||||||||||||
| Beginning Account Value March 1, 2013 |
Ending Account Value August 31, 2013 |
Expenses Paid During the Period* |
Beginning Account Value March 1, 2013 |
Ending Account Value August 31, 2013 |
Expenses Paid During the Period* |
Annualized Net Expense Ratio |
||||||||||||||||||||||||||
| Quality Fund |
|
|||||||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,058.10 | $2.49 | $1,000.00 | $1,022.79 | $2.45 | 0.48% | |||||||||||||||||||||||||
| Class IV |
$1,000.00 | $1,058.10 | $2.28 | $1,000.00 | $1,022.99 | $2.24 | 0.44% | |||||||||||||||||||||||||
| Class V |
$1,000.00 | $1,058.50 | $2.18 | $1,000.00 | $1,023.09 | $2.14 | 0.42% | |||||||||||||||||||||||||
| Class VI |
$1,000.00 | $1,058.20 | $2.02 | $1,000.00 | $1,023.24 | $1.99 | 0.39% | |||||||||||||||||||||||||
| Real Estate Fund |
|
|||||||||||||||||||||||||||||||
| Class III |
$1,000.00 | $950.40 | $2.36 | $1,000.00 | $1,022.79 | $2.45 | 0.48% | |||||||||||||||||||||||||
| U.S. Core Equity Fund |
|
|||||||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,085.40 | $2.42 | $1,000.00 | $1,022.89 | $2.35 | 0.46% | |||||||||||||||||||||||||
| Class IV |
$1,000.00 | $1,085.70 | $2.16 | $1,000.00 | $1,023.14 | $2.09 | 0.41% | |||||||||||||||||||||||||
| Class VI |
$1,000.00 | $1,085.80 | $1.95 | $1,000.00 | $1,023.34 | $1.89 | 0.37% | |||||||||||||||||||||||||
| U.S. Flexible Equities Fund |
|
|||||||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,059.30 | $2.49 | $1,000.00 | $1,022.79 | $2.45 | 0.48% | |||||||||||||||||||||||||
| Class IV |
$1,000.00 | $1,059.50 | $2.28 | $1,000.00 | $1,022.99 | $2.24 | 0.44% | |||||||||||||||||||||||||
| Class V |
$1,000.00 | $1,059.40 | $2.18 | $1,000.00 | $1,023.09 | $2.14 | 0.42% | |||||||||||||||||||||||||
| Class VI |
$1,000.00 | $1,059.50 | $2.02 | $1,000.00 | $1,023.24 | $1.99 | 0.39% | |||||||||||||||||||||||||
| U.S. Growth Fund |
|
|||||||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,109.90 | $2.50 | $1,000.00 | $1,022.84 | $2.40 | 0.47% | |||||||||||||||||||||||||
| U.S. Intrinsic Value Fund |
|
|||||||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,097.70 | $2.43 | $1,000.00 | $1,022.89 | $2.35 | 0.46% | |||||||||||||||||||||||||
| U.S. Small/Mid Cap Fund |
|
|||||||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,123.50 | $3.21 | $1,000.00 | $1,022.18 | $3.06 | 0.60% | |||||||||||||||||||||||||
| * | Expenses are calculated using each Class’s annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2013, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year. |
| 80 |
GMO Trust
Semiannual Report
August 31, 2013
Asset Allocation Bond Fund
Core Plus Bond Fund
Currency Hedged International Bond Fund
Debt Opportunities Fund
Domestic Bond Fund
Emerging Country Debt Fund
Global Bond Fund
International Bond Fund
Short-Duration Collateral Fund
Short-Duration Collateral Share Fund
Strategic Fixed Income Fund
U.S. Treasury Fund
World Opportunity Overlay Fund
For a free copy of the Funds’ proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) or visit the Securities and Exchange Commission’s website at www.sec.gov. 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 GMO’s website at www.gmo.com, or on the Securities and Exchange Commission’s website at www.sec.gov.
The Funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission’s website at www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the PublicReference Room may be obtained by calling 1-800-SEC-0330. The Funds have a policy with respect to disclosure of portfolio holdings under which they may also make available on GMO’s website at www.gmo.com a complete schedule of portfolio holdings.
This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus or private placement memorandum, which contains a complete discussion of the risks associated with an investment in these Funds and other important information. The GMO Trust prospectus can be obtained at www.gmo.com and the private placement memorandum can be obtained by calling 1-617-346-7646 (collect).
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| 150 | ||||
| 163 |
GMO Asset Allocation Bond Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 1 |
GMO Asset Allocation Bond Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 2 | See accompanying notes to the financial statements. |
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 3 |
GMO Core Plus Bond Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 4 | See accompanying notes to the financial statements. |
GMO Core Plus Bond Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
A summary of outstanding financial instruments at August 31, 2013
is as follows:
Forward Currency Contracts
| See accompanying notes to the financial statements. | 5 |
GMO Core Plus Bond Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
Written Options
| Principal Amount |
Expiration Date |
Description |
Premiums | Market Value |
||||||||||||||||||
| Put | AUD | 18,000,000 | 10/02/2013 | USD Call/AUD Put, Strike 0.92 (OTC) (CP-JPM) | $ | 391,792 | $ | (625,712 | ) | |||||||||||||
| Put | JPY | 850,000,000 | 02/12/2014 | USD Call/JPY Put, Strike 110.00 (OTC) (CP-BCLY) | 121,751 | (35,416 | ) | |||||||||||||||
|
|
|
|
|
|||||||||||||||||||
| $513,543 | $ | (661,128 | ) | |||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
Swap Contracts
Credit Default Swaps
| Notional Amount |
Expiration Date |
Counterparty |
Receive |
Annual Premium |
Implied Credit Spread (1) |
Reference Entity |
Maximum Potential Amount of Future Payments by the Fund Under the Contract (2) |
Net Unrealized Appreciation/ (Depreciation) |
||||||||||||||||||||||
| 2,000,000 | USD | 12/20/2013 | BCLY | Receive | 0.25% | 0.51% | SLM Corp. | 2,000,000 | USD | $ | (661 | ) | ||||||||||||||||||
| 40,000,000 | USD | 12/20/2015 | BCLY | (Pay) | 1.00% | 0.36% | CDX.NA.IG.19 | N/A | (666,711 | ) | ||||||||||||||||||||
| 25,000,000 | USD | 12/20/2022 | BCLY | Receive | 1.00% | 1.26% | CDX.NA.IG.19 | 25,000,000 | USD | (448,936 | ) | |||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||
| $ | (1,116,308 | ) | ||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||
| Premiums to (Pay) Receive | $ | 1,238,548 | ||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||
| ^ | Receive - Fund receives premium and sells credit protection. If a credit event occurs, the Fund will either, depending on the terms of the terms of the particular swap contract, (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. |
| (Pay) - Fund pays premium and buys credit protection. If a credit event occurs, the Fund will either, depending on the terms of the terms of the particular swap contract, (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. |
| (1) | Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap contracts on the reference security, as of August 31, 2013, serve as an indicator of the current status of the payment/performance risk and reflect the likelihood or risk of default for the reference entity. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection. Wider (i.e., higher) credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the contract. |
| (2) | The maximum potential amount the Fund could be required to pay as a seller of credit protection if a credit event occurs as defined under the terms of that particular swap contract. |
| 6 | See accompanying notes to the financial statements. |
GMO Core Plus Bond Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
Interest Rate Swaps
| Notional Amount |
Expiration Date |
Counterparty |
Receive |
Fixed Rate |
Variable Rate |
Net Unrealized Appreciation/ (Depreciation) |
||||||||||||||
| 42,100,000 | SEK | 9/18/2020 | DB | Receive | 1.90% | 3 Month SEK STIBOR | $ | (308,062 | ) | |||||||||||
| 13,300,000 | CHF | 9/18/2023 | BCLY (f) | Receive | 1.20% | 6 Month CHF LIBOR | (542,905 | ) | ||||||||||||
| 33,300,000 | SEK | 9/18/2020 | BCLY (f) | Receive | 1.90% | 3 Month SEK STIBOR | (245,759 | ) | ||||||||||||
| 27,000,000 | SEK | 9/18/2023 | BCLY (f) | Receive | 2.60% | 3 Month SEK STIBOR | (106,332 | ) | ||||||||||||
|
|
|
|||||||||||||||||||
| $ | (1,203,058 | ) | ||||||||||||||||||
|
|
|
|||||||||||||||||||
| Premiums to (Pay) Receive | $ | 324,930 | ||||||||||||||||||
|
|
|
|||||||||||||||||||
| # | Receive - Fund receives fixed rate and pays variable rate. (Pay) - Fund pays fixed rate and receives variable rate. |
Total Return Swaps
| Notional Amount |
Expiration Date |
Counterparty |
Fund Pays |
Fund (Pays)/Receives |
Net Unrealized Appreciation/ (Depreciation) |
|||||||||||||
| 25,000,000 | USD | 9/30/2013 | JPM | 1 Month LIBOR + 0.07% | Barclays MBS Fixed Rate Index | $ | — | |||||||||||
| 150,000,000 | USD | 1/31/2014 | BCLY | 1 Month LIBOR | Barclays Aggregate Total Return | (791,035 | ) | |||||||||||
|
|
|
|||||||||||||||||
| $(791,035) | ||||||||||||||||||
|
|
|
|||||||||||||||||
| Premiums to (Pay) Receive | $ | — | ||||||||||||||||
|
|
|
|||||||||||||||||
As of August 31, 2013, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.
| See accompanying notes to the financial statements. | 7 |
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 8 |
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 9 |
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
Written Options
| Principal |
Expiration Date |
Description |
Premiums | Market Value |
||||||||||||||||||
| Put | AUD | 6,000,000 | 10/02/2013 | USD Call/AUD Put, Strike 0.92 (OTC) (CP-JPM) | $ | 130,597 | $ | (208,571 | ) | |||||||||||||
| Put | JPY | 250,000,000 | 02/12/2014 | USD Call/JPY Put, Strike 110.00 (OTC) (CP-BCLY) | 35,809 | (10,416 | ) | |||||||||||||||
|
|
|
|
|
|||||||||||||||||||
| $ | 166,406 | $ | (218,987 | ) | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
Swap Contracts
Credit Default Swaps
| Notional Amount |
Expiration Date |
Counterparty |
Receive |
Annual |
Implied Credit Spread (1) |
Reference Entity |
Maximum Potential Amount of Future Payments by the Fund Under the Contract (2) |
Net Unrealized Appreciation/ (Depreciation) |
||||||||||||||||
| 14,000,000 | USD | 3/20/2014 | DB | (Pay) | 1.70% | 0.74% | Republic of Italy | N/A | $ | (122,176 | ) | |||||||||||||
|
|
|
|||||||||||||||||||||||
| Premiums to (Pay) Receive | $ | — | ||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| 10 | See accompanying notes to the financial statements. |
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
| ^ | Receive - Fund receives premium and sells credit protection. If a credit event occurs, the Fund will either, depending on the terms of the terms of the particular swap contract, (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. |
| (Pay) - Fund pays premium and buys credit protection. If a credit event occurs, the Fund will either, depending on the terms of the terms of the particular swap contract, (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. |
| (1) | Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap contracts on the reference security, as of August 31, 2013, serve as an indicator of the current status of the payment/performance risk and reflect the likelihood or risk of default for the reference entity. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection. Wider (i.e., higher) credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the contract. |
| (2) | The maximum potential amount the Fund could be required to pay as a seller of credit protection if a credit event occurs as defined under the terms of that particular swap contract. |
Interest Rate Swaps
| Notional Amount |
Expiration Date |
Counterparty |
Receive |
Fixed Rate |
Variable Rate |
Net Unrealized Appreciation/ (Depreciation) |
||||||||||||||
| 11,900,000 | SEK | 9/18/2020 | DB | Receive | 1.90% | 3 Month SEK STIBOR | $ | (87,077 | ) | |||||||||||
| 3,800,000 | CHF | 9/18/2023 | BCLY (e) | Receive | 1.20% | 6 Month CHF LIBOR | (155,116 | ) | ||||||||||||
| 9,800,000 | SEK | 9/18/2020 | BCLY (e) | Receive | 1.90% | 3 Month SEK STIBOR | (72,326 | ) | ||||||||||||
| 11,600,000 | SEK | 9/18/2023 | BCLY (e) | Receive | 2.60% | 3 Month SEK STIBOR | (45,683 | ) | ||||||||||||
|
|
|
|||||||||||||||||||
| $ | (360,202 | ) | ||||||||||||||||||
|
|
|
|||||||||||||||||||
| Premiums to (Pay) Receive | $ | 86,348 | ||||||||||||||||||
|
|
|
|||||||||||||||||||
| # | Receive - Fund receives fixed rate and pays variable rate. (Pay) - Fund pays fixed rate and receives variable rate. |
As of August 31, 2013, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.
| See accompanying notes to the financial statements. | 11 |
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 12 |
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 13 |
GMO Debt Opportunities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 14 | See accompanying notes to the financial statements. |
GMO Debt Opportunities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 15 |
GMO Debt Opportunities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 16 | See accompanying notes to the financial statements. |
GMO Debt Opportunities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 17 |
GMO Debt Opportunities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 18 | See accompanying notes to the financial statements. |
GMO Debt Opportunities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 19 |
GMO Debt Opportunities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 20 | See accompanying notes to the financial statements. |
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 21 |
GMO Domestic Bond Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 22 | See accompanying notes to the financial statements. |
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 23 |
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 24 | See accompanying notes to the financial statements. |
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 25 |
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 26 | See accompanying notes to the financial statements. |
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 27 |
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 28 | See accompanying notes to the financial statements. |
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 29 |
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 30 | See accompanying notes to the financial statements. |
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
Reverse Repurchase Agreements
| Average balance outstanding | $ | (9,113,171 | ) | |||||||||||
| Average interest rate | 0.16 | % | ||||||||||||
| Maximum balance outstanding | $ | (17,656,013 | ) | |||||||||||
Average balance outstanding was calculated based on daily face value balances outstanding during the period that the Fund has entered into reverse repurchase agreements. The Fund had no reverse repurchase agreements outstanding at the end of the period.
Credit Linked Options
| Number of |
Expiration Date |
Descriptions |
Premiums | Market Value |
||||||||||||
| Put | Sold USD | 100,000,000 | 04/15/2024 | Banco do Brasil Credit Linked Put Option Swap, Brazil, receives premium of 0.44% (OTC) (CP-DB) (d) | $ | 812,194 | $ | (1,851,295 | ) | |||||||
| Put | Sold USD | 43,000,000 | 04/15/2024 | Banco do Brasil Credit Linked Put Option Swap, Brazil, receives premium of 0.44% (OTC) (CP-DB) (d) | — | (63,992 | ) | |||||||||
| Put | Sold USD | 62,000,000 | 03/21/2017 | Lebanese Republic Credit Linked Put Option Swap, Lebanon, receives premium of 0.50% (OTC) (CP-DB) (d) | — | 168,045 | ||||||||||
| Put | Sold USD | 70,000,000 | 04/03/2018 | Turkiye Cumhuriyeti Ziraat Bankasi A.S. Credit Linked Put Option Swap, Turkey, receives premium of 0.40% (OTC) (CP-DB) (d) | — | (608,455 | ) | |||||||||
| Put | Sold USD | 70,000,000 | 07/14/2017 | Turkiye Is Bankasi A.S. Credit Linked Put Option Swap, Turkey, receives premium of 0.40% (OTC) (CP-DB) (d) | — | (499,115 | ) | |||||||||
|
|
|
|
|
|||||||||||||
| $ | 812,194 | $ | (2,854,812 | ) | ||||||||||||
|
|
|
|
|
|||||||||||||
Swap Contracts
Credit Default Swaps
| Notional Amount |
Expiration Date |
Counterparty |
Receive |
Annual Premium |
Implied Credit Spread (1) |
Reference Entity |
Maximum Potential |
Net Unrealized Appreciation/ (Depreciation) |
||||||||||||||||||||
| 5,000,000 | USD | 12/20/2013 | DB | (Pay) | 1.00% | 0.85% | Gazprom | N/A | $ | (12,188 | ) | |||||||||||||||||
| 14,000,000 | USD | 3/20/2014 | DB | (Pay) | 1.68% | 0.74% | Republic of Italy | N/A | (120,060 | ) | ||||||||||||||||||
| 39,000,000 | USD | 3/20/2014 | DB | (Pay) | 1.49% | 0.04% | Republic of Austria | N/A | (431,477 | ) | ||||||||||||||||||
| 28,000,000 | USD | 3/20/2014 | DB | (Pay) | 1.70% | 0.74% | Republic of Italy | N/A | (244,353 | ) | ||||||||||||||||||
| 14,000,000 | USD | 3/20/2014 | DB | (Pay) | 1.45% | 0.05% | United Kingdom Government | N/A | (149,858 | ) | ||||||||||||||||||
| 10,000,000 | USD | 3/20/2014 | DB | (Pay) | 1.85% | 0.74% | Republic of Italy | N/A | (98,605 | ) | ||||||||||||||||||
| 39,000,000 | USD | 3/20/2014 | DB | (Pay) | 1.28% | 0.05% | United Kingdom Government | N/A | (367,234 | ) | ||||||||||||||||||
| 10,000,000 | USD | 6/20/2014 | DB | (Pay) | 5.00% | 54.29% | Republic of Argentina | N/A | 2,928,809 | |||||||||||||||||||
| 2,000,000 | USD | 8/24/2014 | DB | (Pay) | 4.25% | 2.55% | Lebanese Republic | N/A | (33,876 | ) | ||||||||||||||||||
| 15,000,000 | USD | 9/20/2014 | DB | (Pay) | 4.03% | 1.29% | Sberbank | N/A | (708,455 | ) | ||||||||||||||||||
| 5,000,000 | USD | 12/20/2014 | DB | (Pay) | 5.00% | 48.00% | Republic of Argentina | N/A | 1,804,995 | |||||||||||||||||||
| 650,000,000 | USD | 3/20/2015 | DB | Receive | 3.80% | 8.68% | Bolivarian Republic of Venezuela | 650,000,000 | USD | (34,642,320 | ) | |||||||||||||||||
| 70,000,000 | USD | 3/20/2015 | DB | (Pay) | 0.00% | 25.00% | Republic of Argentina (d) | N/A | — | |||||||||||||||||||
| 550,500,000 | EUR | 3/20/2015 | DB | (Pay) | 3.72% | 8.62% | Bolivarian Republic of Venezuela | N/A | 39,259,802 | |||||||||||||||||||
| 300,000,000 | EUR | 4/20/2015 | DB | (Pay) | 4.32% | 8.68% | Bolivarian Republic of Venezuela | N/A | 20,035,466 | |||||||||||||||||||
| 412,500,000 | USD | 4/20/2015 | DB | Receive | 4.40% | 8.74% | Bolivarian Republic of Venezuela | 412,500,000 | USD | (20,598,848 | ) | |||||||||||||||||
| 11,000,000 | USD | 6/20/2015 | DB | (Pay) | 5.00% | N/A | CDX 13 Emerging Sovereign | N/A | (383,472 | ) | ||||||||||||||||||
| 30,000,000 | USD | 6/20/2015 | BCLY | (Pay) | 5.00% | N/A | CDX 13 Emerging Sovereign | N/A | (1,045,833 | ) | ||||||||||||||||||
| 40,000,000 | USD | 6/20/2015 | BCLY | (Pay) | 5.00% | N/A | CDX 13 Emerging Sovereign | N/A | (1,394,444 | ) | ||||||||||||||||||
| 15,000,000 | USD | 9/20/2015 | BCLY | (Pay) | 1.00% | 0.77% | Republic of Colombia | N/A | (100,822 | ) | ||||||||||||||||||
| 56,950,000,000 | COP | 11/20/2015 | CITI | Receive | 1.81% | 0.64% | Republic of Colombia | 56,950,000,000 | COP | 874,342 | ||||||||||||||||||
| 15,000,000 | USD | 2/20/2016 | CITI | (Pay) | 2.16% | 0.87% | Republic of Colombia | N/A | (484,966 | ) | ||||||||||||||||||
| See accompanying notes to the financial statements. | 31 |
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
Credit Default Swaps (continued)
| Notional Amount |
Expiration Date |
Counterparty |
Receive |
Annual Premium |
Implied Credit Spread (1) |
Reference Entity |
Maximum Potential |
Net Unrealized Appreciation/ (Depreciation) |
||||||||||||||||||||
| 56,700,000,000 | COP | 2/20/2016 | CITI | Receive | 1.46% | 0.67% | Republic of Colombia | 56,700,000,000 | COP | $ | 551,751 | |||||||||||||||||
| 114,800,000,000 | COP | 4/20/2016 | CITI | Receive | 1.33% | 0.69% | Republic of Colombia | 114,800,000,000 | COP | 1,227,205 | ||||||||||||||||||
| 25,000,000 | USD | 4/20/2016 | CITI | (Pay) | 1.90% | 0.90% | Republic of Colombia | N/A | (824,493 | ) | ||||||||||||||||||
| 11,000,000 | EUR | 6/17/2016 | DB | Receive | 5.60% | 8.41% | Republic of Angola | 11,000,000 | EUR | 348,435 | ||||||||||||||||||
| 20,000,000 | USD | 8/20/2016 | CITI | (Pay) | 2.15% | 0.96% | Republic of Colombia | N/A | (712,777 | ) | ||||||||||||||||||
| 97,680,000,000 | COP | 8/20/2016 | CITI | Receive | 1.51% | 0.72% | Republic of Colombia | 97,680,000,000 | COP | 1,118,877 | ||||||||||||||||||
| 22,500,000 | USD | 2/20/2017 | DB | Receive | 2.43% | 9.35% | Bolivarian Republic of Venezuela | 22,500,000 | USD | (4,419,606 | ) | |||||||||||||||||
| 32,000,000 | PEN | 5/20/2017 | DB | Receive | 0.79% | 1.03% | Republic of Peru | 32,000,000 | PEN | (65,068 | ) | |||||||||||||||||
| 2,500,000 | USD | 5/20/2017 | DB | (Pay) | 1.05% | 1.34% | Republic of Peru | N/A | 18,250 | |||||||||||||||||||
| 4,500,000 | USD | 7/20/2017 | JPM | Receive | 3.33% | 6.89% | Republic of Jamaica | 4,500,000 | USD | (511,514 | ) | |||||||||||||||||
| 25,000,000 | USD | 12/20/2017 | JPM | Receive | 5.00% | 8.62% | Government of Ukraine | 25,000,000 | USD | (2,866,048 | ) | |||||||||||||||||
| 5,400,000 | EUR | 3/20/2018 | DB | Receive | 1.00% | 4.49% | Republic of Macedonia | 5,400,000 | EUR | (972,106 | ) | |||||||||||||||||
| 10,000,000 | USD | 12/20/2018 | DB | Receive | 0.44% | 0.41% | United Kingdom Government | 10,000,000 | USD | 25,952 | ||||||||||||||||||
| 10,000,000 | USD | 3/20/2019 | DB | Receive | 1.62% | 2.47% | Republic of Italy | 10,000,000 | USD | (378,892 | ) | |||||||||||||||||
| 10,000,000 | USD | 3/20/2019 | DB | Receive | 1.35% | 0.43% | United Kingdom Government | 10,000,000 | USD | 517,913 | ||||||||||||||||||
| 30,000,000 | USD | 3/20/2019 | DB | Receive | 1.46% | 0.37% | Republic of Austria | 30,000,000 | USD | 1,833,612 | ||||||||||||||||||
| 20,000,000 | USD | 3/20/2019 | DB | Receive | 1.66% | 2.47% | Republic of Italy | 20,000,000 | USD | (717,351 | ) | |||||||||||||||||
| 10,000,000 | USD | 3/20/2019 | DB | Receive | 1.70% | 2.47% | Republic of Italy | 10,000,000 | USD | (338,460 | ) | |||||||||||||||||
| 30,000,000 | USD | 3/20/2019 | DB | Receive | 1.25% | 0.43% | United Kingdom Government | 30,000,000 | USD | 1,388,167 | ||||||||||||||||||
| 6,000,000 | USD | 3/20/2020 | BCLY | Receive | 1.00% | 3.71% | Republic of Croatia | 6,000,000 | USD | (833,882 | ) | |||||||||||||||||
| 6,000,000 | USD | 6/20/2020 | DB | Receive | 1.00% | 3.82% | Commonwealth of Bahamas | 6,000,000 | USD | (926,117 | ) | |||||||||||||||||
| 30,000,000 | USD | 3/20/2023 | JPM | Receive | 1.00% | 2.82% | Republic of Turkey | 30,000,000 | USD | (4,093,737 | ) | |||||||||||||||||
| 6,000,000 | USD | 6/20/2023 | DB | Receive | 1.00% | 3.82% | Commonwealth of Bahamas | 6,000,000 | USD | (1,192,234 | ) | |||||||||||||||||
| 200,000,000 | USD | 6/20/2023 | DB | (Pay) | 1.00% | 3.91% | Republic of Croatia | N/A | 40,804,002 | |||||||||||||||||||
| 160,000,000 | EUR | 6/20/2023 | DB | Receive | 1.00% | 3.93% | Republic of Croatia | 160,000,000 | EUR | (44,331,321 | ) | |||||||||||||||||
| 3,000,000 | USD | 6/20/2023 | DB | Receive | 1.00% | 3.82% | Commonwealth of Bahamas | 3,000,000 | USD | (596,117 | ) | |||||||||||||||||
| 25,000,000 | USD | 9/20/2023 | JPM | Receive | 1.00% | 2.50% | Republic of Brazil | 25,000,000 | USD | (2,927,343 | ) | |||||||||||||||||
| 25,000,000 | USD | 9/20/2023 | JPM | Receive | 1.00% | 2.50% | Republic of Brazil | 25,000,000 | USD | (2,927,343 | ) | |||||||||||||||||
| 25,000,000 | USD | 9/20/2023 | JPM | Receive | 1.00% | 1.55% | Peoples Republic of China | 25,000,000 | USD | (1,095,490 | ) | |||||||||||||||||
| 25,000,000 | USD | 9/20/2023 | JPM | Receive | 1.00% | 2.90% | Republic of South Africa | 25,000,000 | USD | (3,680,549 | ) | |||||||||||||||||
| 20,000,000 | USD | 9/20/2031 | GS | (Pay) | 1.00% | 1.83% | United Mexican States | N/A | 1,931,376 | |||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
| $ | (20,558,305 | ) | ||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
| Premiums to (Pay) Receive |
$ | 28,654,170 | ||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
| ^ | Receive - Fund receives premium and sells credit protection. If a credit event occurs, the Fund will either, depending on the terms of the terms of the particular swap contract, (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. |
| (Pay) - Fund pays premium and buys credit protection. If a credit event occurs, the Fund will either, depending on the terms of the terms of the particular swap contract, (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. |
| (1) | Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap contracts on the reference security, as of August 31, 2013, serve as an indicator of the current status of the payment/performance risk and reflect the likelihood or risk of default for the reference entity. The implied credit |
| spread of a particular referenced entity reflects the cost of buying/selling protection. Wider (i.e., higher) credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the contract. |
| (2) | The maximum potential amount the Fund could be required to pay as a seller of credit protection if a credit event occurs as defined under the terms of that particular swap contract. |
| 32 | See accompanying notes to the financial statements. |
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
As of August 31, 2013, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.
| See accompanying notes to the financial statements. | 33 |
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 34 |
GMO Global Bond Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 35 |
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
| 36 | See accompanying notes to the financial statements. |
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
Written Options
| Principal |
Expiration Date |
Description |
Premiums | Market Value |
||||||||||||||
| Put |
AUD | 12,000,000 | 10/2/2013 | USD Call/AUD Put, Strike 0.92 (OTC) (CP-JPM) | $ | 261,195 | $ | (417,141 | ) | |||||||||
| Put |
JPY | 600,000,000 | 2/12/2014 | USD Call/JPY Put, Strike 110.00 (OTC) (CP-BCLY) | 85,942 | (25,000 | ) | |||||||||||
|
|
|
|
|
|||||||||||||||
| $ | 347,137 | $ | (442,141 | ) | ||||||||||||||
|
|
|
|
|
|||||||||||||||
Swap Contracts
Credit Default Swaps
| Notional Amount |
Expiration Date |
Counterparty |
Receive |
Annual Premium |
Implied Credit Spread (1) |
Reference |
Maximum Potential Amount of Future Payments by the Fund Under the Contract (2) |
Net Unrealized Appreciation/ (Depreciation) |
||||||||||||||||||
| 21,000,000 | USD | 3/20/2014 | DB | (Pay) | 1.70% | 0.74% | Republic of Italy | N/A | $ | (183,264 | ) | |||||||||||||||
|
|
|
|||||||||||||||||||||||||
|
|
Premiums to (Pay) Receive |
|
$ | — | ||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||
| ^ | Receive - Fund receives premium and sells credit protection. If a credit event occurs, the Fund will either, depending on the terms of the terms of the particular swap contract, (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. |
| (Pay) - Fund pays premium and buys credit protection. If a credit event occurs, the Fund will either, depending on the terms of the terms of the particular swap contract, (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. |
| (1) | Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap contracts on the reference security, as of August 31, 2013, serve as an indicator of the current status of the payment/performance risk and reflect the likelihood or risk of default for the reference entity. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection. Wider (i.e., higher) credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the contract. |
| (2) | The maximum potential amount the Fund could be required to pay as a seller of credit protection if a credit event occurs as defined under the terms of that particular swap contract. |
Interest Rate Swaps
| Notional Amount |
Expiration Date |
Counterparty |
Receive |
Fixed Rate |
Variable Rate |
Net Unrealized Appreciation/ (Depreciation) |
||||||||||||||
| 8,400,000 | CHF | 9/18/2023 | BCLY (e) | Receive | 1.20% | 6 Month CHF LIBOR | $ | (342,888 | ) | |||||||||||
| 23,900,000 | SEK | 9/18/2020 | BCLY (e) | Receive | 1.90% | 3 Month SEK STIBOR | (176,386 | ) | ||||||||||||
| 15,900,000 | SEK | 9/18/2023 | BCLY (e) | Receive | 2.60% | 3 Month SEK STIBOR | (62,618 | ) | ||||||||||||
| 29,100,000 | SEK | 9/18/2020 | DB | Receive | 1.90% | 3 Month SEK STIBOR | (212,936 | ) | ||||||||||||
|
|
|
|||||||||||||||||||
| $ | (794,828 | ) | ||||||||||||||||||
|
|
|
|||||||||||||||||||
| Premiums to (Pay) Receive | $ | 224,456 | ||||||||||||||||||
|
|
|
|||||||||||||||||||
| # | Receive - Fund receives fixed rate and pays variable rate. (Pay) - Fund pays fixed rate and receives variable rate. |
As of August 31, 2013, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.
| See accompanying notes to the financial statements. | 37 |
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
| 38 | See accompanying notes to the financial statements. |
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 39 |
GMO International Bond Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 40 | See accompanying notes to the financial statements. |
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
Written Options
| Principal |
Expiration Date |
Description |
Premiums | Market Value |
||||||||||||||
| Put |
JPY | 250,000,000 | 2/12/2014 | USD Call/JPY Put, Strike 110.00 (OTC) (CP-BCLY) | $ | 35,809 | $ | (10,416 | ) | |||||||||
| Put |
AUD | 6,000,000 | 10/2/2013 | USD Call/AUD Put, Strike 0.92 (OTC) (CP-JPM) | 130,597 | (208,571 | ) | |||||||||||
|
|
|
|
|
|||||||||||||||
| $166,406 | $ | (218,987 | ) | |||||||||||||||
|
|
|
|
|
|||||||||||||||
| See accompanying notes to the financial statements. | 41 |
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
Swap Contracts
Credit Default Swaps
| Notional Amount |
Expiration Date |
Counterparty |
Receive |
Annual Premium |
Implied Credit Spread (1) |
Reference |
Maximum Potential Amount of Future Payments by the Fund Under the Contract (2) |
Net Unrealized Appreciation/ (Depreciation) |
||||||||||||||||||||||
| 9,000,000 | USD | 3/20/2014 | DB | (Pay) | 1.70% | 0.74% | Republic of Italy | N/A | $ | (78,542 | ) | |||||||||||||||||||
| 6,000,000 | USD | 3/20/2019 | DB | Receive | 1.66% | 2.47% | Republic of Italy | 6,000,000 | USD | (215,205 | ) | |||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||
| $ | (293,747 | ) | ||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||
| Premiums to (Pay) Receive | $ | — | ||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||
| ^ | Receive - Fund receives premium and sells credit protection. If a credit event occurs, the Fund will either, depending on the terms of the terms of the particular swap contract, (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. |
| (Pay) - Fund pays premium and buys credit protection. If a credit event occurs, the Fund will either, depending on the terms of the terms of the particular swap contract, (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. |
| (1) | Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap contracts on the reference security, as of August 31, 2013, serve as an indicator of the current status of the payment/performance risk and reflect the likelihood or risk of default for the reference entity. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection. Wider (i.e., higher) credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the contract. |
| (2) | The maximum potential amount the Fund could be required to pay as a seller of credit protection if a credit event occurs as defined under the terms of that particular swap contract. |
Interest Rate Swaps
| Notional Amount |
Expiration Date |
Counterparty |
Receive |
Fixed Rate |
Variable Rate |
Net Unrealized Appreciation/ (Depreciation) |
||||||||||||||||||
| 10,100,000 | SEK | 9/18/2020 | BCLY (e) | Receive | 1.90% | 3 Month SEK STIBOR | $ | (74,539 | ) | |||||||||||||||
| 4,600,000 | SEK | 9/18/2023 | BCLY (e) | Receive | 2.60% | 3 Month SEK STIBOR | (18,116 | ) | ||||||||||||||||
| 12,800,000 | SEK | 9/18/2020 | DB | Receive | 1.90% | 3 Month SEK STIBOR | (93,663 | ) | ||||||||||||||||
| 3,200,000 | CHF | 9/18/2023 | BCLY (e) | Receive | 1.20% | 6 Month CHF LIBOR | (130,624 | ) | ||||||||||||||||
|
|
|
|||||||||||||||||||||||
| $ | (316,942 | ) | ||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Premiums to (Pay) Receive | $ | 88,910 | ||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| # | Receive - Fund receives fixed rate and pays variable rate. (Pay) - Fund pays fixed rate and receives variable rate. |
As of August 31, 2013, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.
| 42 | See accompanying notes to the financial statements. |
GMO Short-Duration Collateral Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| ^ | Rounds to 0.0%. |
| 43 |
GMO Short-Duration Collateral Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 44 | See accompanying notes to the financial statements. |
GMO Short-Duration Collateral Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 45 |
GMO Short-Duration Collateral Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 46 | See accompanying notes to the financial statements. |
GMO Short-Duration Collateral Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 47 |
GMO Short-Duration Collateral Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 48 | See accompanying notes to the financial statements. |
GMO Short-Duration Collateral Share Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 49 |
GMO Short-Duration Collateral Share Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 50 | See accompanying notes to the financial statements. |
GMO Strategic Fixed Income Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 51 |
GMO Strategic Fixed Income Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 52 | See accompanying notes to the financial statements. |
GMO Strategic Fixed Income Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
Written Options
| Principal |
Expiration |
Description |
Premiums |
Market Value |
||||||||||||||
| Put | AUD | 136,000,000 | 10/2/2013 | USD Call/AUD Put, Strike 0.92 (OTC) (CP-JPM) | $ | 2,960,209 | $ | (4,727,606 | ) | |||||||||
| Put | JPY | 6,300,000,000 | 2/12/2014 | USD Call/JPY Put, Strike 110.00 (OTC) (CP-BCLY) | 902,391 | (262,497 | ) | |||||||||||
|
|
|
|
|
|||||||||||||||
| $ | 3,862,600 | $ | (4,990,103 | ) | ||||||||||||||
|
|
|
|
|
|||||||||||||||
| See accompanying notes to the financial statements. | 53 |
GMO Strategic Fixed Income Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
Swap Contracts
Interest Rate Swaps
| Notional Amount |
Expiration Date |
Counterparty |
Receive |
Fixed Rate |
Variable Rate |
Net Unrealized Appreciation/ (Depreciation) |
||||||||||||
| 100,000,000 | NZD | 7/14/2015 | BCLY | Receive | 4.87% | 3 Month NZD Bank Bill Rate | $ | 2,169,552 | ||||||||||
| 100,000,000 | NZD | 7/15/2015 | BCLY | Receive | 4.86% | 3 Month NZD Bank Bill Rate | 2,156,845 | |||||||||||
| 100,000,000 | NZD | 7/15/2015 | CITI | Receive | 4.85% | 3 Month NZD Bank Bill Rate | 2,146,395 | |||||||||||
| 211,700,000 | SEK | 9/18/2020 | DB | Receive | 1.90% | 3 Month SEK STIBOR | (1,549,093 | ) | ||||||||||
| 384,300,000 | SEK | 9/18/2020 | BCLY (e) | Receive | 1.90% | 3 Month SEK STIBOR | (2,836,196 | ) | ||||||||||
| 26,700,000 | SEK | 9/18/2023 | BCLY (e) | Receive | 2.60% | 3 Month SEK STIBOR | (105,150 | ) | ||||||||||
| 74,100,000 | CHF | 9/18/2023 | BCLY (e) | Receive | 1.20% | 6 Month CHF LIBOR | (3,024,759 | ) | ||||||||||
|
|
|
|||||||||||||||||
| $ | (1,042,406 | ) | ||||||||||||||||
|
|
|
|||||||||||||||||
| Premiums to (Pay) Receive |
$ | 2,783,654 | ||||||||||||||||
|
|
|
|||||||||||||||||
| # | Receive - Fund receives fixed rate and pays variable rate. |
| (Pay) - Fund pays fixed rate and receives variable rate. |
As of August 31, 2013, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.
| 54 | See accompanying notes to the financial statements. |
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 55 |
GMO U.S. Treasury Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 56 | See accompanying notes to the financial statements. |
GMO World Opportunity Overlay Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 57 |
GMO World Opportunity Overlay Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 58 | See accompanying notes to the financial statements. |
GMO World Opportunity Overlay Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 59 |
GMO World Opportunity Overlay Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 60 | See accompanying notes to the financial statements. |
GMO World Opportunity Overlay Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 61 |
GMO World Opportunity Overlay Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 62 | See accompanying notes to the financial statements. |
GMO World Opportunity Overlay Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
A summary of outstanding financial instruments at August 31, 2013 is as follows:
Reverse Repurchase Agreements
| Face Value |
Description |
Market Value |
||||||||
| GBP | 27,629,902 | Barclays Bank, 0.52%, dated 08/31/13, to be repurchased on demand at face value plus accrued interest with a stated maturity date of 09/23/13. | $ | (42,823,040 | ) | |||||
|
|
|
|||||||||
| $ | (42,823,040 | ) | ||||||||
|
|
|
|||||||||
| Average balance outstanding | $ | (44,592,831 | ) | |||||||
| Average interest rate | 0.51 | % | ||||||||
| Maximum balance outstanding | $ | (47,276,342 | ) | |||||||
Average balance outstanding was calculated based on daily face value balances outstanding during the period that the Fund has entered into reverse repurchase agreements.
Written Options
Options on Interest Rate Swaps
| Principal Amount |
Expiration |
Description |
Premiums | Market Value |
||||||||||||||||
| Call | AUD | 20,000,000 | 9/25/2013 | Interest Rate Swaption, Strike 4.54, Upon potential exercise of the option, the Fund will enter into a swap with a notional amount of 20,000,000 AUD in which it will pay a rate of 4.54% and will receive 6 month AUD BBSW maturing on 09/26/23. (OTC) (CP - MSCI) | $ | 374,387 | $ | (289,872 | ) | |||||||||||
| Put | AUD | 20,000,000 | 9/25/2013 | Interest Rate Swaption, Strike 4.54, Upon potential exercise of the option, the Fund will enter into a swap with a notional amount of 20,000,000 AUD in which it will pay 6 month AUD BBSW and will receive a rate of 4.54%, maturing on 09/26/23. (OTC) (CP - MSCI) | 374,387 | (101,875 | ) | |||||||||||||
| Call | AUD | 40,000,000 | 10/2/2013 | Interest Rate Swaption, Strike 4.40, Upon potential exercise of the option, the Fund will enter into a swap with a notional amount of 40,000,000 AUD in which it will pay a rate of 4.40% and will receive 6 month AUD BBSW maturing on 10/03/23. (OTC) (CP - BCLY) | 627,141 | (375,067 | ) | |||||||||||||
| Put | AUD | 40,000,000 | 10/2/2013 | Interest Rate Swaption, Strike 4.40, Upon potential exercise of the option, the Fund will enter into a swap with a notional amount of 40,000,000 AUD in which it will pay 6 month AUD BBSW and will receive a rate of 4.40%, maturing on 10/03/23. (OTC) (CP - BCLY) | 627,141 | (424,269 | ) | |||||||||||||
| Call | AUD | 40,000,000 | 10/23/2013 | Interest Rate Swaption, Strike 4.28, Upon potential exercise of the option, the Fund will enter into a swap with a notional amount of 40,000,000 AUD in which it will pay a rate of 4.28% and will receive 6 month AUD BBSW maturing on 10/24/23. (OTC) (CP - BCLY) | 631,856 | (295,532 | ) | |||||||||||||
| Put | AUD | 40,000,000 | 10/23/2013 | Interest Rate Swaption, Strike 4.28, Upon potential exercise of the option, the Fund will enter into a swap with a notional amount of 40,000,000 AUD in which it will pay 6 month AUD BBSW and will receive a rate of 4.28%, maturing on 10/24/23. (OTC) (CP - BCLY) | 631,856 | (759,498 | ) | |||||||||||||
| Call | JPY | 2,000,000,000 | 9/2/2013 | Interest Rate Swaption, Strike 1.81, Upon potential exercise of the option, the Fund will enter into a swap with a notional amount of 2,000,000,000 JPY in which it will pay a rate of 1.81% and will receive 6 month JPY LIBOR maturing on 09/04/33. (OTC) (CP - CITI) | 336,794 | (429,231 | ) | |||||||||||||
| Put | JPY | 2,000,000,000 | 9/2/2013 | Interest Rate Swaption, Strike 1.81, Upon potential exercise of the option, the Fund will enter into a swap with a notional amount of 2,000,000,000 JPY in which it will pay 6 month JPY LIBOR and will receive a rate of 1.81%, maturing on 09/04/33. (OTC) (CP - CITI) | 336,794 | (896 | ) | |||||||||||||
| See accompanying notes to the financial statements. | 63 |
GMO World Opportunity Overlay Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
Options on Interest Rate Swaps (continued)
| Principal |
Expiration Date |
Description |
Premiums | Market Value |
||||||||||||
| Call |
USD | 400,000,000 | 10/28/2013 | Interest Rate Swaption, Strike 2.80, Upon potential exercise of the option, the Fund will enter into a swap with a notional amount of 400,000,000 USD in which it will pay a rate of 2.80% and will receive 3 month USD LIBOR maturing on 10/30/23. (OTC) (CP - CITI) | $ | 2,560,000 | $ | — | ||||||||
|
|
|
|
|
|||||||||||||
| Total Options on Interest Rate Swaps | $ | 6,500,356 | $ | (2,676,240 | ) | |||||||||||
|
|
|
|
|
|||||||||||||
Swap Contracts
Interest Rate Swaps
| Notional Amount |
Expiration Date |
Counterparty |
Receive |
Fixed Rate |
Variable Rate |
Net Unrealized Appreciation/ (Depreciation) |
||||||||||||
| 355,000,000 | AUD | 12/18/2015 | BCLY (f) | Receive | 2.80% | 3 Month AUD BBSW | $ | (591,211 | ) | |||||||||
| 489,000,000 | CAD | 12/18/2015 | CSI (f) | Receive | 1.50% | 3 Month CAD BA | (1,391,316 | ) | ||||||||||
| 576,000,000 | CHF | 12/18/2015 | CSI (f) | (Pay) | 0.25% | 6 Month CHF LIBOR | 124,038 | |||||||||||
| 13,000,000 | EUR | 12/18/2015 | CSI (f) | (Pay) | 0.75% | 6 Month EURIBOR | (4,805 | ) | ||||||||||
| 323,000,000 | GBP | 12/18/2015 | BCLY (f) | (Pay) | 0.75% | 6 Month GBP LIBOR | 2,053,861 | |||||||||||
| 1,300,000,000 | JPY | 12/18/2015 | BCLY (f) | (Pay) | 0.30% | 6 Month JPY LIBOR | (5,832 | ) | ||||||||||
| 4,736,000,000 | SEK | 12/18/2015 | BCLY (f) | Receive | 1.50% | 3 Month SEK STIBOR | (4,674,782 | ) | ||||||||||
| 351,000,000 | USD | 12/18/2015 | CSI (f) | (Pay) | 0.75% | 3 Month USD LIBOR | (229,013 | ) | ||||||||||
| 105,000,000 | USD | 8/15/2022 | JPM | Receive | 0.00% | 3 Month USD LIBOR | (23,651,793 | ) | ||||||||||
| 40,000,000 | AUD | 7/17/2023 | MSCI | Receive | 3.93% | 6 Month AUD BBSW | (1,326,158 | ) | ||||||||||
| 10,000,000 | AUD | 7/22/2023 | MSCI | Receive | 3.92% | 6 Month AUD BBSW | (338,874 | ) | ||||||||||
| 84,000,000 | AUD | 12/18/2023 | BCLY (f) | (Pay) | 4.00% | 6 Month AUD BBSW | 3,009,952 | |||||||||||
| 107,000,000 | CAD | 12/18/2023 | CSI (f) | (Pay) | 2.75% | 3 Month CAD BA | 3,701,707 | |||||||||||
| 121,000,000 | CHF | 12/18/2023 | CSI (f) | Receive | 1.25% | 6 Month CHF LIBOR | (5,117,825 | ) | ||||||||||
| 3,000,000 | EUR | 12/18/2023 | CSI (f) | Receive | 2.00% | 6 Month EURIBOR | (96,263 | ) | ||||||||||
| 70,000,000 | GBP | 12/18/2023 | BCLY (f) | Receive | 2.25% | 6 Month GBP LIBOR | (5,509,391 | ) | ||||||||||
| 400,000,000 | JPY | 12/18/2023 | BCLY (f) | Receive | 1.10% | 6 Month JPY LIBOR | 54,191 | |||||||||||
| 1,045,000,000 | SEK | 12/18/2023 | BCLY (f) | (Pay) | 2.50% | 3 Month SEK STIBOR | 6,284,373 | |||||||||||
| 76,000,000 | USD | 12/18/2023 | CSI (f) | Receive | 2.50% | 3 Month USD LIBOR | (3,896,557 | ) | ||||||||||
| 4,000,000,000 | JPY | 7/19/2033 | BCLY (f) | Receive | 1.70% | 6 Month JPY LIBOR | 132,409 | |||||||||||
| 4,000,000,000 | JPY | 8/21/2033 | MSCI | (Pay) | 1.78% | 6 Month JPY LIBOR | (677,248 | ) | ||||||||||
| 25,000,000 | GBP | 12/7/2046 | ML | (Pay) | 4.36% | 6 Month GBP LIBOR | (8,317,872 | ) | ||||||||||
|
|
|
|||||||||||||||||
| $ | (40,468,409 | ) | ||||||||||||||||
|
|
|
|||||||||||||||||
| Premiums to (Pay) Receive | $ | 6,894,632 | ||||||||||||||||
|
|
|
|||||||||||||||||
| # | Receive - Fund receives fixed rate and pays variable rate. |
| (Pay) - Fund pays fixed rate and receives variable rate. |
As of August 31, 2013, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.
| 64 | See accompanying notes to the financial statements. |
GMO World Opportunity Overlay Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 65 |
GMO Trust Funds
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
| 66 | See accompanying notes to the financial statements. |
Statements of Assets and Liabilities — August 31, 2013 (Unaudited)
| Asset Allocation Bond Fund |
Core Plus Bond Fund |
Currency Hedged International Bond Fund |
Debt Opportunities Fund |
Domestic Bond Fund |
||||||||||||||||
| Assets: |
|
|||||||||||||||||||
| Investments in unaffiliated issuers, at value (Note 2)(a) |
$ | 2,182,415,171 | $ | 128,533,546 | $ | 32,585,441 | $ | 1,019,399,504 | $ | 25,716,519 | ||||||||||
| Investments in affiliated issuers, at value (Notes 2 and 10)(b) |
70,907,506 | 106,366,031 | 35,430,299 | 39,020,848 | 159,077,499 | |||||||||||||||
| Receivable for investments sold |
74,000,000 | — | — | — | 200,000 | |||||||||||||||
| Receivable for Fund shares sold |
— | — | — | 1,195,200 | — | |||||||||||||||
| Dividends and interest receivable |
3,033,130 | 496,434 | 305,641 | 1,503,999 | 120,453 | |||||||||||||||
| Unrealized appreciation on open forward currency contracts (Note 4) |
— | 526,567 | 179,501 | — | — | |||||||||||||||
| Receivable for variation margin on open cleared swap contracts (Note 4) |
— | 28,332 | 9,832 | — | — | |||||||||||||||
| Receivable for variation margin on open futures contracts (Note 4) |
— | — | 1,459 | — | — | |||||||||||||||
| Due from broker (Note 2) |
— | 538,092 | 191,986 | — | — | |||||||||||||||
| Receivable for expenses reimbursed and/or waived by Manager (Note 5) |
8,928 | 25,850 | 14,449 | 19,406 | 17,144 | |||||||||||||||
| Miscellaneous receivable |
— | — | — | 4,800 | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total assets |
2,330,364,735 | 236,514,852 | 68,718,608 | 1,061,143,757 | 185,131,615 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Liabilities: |
||||||||||||||||||||
| Payable for investments purchased |
75,059,800 | 1,208 | 488 | 2,520 | — | |||||||||||||||
| Payable for Fund shares repurchased |
— | — | — | — | 206,582 | |||||||||||||||
| Payable to affiliate for (Note 5): |
||||||||||||||||||||
| Management fee |
480,698 | 49,696 | 14,517 | 221,122 | 15,688 | |||||||||||||||
| Shareholder service fee |
120,663 | 21,874 | 8,711 | 48,647 | 11,734 | |||||||||||||||
| Unrealized depreciation on open forward currency contracts (Note 4) |
— | 819,791 | 261,816 | — | — | |||||||||||||||
| Due to broker (Note 2) |
130,235 | — | 162 | — | — | |||||||||||||||
| Payable for variaton margin on open futures contracts (Note 4) |
— | 52,304 | — | — | — | |||||||||||||||
| Payable for open OTC swap contracts (Note 4) |
— | 2,215,405 | 209,253 | — | — | |||||||||||||||
| Written options outstanding, at value (Note 4)(c) |
— | 661,128 | 218,987 | — | — | |||||||||||||||
| Payable to agents unaffiliated with the Manager |
31 | 31 | 5 | 93 | 31 | |||||||||||||||
| Payable to Trustees and related expenses |
564 | 387 | 51 | 644 | 340 | |||||||||||||||
| Accrued expenses |
62,225 | 110,534 | 78,822 | 96,708 | 60,818 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total liabilities |
75,854,216 | 3,932,358 | 792,812 | 369,734 | 295,193 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net assets |
$ | 2,254,510,519 | $ | 232,582,494 | $ | 67,925,796 | $ | 1,060,774,023 | $ | 184,836,422 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| (a) Cost of investments – unaffiliated issuers: |
$ | 2,236,297,312 | $ | 130,857,202 | $ | 31,051,532 | $ | 999,536,830 | $ | 25,928,682 | ||||||||||
| (b) Cost of investments – affiliated issuers: |
$ | 70,926,269 | $ | 99,209,910 | $ | 32,518,115 | $ | 39,030,846 | $ | 141,915,737 | ||||||||||
| (c) Premiums on written options: |
$ | — | $ | 513,543 | $ | 166,406 | $ | — | $ | — | ||||||||||
| See accompanying notes to the financial statements. | 67 |
GMO Trust Funds
Statements of Assets and Liabilities — August 31, 2013 (Unaudited) — (Continued)
| Asset Allocation Bond Fund |
Core Plus Bond Fund |
Currency Hedged International Bond Fund |
Debt Opportunities Fund |
Domestic Bond Fund |
||||||||||||||||
| Net assets consist of: |
||||||||||||||||||||
| Paid-in capital |
$ | 2,308,989,870 | $ | 421,257,079 | $ | 80,781,197 | $ | 1,017,133,153 | $ | 189,068,068 | ||||||||||
| Accumulated undistributed net investment income |
6,241,193 | 1,330,285 | 180,721 | 15,852,466 | 17,521 | |||||||||||||||
| Accumulated net realized gain (loss) |
(6,819,640 | ) | (192,432,923 | ) | (16,643,379 | ) | 7,935,728 | (21,198,766 | ) | |||||||||||
| Net unrealized appreciation (depreciation) |
(53,900,904 | ) | 2,428,053 | 3,607,257 | 19,852,676 | 16,949,599 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| $ | 2,254,510,519 | $ | 232,582,494 | $ | 67,925,796 | $ | 1,060,774,023 | $ | 184,836,422 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net assets attributable to: |
||||||||||||||||||||
| Class III shares |
$ | 185,048,166 | $ | 46,390,861 | $ | 67,925,796 | $ | — | $ | 38,370,209 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class IV shares |
$ | — | $ | 186,191,633 | $ | — | $ | — | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class VI shares |
$ | 2,069,462,353 | $ | — | $ | — | $ | 1,060,774,023 | $ | 146,466,213 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Shares outstanding: |
||||||||||||||||||||
| Class III |
7,684,984 | 6,508,480 | 8,019,209 | — | 2,642,014 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class IV |
— | 26,059,321 | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class VI |
85,797,199 | — | — | 38,978,674 | 10,016,871 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value per share: |
||||||||||||||||||||
| Class III |
$ | 24.08 | $ | 7.13 | $ | 8.47 | $ | — | $ | 14.52 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class IV |
$ | — | $ | 7.14 | $ | — | $ | — | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class VI |
$ | 24.12 | $ | — | $ | — | $ | 27.21 | $ | 14.62 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| 68 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Assets and Liabilities — August 31, 2013 (Unaudited) — (Continued)
| Emerging Country Debt Fund |
Global Bond Fund |
International Bond Fund |
Short- Duration Collateral Fund |
|||||||||||||
| Assets: |
|
|||||||||||||||
| Investments in unaffiliated issuers, at value (Note 2)(a) |
$ | 2,571,105,055 | $ | 52,966,069 | $ | 27,289,495 | $ | 660,528,732 | ||||||||
| Investments in affiliated issuers, at value (Notes 2 and 10)(b) |
126,834,848 | 76,342,580 | 29,843,741 | — | ||||||||||||
| Receivable for Fund shares sold |
1,395,451 | — | — | — | ||||||||||||
| Dividends and interest receivable |
37,770,043 | 324,347 | 208,517 | 296,095 | ||||||||||||
| Unrealized appreciation on open forward currency contracts (Note 4) |
783,386 | 801,671 | 373,300 | — | ||||||||||||
| Receivable for variation margin on open cleared swap contracts (Note 4) |
— | 18,347 | 6,771 | — | ||||||||||||
| Due from broker (Note 2) |
157 | 396,531 | 147,649 | — | ||||||||||||
| Receivable for open swap contracts (Note 4) |
114,668,954 | — | — | — | ||||||||||||
| Receivable for expenses reimbursed and/or waived by Manager (Note 5) |
— | 12,667 | 15,018 | 16,834 | ||||||||||||
| Receivable for options (Note 4) |
168,045 | — | — | — | ||||||||||||
| Miscellaneous receivable |
4,549 | — | — | — | ||||||||||||
| Other expense reimbursement from Manager (Note 2) |
— | — | 830,768 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
2,852,730,488 | 130,862,212 | 58,715,259 | 660,841,661 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities: |
||||||||||||||||
| Payable for investments purchased |
4,671,316 | 1,019 | 63 | — | ||||||||||||
| Payable for Fund shares repurchased |
490,183 | — | — | — | ||||||||||||
| Payable to affiliate for (Note 5): |
||||||||||||||||
| Management fee |
766,868 | 21,897 | 12,201 | — | ||||||||||||
| Shareholder service fee |
238,670 | 17,287 | 7,321 | — | ||||||||||||
| Payable for variation margin on open futures contracts (Note 4) |
— | 4,236 | 1,738 | — | ||||||||||||
| Due to broker (Note 2) |
— | 503 | 388 | — | ||||||||||||
| Unrealized depreciation on open forward currency contracts (Note 4) |
1,665,723 | 528,073 | 261,153 | — | ||||||||||||
| Payable for open OTC swap contracts (Note 4) |
135,227,259 | 396,200 | 387,410 | — | ||||||||||||
| Payable for options (Note 4)(c) |
3,022,857 | 442,141 | 218,987 | — | ||||||||||||
| Payable to agents unaffiliated with the Manager |
310 | 31 | 5 | 93 | ||||||||||||
| Payable to Trustees and related expenses |
2,538 | 202 | 69 | 1,220 | ||||||||||||
| Accrued expenses |
677,627 | 95,520 | 914,471 | 100,724 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total liabilities |
146,763,351 | 1,507,109 | 1,803,806 | 102,037 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net assets |
$ | 2,705,967,137 | $ | 129,355,103 | $ | 56,911,453 | $ | 660,739,624 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (a) Cost of investments – unaffiliated issuers: |
$ | 2,675,491,362 | $ | 52,925,084 | $ | 28,455,489 | $ | 915,765,111 | ||||||||
| (b) Cost of investments – affiliated issuers: |
$ | 121,764,277 | $ | 76,596,359 | $ | 24,563,982 | $ | — | ||||||||
| (c) Premiums on written options: |
$ | 812,194 | $ | 347,137 | $ | 166,406 | $ | — | ||||||||
| See accompanying notes to the financial statements. | 69 |
GMO Trust Funds
Statements of Assets and Liabilities — August 31, 2013 (Unaudited) — (Continued)
| Emerging Country Debt Fund |
Global Bond Fund |
International Bond Fund |
Short- Duration Collateral Fund |
|||||||||||||
| Net assets consist of: |
||||||||||||||||
| Paid-in capital |
$ | 2,843,856,069 | $ | 161,425,535 | $ | 94,310,497 | $ | 1,005,487,438 | ||||||||
| Accumulated undistributed net investment income |
47,276,943 | 1,429,886 | — | — | ||||||||||||
| Distributions in excess of net investment income |
— | — | (259,286 | ) | (1,654,566 | ) | ||||||||||
| Accumulated net realized gain (loss) |
(91,073,603 | ) | (32,716,573 | ) | (40,630,260 | ) | (87,856,869 | ) | ||||||||
| Net unrealized appreciation (depreciation) |
(94,092,272 | ) | (783,745 | ) | 3,490,502 | (255,236,379 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 2,705,967,137 | $ | 129,355,103 | $ | 56,911,453 | $ | 660,739,624 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net assets attributable to: |
||||||||||||||||
| Core Class shares |
$ | — | $ | — | $ | — | $ | 660,739,624 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class III shares |
$ | 461,041,394 | $ | 129,355,103 | $ | 56,911,453 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV shares |
$ | 2,244,925,743 | $ | — | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Shares outstanding: |
||||||||||||||||
| Core Class |
— | — | — | 199,472,400 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class III |
48,086,503 | 15,867,777 | 8,384,510 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV |
234,411,465 | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net asset value per share: |
||||||||||||||||
| Core Class |
$ | — | $ | — | $ | — | $ | 3.31 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class III |
$ | 9.59 | $ | 8.15 | $ | 6.79 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV |
$ | 9.58 | $ | — | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 70 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Assets and Liabilities — August 31, 2013 (Unaudited) — (Continued)
| Short- Duration Collateral Share Fund |
Strategic Fixed Income Fund |
U.S. Treasury Fund |
World Opportunity Overlay Fund |
|||||||||||||
| Assets: |
|
|||||||||||||||
| Investments in unaffiliated issuers, at value (Note 2)(a) |
$ | 5,784 | $ | 473,452,907 | $ | 2,745,742,391 | $ | 619,498,087 | ||||||||
| Investments in affiliated issuers, at value (Notes 2 and 10)(b) |
39,024,971 | 826,705,080 | — | — | ||||||||||||
| Receivable for investments sold |
— | 9,000,000 | 83,198,974 | — | ||||||||||||
| Dividends and interest receivable |
— | 2,627,000 | 113,398 | 1,918,786 | ||||||||||||
| Unrealized appreciation on open forward currency contracts (Note 4) |
— | 3,772,315 | — | — | ||||||||||||
| Receivable for variation margin on open cleared swap contracts |
— | 172,518 | — | 221,574 | ||||||||||||
| Due from broker (Note 2) |
— | 3,599,011 | — | 7,372,049 | ||||||||||||
| Receivable for open OTC swap contracts (Note 4) |
— | 6,472,792 | — | — | ||||||||||||
| Interest receivable for open OTC swap contracts |
— | 666,534 | — | — | ||||||||||||
| Receivable for expenses reimbursed and/or waived by Manager (Note 5) |
2,542 | 55,432 | 224,120 | 22,723 | ||||||||||||
| Miscellaneous receivable |
— | 19,783 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
39,033,297 | 1,326,543,372 | 2,829,278,883 | 629,033,219 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities: |
||||||||||||||||
| Payable for Fund shares repurchased |
— | 9,891,599 | 83,200,000 | — | ||||||||||||
| Payable to affiliate for (Note 5): |
||||||||||||||||
| Management fee |
1,652 | 282,076 | 183,201 | — | ||||||||||||
| Shareholder service fee |
4,959 | 71,409 | — | — | ||||||||||||
| Dividend payable |
— | — | 41,622 | — | ||||||||||||
| Unrealized depreciation on open forward currency contracts (Note 4) |
— | 5,253,539 | — | — | ||||||||||||
| Interest payable for open OTC swap contracts |
— | — | — | 285,899 | ||||||||||||
| Payable for variation margin on open futures contracts (Note 4) |
— | 139,069 | — | — | ||||||||||||
| Payable for open OTC swap contracts (Note 4) |
— | 1,549,093 | — | 34,311,945 | ||||||||||||
| Payable for reverse repurchase agreements (Note 2) |
— | — | — | 42,823,040 | ||||||||||||
| Written options outstanding, at value (Note 4)(c) |
— | 4,990,103 | — | 2,676,240 | ||||||||||||
| Payable to agents unaffiliated with the Manager |
5 | 217 | 374 | 93 | ||||||||||||
| Payable to Trustees and related expenses |
594 | 2,021 | 3,221 | 703 | ||||||||||||
| Accrued expenses |
31,309 | 141,006 | 152,215 | 132,969 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total liabilities |
38,519 | 22,320,132 | 83,580,633 | 80,230,889 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net assets |
$ | 38,994,778 | $ | 1,304,223,240 | $ | 2,745,698,250 | $ | 548,802,330 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (a) Cost of investments – unaffiliated issuers: |
$ | 5,784 | $ | 469,553,525 | $ | 2,745,496,280 | $ | 678,247,196 | ||||||||
| (b) Cost of investments – affiliated issuers: |
$ | 30,838,309 | $ | 793,985,514 | $ | — | $ | — | ||||||||
| (c) Premiums on written options: |
$ | — | $ | 3,862,600 | $ | — | $ | 6,500,356 | ||||||||
| See accompanying notes to the financial statements. | 71 |
GMO Trust Funds
Statements of Assets and Liabilities — August 31, 2013 (Unaudited) — (Continued)
| Short- Duration Collateral Share Fund |
Strategic Fixed Income Fund |
U.S. Treasury Fund |
World Opportunity Overlay Fund |
|||||||||||||||
| Net assets consist of: |
||||||||||||||||||
| Paid-in capital |
$ | 35,664,666 | $ | 1,572,456,507 | $ | 2,745,118,239 | ||||||||||||
| Accumulated undistributed net investment income |
87,906 | 2,485,224 | — | |||||||||||||||
| Accumulated net realized gain (loss) |
(4,944,456 | ) | (304,190,008 | ) | 333,900 | |||||||||||||
| Net unrealized appreciation (depreciation) |
8,186,662 | 33,471,517 | 246,111 | |||||||||||||||
|
|
|
|
|
|
|
|||||||||||||
| $ | 38,994,778 | $ | 1,304,223,240 | $ | 2,745,698,250 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||||
| Net assets attributable to: |
||||||||||||||||||
| Core Class shares |
$ | — | $ | — | $ | 2,745,698,250 | $ | 548,802,330 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Class III shares |
$ | 38,994,778 | $ | 117,484,469 | $ | — | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Class VI shares |
$ | — | $ | 1,186,738,771 | $ | — | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Shares outstanding: |
||||||||||||||||||
| Core Class |
— | — | 109,806,250 | 20,952,719 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Class III |
1,770,743 | 7,341,894 | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Class VI |
— | 74,131,449 | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value per share: |
||||||||||||||||||
| Core Class |
$ | — | $ | — | $ | 25.00 | $ | 26.19 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Class III |
$ | 22.02 | $ | 16.00 | $ | — | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Class VI |
$ | — | $ | 16.01 | $ | — | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| 72 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Operations — Six Months Ended August 31, 2013 (Unaudited)
| Asset Allocation Bond Fund |
Core Plus Bond Fund |
Currency Hedged International Bond Fund |
Debt Opportunities Fund |
Domestic Bond Fund |
||||||||||||||||
| Investment Income: |
|
|||||||||||||||||||
| Interest |
$ | 7,442,416 | $ | 1,432,454 | $ | 528,359 | $ | 18,288,740 | $ | 143,086 | ||||||||||
| Dividends from affiliated issuers (Note 10) |
20,784 | 251,582 | 82,838 | 11,508 | 727,665 | |||||||||||||||
| Dividends from unaffiliated issuers |
— | 2 | 3 | 45 | 9 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total investment income |
7,463,200 | 1,684,038 | 611,200 | 18,300,293 | 870,760 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Expenses: |
|
|||||||||||||||||||
| Management fee (Note 5) |
943,034 | 304,186 | 88,363 | 1,163,646 | 100,813 | |||||||||||||||
| Shareholder service fee – Class III (Note 5) |
93,231 | 37,071 | 53,018 | — | 31,658 | |||||||||||||||
| Shareholder service fee – Class IV (Note 5) |
— | 96,960 | — | — | — | |||||||||||||||
| Shareholder service fee – Class VI (Note 5) |
173,283 | — | — | 256,002 | 43,840 | |||||||||||||||
| Interest expense (Note 2) |
— | 812 | 259 | — | — | |||||||||||||||
| Audit and tax fees |
30,360 | 50,232 | 40,020 | 50,048 | 27,600 | |||||||||||||||
| Custodian, fund accounting agent and transfer agent fees |
18,492 | 67,528 | 33,856 | 46,184 | 20,240 | |||||||||||||||
| Legal fees |
1,012 | 7,912 | 6,164 | 9,576 | 6,900 | |||||||||||||||
| Registration fees |
1,932 | 3,680 | 1,380 | 368 | 4,324 | |||||||||||||||
| Trustees fees and related expenses (Note 5) |
828 | 1,104 | 316 | 4,442 | 1,012 | |||||||||||||||
| Miscellaneous |
3,772 | 4,404 | 3,249 | 4,232 | 3,864 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total expenses |
1,265,944 | 573,889 | 226,625 | 1,534,498 | 240,251 | |||||||||||||||
| Fees and expenses reimbursed by Manager (Note 5) |
(55,384 | ) | (127,236 | ) | (78,752 | ) | (108,928 | ) | (107,447 | ) | ||||||||||
| Expense reductions (Note 2) |
— | — | — | (9 | ) | — | ||||||||||||||
| Indirectly incurred fees waived or borne by Manager (Note 5) |
— | (21,618 | ) | (6,414 | ) | — | — | |||||||||||||
| Shareholder service fee waived (Note 5) |
— | (5,208 | ) | (1,545 | ) | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net expenses |
1,210,560 | 419,827 | 139,914 | 1,425,561 | 132,804 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net investment income (loss) |
6,252,640 | 1,264,211 | 471,286 | 16,874,732 | 737,956 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Realized and unrealized gain (loss): |
|
|||||||||||||||||||
| Net realized gain (loss) on: |
||||||||||||||||||||
| Investments in unaffiliated issuers |
(183,145 | ) | 295,390 | 1,832 | 8,064,607 | (72,843 | ) | |||||||||||||
| Investments in affiliated issuers |
— | 4,131,279 | 242,066 | — | 65,395 | |||||||||||||||
| Realized gain distributions from affiliated issuers (Note 10) |
8,701 | 1,944 | 732 | 2 | 10 | |||||||||||||||
| Futures contracts |
17,771 | (742,566 | ) | (161,830 | ) | — | — | |||||||||||||
| Swap contracts |
— | (713,168 | ) | (249,834 | ) | — | (17,732 | ) | ||||||||||||
| Written options |
64,320 | — | — | — | — | |||||||||||||||
| Foreign currency, forward contracts and foreign currency related transactions |
— | (3,539,128 | ) | (785,450 | ) | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net realized gain (loss) |
(92,353 | ) | (566,249 | ) | (952,484 | ) | 8,064,609 | (25,170 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Change in net unrealized appreciation (depreciation) on: |
||||||||||||||||||||
| Investments in unaffiliated issuers |
(54,078,842 | ) | (5,483,674 | ) | (289,175 | ) | (14,516,224 | ) | (131,153 | ) | ||||||||||
| Investments in affiliated issuers |
(18,763 | ) | 1,143,510 | 410,731 | (5,999 | ) | 5,678,336 | |||||||||||||
| Futures contracts |
— | (202,707 | ) | (307,986 | ) | — | — | |||||||||||||
| Swap contracts |
— | (1,307,682 | ) | (243,807 | ) | — | 17,101 | |||||||||||||
| Written options |
— | (147,585 | ) | (52,581 | ) | — | — | |||||||||||||
| Foreign currency, forward contracts and foreign currency related transactions |
— | (115,745 | ) | (380,807 | ) | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net unrealized gain (loss) |
(54,097,605 | ) | (6,113,883 | ) | (863,625 | ) | (14,522,223 | ) | 5,564,284 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net realized and unrealized gain (loss) |
(54,189,958 | ) | (6,680,132 | ) | (1,816,109 | ) | (6,457,614 | ) | 5,539,114 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net increase (decrease) in net assets resulting from operations |
$ | (47,937,318 | ) | $ | (5,415,921 | ) | $ | (1,344,823 | ) | $ | 10,417,118 | $ | 6,277,070 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| See accompanying notes to the financial statements. | 73 |
GMO Trust Funds
Statements of Operations — Six Months Ended August 31, 2013 (Unaudited) — (Continued)
| Emerging Country Debt Fund |
Global Bond Fund |
International Bond Fund |
Short- Duration Collateral Fund |
|||||||||||||
| Investment Income: |
|
|||||||||||||||
| Interest |
$ | 78,624,194 | $ | 700,869 | $ | 299,043 | $ | 2,552,313 | ||||||||
| Dividends from affiliated issuers (Note 10) |
67,707 | 234,358 | 103,637 | — | ||||||||||||
| Dividends from unaffiliated issuers |
379,584 | 4 | 2 | 608 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total investment income |
79,071,485 | 935,231 | 402,682 | 2,552,921 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Expenses: |
|
|||||||||||||||
| Management fee (Note 5) |
4,256,818 | 150,359 | 86,010 | — | ||||||||||||
| Shareholder service fee – Class III (Note 5) |
345,609 | 118,705 | 51,606 | — | ||||||||||||
| Shareholder service fee – Class IV (Note 5) |
985,828 | — | — | — | ||||||||||||
| Interest expense (Note 2) |
2,975 | 539 | 250 | — | ||||||||||||
| Audit and tax fees |
75,900 | 44,712 | 44,620 | 48,208 | ||||||||||||
| Custodian, fund accounting agent and transfer agent fees |
659,180 | 53,084 | 33,948 | 46,092 | ||||||||||||
| Legal fees |
27,600 | 7,268 | 6,164 | 11,868 | ||||||||||||
| Registration fees |
16,082 | 1,196 | 1,750 | 552 | ||||||||||||
| Trustees fees and related expenses (Note 5) |
23,404 | 828 | 332 | 3,864 | ||||||||||||
| Miscellaneous |
10,672 | 3,828 | 3,266 | 5,060 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total expenses |
6,404,068 | 380,519 | 227,946 | 115,644 | ||||||||||||
| Fees and expenses reimbursed by Manager (Note 5) |
— | (56,294 | ) | (83,814 | ) | (105,432 | ) | |||||||||
| Expense reductions (Note 2) |
(130 | ) | (19 | ) | — | (74 | ) | |||||||||
| Indirectly incurred fees waived or borne by Manager (Note 5) |
— | (15,893 | ) | (6,084 | ) | — | ||||||||||
| Shareholder service fee waived (Note 5) |
— | (3,831 | ) | (1,466 | ) | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net expenses |
6,403,938 | 304,482 | 136,582 | 10,138 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net investment income (loss) |
72,667,547 | 630,749 | 266,100 | 2,542,783 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Realized and unrealized gain (loss): |
|
|||||||||||||||
| Net realized gain (loss) on: |
||||||||||||||||
| Investments in unaffiliated issuers |
(4,183,589 | ) | 61,531 | 18,952 | 2,044 | |||||||||||
| Investments in affiliated issuers |
941,618 | 3,177,495 | 2,162,607 | — | ||||||||||||
| Realized gain distributions from affiliated issuers (Note 10) |
— | 2,785 | 907 | — | ||||||||||||
| Futures contracts |
— | (1,095,378 | ) | (283,728 | ) | — | ||||||||||
| Swap contracts |
(2,550,349 | ) | (459,134 | ) | (167,922 | ) | — | |||||||||
| Foreign currency, forward contracts and foreign currency related transactions |
7,919,994 | (4,345,555 | ) | (2,543,824 | ) | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized gain (loss) |
2,127,674 | (2,658,256 | ) | (813,008 | ) | 2,044 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Change in net unrealized appreciation (depreciation) on: |
||||||||||||||||
| Investments in unaffiliated issuers |
(223,702,372 | ) | (1,815,753 | ) | (643,695 | ) | 25,419,543 | |||||||||
| Investments in affiliated issuers |
1,237,033 | (37,212 | ) | 54,479 | — | |||||||||||
| Futures contracts |
— | (215,920 | ) | (310,761 | ) | — | ||||||||||
| Swap contracts |
(3,257,788 | ) | (465,912 | ) | (24,507 | ) | — | |||||||||
| Written options |
(1,667,534 | ) | (95,004 | ) | (52,581 | ) | — | |||||||||
| Foreign currency, forward contracts and foreign currency related transactions |
(7,227,301 | ) | 1,313,259 | 990,827 | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net unrealized gain (loss) |
(234,617,962 | ) | (1,316,542 | ) | 13,762 | 25,419,543 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized and unrealized gain (loss) |
(232,490,288 | ) | (3,974,798 | ) | (799,246 | ) | 25,421,587 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
$ | (159,822,741 | ) | $ | (3,344,049 | ) | $ | (533,146 | ) | $ | 27,964,370 | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| 74 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Operations — Six Months Ended August 31, 2013 (Unaudited) — (Continued)
| Short- Duration Collateral Share Fund |
Strategic Fixed Income Fund |
U.S. Treasury Fund |
World Opportunity Overlay Fund |
|||||||||||||
| Investment Income: |
|
|||||||||||||||
| Interest |
$ | — | $ | 1,261,015 | $ | 1,287,987 | $ | 4,889,115 | ||||||||
| Dividends from affiliated issuers (Note 10) |
165,008 | 2,680,552 | — | — | ||||||||||||
| Dividends from unaffiliated issuers |
— | — | 50 | 14,757 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total investment income |
165,008 | 3,941,567 | 1,288,037 | 4,903,872 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Expenses: |
|
|||||||||||||||
| Management fee (Note 5) |
9,788 | 2,153,233 | 1,198,155 | — | ||||||||||||
| Shareholder service fee – Class III (Note 5) |
29,364 | 97,647 | — | — | ||||||||||||
| Shareholder service fee – Class VI (Note 5) |
— | 437,907 | — | — | ||||||||||||
| Interest expense (Note 2) |
— | 6,364 | — | 132,415 | ||||||||||||
| Audit and tax fees |
9,844 | 32,936 | 27,960 | 67,436 | ||||||||||||
| Custodian, fund accounting agent and transfer agent fees |
2,852 | 125,212 | 164,000 | 59,800 | ||||||||||||
| Legal fees |
184 | 23,000 | 31,098 | 10,948 | ||||||||||||
| Registration fees |
— | 2,484 | 646 | — | ||||||||||||
| Trustees fees and related expenses (Note 5) |
184 | 9,200 | 16,234 | 3,465 | ||||||||||||
| Miscellaneous |
3,040 | 13,913 | 12,614 | 4,140 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total expenses |
55,256 | 2,901,896 | 1,450,707 | 278,204 | ||||||||||||
| Fees and expenses reimbursed by Manager (Note 5) |
(15,916 | ) | (186,024 | ) | (1,432,077 | ) | (137,356 | ) | ||||||||
| Expense reductions (Note 2) |
— | — | (111 | ) | (8 | ) | ||||||||||
| Indirectly incurred fees waived or borne by Manager (Note 5) |
— | (141,589 | ) | — | — | |||||||||||
| Shareholder service fee waived (Note 5) |
— | (34,123 | ) | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net expenses |
39,340 | 2,540,160 | 18,519 | 140,840 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net investment income (loss) |
125,668 | 1,401,407 | 1,269,518 | 4,763,032 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Realized and unrealized gain (loss): |
|
|||||||||||||||
| Net realized gain (loss) on: |
||||||||||||||||
| Investments in unaffiliated issuers |
— | 20,995,713 | 405,612 | 11,706,535 | ||||||||||||
| Investments in affiliated issuers |
266,758 | (10,161,390 | ) | — | — | |||||||||||
| Realized gain distributions from affiliated issuers (Note 10) |
— | 36,937 | — | — | ||||||||||||
| Futures contracts |
— | (1,052,496 | ) | — | 3,909,102 | |||||||||||
| Written options |
— | — | — | 4,124,452 | ||||||||||||
| Swap contracts |
— | (1,447,339 | ) | — | (16,090,964 | ) | ||||||||||
| Foreign currency, forward contracts and foreign currency related transactions |
— | (25,921,945 | ) | — | (5,883 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized gain (loss) |
266,758 | (17,550,520 | ) | 405,612 | 3,643,242 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Change in net unrealized appreciation (depreciation) on: |
||||||||||||||||
| Investments in unaffiliated issuers |
— | 3,316,456 | 292,272 | (20,544,014 | ) | |||||||||||
| Investments in affiliated issuers |
931,188 | 6,676,150 | — | — | ||||||||||||
| Futures contracts |
— | (250,598 | ) | — | — | |||||||||||
| Written options |
— | (1,127,503 | ) | — | 1,352,371 | |||||||||||
| Swap contracts |
— | (6,938,343 | ) | — | 23,717,209 | |||||||||||
| Foreign currency, forward contracts and foreign currency related transactions |
— | (95,288 | ) | — | 304,044 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net unrealized gain (loss) |
931,188 | 1,580,874 | 292,272 | 4,829,610 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized and unrealized gain (loss) |
1,197,946 | (15,969,646 | ) | 697,884 | 8,472,852 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
$ | 1,323,614 | $ | (14,568,239 | ) | $ | 1,967,402 | $ | 13,235,884 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| See accompanying notes to the financial statements. | 75 |
GMO Trust Funds
Statements of Changes in Net Assets
| Asset Allocation Bond Fund |
Core Plus Bond Fund |
|||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 6,252,640 | $ | (37,339 | ) | $ | 1,264,211 | $ | 2,516,882 | |||||||
| Net realized gain (loss) |
(92,353 | ) | 832,638 | (566,249 | ) | 9,402,498 | ||||||||||
| Change in net unrealized appreciation (depreciation) |
(54,097,605 | ) | (324,177 | ) | (6,113,883 | ) | 8,021,565 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
(47,937,318 | ) | 471,122 | (5,415,921 | ) | 19,940,945 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income: |
||||||||||||||||
| Class III |
— | (29,049 | ) | (754,898 | ) | (2,156,506 | ) | |||||||||
| Class IV |
— | — | (2,957,677 | ) | (8,301,987 | ) | ||||||||||
| Class VI |
— | (58,521 | ) | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net investment income |
— | (87,570 | ) | (3,712,575 | ) | (10,458,493 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized gains: |
||||||||||||||||
| Class III |
— | (778,680 | ) | — | — | |||||||||||
| Class VI |
— | (1,249,886 | ) | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net realized gains |
— | (2,028,566 | ) | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Class III |
97,090,475 | 35,008,227 | (575,883 | ) | 20,714 | |||||||||||
| Class IV |
— | — | 2,929,589 | (5,744,715 | ) | |||||||||||
| Class VI |
2,026,142,009 | (27,430,816 | ) | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase (decrease) in net assets resulting from net share transactions |
2,123,232,484 | 7,577,411 | 2,353,706 | (5,724,001 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
2,075,295,166 | 5,932,397 | (6,774,790 | ) | 3,758,451 | |||||||||||
| Net assets: | ||||||||||||||||
| Beginning of period |
179,215,353 | 173,282,956 | 239,357,284 | 235,598,833 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 2,254,510,519 | $ | 179,215,353 | $ | 232,582,494 | $ | 239,357,284 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated undistributed net investment income |
$ | 6,241,193 | $ | — | $ | 1,330,285 | $ | 3,778,649 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions in excess of net investment income |
$ | — | $ | (11,447 | ) | $ | — | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 76 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| Currency Hedged International Bond Fund |
Debt Opportunities Fund | |||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 471,286 | $ | 1,112,871 | $ | 16,874,732 | $ | 21,594,764 | ||||||||
| Net realized gain (loss) |
(952,484 | ) | 1,915,615 | 8,064,609 | 592,475 | |||||||||||
| Change in net unrealized appreciation (depreciation) |
(863,625 | ) | 3,117,052 | (14,522,223 | ) | 32,993,263 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
(1,344,823 | ) | 6,145,538 | 10,417,118 | 55,180,502 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income: |
||||||||||||||||
| Class III |
(965,361 | ) | (2,840,640 | ) | — | — | ||||||||||
| Class VI |
— | — | (2,672,678 | ) | (10,663,822 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net investment income |
(965,361 | ) | (2,840,640 | ) | (2,672,678 | ) | (10,663,822 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized gains: |
||||||||||||||||
| Class VI |
— | — | (4,539,310 | ) | (13,695,843 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net realized gains |
— | — | (4,539,310 | ) | (13,695,843 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Class III |
708,702 | (5,798,418 | ) | — | — | |||||||||||
| Class VI |
— | — | 244,586,743 | 574,938,730 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase (decrease) in net assets resulting from net share transactions |
708,702 | (5,798,418 | ) | 244,586,743 | 574,938,730 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Purchase premiums and redemption fees (Notes 2 and 9): |
||||||||||||||||
| Class VI |
— | — | 962,064 | 2,217,239 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets resulting from net share transactions, purchase premiums and redemption fees |
708,702 | (5,798,418 | ) | 245,548,807 | 577,155,969 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
(1,601,482 | ) | (2,493,520 | ) | 248,753,937 | 607,976,806 | ||||||||||
| Net assets: | ||||||||||||||||
| Beginning of period |
69,527,278 | 72,020,798 | 812,020,086 | 204,043,280 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 67,925,796 | $ | 69,527,278 | $ | 1,060,774,023 | $ | 812,020,086 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated undistributed net investment income |
$ | 180,721 | $ | 674,796 | $ | 15,852,466 | $ | 1,650,412 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| See accompanying notes to the financial statements. | 77 |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| Domestic Bond Fund | Emerging Country Debt Fund | |||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 737,956 | $ | 2,719,847 | $ | 72,667,547 | $ | 151,055,233 | ||||||||
| Net realized gain (loss) |
(25,170 | ) | (71,474 | ) | 2,127,674 | 84,370,650 | ||||||||||
| Change in net unrealized appreciation (depreciation) |
5,564,284 | 29,192,318 | (234,617,962 | ) | 54,683,491 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
6,277,070 | 31,840,691 | (159,822,741 | ) | 290,109,374 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income: |
||||||||||||||||
| Class III |
(99,053 | ) | (537,660 | ) | (5,493,085 | ) | (40,966,517 | ) | ||||||||
| Class IV |
— | — | (23,126,084 | ) | (122,413,953 | ) | ||||||||||
| Class VI |
(418,087 | ) | (2,187,385 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net investment income |
(517,140 | ) | (2,725,045 | ) | (28,619,169 | ) | (163,380,470 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Return of capital: |
||||||||||||||||
| Class III |
(8,381,610 | ) | (29,389,389 | ) | — | — | ||||||||||
| Class VI |
(31,401,864 | ) | (108,985,245 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from return of capital |
(39,783,474 | ) | (138,374,634 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Class III |
(1,045,063 | ) | — | 68,280,052 | (290,913,212 | ) | ||||||||||
| Class IV |
— | — | 487,548,175 | 697,186,159 | ||||||||||||
| Class VI |
(393,235 | ) | — | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase (decrease) in net assets resulting from net share transactions |
(1,438,298 | ) | — | 555,828,227 | 406,272,947 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Purchase premiums and redemption fees (Notes 2 and 9): |
||||||||||||||||
| Class III |
— | — | 586,446 | 1,438,628 | ||||||||||||
| Class IV |
— | — | 2,614,145 | 3,557,122 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase in net assets resulting from purchase premiums and redemption fees |
— | — | 3,200,591 | 4,995,750 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets resulting from net share transactions |
(1,438,298 | ) | — | 559,028,818 | 411,268,697 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
(35,461,842 | ) | (109,258,988 | ) | 370,586,908 | 537,997,601 | ||||||||||
| Net assets: | ||||||||||||||||
| Beginning of period |
220,298,264 | 329,557,252 | 2,335,380,229 | 1,797,382,628 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 184,836,422 | $ | 220,298,264 | $ | 2,705,967,137 | $ | 2,335,380,229 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated undistributed net investment income |
$ | 17,521 | $ | — | $ | 47,276,943 | $ | 3,228,565 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions in excess of net investment income |
$ | — | $ | (203,295 | ) | $ | — | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 78 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| Global Bond Fund | ||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||
| Increase (decrease) in net assets: |
||||||||
| Operations: |
||||||||
| Net investment income (loss) |
$ | 630,749 | $ | 2,095,180 | ||||
| Net realized gain (loss) |
(2,658,256 | ) | 1,520,809 | |||||
| Change in net unrealized appreciation (depreciation) |
(1,316,542 | ) | 3,901,945 | |||||
|
|
|
|
|
|||||
| Net increase (decrease) in net assets from operations |
(3,344,049 | ) | 7,517,934 | |||||
|
|
|
|
|
|||||
| Distributions to shareholders from: |
||||||||
| Net investment income |
||||||||
| Class III |
(399,948 | ) | (2,466,357 | ) | ||||
|
|
|
|
|
|||||
| Net share transactions (Note 9): |
||||||||
| Class III |
(32,237,971 | ) | (2,927,852 | ) | ||||
|
|
|
|
|
|||||
| Total increase (decrease) in net assets |
(35,981,968 | ) | 2,123,725 | |||||
| Net assets: | ||||||||
| Beginning of period |
165,337,071 | 163,213,346 | ||||||
|
|
|
|
|
|||||
| End of period |
$ | 129,355,103 | $ | 165,337,071 | ||||
|
|
|
|
|
|||||
| Accumulated undistributed net investment income |
$ | 1,429,886 | $ | 474,321 | ||||
|
|
|
|
|
|||||
| See accompanying notes to the financial statements. | 79 |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| International Bond Fund | Short-Duration Collateral Fund | |||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 266,100 | $ | 841,849 | $ | 2,542,783 | $ | 11,447,822 | ||||||||
| Net realized gain (loss) |
(813,008 | ) | (432,467 | ) | 2,044 | 1,452,203 | ||||||||||
| Change in net unrealized appreciation (depreciation) |
13,762 | 1,740,299 | 25,419,543 | 125,472,366 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
(533,146 | ) | 2,149,681 | 27,964,370 | 138,372,391 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income |
||||||||||||||||
| Core Class |
— | — | (3,156,872 | ) | (10,863,746 | ) | ||||||||||
| Class III |
— | (1,677,811 | ) | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net investment income |
— | (1,677,811 | ) | (3,156,872 | ) | (10,863,746 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Return of capital |
||||||||||||||||
| Core Class |
— | — | (141,533,058 | ) | (531,068,366 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Core Class |
— | — | 7,192,685 | 12,618,755 | ||||||||||||
| Class III |
(13,504,294 | ) | 531,597 | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets resulting from net share transactions |
(13,504,294 | ) | 531,597 | 7,192,685 | 12,618,755 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
(14,037,440 | ) | 1,003,467 | (109,532,875 | ) | (390,940,966 | ) | |||||||||
| Net assets: | ||||||||||||||||
| Beginning of period |
70,948,893 | 69,945,426 | 770,272,499 | 1,161,213,465 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 56,911,453 | $ | 70,948,893 | $ | 660,739,624 | $ | 770,272,499 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions in excess of net investment income |
$ | (259,286 | ) | $ | (525,386 | ) | $ | (1,654,566 | ) | $ | (1,040,477 | ) | ||||
|
|
|
|
|
|
|
|
|
|||||||||
| 80 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| Short-Duration Collateral Share Fund |
Strategic Fixed Income Fund |
|||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 125,668 | $ | 300,770 | $ | 1,401,407 | $ | 8,406,082 | ||||||||
| Net realized gain (loss) |
266,758 | 225,196 | (17,550,520 | ) | 112,478,123 | |||||||||||
| Change in net unrealized appreciation (depreciation) |
931,188 | 4,934,812 | 1,580,874 | 49,916,851 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
1,323,614 | 5,460,778 | (14,568,239 | ) | 170,801,056 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income |
||||||||||||||||
| Class III |
(41,884 | ) | (310,996 | ) | (2,211,255 | ) | (8,874,326 | ) | ||||||||
| Class VI |
— | — | (28,126,403 | ) | (161,031,868 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net investment income |
(41,884 | ) | (310,996 | ) | (30,337,658 | ) | (169,906,194 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Class III |
(299,936 | ) | (202,616 | ) | (13,908,071 | ) | 56,239,936 | |||||||||
| Class VI |
— | — | (455,384,560 | ) | (727,057,511 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase (decrease) in net assets resulting from net share transactions |
(299,936 | ) | (202,616 | ) | (469,292,631 | ) | (670,817,575 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Purchase premiums and redemption fees (Notes 2 and 9): |
||||||||||||||||
| Class III |
— | — | 86,940 | 93,993 | ||||||||||||
| Class VI |
— | — | 976,375 | 2,151,304 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase in net assets resulting from purchase premiums and redemption fees |
— | — | 1,063,315 | 2,245,297 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets resulting from net share transactions |
(299,936 | ) | (202,616 | ) | (468,229,316 | ) | (668,572,278 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
981,794 | 4,947,166 | (513,135,213 | ) | (667,677,416 | ) | ||||||||||
| Net assets: | ||||||||||||||||
| Beginning of period |
38,012,984 | 33,065,818 | 1,817,358,453 | 2,485,035,869 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 38,994,778 | $ | 38,012,984 | $ | 1,304,223,240 | $ | 1,817,358,453 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated undistributed net investment income |
$ | 87,906 | $ | 4,122 | $ | 2,485,224 | $ | 31,421,475 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| See accompanying notes to the financial statements. | 81 |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| U.S. Treasury Fund | World Opportunity Overlay Fund | |||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 1,269,518 | $ | 2,617,295 | $ | 4,763,032 | $ | 9,320,366 | ||||||||
| Net realized gain (loss) |
405,612 | 427,762 | 3,643,242 | 14,239,113 | ||||||||||||
| Change in net unrealized appreciation (depreciation) |
292,272 | 25,875 | 4,829,610 | 23,771,305 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
1,967,402 | 3,070,932 | 13,235,884 | 47,330,784 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income |
||||||||||||||||
| Core Class |
(1,269,518 | ) | (2,617,295 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net investment income |
(1,269,518 | ) | (2,617,295 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized gains |
(254,966 | ) | (228,045 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net realized gains |
(254,966 | ) | (228,045 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Core Class |
(166,948,163 | ) | 855,636,210 | (155,920,000 | ) | (211,020,142 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase (decrease) in net assets resulting from net share transactions |
(166,948,163 | ) | 855,636,210 | (155,920,000 | ) | (211,020,142 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
(166,505,245 | ) | 855,861,802 | (142,684,116 | ) | (163,689,358 | ) | |||||||||
| Net assets: | ||||||||||||||||
| Beginning of period |
2,912,203,495 | 2,056,341,693 | 691,486,446 | 855,175,804 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 2,745,698,250 | $ | 2,912,203,495 | $ | 548,802,330 | $ | 691,486,446 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 82 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Cash Flows — Six Months Ended August 31, 2013 (Unaudited)
| Debt Opportunities Fund |
Emerging Country Debt Fund |
Short-Duration Collateral Fund |
World Opportunity Overlay Fund |
|||||||||||||
| Cash flows from operating activities: |
||||||||||||||||
| Net increase (decrease) in net assets resulting from operations |
$ | 10,417,118 | $ | (159,822,741 | ) | $ | 27,964,370 | $ | 13,235,884 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities: |
||||||||||||||||
| Net change in unrealized (appreciation) depreciation |
14,522,223 | 234,617,962 | (25,419,543 | ) | (4,829,610 | ) | ||||||||||
| Net realized (gain) loss |
(8,064,609 | ) | (2,127,674 | ) | (2,044 | ) | (3,643,242 | ) | ||||||||
| Net amortization of discount and premium |
(1,038,510 | ) | (8,333,923 | ) | (304,160 | ) | (1,331,048 | ) | ||||||||
| Investments purchased |
(426,911,029 | ) | (957,264,356 | ) | — | (399,375,915 | ) | |||||||||
| Proceeds from sale of investments |
153,209,141 | 342,489,945 | 63,343,214 | 395,421,321 | ||||||||||||
| Proceeds from paydowns |
— | 20,522,831 | 84,506,730 | 22,638,532 | ||||||||||||
| Short term investments, net |
21,360,289 | (3,114,258 | ) | (12,664,871 | ) | 148,109,944 | ||||||||||
| Other gain (loss): |
||||||||||||||||
| Swap contracts |
— | 15,501,540 | — | (18,619,733 | ) | |||||||||||
| Futures contracts |
— | — | — | 3,982,902 | ||||||||||||
| Written option contracts |
— | 667,972 | — | 7,912,929 | ||||||||||||
| Forward currency contracts |
— | 8,551,674 | — | — | ||||||||||||
| Foreign currency and foreign currency related transactions |
— | (2,725,864 | ) | — | 298,162 | |||||||||||
| Changes in assets and liabilities: |
||||||||||||||||
| (Increase) decrease in receivable for due from broker |
— | 1,899,843 | — | (7,372,049 | ) | |||||||||||
| (Increase) decrease in dividends and interest receivable |
(711,002 | ) | (11,060,260 | ) | 84,565 | (862,001 | ) | |||||||||
| (Increase) decrease in receivable for expenses reimbursed by Manager |
6,306 | — | (3,861 | ) | 7,421 | |||||||||||
| (Increase) decrease in miscellaneous receivable |
(4,800 | ) | 2,206,638 | — | — | |||||||||||
| (Increase) decrease in payable to affiliate for: |
||||||||||||||||
| Management fee |
68,789 | 139,396 | — | — | ||||||||||||
| Shareholder service fee payable |
15,135 | 41,246 | — | — | ||||||||||||
| Increase (decrease) in payable to agents unaffiliated with the Manager |
— | 2 | (19 | ) | 9 | |||||||||||
| Increase (decrease) in payable to Trustees and related expenses |
— | (3,349 | ) | (1,154 | ) | (1,066 | ) | |||||||||
| Increase (decrease) in interest payable for open swap contracts |
— | — | — | 113,759 | ||||||||||||
| Increase (decrease) in accrued expenses |
(10,670 | ) | (236,240 | ) | (5,982 | ) | 5,520 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net cash provided by (used in) operating activities |
(237,141,619 | ) | (518,049,616 | ) | 137,497,245 | 155,691,719 | ||||||||||
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|
|||||||||
| Cash flows from financing activities:* |
||||||||||||||||
| Proceeds from shares sold |
238,583,305 | 596,713,316 | — | — | ||||||||||||
| Shares repurchased |
(2,388,319 | ) | (67,343,863 | ) | (376,500 | ) | (155,920,000 | ) | ||||||||
| Purchase premiums and redemption fees |
962,064 | 3,200,591 | — | — | ||||||||||||
| Cash distributions paid |
(15,431 | ) | (6,008,374 | ) | (137,120,745 | ) | — | |||||||||
| Increase (decrease) in payable for reverse repurchase agreements^ |
— | (8,512,060 | ) | — | 228,281 | |||||||||||
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|
|
|||||||||
| Net cash provided by (used in) financing activities |
237,141,619 | 518,049,610 | (137,497,245 | ) | (155,691,719 | ) | ||||||||||
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|||||||||
| Net increase (decrease) in cash |
— | (6 | ) | — | — | |||||||||||
| Cash and cash equivalents, beginning of period |
— | 6 | — | — | ||||||||||||
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| Cash and cash equivalents, end of period |
$ | — | $ | — | $ | — | $ | — | ||||||||
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|||||||||
| Supplemental disclosure of cash flow information: |
||||||||||||||||
| * Reinvestment of dividends and distributions |
$ | (7,196,557 | ) | (22,610,795 | ) | (7,569,185 | ) | — | ||||||||
| ^ Cash paid during the year for interest related to reverse repurchase agreements and/or cleared swaps, if any |
— | 3,472 | — | 131,145 | ||||||||||||
| See accompanying notes to the financial statements. | 83 |
GMO Trust Funds
(For a share outstanding throughout the period)
ASSET ALLOCATION BOND FUND
| Class III Shares | Class VI Shares | |||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010(a) | 2013 | 2012 | 2011 | 2010(b) | |||||||||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 24.43 | $ | 24.60 | $ | 25.01 | $ | 26.13 | $ | 25.15 | $ | 24.46 | $ | 24.61 | $ | 25.01 | $ | 26.13 | $ | 25.00 | ||||||||||||||||||||||||||||||
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| Income (loss) from investment operations: |
||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment income (loss)† |
0.10 | (0.02 | ) | 0.32 | 0.51 | 0.92 | 0.23 | 0.01 | 0.56 | 0.64 | 0.80 | |||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
(0.45 | ) | 0.12 | 0.78 | 0.64 | 0.85 | (0.57 | ) | 0.11 | 0.57 | 0.54 | 1.15 | ||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||
| Total from investment operations |
(0.35 | ) | 0.10 | 1.10 | 1.15 | 1.77 | (0.34 | ) | 0.12 | 1.13 | 1.18 | 1.95 | ||||||||||||||||||||||||||||||||||||||
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| Less distributions to shareholders: |
||||||||||||||||||||||||||||||||||||||||||||||||||
| From net investment income |
— | (0.01 | ) | (0.51 | ) | (0.50 | ) | (0.60 | ) | — | (0.01 | ) | (0.53 | ) | (0.53 | ) | (0.63 | ) | ||||||||||||||||||||||||||||||||
| From net realized gains |
— | (0.26 | ) | (1.00 | ) | (1.77 | ) | (0.19 | ) | — | (0.26 | ) | (1.00 | ) | (1.77 | ) | (0.19 | ) | ||||||||||||||||||||||||||||||||
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| Total distributions |
— | (0.27 | ) | (1.51 | ) | (2.27 | ) | (0.79 | ) | — | (0.27 | ) | (1.53 | ) | (2.30 | ) | (0.82 | ) | ||||||||||||||||||||||||||||||||
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| Net asset value, end of period |
$ | 24.08 | $ | 24.43 | $ | 24.60 | $ | 25.01 | $ | 26.13 | $ | 24.12 | $ | 24.46 | $ | 24.61 | $ | 25.01 | $ | 26.13 | ||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||
| Total Return(c) |
(1.43 | )%** | 0.42 | % | 4.49 | % | 4.51 | % | 7.07 | %** | (1.39 | )%** | 0.52 | % | 4.61 | % | 4.60 | % | 7.83 | %** | ||||||||||||||||||||||||||||||
| Ratios/Supplemental Data: |
||||||||||||||||||||||||||||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 185,048 | $ | 91,186 | $ | 56,692 | $ | 48,676 | $ | 40,225 | $ | 2,069,462 | $ | 88,029 | $ | 116,591 | $ | 489,202 | $ | 859,763 | ||||||||||||||||||||||||||||||
| Net operating expenses to average daily net assets |
0.40 | %(e)* | 0.40 | %(e) | 0.40 | %(d)(e) | 0.41 | %(d)(e) | 0.40 | %(d)* | 0.31 | %(e)* | 0.31 | %(e) | 0.31 | %(d)(e) | 0.31 | %(d)(e) | 0.31 | %(d)* | ||||||||||||||||||||||||||||||
| Interest expense to average daily net assets(f) |
— | — | 0.01 | % | 0.03 | % | 0.03 | %* | — | — | 0.01 | % | 0.03 | % | 0.03 | %* | ||||||||||||||||||||||||||||||||||
| Total net expenses to average daily net |
0.40 | %* | 0.40 | % | 0.41 | % | 0.44 | % | 0.43 | %* | 0.31 | %* | 0.31 | % | 0.32 | % | 0.34 | % | 0.34 | %* | ||||||||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets |
0.80 | %* | (0.08 | )% | 1.31 | % | 1.94 | % | 3.86 | %* | 1.83 | %* | 0.02 | % | 2.25 | % | 2.43 | % | 3.24 | %* | ||||||||||||||||||||||||||||||
| Portfolio turnover rate |
36 | %** | 233 | % | 319 | % | 315 | % | 116 | %(g)** | 36 | %** | 233 | % | 319 | % | 315 | % | 116 | %(g)** | ||||||||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets:(h) |
0.03 | %* | 0.08 | % | 0.06 | % | 0.04 | % | 0.04 | %* | 0.01 | %* | 0.07 | % | 0.04 | % | 0.04 | % | 0.04 | %* | ||||||||||||||||||||||||||||||
| (a) | Period from March 27, 2009 (commencement of operations) through February 28, 2010. |
| (b) | Period from March 18, 2009 (commencement of operations) through February 28, 2010. |
| (c) | The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown, if applicable, and assumes the effect of reinvested distributions, if any. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder purchasing or redeeming Fund shares, if any. |
| (d) | The net expense ratio does not include the effect of expense reductions (Note 2). |
| (e) | Net expenses exclude expenses incurred indirectly through investment in the underlying funds (Note 5). |
| (f) | Interest expense incurred as a result of entering into reverse repurchase agreements is included in the Fund’s net expenses. Income earned on investing proceeds from reverse repurchase agreements is included in interest income. |
| (g) | Calculation represents portfolio turnover of the Fund for the period from March 18, 2009 (commencement of operations) through February 28, 2010. |
| (h) | Ratios include reimbursement of direct operating expenses and waiver of expenses indirectly incurred through investment in the underlying funds (See Note 5). |
| † | Calculated using average shares outstanding throughout the period. |
| * | Annualized. |
| ** | Not annualized. |
| 84 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
CORE PLUS BOND FUND
| Class III Shares | Class IV Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 7.41 | $ | 7.13 | $ | 7.26 | $ | 7.02 | $ | 6.08 | $ | 9.42 | $ | 7.43 | $ | 7.14 | $ | 7.27 | $ | 7.03 | $ | 6.09 | $ | 9.44 | ||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Income (loss) from investment operations: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment income (loss)(a)† |
0.04 | 0.07 | 0.13 | 0.11 | 0.05 | 0.27 | 0.04 | 0.08 | 0.13 | 0.11 | 0.12 | 0.17 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
(0.21 | ) | 0.54 | 0.56 | 0.65 | 1.51 | (2.08 | ) | (0.21 | ) | 0.54 | 0.56 | 0.65 | 1.45 | (1.99 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Total from investment operations |
(0.17 | ) | 0.61 | 0.69 | 0.76 | 1.56 | (1.81 | ) | (0.17 | ) | 0.62 | 0.69 | 0.76 | 1.57 | (1.82 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Less distributions to shareholders: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From net investment income |
(0.11 | ) | (0.33 | ) | (0.82 | ) | (0.52 | ) | (0.62 | ) | (1.53 | ) | (0.12 | ) | (0.33 | ) | (0.82 | ) | (0.52 | ) | (0.63 | ) | (1.53 | ) | ||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Total distributions |
(0.11 | ) | (0.33 | ) | (0.82 | ) | (0.52 | ) | (0.62 | ) | (1.53 | ) | (0.12 | ) | (0.33 | ) | (0.82 | ) | (0.52 | ) | (0.63 | ) | (1.53 | ) | ||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Net asset value, end of period |
$ | 7.13 | $ | 7.41 | $ | 7.13 | $ | 7.26 | $ | 7.02 | $ | 6.08 | $ | 7.14 | $ | 7.43 | $ | 7.14 | $ | 7.27 | $ | 7.03 | $ | 6.09 | ||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Total Return(b) |
(2.24 | )%** | 8.67 | % | 9.88 | % | 10.93 | % | 26.84 | % | (20.12 | )% | (2.36 | )%** | 8.85 | % | 9.90 | % | 10.97 | % | 26.87 | % | (20.23 | )% | ||||||||||||||||||||||||||||||||||||
| Ratios/Supplemental Data: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 46,391 | $ | 48,831 | $ | 46,924 | $ | 47,773 | $ | 55,839 | $ | 73,730 | $ | 186,192 | $ | 190,527 | $ | 188,675 | $ | 183,333 | $ | 276,850 | $ | 233,848 | ||||||||||||||||||||||||||||||||||||
| Net operating expenses to average daily net assets(c) |
0.38 | %* | 0.38 | %(d) | 0.39 | %(d) | 0.39 | %(d) | 0.38 | %(d) | 0.39 | %(d) | 0.33 | %* | 0.33 | %(d) | 0.34 | %(d) | 0.34 | %(d) | 0.33 | %(d) | 0.34 | %(d) | ||||||||||||||||||||||||||||||||||||
| Interest expense to average daily net assets |
0.00 | %*(e)(g) | — | — | — | 0.02 | %(e) | — | 0.00 | %*(e)(g) | — | — | — | 0.02 | %(e) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total net expenses to average daily net assets(c) |
0.38 | %* | 0.38 | %(d) | 0.39 | %(d) | 0.39 | %(d) | 0.40 | %(d) | 0.39 | %(d) | 0.33 | %* | 0.33 | %(d) | 0.34 | %(d) | 0.34 | %(d) | 0.35 | %(d) | 0.34 | %(d) | ||||||||||||||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets(a) |
1.00 | %* | 1.02 | % | 1.74 | % | 1.48 | % | 0.77 | % | 3.20 | % | 1.05 | %* | 1.07 | % | 1.75 | % | 1.48 | % | 1.78 | % | 1.89 | % | ||||||||||||||||||||||||||||||||||||
| Portfolio turnover rate |
79 | %** | 135 | % | 72 | % | 46 | % | 58 | % | 22 | % | 79 | %** | 135 | % | 72 | % | 46 | % | 58 | % | 22 | % | ||||||||||||||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.13 | %* | 0.13 | % | 0.12 | % | 0.11 | % | 0.09 | % | 0.08 | % | 0.13 | %* | 0.13 | % | 0.12 | % | 0.11 | % | 0.09 | % | 0.08 | % | ||||||||||||||||||||||||||||||||||||
| Redemption fees consisted of the following per share amounts:† |
— | — | — | — | $ | 0.00 | (f) | $ | 0.01 | — | — | — | — | $ | 0.00 | (f) | $ | 0.01 | ||||||||||||||||||||||||||||||||||||||||||
| (a) | Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests. |
| (b) | The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown, if applicable, and assumes the effect of reinvested distributions, if any. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder purchasing or redeeming Fund shares, if any. |
| (c) | Net expenses exclude expenses incurred indirectly through investment in the underlying funds (Note 5). |
| (d) | The net expense ratio does not include the effect of expense reductions (Note 2). |
| (e) | Interest expense incurred as a result of entering into reverse repurchase agreements and/or cleared swap contracts, if any, is included in the Fund’s net expenses. |
| (f) | Redemption fees were less than $0.01 per share. |
| (g) | Ratio is less than 0.01%. |
| † | Calculated using average shares outstanding throughout the period. |
| * | Annualized. |
| ** | Not annualized. |
| See accompanying notes to the financial statements. | 85 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
CURRENCY HEDGED INTERNATIONAL BOND FUND
| 86 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
DEBT OPPORTUNITIES FUND
| See accompanying notes to the financial statements. | 87 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
DOMESTIC BOND FUND
| Class III Shares | Class VI Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012(a) | 2011(a) | 2010(a) | 2009(a) | 2013 | 2012(a) | 2011(a) | 2010(a) | 2009(a) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 17.21 | $ | 25.79 | $ | 41.13 | $ | 53.91 | $ | 71.91 | $ | 85.23 | $ | 17.30 | $ | 25.87 | $ | 41.22 | $ | 53.91 | $ | 71.91 | $ | 85.32 | ||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Income (loss) from investment operations: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment income (loss)(b)† |
0.05 | 0.20 | 0.37 | 0.54 | 0.81 | 3.51 | 0.06 | 0.22 | 0.41 | 0.63 | 0.81 | 3.96 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
0.43 | 2.27 | (c) | (0.50 | ) | 3.06 | 11.97 | (12.24 | ) | 0.43 | 2.28 | (c) | (0.53 | ) | 3.15 | 11.97 | (12.69 | ) | ||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Total from investment operations |
0.48 | 2.47 | (0.13 | ) | 3.60 | 12.78 | (8.73 | ) | 0.49 | 2.50 | (0.12 | ) | 3.78 | 12.78 | (8.73 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Less distributions to shareholders: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From net investment income |
(0.04 | ) | (0.20 | ) | (0.34 | ) | (0.54 | ) | (1.44 | ) | (4.50 | ) | (0.04 | ) | (0.22 | ) | (0.36 | ) | (0.63 | ) | (1.53 | ) | (4.59 | ) | ||||||||||||||||||||||||||||||||||||
| From net realized gains |
— | — | — | — | (4.14 | ) | (0.09 | ) | — | — | — | — | (4.14 | ) | (0.09 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Return of capital |
(3.13 | ) | (10.85 | ) | (14.87 | ) | (15.84 | ) | (25.20 | ) | — | (3.13 | ) | (10.85 | ) | (14.87 | ) | (15.84 | ) | (25.11 | ) | — | ||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Total distributions |
(3.17 | ) | (11.05 | ) | (15.21 | ) | (16.38 | ) | (30.78 | ) | (4.59 | ) | (3.17 | ) | (11.07 | ) | (15.23 | ) | (16.47 | ) | (30.78 | ) | (4.68 | ) | ||||||||||||||||||||||||||||||||||||
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| Net asset value, end of period |
$ | 14.52 | $ | 17.21 | $ | 25.79 | $ | 41.13 | $ | 53.91 | $ | 71.91 | $ | 14.62 | $ | 17.30 | $ | 25.87 | $ | 41.22 | $ | 53.91 | $ | 71.91 | ||||||||||||||||||||||||||||||||||||
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| Total Return(d) |
2.92 | %** | 13.69 | % | (0.03 | )% | 8.19 | % | 23.87 | % | (10.39 | )% | 2.99 | %** | 13.77 | % | 0.02 | % | 8.46 | % | 23.87 | % | (10.40 | )% | ||||||||||||||||||||||||||||||||||||
| Ratios/Supplemental Data: |
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| Net assets, end of period (000’s) |
$ | 38,370 | $ | 46,596 | $ | 69,834 | $ | 120,397 | $ | 173,619 | $ | 337,524 | $ | 146,466 | $ | 173,702 | $ | 259,723 | $ | 418,686 | $ | 614,415 | $ | 720,731 | ||||||||||||||||||||||||||||||||||||
| Net expenses to average daily net assets(e) |
0.21 | %* | 0.21 | % | 0.20 | % | 0.20 | %(f) | 0.21 | % | 0.26 | %(f) | 0.11 | %* | 0.11 | % | 0.11 | % | 0.11 | %(f) | 0.12 | % | 0.16 | %(f) | ||||||||||||||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets(b) |
0.65 | %* | 0.98 | % | 1.18 | % | 1.25 | % | 1.37 | % | 4.43 | % | 0.75 | %* | 1.08 | % | 1.29 | % | 1.33 | % | 1.43 | % | 5.02 | % | ||||||||||||||||||||||||||||||||||||
| Portfolio turnover rate |
22 | %** | 12 | % | 13 | % | 8 | % | 30 | % | 68 | % | 22 | %** | 12 | % | 13 | % | 8 | % | 30 | % | 68 | % | ||||||||||||||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.11 | %* | 0.10 | % | 0.09 | % | 0.08 | % | 0.07 | % | 0.02 | % | 0.11 | %* | 0.10 | % | 0.09 | % | 0.08 | % | 0.08 | % | 0.02 | % | ||||||||||||||||||||||||||||||||||||
| Redemption fees consisted of the following per share amounts:† |
— | — | — | — | $ | 0.00 | (g) | $ | 0.00 | (g) | — | — | — | — | $ | 0.00 | (g) | $ | 0.00 | (g) | ||||||||||||||||||||||||||||||||||||||||
| (a) | Per share amounts were adjusted to reflect a 1:9 reverse stock split effective January 17, 2012. |
| (b) | Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests. |
| (c) | The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain (loss) on investments due to the timing of purchases and redemptions of the Fund shares in relation to fluctuating market values of the investments of the Fund. |
| (d) | The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown, if applicable, and assumes the effect of reinvested distributions, if any. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder purchasing or redeeming Fund shares, if any. |
| (e) | Net expenses exclude expenses incurred indirectly through investment in the underlying funds (Note 5). |
| (f) | The net expense ratio does not include the effect of expense reductions (Note 2). |
| (g) | Redemption fees were less than $0.01 per share. |
| † | Calculated using average shares outstanding throughout the period. |
| * | Annualized. |
| ** | Not annualized. |
| 88 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
EMERGING COUNTRY DEBT FUND
| Class III Shares | Class IV Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 10.34 | $ | 9.59 | $ | 9.10 | $ | 8.47 | $ | 5.85 | $ | 10.06 | $ | 10.33 | $ | 9.58 | $ | 9.09 | $ | 8.47 | $ | 5.85 | $ | 10.06 | ||||||||||||||||||||||||||||||||||||
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| Income (loss) from investment operations: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment income |
0.31 | 0.77 | 0.84 | 1.03 | (a) | 0.52 | 0.54 | 0.31 | 0.79 | 0.84 | 1.05 | (j) | 0.53 | 0.53 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
(0.94 | ) | 0.82 | 0.58 | 0.81 | 2.70 | (3.77 | ) | (0.94 | ) | 0.81 | 0.59 | 0.78 | 2.69 | (3.76 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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| Total from investment operations |
(0.63 | ) | 1.59 | 1.42 | 1.84 | 3.22 | (3.23 | ) | (0.63 | ) | 1.60 | 1.43 | 1.83 | 3.22 | (3.23 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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| Less distributions to shareholders: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From net investment income |
(0.12 | ) | (0.84 | ) | (0.93 | ) | (1.21 | ) | (0.60 | ) | (0.77 | ) | (0.12 | ) | (0.85 | ) | (0.94 | ) | (1.21 | ) | (0.60 | ) | (0.77 | ) | ||||||||||||||||||||||||||||||||||||
| From net realized gains |
— | — | — | — | — | (0.21 | ) | — | — | — | — | — | (0.21 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
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| Total distributions |
(0.12 | ) | (0.84 | ) | (0.93 | ) | (1.21 | ) | (0.60 | ) | (0.98 | ) | (0.12 | ) | (0.85 | ) | (0.94 | ) | (1.21 | ) | (0.60 | ) | (0.98 | ) | ||||||||||||||||||||||||||||||||||||
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| Net asset value, end of period |
$ | 9.59 | $ | 10.34 | $ | 9.59 | $ | 9.10 | $ | 8.47 | $ | 5.85 | $ | 9.58 | $ | 10.33 | $ | 9.58 | $ | 9.09 | $ | 8.47 | $ | 5.85 | ||||||||||||||||||||||||||||||||||||
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| Total Return(b) |
(6.09 | )%** | 17.04 | % | 16.62 | % | 22.23 | % | 55.95 | % | (32.75 | )% | (6.08 | )%** | 17.14 | % | 16.69 | % | 22.19 | % | 56.02 | % | (32.66 | )% | ||||||||||||||||||||||||||||||||||||
| Ratios/Supplemental Data: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 461,041 | $ | 427,339 | $ | 679,533 | $ | 564,570 | $ | 602,065 | $ | 535,194 | $ | 2,244,926 | $ | 1,908,041 | $ | 1,117,850 | $ | 1,122,409 | $ | 1,287,496 | $ | 1,291,258 | ||||||||||||||||||||||||||||||||||||
| Net operating expenses to average daily net assets(c)(d) |
0.57 | %* | 0.60 | % | 0.64 | % | 0.59 | % | 0.58 | % | 0.59 | % | 0.52 | %* | 0.55 | % | 0.59 | % | 0.54 | % | 0.53 | % | 0.54 | % | ||||||||||||||||||||||||||||||||||||
| Interest expense to average daily net assets |
0.00 | %(e)(f)* | 0.02 | %(e) | 0.08 | %(e) | 0.08 | %(g) | 0.11 | %(g) | 0.23 | %(g) | 0.00 | %(e)(f)* | 0.02 | %(e) | 0.08 | %(e) | 0.07 | %(g) | 0.11 | %(g) | 0.23 | %(g) | ||||||||||||||||||||||||||||||||||||
| Total net expenses to average daily net assets(c)(d) |
0.57 | %* | 0.62 | % | 0.72 | % | 0.67 | % | 0.69 | % | 0.82 | % | 0.52 | %* | 0.57 | % | 0.67 | % | 0.61 | % | 0.64 | % | 0.77 | % | ||||||||||||||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets |
5.95 | %* | 7.75 | % | 8.90 | % | 11.09 | %(h) | 6.98 | % | 6.36 | % | 5.98 | %* | 7.84 | % | 8.95 | % | 11.37 | %(k) | 7.03 | % | 6.46 | % | ||||||||||||||||||||||||||||||||||||
| Portfolio turnover rate |
11 | %** | 36 | % | 29 | % | 21 | % | 36 | % | 38 | % | 11 | %** | 36 | % | 29 | % | 21 | % | 36 | % | 38 | % | ||||||||||||||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
— | 0.00 | %(f) | — | — | — | — | — | 0.00 | %(f) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Purchase premiums and redemption fees consisted of the following per share amounts (Note 2):† |
$ | 0.01 | $ | 0.03 | $ | 0.01 | $ | 0.02 | $ | 0.05 | $ | 0.00 | (i) | $ | 0.01 | $ | 0.03 | $ | 0.01 | $ | 0.02 | $ | 0.04 | $ | 0.00 | (i) | ||||||||||||||||||||||||||||||||||
| (a) | Includes income per share of $0.40 as a result of the Fund’s participation in sovereign debt exchanges during the period. Excluding this income, the Fund’s net investment income per share would have been $0.63. |
| (b) | Calculation excludes purchase premiums and redemption fees which are borne by the shareholder purchasing and redeeming Fund shares and assumes the effect of reinvested distributions. |
| (c) | Net expenses exclude expenses incurred indirectly through investment in the underlying funds (Note 5). |
| (d) | The net expense ratio does not include the effect of expense reductions (Note 2). |
| (e) | Interest expense incurred as a result of entering into reverse repurchase agreements is included in the Fund’s net expenses. Income earned on investing proceeds from reverse repurchase agreements is included in interest income. |
| (f) | Ratio is less than 0.01%. |
| (g) | Interest expense incurred as a result of entering into reverse repurchase agreements and/or payables owed to Lehman Brothers in connection with the termination of derivative contracts in 2008 is included in the Fund’s net expenses. |
| (h) | Includes income of 4.33% of average daily net assets as a result of the Fund’s participation in sovereign debt exchanges. Excluding this income, the Fund’s net investment income to average daily net assets would have been 6.76%. |
| (i) | Purchase premiums and redemption fees were less than $0.01 per share. |
| (j) | Includes income per share of $0.41 as a result of the Fund’s participation in sovereign debt exchanges during the period. Excluding this income, the Fund’s net investment income per share would have been $0.64. |
| (k) | Includes income of 4.43% of average daily net assets as a result of the Fund’s participation in sovereign debt exchanges. Excluding this income, the Fund’s net investment income to average daily net assets would have been 6.94%. |
| † | Calculated using average shares outstanding throughout the period. |
| * | Annualized. |
| ** | Not annualized. |
| See accompanying notes to the financial statements. | 89 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
GLOBAL BOND FUND
| 90 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
INTERNATIONAL BOND FUND
| See accompanying notes to the financial statements. | 91 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
SHORT-DURATION COLLATERAL FUND
| 92 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
SHORT-DURATION COLLATERAL SHARE FUND
| See accompanying notes to the financial statements. | 93 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
STRATEGIC FIXED INCOME FUND
| Class III Shares | Class VI Shares | |||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | |||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 16.42 | $ | 16.40 | $ | 15.39 | $ | 15.51 | $ | 17.37 | $ | 23.60 | $ | 16.43 | $ | 16.40 | $ | 15.38 | $ | 15.49 | $ | 17.35 | $ | 23.57 | ||||||||||||||||||||||||
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| Income (loss) from investment operations: |
||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment income (loss)(a)† |
0.01 | 0.05 | 0.08 | 0.17 | 0.16 | 0.71 | 0.01 | 0.07 | 0.09 | 0.15 | 0.17 | 0.68 | ||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
(0.15 | ) | 1.39 | 1.85 | 0.54 | 3.78 | (5.70 | ) | (0.15 | ) | 1.39 | 1.86 | 0.57 | 3.77 | (5.64 | ) | ||||||||||||||||||||||||||||||||
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| Total from investment operations |
(0.14 | ) | 1.44 | 1.93 | 0.71 | 3.94 | (4.99 | ) | (0.14 | ) | 1.46 | 1.95 | 0.72 | 3.94 | (4.96 | ) | ||||||||||||||||||||||||||||||||
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| Less distributions to shareholders: |
||||||||||||||||||||||||||||||||||||||||||||||||
| From net investment income |
(0.28 | ) | (1.42 | ) | (0.92 | ) | (0.46 | ) | (0.27 | ) | (1.24 | ) | (0.28 | ) | (1.43 | ) | (0.93 | ) | (0.46 | ) | (0.29 | ) | (1.26 | ) | ||||||||||||||||||||||||
| Return of capital |
— | — | — | (0.37 | ) | (5.53 | ) | — | — | — | — | (0.37 | ) | (5.51 | ) | — | ||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||
| Total distributions |
(0.28 | ) | (1.42 | ) | (0.92 | ) | (0.83 | ) | (5.80 | ) | (1.24 | ) | (0.28 | ) | (1.43 | ) | (0.93 | ) | (0.83 | ) | (5.80 | ) | (1.26 | ) | ||||||||||||||||||||||||
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| Net asset value, end of period |
$ | 16.00 | $ | 16.42 | $ | 16.40 | $ | 15.39 | $ | 15.51 | $ | 17.37 | $ | 16.01 | $ | 16.43 | $ | 16.40 | $ | 15.38 | $ | 15.49 | $ | 17.35 | ||||||||||||||||||||||||
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|||||||||||||||||||||||||
| Total Return(b) |
(0.88 | )%** | 9.14 | % | 12.60 | % | 4.76 | % | 27.97 | % | (21.20 | )% | (0.87 | )%** | 9.26 | % | 12.77 | % | 4.84 | % | 28.00 | % | (21.09 | )% | ||||||||||||||||||||||||
| Ratios/Supplemental Data: |
||||||||||||||||||||||||||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 117,484 | $ | 134,724 | $ | 79,215 | $ | 77,084 | $ | 139,571 | $ | 227,453 | $ | 1,186,739 | $ | 1,682,634 | $ | 2,405,821 | $ | 2,476,073 | $ | 2,005,889 | $ | 2,246,197 | ||||||||||||||||||||||||
| Net expenses to average daily net assets(d) |
0.38 | %* | 0.38 | %(c) | 0.39 | %(c) | 0.39 | %(c) | 0.39 | % | 0.40 | %(c) | 0.29 | %* | 0.29 | %(c) | 0.29 | %(c) | 0.29 | %(c) | 0.30 | % | 0.30 | %(c) | ||||||||||||||||||||||||
| Interest expense to average daily net assets |
0.00 | %(f)(e)* | — | — | — | — | — | 0.00 | %(f)(e)* | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Total net expenses to average daily net |
0.38 | %* | 0.38 | %(c) | 0.39 | %(c) | 0.39 | %(c) | 0.39 | % | 0.40 | %(c) | 0.29 | %* | 0.29 | %(c) | 0.29 | %(c) | 0.29 | %(c) | 0.30 | % | 0.30 | %(c) | ||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets(a) |
0.08 | %* | 0.30 | % | 0.51 | % | 1.09 | % | 1.01 | % | 3.32 | % | 0.17 | %* | 0.43 | % | 0.58 | % | 1.00 | % | 1.05 | % | 3.14 | % | ||||||||||||||||||||||||
| Portfolio turnover rate |
12 | %** | 32 | % | 30 | % | 19 | % | 35 | % | 70 | % | 12 | %** | 32 | % | 30 | % | 19 | % | 35 | % | 70 | % | ||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.04 | %* | 0.04 | % | 0.04 | % | 0.04 | % | 0.03 | % | 0.03 | % | 0.04 | %* | 0.04 | % | 0.04 | % | 0.04 | % | 0.03 | % | 0.03 | % | ||||||||||||||||||||||||
| Purchase premiums and redemption fees consisted of the following per share amounts (Note 2):† |
$ | 0.01 | $ | 0.02 | $ | 0.00 | (g) | — | $ | 0.00 | (g) | $ | 0.02 | $ | 0.01 | $ | 0.02 | $ | 0.00 | (g) | — | $ | 0.00 | (g) | $ | 0.02 | ||||||||||||||||||||||
| (a) | Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests. |
| (b) | The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown, if applicable, and assumes the effect of reinvested distributions, if any. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder purchasing or redeeming Fund shares, if any. |
| (c) | The net expense ratio does not include the effect of expense reductions (Note 2). |
| (d) | Net expenses exclude expenses incurred indirectly through investment in the underlying funds (Note 5). |
| (e) | Interest expense incurred as a result of entering into reverse repurchase agreements and/or cleared swap contracts, if any, is included in the Fund’s net expenses. |
| (f) | Ratio is less than 0.01%. |
| (g) | Purchase premiums and redemption fees were less than $0.01 per share. |
| † | Calculated using average shares outstanding throughout the period. |
| * | Annualized. |
| ** | Not annualized. |
| 94 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout the period)
U.S. TREASURY FUND
| See accompanying notes to the financial statements. | 95 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
WORLD OPPORTUNITY OVERLAY FUND
| 96 | See accompanying notes to the financial statements. |
GMO Trust Funds
August 31, 2013 (Unaudited)
| 1. | Organization |
Each of Asset Allocation Bond Fund, Core Plus Bond Fund, Currency Hedged International Bond Fund, Debt Opportunities Fund, Domestic Bond Fund, Emerging Country Debt Fund, Global Bond Fund, International Bond Fund, Short-Duration Collateral Fund, Short-Duration Collateral Share Fund, Strategic Fixed Income Fund, U.S. Treasury Fund, and World Opportunity Overlay Fund (each a “Fund” and collectively the “Funds”) is a series of GMO Trust (the “Trust”). The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust was established as a Massachusetts business trust under the laws of The Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees of the Trust (“Trustees”) to create an unlimited number of series of shares (Funds) and to subdivide Funds into classes. The Funds are advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager” or “GMO”).
The Funds may invest in U.S. Treasury Fund and unaffiliated money market funds.
Many of the Funds invest in other GMO Funds (“underlying funds”). In particular, pursuant to an exemptive order granted by the Securities and Exchange Commission (“SEC”), many of the Funds have invested a substantial portion of their assets in Short-Duration Collateral Fund and also may invest in Emerging Country Debt Fund, World Opportunity Overlay Fund, Debt Opportunities Fund and U.S. Treasury Fund. The financial statements of the underlying funds should be read in conjunction with the Funds’ financial statements. As of August 31, 2013, shares of World Opportunity Overlay Fund and Debt Opportunities Fund were not publicly offered for sale.
The following table provides information about the Funds’ investment objectives and benchmarks (if any):
| Fund Name | Benchmark | Investment Objective | ||
| Asset Allocation Bond Fund | Citigroup 3-Month Treasury Bill Index | Total return in excess of benchmark | ||
| Core Plus Bond Fund | Barclays U.S. Aggregate Index | Total return in excess of benchmark | ||
| Currency Hedged International Bond Fund | J.P. Morgan GBI Global ex Japan ex U.S. (Hedged) | Total return in excess of benchmark | ||
| Debt Opportunities Fund | Not Applicable | Positive total return | ||
| Domestic Bond Fund* | Barclays U.S. Government Index | Total return in excess of benchmark | ||
| Emerging Country Debt Fund | J.P. Morgan EMBI Global | Total return in excess of benchmark | ||
| Global Bond Fund | J.P. Morgan GBI Global | Total return in excess of benchmark | ||
| International Bond Fund | J.P. Morgan GBI Global ex U.S. | Total return in excess of benchmark | ||
| Short-Duration Collateral Fund* | J.P. Morgan U.S. 3 Month Cash Index | Total return comparable to benchmark | ||
| Short-Duration Collateral Share Fund | J.P. Morgan U.S. 3 Month Cash Index | Total return comparable to benchmark | ||
| Strategic Fixed Income Fund | J.P. Morgan U.S. 3 Month Cash Index | Total return in excess of benchmark | ||
| U.S. Treasury Fund | Not Applicable | Liquidity and safety of principal with current income as a secondary objective | ||
| World Opportunity Overlay Fund | J.P. Morgan U.S. 3 Month Cash Index | Total return greater than benchmark | ||
| * | The Fund is not currently pursuing an active investment program. |
Domestic Bond Fund, Short-Duration Collateral Fund, Short-Duration Collateral Share Fund, Strategic Fixed Income Fund and U.S. Treasury Fund currently limit subscriptions.
| 2. | Significant accounting policies |
The following is a summary of significant accounting policies followed by each Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently followed by the Funds in preparing these financial statements. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The accounting records of the Funds are maintained in U.S. Dollars.
Portfolio valuation
Typically, the Funds and the underlying funds value debt instruments based on the most recent quoted price supplied by a single pricing source chosen by the Manager. Although the Manager normally does not evaluate pricing sources on a day-to-day basis, it does evaluate pricing sources
| 97 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
on an ongoing basis and may change a pricing source at any time. 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. Although alternative prices may be available for securities held by the Funds and the underlying funds, those alternative sources are not typically part of the valuation process and do not necessarily provide greater certainty about the prices used by the Funds and the underlying funds. See the table below for information about securities for which no alternative pricing source was available. In the case of non-emerging market debt instruments with a remaining maturity of sixty days or less, the instrument may be valued at amortized cost, which approximates market value, if the issuer is deemed to represent minimal credit risk.
Exchange-traded securities (other than exchange-traded options) for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price or (iii) most recent quoted price published by the exchange (if no reported last sale or official closing price) or (iv) the quoted price provided by a pricing source (in the event the Manager deems the private market to be a more reliable indicator of market value than the exchange). Exchange-traded 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. Cleared derivatives are valued using the quote (which may be based on a model) published by the relevant clearing house. If an updated quote for a cleared derivative is not available by the time that a Fund calculates its net asset value on any business day, then that derivative will generally be valued using an industry standard model, which may differ from the model used by the relevant clearing house. Unlisted securities (including debt instruments) for which market quotations are readily available are generally valued at the most recent quoted price. Shares of the underlying funds and other open-end registered investment companies are valued at their most recent net asset value. If quotations are not readily available or circumstances make an existing valuation methodology or procedure unreliable, derivatives and other securities are valued at fair value as determined in good faith by the Trustees or persons acting at their direction pursuant to procedures approved by the Trustees. Because of the uncertainty inherent in pricing, and in particular fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. See the table below for information about securities and derivatives, if any, that were fair valued using methods determined in good faith by or at the direction of the Trustees. The Funds and/or the underlying funds classify such securities as Level 3 (levels defined below). For the period ended August 31, 2013, the Funds did not reduce the value of any of their over-the-counter (“OTC”) derivatives contracts based on the creditworthiness of their counterparties. See Note 4 “Derivative financial instruments” for a further discussion on valuation of derivatives.
“Quotation” or “quoted price” typically means the bid price for securities held long and the ask price for securities sold short. If the pricing convention for a security does not involve a bid or an ask, “quotation” or “quoted price” may be a market quotation provided by a market participant or other third party pricing source in accordance with the convention for that security. If an updated quote for a debt instrument is not available by the time that the Funds calculate their net asset value on any business day, the Funds will generally use a quoted price from a prior day to value that security.
As discussed above, certain of the Funds and underlying funds invest in securities and/or derivatives which may have been fair valued using methods determined in good faith by or at the direction of the Trustees or valued using prices for which no alternative pricing source was available. The net aggregate direct and/or indirect exposure to these valuation methodologies (based on each Fund’s net assets) as of August 31, 2013 is as follows:
Securities and Derivatives
| Fund Name | Fair valued using methods determined in good faith by or at the direction of the Trustees |
Single source: No alternative pricing source was available |
||||||
| Asset Allocation Bond Fund |
— | — | ||||||
| Core Plus Bond Fund |
1% | 1% | ||||||
| Currency Hedged International Bond Fund |
1% | 1% | ||||||
| Debt Opportunities Fund |
<1% | 4% | ||||||
| Domestic Bond Fund |
3% | 5% | ||||||
| Emerging Country Debt Fund |
2% | 4% | ||||||
| Global Bond Fund |
1% | 2% | ||||||
| International Bond Fund |
1% | 2% | ||||||
| Short-Duration Collateral Fund |
4% | 6% | ||||||
| Short-Duration Collateral Share Fund |
4% | 6% | ||||||
| Strategic Fixed Income Fund |
1% | 2% | ||||||
| U.S. Treasury Fund |
— | — | ||||||
| World Opportunity Overlay Fund |
— | 2% | ||||||
| 98 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
U.S. GAAP requires the Funds to disclose the fair value of their investments in a three-level hierarchy (Levels 1, 2 and 3). The valuation hierarchy is based upon the relative observability of inputs to the valuation of the Funds’ investments. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Changes in valuation techniques may result in transfers into or out of an investment’s assigned level within the fair value hierarchy. In addition, in periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition, as well as changes related to the liquidity of investments, could cause a security to be reclassified between levels.
U.S. GAAP requires additional disclosures about fair value measurements for material Level 3 securities and derivatives, if any (determined by each category of asset or liability as compared to a Fund’s total net assets separately identified in the “Valuation Inputs” table below). At August 31, 2013, certain Funds directly held material Level 3 investments in asset-backed securities (Debt Opportunities Fund, Short-Duration Collateral Fund and World Opportunity Overlay Fund) and foreign government debt obligations (Emerging Country Debt Fund). Each Fund values these investments using unadjusted prices supplied by a third party pricing source (e.g., broker quotes) as described in the Portfolio Valuation note. Additionally, Short-Duration Collateral Fund held material Level 3 U.S. government agency debt obligations subject to this standard. See the “Additional Level 3 information” table below for further information regarding the valuation techniques and unobservable inputs used to measure the fair value of these instruments. Other than as described in this paragraph, there were no other Funds with classes of investments or derivatives with direct material Level 3 holdings.
The three levels are defined as follows:
Level 1 – Valuations based on quoted prices for identical securities in active markets.
The types of assets and liabilities categorized in Level 1 generally include actively traded domestic and certain foreign equity securities, certain U.S. government obligations with a remaining maturity of greater than 60 days, derivatives actively traded on a national securities exchange (such as some futures and options), and shares of open-end mutual funds (even if their investments are valued using Level 2 or Level 3 inputs).
Level 2 – Valuations determined using other significant direct or indirect observable inputs.
The types of assets and liabilities categorized in Level 2 generally include debt securities such as U.S. government securities with a remaining maturity of 60 days or less valued at amortized cost; certain U.S. government agency securities, mortgage-backed securities, asset-backed securities, certain sovereign debt obligations, and corporate bonds valued using broker quotes; cleared derivatives and certain OTC derivatives such as swaps, options, swaptions, and forward currency contracts valued using industry standard models; and certain restricted securities valued at the most recent available market or quoted price.
Level 3 – Valuations based primarily on inputs that are unobservable and significant.
The types of assets and liabilities categorized in Level 3 generally include, but are not limited to, certain debt securities (such as asset-backed, mortgage-backed, loans and sovereign debt) even though they are valued using broker quotes; certain debt securities and derivatives adjusted by a specified discount for liquidity or other considerations; certain sovereign debt securities valued using comparable securities issued by the sovereign adjusted by a specified spread; securities whose trading has been suspended or that have been de-listed from their current primary trading exchange valued at the most recent available market or quoted price; securities in default or bankruptcy proceedings for which there is no current market quotation valued at the most recent available market or quoted price; potential litigation recoveries and interests related to bankruptcy proceedings; and third-party investment funds where valuations are provided by fund sponsors and which are adjusted for liquidity considerations as well as the timing of the receipt of information.
| 99 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The following is a summary of the respective levels assigned to the Funds’ direct securities and derivatives, if any, as of August 31, 2013:
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Asset Allocation Bond Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Debt Obligations |
||||||||||||||||
| U.S. Government |
$ | — | $ | 2,180,373,214 | $ | — | $ | 2,180,373,214 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
— | 2,180,373,214 | — | 2,180,373,214 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
70,907,506 | — | — | 70,907,506 | ||||||||||||
| Short-Term Investments |
2,041,957 | — | — | 2,041,957 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
72,949,463 | 2,180,373,214 | — | 2,253,322,677 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 72,949,463 | $ | 2,180,373,214 | $ | — | $ | 2,253,322,677 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Core Plus Bond Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Debt Obligations |
||||||||||||||||
| Asset-Backed Securities |
$ | — | $ | 18,820 | $ | 3,806,424 | $ | 3,825,244 | ||||||||
| Corporate Debt |
— | 4,653,980 | — | 4,653,980 | ||||||||||||
| Foreign Government Obligations |
— | 8,497,330 | — | 8,497,330 | ||||||||||||
| U.S. Government |
89,257,395 | 18,859,214 | — | 108,116,609 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
89,257,395 | 32,029,344 | 3,806,424 | 125,093,163 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
106,366,031 | — | — | 106,366,031 | ||||||||||||
| Options Purchased |
— | 1,233,819 | — | 1,233,819 | ||||||||||||
| Short-Term Investments |
2,206,564 | — | — | 2,206,564 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
197,829,990 | 33,263,163 | 3,806,424 | 234,899,577 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | 526,567 | — | 526,567 | ||||||||||||
| Futures Contracts |
||||||||||||||||
| Interest Rate Risk |
302,080 | — | — | 302,080 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 198,132,070 | $ | 33,789,730 | $ | 3,806,424 | $ | 235,728,224 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
$ | — | $ | (819,791 | ) | $ | — | $ | (819,791 | ) | ||||||
| Futures Contracts |
||||||||||||||||
| Interest Rate Risk |
(717,636 | ) | — | — | (717,636 | ) | ||||||||||
| Written Options |
||||||||||||||||
| Foreign Currency Risk |
— | (661,128 | ) | — | (661,128 | ) | ||||||||||
| Swap Contracts |
||||||||||||||||
| Credit Risk |
— | (1,116,308 | ) | — | (1,116,308 | ) | ||||||||||
| Interest Rate Risk |
— | (1,994,093 | ) | — | (1,994,093 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (717,636 | ) | $ | (4,591,320 | ) | $ | — | $ | (5,308,956 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| 100 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Currency Hedged International Bond Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Debt Obligations |
||||||||||||||||
| U.S. Government |
$ | — | $ | 3,905,754 | $ | — | $ | 3,905,754 | ||||||||
| Foreign Government Obligations |
— | 27,215,821 | — | 27,215,821 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
— | 31,121,575 | — | 31,121,575 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
35,430,299 | — | — | 35,430,299 | ||||||||||||
| Options Purchased |
— | 399,930 | — | 399,930 | ||||||||||||
| Short-Term Investments |
1,063,936 | — | — | 1,063,936 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
36,494,235 | 31,521,505 | — | 68,015,740 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | 179,501 | — | 179,501 | ||||||||||||
| Futures Contracts |
||||||||||||||||
| Interest Rate Risk |
82,675 | — | — | 82,675 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 36,576,910 | $ | 31,701,006 | $ | — | $ | 68,277,916 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
$ | — | $ | (261,816 | ) | $ | — | $ | (261,816 | ) | ||||||
| Futures Contracts |
||||||||||||||||
| Interest Rate Risk |
(391,067 | ) | — | — | (391,067 | ) | ||||||||||
| Written Options |
||||||||||||||||
| Foreign Currency Risk |
— | (218,987 | ) | — | (218,987 | ) | ||||||||||
| Swap Contracts |
||||||||||||||||
| Credit Risk |
— | (360,202 | ) | — | (360,202 | ) | ||||||||||
| Interest Rate Risk |
— | (122,176 | ) | — | (122,176 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (391,067 | ) | $ | (963,181 | ) | $ | — | $ | (1,354,248 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| Debt Opportunities Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Debt Obligations |
||||||||||||||||
| Asset-Backed Securities |
$ | — | $ | 22,566,384 | $ | 967,037,071 | $ | 989,603,455 | ||||||||
| U.S. Government Agency |
— | 210,000 | 1,087,821 | 1,297,821 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
— | 22,776,384 | 968,124,892 | 990,901,276 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
39,020,848 | — | — | 39,020,848 | ||||||||||||
| Short-Term Investments |
28,498,228 | — | — | 28,498,228 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
67,519,076 | 22,776,384 | 968,124,892 | 1,058,420,352 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 67,519,076 | $ | 22,776,384 | $ | 968,124,892 | $ | 1,058,420,352 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Domestic Bond Fund |
| |||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Debt Obligations |
||||||||||||||||
| U.S. Government |
$ | — | $ | 25,554,794 | $ | — | $ | 25,554,794 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
— | 25,554,794 | — | 25,554,794 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
159,077,499 | — | — | 159,077,499 | ||||||||||||
| Short-Term Investments |
161,725 | — | — | 161,725 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
159,239,224 | 25,554,794 | — | 184,794,018 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 159,239,224 | $ | 25,554,794 | $ | — | $ | 184,794,018 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 101 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Emerging Country Debt Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Debt Obligations |
||||||||||||||||
| Asset-Backed Securities |
$ | — | $ | 1,112,842 | $ | 74,023,788 | $ | 75,136,630 | ||||||||
| Corporate Debt |
— | 130,583,750 | — | 130,583,750 | ||||||||||||
| Foreign Government Agency |
— | 473,683,639 | 66,258,869 | 539,942,508 | ||||||||||||
| Foreign Government Obligations |
— | 1,241,315,801 | 115,702,882 | 1,357,018,683 | ||||||||||||
| Judgments |
— | — | 26,920,000 | 26,920,000 | ||||||||||||
| U.S. Government |
20,613,275 | 148,976,633 | — | 169,589,908 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
20,613,275 | 1,995,672,665 | 282,905,539 | 2,299,191,479 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Loan Assignments |
— | — | 18,792,540 | 18,792,540 | ||||||||||||
| Loan Participations |
— | — | 54,054,380 | 54,054,380 | ||||||||||||
| Mutual Funds |
126,834,848 | — | — | 126,834,848 | ||||||||||||
| Rights/Warrants |
— | — | 11,793,301 | 11,793,301 | ||||||||||||
| Short-Term Investments |
101,407,102 | 85,866,253 | — | 187,273,355 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
248,855,225 | 2,081,538,918 | 367,545,760 | 2,697,939,903 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | 783,386 | — | 783,386 | ||||||||||||
| Options |
||||||||||||||||
| Credit risk |
— | — | 168,045 | 168,045 | ||||||||||||
| Swap Contracts |
||||||||||||||||
| Credit Risk |
— | 114,668,954 | 0 | ** | 114,668,954 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 248,855,225 | $ | 2,196,991,258 | $ | 367,713,805 | $ | 2,813,560,288 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
$ | — | $ | (1,665,723 | ) | $ | — | $ | (1,665,723 | ) | ||||||
| Options |
||||||||||||||||
| Credit Risk |
— | — | (3,022,857 | ) | (3,022,857 | ) | ||||||||||
| Swap Contracts |
||||||||||||||||
| Credit Risk |
— | (135,227,259 | ) | — | (135,227,259 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | — | $ | (136,892,982 | ) | $ | (3,022,857 | ) | $ | (139,915,839 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| Global Bond Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Debt Obligations |
||||||||||||||||
| Foreign Government Obligations |
$ | — | $ | 30,488,541 | $ | — | $ | 30,488,541 | ||||||||
| U.S. Government |
9,107,030 | 11,196,754 | — | 20,303,784 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
9,107,030 | 41,685,295 | — | 50,792,325 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
76,342,580 | — | — | 76,342,580 | ||||||||||||
| Options Purchased |
— | 808,817 | — | 808,817 | ||||||||||||
| Short-Term Investments |
1,364,927 | — | — | 1,364,927 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
86,814,537 | 42,494,112 | — | 129,308,649 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | 801,671 | — | 801,671 | ||||||||||||
| Futures Contracts |
||||||||||||||||
| Interest Rate Risk |
270,580 | — | — | 270,580 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 87,085,117 | $ | 43,295,783 | $ | — | $ | 130,380,900 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 102 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Global Bond Fund (continued) |
||||||||||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
$ | — | $ | (528,073 | ) | $ | — | $ | (528,073 | ) | ||||||
| Futures Contracts |
||||||||||||||||
| Interest Rate Risk |
(267,870 | ) | — | — | (267,870 | ) | ||||||||||
| Written Options |
||||||||||||||||
| Foreign Currency Risk |
— | (442,141 | ) | — | (442,141 | ) | ||||||||||
| Swap Contracts |
||||||||||||||||
| Credit Risk |
— | (183,264 | ) | — | (183,264 | ) | ||||||||||
| Interest Rate Risk |
— | (794,828 | ) | — | (794,828 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (267,870 | ) | $ | (1,948,306 | ) | $ | — | $ | (2,216,176 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| International Bond Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Debt Obligations |
||||||||||||||||
| U.S. Government |
$ | — | $ | 3,570,976 | $ | — | $ | 3,570,976 | ||||||||
| Foreign Government Obligations |
— | 21,693,175 | — | 21,693,175 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
— | 25,264,151 | — | 25,264,151 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
29,843,741 | — | — | 29,843,741 | ||||||||||||
| Options Purchased |
— | 391,796 | — | 391,796 | ||||||||||||
| Short-Term Investments |
1,633,548 | — | — | 1,633,548 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
31,477,289 | 25,655,947 | — | 57,133,236 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | 373,300 | — | 373,300 | ||||||||||||
| Futures Contracts |
||||||||||||||||
| Interest Rate Risk |
36,863 | — | — | 36,863 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 31,514,152 | $ | 26,029,247 | $ | — | $ | 57,543,399 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
$ | — | $ | (261,153 | ) | $ | — | $ | (261,153 | ) | ||||||
| Futures Contracts |
||||||||||||||||
| Interest Rate Risk |
(198,933 | ) | — | — | (198,933 | ) | ||||||||||
| Written Options |
||||||||||||||||
| Foreign Currency Risk |
— | (218,987 | ) | — | (218,987 | ) | ||||||||||
| Swap Contracts |
||||||||||||||||
| Credit Risk |
— | (293,747 | ) | — | (293,747 | ) | ||||||||||
| Interest Rate Risk |
— | (316,942 | ) | — | (316,942 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (198,933 | ) | $ | (1,090,829 | ) | $ | — | $ | (1,289,762 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| 103 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Short-Duration Collateral Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Debt Obligations |
||||||||||||||||
| Asset-Backed Securities |
$ | — | $ | 53,672,254 | $ | 550,048,537 | $ | 603,720,791 | ||||||||
| U.S. Government Agency |
— | — | 26,927,013 | 26,927,013 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
— | 53,672,254 | 576,975,550 | 630,647,804 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
29,880,928 | — | — | 29,880,928 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
29,880,928 | 53,672,254 | 576,975,550 | 660,528,732 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 29,880,928 | $ | 53,672,254 | $ | 576,975,550 | $ | 660,528,732 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Duration Collateral Share Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Mutual Funds |
$ | 39,024,971 | $ | — | $ | — | $ | 39,024,971 | ||||||||
| Short-Term Investments |
5,784 | — | — | 5,784 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
39,030,755 | — | — | 39,030,755 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 39,030,755 | $ | — | $ | — | $ | 39,030,755 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Strategic Fixed Income Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Debt Obligations |
||||||||||||||||
| U.S. Government |
$ | 325,247,162 | $ | 79,454,204 | $ | — | $ | 404,701,366 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
325,247,162 | 79,454,204 | — | 404,701,366 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
826,705,080 | — | — | 826,705,080 | ||||||||||||
| Options Purchased |
— | 8,982,077 | — | 8,982,077 | ||||||||||||
| Short-Term Investments |
59,769,464 | — | — | 59,769,464 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
1,211,721,706 | 88,436,281 | — | 1,300,157,987 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | 3,772,315 | — | 3,772,315 | ||||||||||||
| Futures Contracts |
||||||||||||||||
| Interest Rate Risk |
1,244,719 | — | — | 1,244,719 | ||||||||||||
| Swap Contracts |
||||||||||||||||
| Interest Rate Risk |
— | 6,472,792 | — | 6,472,792 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 1,212,966,425 | $ | 98,681,388 | $ | — | $ | 1,311,647,813 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
$ | — | $ | (5,253,539 | ) | $ | — | $ | (5,253,539 | ) | ||||||
| Futures Contracts |
||||||||||||||||
| Interest Rate Risk |
(3,546,150 | ) | — | — | (3,546,150 | ) | ||||||||||
| Written Options |
||||||||||||||||
| Foreign Currency Risk |
— | (4,990,103 | ) | — | (4,990,103 | ) | ||||||||||
| Swap Contracts |
||||||||||||||||
| Interest Rate Risk |
— | (7,515,198 | ) | — | (7,515,198 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (3,546,150 | ) | $ | (17,758,840 | ) | $ | — | $ | (21,304,990 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| 104 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| U.S. Treasury Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Short-Term Investments |
$ | 2,353,395,985 | $ | 392,346,406 | $ | — | $ | 2,745,742,391 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
2,353,395,985 | 392,346,406 | — | 2,745,742,391 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 2,353,395,985 | $ | 392,346,406 | $ | — | $ | 2,745,742,391 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| World Opportunity Overlay Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Debt Obligations |
||||||||||||||||
| Asset-Backed Securities |
$ | — | $ | 1,588,272 | $ | 136,959,615 | $ | 138,547,887 | ||||||||
| Foreign Government Obligations |
— | 43,972,750 | — | 43,972,750 | ||||||||||||
| U.S. Government |
— | 396,300,988 | — | 396,300,988 | ||||||||||||
| U.S. Government Agency |
— | 840,000 | — | 840,000 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
— | 442,702,010 | 136,959,615 | 579,661,625 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Options Purchased |
— | 12,532,396 | — | 12,532,396 | ||||||||||||
| Short-Term Investments |
27,304,066 | — | — | 27,304,066 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
27,304,066 | 455,234,406 | 136,959,615 | 619,498,087 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives* |
||||||||||||||||
| Swap Contracts |
||||||||||||||||
| Interest Rate Risk |
— | 15,360,531 | — | 15,360,531 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 27,304,066 | $ | 470,594,937 | $ | 136,959,615 | $ | 634,858,618 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Written Options |
||||||||||||||||
| Interest Rate Risk |
$ | — | $ | (2,676,240 | ) | $ | — | $ | (2,676,240 | ) | ||||||
| Swap Contracts |
||||||||||||||||
| Interest Rate Risk |
— | (55,828,940 | ) | — | (55,828,940 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | — | $ | (58,505,180 | ) | $ | — | $ | (58,505,180 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
The risks referenced in the tables above are not intended to be inclusive of all risks. Please see the “Investment and other risks” and “Derivative financial instruments” sections below for a further discussion of risks.
| * | The tables above are based on market values or unrealized appreciation/(depreciation) rather than the notional amounts of derivatives. The uncertainties surrounding the valuation inputs for a derivative are likely to be more significant to the Funds’ net asset values than the uncertainties surrounding inputs for a non-derivative security with the same market value. |
| ** | Represents the interest in derivatives that were determined to have a fair value of zero at August 31, 2013. |
| 105 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Additional Level 3 information
The following table presents additional information about valuation techniques and inputs used for securities and derivatives, if any, that are measured at fair value and categorized within Level 3 as of August 31, 2013.
| Fund Name | Description | Fair Value at August 31, 2013 |
Valuation Technique(s) | Unobservable Input(s) | Resulting Range of Fair Value | |||||||
| Short-Duration Collateral Fund | Agency for International Development Floater Bond (Support of Morocco, Peru or Tunisia) | $26,927,013 | Current LIBOR yield curve is adjusted to reflect a liquidity discount | Liquidity Discount* | Possible impact to fair value due to range of liquidity discount: $26,140,115 to $27,715,526 or approximately 0.24% of Fund net assets. | |||||||
| * | The significant unobservable input used in the fair value measurement of Short-Duration Collateral Fund’s Agency for International Development Floater (Support of Morocco, Peru and Tunisia) is the liquidity discount, expressed as a premium ranging from 75 – 175 basis points (currently 125 basis points) over the current yield curve. Increases (decreases) in this input would result in a lower (higher) fair value measurement. |
The underlying funds held at period end are classified above as Level 1. For the summary of valuation inputs of the underlying funds, please refer to the underlying funds’ summary of levels above.
For all Funds for the period ended August 31, 2013, there were no material transfers between Level 1 and Level 2.
The following is a reconciliation of securities and derivatives, if any, in which significant unobservable inputs (Level 3) were used in determining value:
| Balances as of February 28, 2013 |
Purchases | Sales | Accrued Discounts/ Premiums |
Total Realized Gain/ (Loss) |
Change in Unrealized Appreciation (Depreciation) |
Transfer into Level 3* |
Transfer out of Level 3* |
Balances as of August 31, 2013 |
Net Change in Unrealized Appreciation (Depreciation) from Investments Still Held as of August 31, 2013 |
|||||||||||||||||||||||||||||||
| Core Plus Bond Fund |
||||||||||||||||||||||||||||||||||||||||
| Debt Obligations |
||||||||||||||||||||||||||||||||||||||||
| Asset-Backed Securities |
$ | 4,921,731 | $ | — | $ | (1,347,461 | ) | $ | 148,998 | $ | 49,802 | $ | 33,354 | $ | — | $ | — | $ | 3,806,424 | $ | 85,959 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total |
$ | 4,921,731 | $ | — | $ | (1,347,461 | )# | $ | 148,998 | $ | 49,802 | $ | 33,354 | $ | — | $ | — | $ | 3,806,424 | $ | 85,959 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Debt Opportunities Fund |
||||||||||||||||||||||||||||||||||||||||
| Debt Obligations |
||||||||||||||||||||||||||||||||||||||||
| Asset-Backed Securities |
$ | 708,648,766 | $ | 376,899,906 | $ | (120,082,391 | ) | $ | 7,192,141 | $ | 8,050,333 | $ | (13,671,684 | ) | $ | — | $ | — | $ | 967,037,071 | $ | (11,327,255 | ) | |||||||||||||||||
| U.S. Government Agency |
1,203,773 | — | (121,266 | ) | 5,587 | — | (273 | ) | — | — | 1,087,821 | (273 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total |
$ | 709,852,539 | $ | 376,899,906 | $ | (120,203,657 | )## | $ | 7,197,728 | $ | 8,050,333 | $ | (13,671,957 | ) | $ | — | $ | — | $ | 968,124,892 | $ | (11,327,528 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| 106 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Balances as of February 28, 2013 |
Purchases | Sales | Accrued Discounts/ Premiums |
Total Realized Gain/ (Loss) |
Change in Unrealized Appreciation (Depreciation) |
Transfer into Level 3* |
Transfer out of Level 3* |
Balances as of August 31, 2013 |
Net Change in Unrealized Appreciation (Depreciation) from Investments Still Held as of August 31, 2013 |
|||||||||||||||||||||||||||||||
| Emerging Country Debt Fund |
||||||||||||||||||||||||||||||||||||||||
| Debt Obligations |
|
|||||||||||||||||||||||||||||||||||||||
| Asset-Backed Securities |
$ | 78,333,335 | $ | — | $ | (8,492,259 | ) | $ | 291,226 | $ | (4,552,409 | ) | $ | 8,443,895 | $ | — | $ | — | $ | 74,023,788 | $ | 3,466,291 | ||||||||||||||||||
| Foreign Government Agency |
23,627,005 | 55,129,686 | (11,292,220 | ) | 235,100 | (97,739 | ) | (1,342,963 | ) | — | — | 66,258,869 | (1,958,382 | ) | ||||||||||||||||||||||||||
| Foreign Government Obligations |
129,375,029 | — | (8,838,811 | ) | 2,391,675 | 788,791 | (8,013,802 | ) | — | — | 115,702,882 | (13,386,496 | ) | |||||||||||||||||||||||||||
| Judgments |
28,800,000 | — | — | 384,899 | — | (2,264,899 | ) | — | — | 26,920,000 | (2,264,899 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total Debt Obligations |
260,135,369 | 55,129,686 | (28,623,290 | ) | 3,302,900 | (3,861,357 | ) | (3,177,769 | ) | — | — | 282,905,539 | (14,143,486 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Loan Assignments |
24,325,626 | — | (6,767,594 | ) | 796,503 | 704 | 437,301 | — | — | 18,792,540 | 513,952 | |||||||||||||||||||||||||||||
| Loan Participations |
68,578,286 | — | (4,610,409 | ) | 1,900,115 | — | (11,813,612 | ) | — | — | 54,054,380 | — | ||||||||||||||||||||||||||||
| Rights/ Warrants |
11,013,004 | — | — | — | — | 780,297 | — | — | 11,793,301 | — | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total Investments |
364,052,285 | 55,129,686 | (40,001,293 | )### | 5,999,518 | (3,860,653 | ) | (13,773,783 | ) | — | — | 367,545,760 | (13,629,534 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Derivatives |
||||||||||||||||||||||||||||||||||||||||
| Swap Contracts |
0 | ** | — | — | — | — | — | — | — | 0 | ** | — | ||||||||||||||||||||||||||||
| Options |
(519,306 | ) | — | — | — | — | (2,335,506 | ) | — | — | (2,854,812 | ) | — | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total |
$ | 363,532,979 | $ | 55,129,686 | $ | (40,001,293 | ) | $ | 5,999,518 | $ | (3,860,653 | ) | $ | (16,109,289 | ) | $ | — | $ | — | $ | 364,690,948 | $ | (13,629,534 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Short-Duration Collateral Fund |
||||||||||||||||||||||||||||||||||||||||
| Debt Obligations |
|
|||||||||||||||||||||||||||||||||||||||
| Asset-Backed Securities |
$ | 662,203,439 | $ | — | $ | (137,888,413 | ) | $ | (398,474 | ) | $ | 2,044 | $ | 26,129,941 | $ | — | $ | — | $ | 550,048,537 | $ | 26,079,928 | ||||||||||||||||||
| U.S. Government Agency |
28,128,653 | — | (1,269,065 | ) | 4,955 | — | 62,470 | — | — | 26,927,013 | 62,470 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total |
$ | 690,332,092 | $ | — | $ | (139,157,478 | )#### | $ | (393,519 | ) | $ | 2,044 | $ | 26,192,411 | $ | — | $ | — | $ | 576,975,550 | $ | 26,142,398 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| World Opportunity Overlay Fund |
||||||||||||||||||||||||||||||||||||||||
| Debt Obligations |
|
|||||||||||||||||||||||||||||||||||||||
| Asset-Backed Securities |
$ | 158,075,294 | $ | — | $ | (28,511,481 | ) | $ | (359,492 | ) | $ | (79 | ) | $ | 7,755,373 | $ | — | $ | — | $ | 136,959,615 | $ | 7,739,049 | |||||||||||||||||
| Options Purchased |
14,676,864 | — | (14,275,200 | ) | — | 5,088,000 | (5,489,664 | ) | — | — | — | (5,489,664 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total |
$ | 172,752,158 | $ | — | $ | (42,786,681 | )##### | $ | (359,492 | ) | $ | 5,087,921 | $ | 2,265,709 | $ | — | $ | — | $ | 136,959,615 | $ | 2,249,385 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| 107 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| * | The Funds account for securities and derivatives, if any, transferred into and out of Level 3 at the value at the end of the period. |
| ** | Represents the interest in derivatives that were determined to have a fair value of zero at February 28, 2013 and August 31, 2013. |
| # | Includes $911,617 of proceeds received from paydowns. |
| ## | Includes $72,173,644 of proceeds received from paydowns. |
| ### | Includes $12,317,531 of proceeds received from paydowns. |
| #### | Includes $96,281,659 of proceeds received from paydowns. |
| ##### | Includes $22,356,372 of proceeds received from paydowns. |
The net aggregate direct and/or indirect exposure to investments in securities and derivative financial instruments using Level 3 inputs (based on the Funds’ net assets) as of August 31, 2013 were as follows:.
| Fund Name | Level 3 securities | Level 3 derivatives | ||||||
| Asset Allocation Bond Fund |
— | — | ||||||
| Core Plus Bond Fund |
17% | (1)% | ||||||
| Currency Hedged International Bond Fund |
18% | (1)% | ||||||
| Debt Opportunities Fund |
91% | — | ||||||
| Domestic Bond Fund |
71% | — | ||||||
| Emerging Country Debt Fund |
14% | (1)% | ||||||
| Global Bond Fund |
24% | (1)% | ||||||
| International Bond Fund |
27% | (1)% | ||||||
| Short-Duration Collateral Fund |
87% | — | ||||||
| Short-Duration Collateral Share Fund |
87% | — | ||||||
| Strategic Fixed Income Fund |
30% | (1)% | ||||||
| U.S. Treasury Fund |
— | — | ||||||
| World Opportunity Overlay Fund |
25% | — | ||||||
Cash and Statement of Cash Flows
Cash and Foreign Currency, if any, on the Statements of Assets and Liabilities consists of cash balances held with the custodian.
Due to/from broker
Due to/from broker in the Statements of Assets and Liabilities includes collateral on swap contracts, futures contracts, option contracts and forward currency contracts, if any, and may include mark to market amounts related to foreign currency.
Foreign currency translation
The market values of foreign securities, currency holdings and related assets and liabilities are typically translated into U.S. Dollars at the close of regular trading on the New York Stock Exchange (“NYSE”), generally at 4:00 pm Boston time. Income and expenses denominated in foreign currencies are typically translated into U.S. Dollars at the close of regular trading on the NYSE. Fluctuations in the value of currency holdings and other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains or losses. Realized gains or losses and unrealized appreciation or depreciation on investment securities and income and expenses are translated on the respective dates of such transactions. The effects of changes in foreign currency exchange rates on investments in securities are not separated on the Statements of Operations from the effects of changes in market prices of those securities, but are included with the net realized and unrealized gain or loss on investment securities.
Loan agreements and participations
The Funds (except Short-Duration Collateral Fund, Short-Duration Collateral Share Fund and U.S. Treasury Fund) may invest in loans to corporate, governmental or other borrowers. A Fund’s investments in loans may be in the form of participations in loans or assignments of all or a portion of loans. 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. When investing in a loan participation, (i) a Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the party from whom the Fund has purchased the participation and only upon receipt by that party of payments from the borrower and (ii) a Fund generally has no right to enforce compliance by the borrower with the terms of the loan agreement or to vote on matters arising under the loan agreement. Thus, a Fund may be subject to credit risk both of the party from whom it purchased the loan participation and the borrower and that Fund may have minimal control over the terms of any loan modification. When a
| 108 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Fund purchases assignments of loans, it generally acquires direct rights against the borrower. Loan agreements outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Repurchase agreements
The Funds may enter into repurchase agreements. Under a repurchase agreement a Fund acquires a security for a relatively short period for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. That Fund, through its custodian, takes possession of securities it acquired under the repurchase agreement. The value of the securities acquired may be less than the amount owed to that Fund by the seller. If the seller in a repurchase agreement transaction defaults or enters into insolvency proceedings and/or the value of the securities subject to the repurchase agreement is insufficient, that Fund’s recovery of cash from the seller may be delayed and, even if that Fund is able to dispose of the securities, the Fund may incur a loss equal to the difference between the cash it paid and the value of the securities. As of August 31, 2013, Emerging Country Debt Fund had investments in repurchase agreements with JPMorgan Chase Bank N.A. with a gross value of $85,866,253 and a net value of $4,043,773. Repurchase agreements outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Reverse repurchase agreements
The Funds may enter into reverse repurchase agreements. Under a reverse repurchase agreement a Fund sells portfolio assets subject to an agreement by that Fund to repurchase the same assets at an agreed upon price and date. A Fund can use the proceeds received from entering into a reverse repurchase agreement to make additional investments, which generally causes that Fund’s portfolio to behave as if it were leveraged. If the buyer in a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund may be unable to recover the securities it sold and as a result may realize a loss on the transaction if the securities it sold are worth more than the purchase price it originally received from the buyer. As of August 31, 2013, the Funds listed below had entered into reverse repurchase agreements.
| Fund Name | Received from reverse repurchase agreements ($) |
Market value of securities plus accrued interest ($) |
||||||
| World Opportunity Overlay Fund |
43,304,341 | 44,523,798 | ||||||
As of August 31, 2013, World Opportunity Overlay Fund had investments in reverse repurchase agreements with Barclays Bank PLC with a gross value of $43,304,341 and a net value of $1,219,457 (the value of related collateral exceeded the value of the reverse repurchase agreement at period end). Reverse repurchase agreements outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Inflation-Indexed bonds
The Funds (except U.S. Treasury Fund) may invest in inflation-indexed bonds. 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 reflects inflation in the principal value of the bond. Most other issuers pay out any inflation related accruals as part of a semiannual coupon.
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. 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, even though principal is not paid until maturity. Inflation-indexed bonds outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Delayed delivery commitments and when-issued securities
The Funds (except U.S. Treasury Fund) may purchase or sell securities on a when-issued or forward commitment basis. Payment and delivery may take place a month or more after the date of the transaction. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The purchase of when-issued or delayed delivery securities can cause a Fund’s portfolio to be leveraged. Delayed delivery commitments outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Taxes and distributions
Each Fund, except World Opportunity Overlay Fund (see below), intends to qualify each tax year as a regulated investment company (each a “RIC Fund”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). Each RIC Fund intends to distribute substantially all of its net investment income, if any, and all of its net realized short-term and long-term capital gains, if any, after giving effect to
| 109 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
any available capital loss carryforwards for U.S. federal income tax purposes. Therefore, each RIC Fund makes no provision for U.S. federal income or excise taxes. Taxes on foreign interest and dividend income are generally withheld in accordance with the applicable country’s tax treaty with the United States. The foreign withholding rates applicable to each RIC Fund’s investments in certain jurisdictions may be higher if a significant portion of each RIC Fund is held by non-U.S. shareholders.
World Opportunity Overlay Fund (a “Partnership Fund”) has elected to be treated as a partnership for U.S. federal income tax purposes and each shareholder is responsible for their tax liabilities, if any, related to their allocable share of Partnership Fund taxable income, gains, losses, deductions, credits and items of tax preference. The Partnership Fund’s activities do not generally constitute those of a U.S. trade or business. Accordingly, the Partnership Fund is generally not subject to U.S. federal, state and/or other income-based U.S. taxes (other than certain withholding taxes). Dividends and other income may be subject to withholding or similar taxes imposed by the country in which such dividends or other income originate.
With the exception of U.S. Treasury Fund, the policy of each RIC Fund is to declare and pay distributions of net investment income, if any, semi-annually. U.S. Treasury Fund’s policy is to declare distributions daily, to the extent net investment income is available, and pay distributions on the first business day following the end of each month in which distributions were declared. Each RIC Fund’s policy is to declare and pay distributions from net realized short-term and long-term capital gains, if any, at least annually. Typically all distributions are reinvested in additional shares of each RIC Fund, at net asset value, unless the shareholder elects to receive cash distributions. Distributions to shareholders are recorded by each RIC Fund on the ex-dividend date.
Since October 2008 and April 2009, respectively, Short Duration Collateral Fund and Domestic Bond Fund have declared and paid distributions when each fund has acquired a meaningful cash position rather than reinvesting that cash in portfolio securities. A substantial portion of any such distributions could constitute a return of capital to shareholders of Short Duration Collateral Fund and Domestic Bond Fund for tax purposes.
Because the Partnership Fund has elected to be treated as a partnership for U.S. federal income tax purposes, it is not required to make distributions to its shareholders. It is the policy of the Partnership Fund to declare and pay non-redeeming distributions in the sole discretion of the Trustees (or their delegates). Distributions made by the Partnership Fund, if any, other than distributions made in partial or complete redemption of shareholders’ interests in the Partnership Fund, are reported in the Partnership Fund’s Statement of Changes in Net Assets as Partnership Fund distributions to shareholders.
Each Fund may be subject to taxation on realized capital gains, repatriation proceeds and other transaction-based taxes imposed by certain countries in which it invests. Taxes related to capital gains realized during the period ended August 31, 2013, if any, are reflected as part of Net realized gain (loss) in the Statements of Operations. Changes in tax liabilities related to capital gain taxes on unrealized investment gains, if any, are reflected as part of Change in net unrealized appreciation (depreciation) in the Statements of Operations. Transaction-based charges are generally calculated as a percentage of the transaction amount.
Income and capital gain distributions for each RIC Fund are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will likely reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over-distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Distributions in excess of a RIC Fund’s tax basis earnings and profits, if significant, are reported in the financial statements as a return of capital.
As of February 28, 2013, the RIC Funds listed below elected to defer to March 1, 2013 late-year ordinary losses and post-October capital losses as follows:
| Fund Name | Late-Year Ordinary Losses ($) |
Post- October Capital Losses ($) |
||||||
| Asset Allocation Bond Fund |
(11,447) | (133,919) | ||||||
| Currency Hedged International Bond Fund |
— | (16,787) | ||||||
| Domestic Bond Fund |
(216,770) | — | ||||||
| Global Bond Fund |
(78,425) | — | ||||||
| International Bond Fund |
(1,411,315) | — | ||||||
| Short-Duration Collateral Share Fund |
(28,777) | — | ||||||
| 110 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
As of February 28, 2013, the RIC Funds listed below had capital loss carryforwards available to offset future realized gains, if any, to the extent permitted by the Code. Net capital losses recognized in taxable years beginning on or after March 1, 2011 are carried forward without expiration and generally retain their short-term and/or long-term tax character, as applicable. In addition, such losses should be utilized prior to losses scheduled to expire on or before February 28, 2019. As a result of this ordering rule, losses that are subject to expiration may expire unused. Utilization of the capital loss carryforwards, post-October capital losses, late-year ordinary losses, and losses realized subsequent to February 28, 2013, if any, could be subject to further limitations imposed by the Code related to share ownership activity. The RIC Funds’ capital loss carryforwards are as follows:
| Short-Term ($) | Total Short- Term ($) |
Long- Term ($) |
||||||||||||||||||||||||||||||||||
| Fund Name |
Expiration Date 2/28/2014 |
Expiration Date 2/28/2015 |
Expiration Date 2/29/2016 |
Expiration Date 2/28/2017 |
Expiration Date 2/28/2018 |
Expiration Date 2/28/2019 |
No Expiration Date |
No Expiration Date |
||||||||||||||||||||||||||||
| Asset Allocation Bond Fund |
— | — | — | — | — | (6,593,369) | — | (6,593,369) | — | |||||||||||||||||||||||||||
| Core Plus Bond Fund |
(34,693,380) | (2,795,728) | (33,008,915) | (74,050,257) | (17,147,333) | (138,723) | — | (161,834,336) | (1,756,490) | |||||||||||||||||||||||||||
| Currency Hedged International Bond Fund |
— | — | — | (1,749,220) | (3,328,985) | — | — | (5,078,205) | (3,174,119) | |||||||||||||||||||||||||||
| Debt Opportunities Fund |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Domestic Bond Fund |
— | — | — | — | (3,229,648) | (814,498) | (248) | (4,044,394) | (647,925) | |||||||||||||||||||||||||||
| Emerging Country Debt Fund |
— | — | — | (14,763,199) | — | (66,474,254) | — | (81,237,453) | — | |||||||||||||||||||||||||||
| Global Bond Fund |
(5,470,276) | (269,796) | — | (4,412,277) | (6,769,760) | (1,398,524) | — | (18,320,633) | — | |||||||||||||||||||||||||||
| International Bond Fund |
— | (8,815,813) | (507,910) | (8,354,148) | (4,431,029) | (4,162,554) | (644,675) | (26,916,129) | (296,123) | |||||||||||||||||||||||||||
| Short-Duration Collateral Fund |
— | (4,239,935) | (1,158,601) | (32,360,541) | (41,313,788) | (307,583) | — | (79,380,448) | (8,478,464) | |||||||||||||||||||||||||||
| Short-Duration Collateral Share Fund |
— | — | (3,173,391) | (862,175) | — | — | — | (4,035,566) | — | |||||||||||||||||||||||||||
| Strategic Fixed Income Fund |
— | — | — | (93,680,008) | (123,451,454) | — | — | (217,131,462) | — | |||||||||||||||||||||||||||
As of August 31, 2013, the approximate cost for U.S. federal income tax purposes and the aggregate investment-level gross and net unrealized appreciation (depreciation) in the value of investments were as follows:
| Fund Name | Aggregate Cost ($) |
Gross Unrealized Appreciation ($) |
Gross Unrealized (Depreciation) ($) |
Net Unrealized Appreciation (Depreciation) ($) |
||||||||||||
| Asset Allocation Bond Fund |
2,307,229,883 | — | (53,907,206) | (53,907,206) | ||||||||||||
| Core Plus Bond Fund |
258,704,883 | — | (23,805,306) | (23,805,306) | ||||||||||||
| Currency Hedged International Bond Fund |
70,996,295 | — | (2,980,555) | (2,980,555) | ||||||||||||
| Debt Opportunities Fund |
1,048,927,738 | 27,175,539 | (17,682,925) | 9,492,614 | ||||||||||||
| Domestic Bond Fund |
184,330,746 | 678,720 | (215,448) | 463,272 | ||||||||||||
| Emerging Country Debt Fund |
2,809,540,505 | 116,620,725 | (228,221,327) | (111,600,602) | ||||||||||||
| Global Bond Fund |
141,423,226 | 3,042,698 | (15,157,275) | (12,114,577) | ||||||||||||
| International Bond Fund |
65,694,669 | — | (8,561,433) | (8,561,433) | ||||||||||||
| Short-Duration Collateral Fund |
915,595,180 | 1,286,925 | (256,353,373) | (255,066,448) | ||||||||||||
| Short-Duration Collateral Share Fund |
32,026,031 | 7,004,724 | — | 7,004,724 | ||||||||||||
| Strategic Fixed Income Fund |
1,336,558,724 | 11,453,104 | (47,853,841) | (36,400,737) | ||||||||||||
| U.S. Treasury Fund |
2,745,496,280 | 246,111 | — | 246,111 | ||||||||||||
| World Opportunity Overlay Fund |
642,164,841 | 19,026,861 | (41,693,615) | (22,666,754) | ||||||||||||
On October 12, 2006, International Bond Fund paid a dividend under Code Section 860 of $0.09229 per share to shareholders of record as of October 11, 2006. It is anticipated that the fund will be required to make a payment, estimated to be $830,768, to the Internal Revenue Service (“IRS”) related to such dividend, which has been included in accrued expenses on the Statement of Assets and Liabilities. The Manager will make a reimbursement payment to the fund concurrent with International Bond Fund’s payment to the IRS.
The Funds are subject to authoritative guidance related to the accounting and disclosure of uncertain tax positions under U.S. GAAP. This guidance sets forth a minimum threshold for the financial statement recognition of tax positions taken based on the technical merits of such positions. United States and non-U.S. tax rules (including the interpretation and application of tax laws) are subject to change. The Funds file tax
| 111 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
returns and/or adopt certain tax positions in various jurisdictions. Non-U.S. taxes are provided for based on the Funds’ understanding of the prevailing tax rules of the non-U.S. markets in which they invest. Recently enacted tax rules, including interpretations of tax laws (e.g., regulations pertaining to the U.S. Foreign Account Tax Compliance Act) and proposed legislation currently under consideration in various jurisdictions, including the U.S., might affect the way the Funds and their investors are taxed prospectively and/or retroactively. Prior to the expiration of the relevant statutes of limitations, if any, the Funds are subject to examination by U.S. federal, state, local and non-U.S. jurisdictions with respect to the tax returns they have filed and the tax positions they have adopted. The Funds’ U.S. federal income tax returns are generally subject to examination by the Internal Revenue Service for a period of three years after they are filed. State, local and/or non-U.S. tax returns and/or other filings may be subject to examination for different periods, depending upon the tax rules of each applicable jurisdiction.
Security transactions and related investment income
Security transactions are accounted for in the financial statements on trade date. For purposes of daily net asset value calculations, the Funds’ policy is that security transactions are generally accounted for on the following business day. The Manager may override that policy and a Fund may account for security transactions on trade date if it experiences significant purchases or redemptions or engages in significant portfolio transactions. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when a Fund is informed of the ex-dividend date. Income dividends and capital gain distributions from the underlying funds are recorded on the ex-dividend date. Interest income is recorded on the accrual basis and is adjusted for the amortization of premiums and accretion of discounts. Principal on inflation-indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or investment loss. Coupon income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Funds use the identified cost basis.
Expenses
Most of the expenses of the Trust are directly identifiable to an individual Fund. Common expenses are allocated among the Funds based on, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses, purchase premiums and redemption fees, if any, and realized and unrealized gains and losses are allocated among the classes of shares of the Funds, if applicable, based on the relative net assets of each class. Shareholder service fees, if any, which are directly attributable to a class of shares, are charged to that class’s operations. In addition, the Funds may incur fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different expense and fee levels and the Funds may own different proportions of the underlying funds at different times, the amount of fees and expenses indirectly incurred by a Fund will vary (See Note 5).
State Street Bank and Trust Company (“State Street”) serves as the Funds’ custodian, fund accounting agent and transfer agent. State Street’s transfer agent fees may be reduced by an earnings allowance calculated on the average daily cash balances each Fund maintains in a State Street transfer agent account. Earnings allowances are reported as a reduction of expenses in the Statement of Operations. Prior to December 31, 2012, State Street’s custodian fees may have been reduced by an earnings allowance calculated on the average daily cash balance each Fund maintained in a State Street custodial account. Earnings allowances were reported as a reduction of expenses in the Statements of Operations. Effective January 1, 2013, any cash balances maintained at the custodian are held in a Demand Deposit Account and interest income earned, if any, is shown as interest income in the Statements of Operations.
Purchases and redemptions of Fund shares
Purchase premiums and redemption fees (if applicable) are paid to and retained by a Fund to help offset estimated portfolio transaction costs and other related costs (e.g., bid to ask spreads, stamp duties and transfer fees) incurred by the Fund (directly or indirectly through investments in underlying funds) as a result of the purchase or redemption by allocating estimated transaction costs to the purchasing or redeeming shareholder. Such fees are recorded as a component of the Funds’ net share transactions. A Fund may impose a new purchase premium and/or redemption fee or modify an existing fee at any time.
Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of a Fund’s shares if the Fund will not incur transaction costs or will incur reduced transaction costs.
The Manager will waive or reduce the purchase premium when securities are used to purchase a Fund’s shares except to the extent that the Fund incurs transaction costs (e.g., stamp duties or transfer fees) in connection with its acquisition of those securities. The Funds may waive or reduce redemption fees when they use portfolio securities to redeem their shares. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may nonetheless charge a redemption fee equal to known or estimated costs.
Purchase premiums or redemption fees generally will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with the Trust to transmit orders for purchases and redemptions the day after those orders are received.
| 112 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
As of August 31, 2013, the premium on cash purchases and the fee on cash redemptions were as follows:
| Asset Allocation Bond Fund |
Core Plus Bond Fund |
Currency Hedged Inter-national Bond Fund |
Debt Oppor-tunities Fund |
Domestic Bond Fund |
Emerging Country Debt Fund |
Global Bond Fund |
Interna-tional Bond Fund |
Short- Duration Collateral Fund |
Short- Duration Collateral Share Fund |
Strategic Fixed Income Fund |
U.S. Treasury Fund |
World Opportunity Overlay Fund | ||||||||||||||
| Purchase Premium | — | — | — | 0.40% | — | 0.50% | — | — | — | — | 0.20% | — | — | |||||||||||||
| Redemption Fee | — | — | — | 0.40% | — | 0.50% | — | — | — | — | 0.20% | — | — |
Other matters
Emerging Country Debt Fund
In December 2005, Emerging County Debt Fund (“ECDF”) entered into litigation against the Government of Argentina (“Argentina”) relating to Argentina’s failure to make payments on sovereign debt held by ECDF. A judgment was awarded in ECDF’s favor on September 24, 2007; however, ECDF’s ability to collect on this judgment remains uncertain, and ECDF is not able to transfer or sell the judgment without court consent. In late May 2010, Argentina commenced a public debt exchange in which certain defaulted debts, including legal judgments on those debts, were eligible to be exchanged for currently performing Argentina Bonds. The eligible portion of ECDF’s judgment was tendered in the debt exchange and ECDF received new bonds in June 2010. The remaining portion of ECDF’s judgment, which continues to be valued according to ECDF’s valuation policy, represented 1.0% of the net assets of ECDF as of August 31, 2013.
| 3. | Investment and other risks |
The following chart identifies selected risks associated with each Fund. Risks not marked for a particular Fund may, however, still apply to some extent to that Fund at various times.
| Asset Allo-cation Bond Fund | Core Plus Bond Fund | Currency Hedged Inter-national Bond Fund | Debt Opportunities Fund | Domestic Bond Fund | Emerging Country Debt Fund | Global Bond Fund | Inter-national Bond Fund |
Short-Duration Collateral Fund | Short-Duration Collateral Share Fund | Strategic Fixed Income Fund | U.S. Treasury Fund | World Oppor-tunity Overlay Fund | ||||||||||||||
| Market Risk – Fixed Income Investments | X | X | X | X | X | X | X | X | X | X | X | X | X | |||||||||||||
| Market Risk – Asset-Backed Securities | X | X | X | X | X | X | X | X | X | X | X | X | ||||||||||||||
| Credit Risk | X | X | X | X | X | X | X | X | X | X | X | X | X | |||||||||||||
| Liquidity Risk | X | X | X | X | X | X | X | X | X | X | X | X | ||||||||||||||
| Derivatives Risk | X | X | X | X | X | X | X | X | X | X | X | X | ||||||||||||||
| Non-U.S. Investment Risk | X | X | X | X | X | X | X | X | X | X | X | |||||||||||||||
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August 31, 2013 (Unaudited)
| Asset Allo-cation Bond Fund | Core Plus Bond Fund | Currency Hedged Inter-national Bond Fund | Debt Opportunities Fund | Domestic Bond Fund | Emerging Country Debt Fund | Global Bond Fund | Inter-national Bond Fund |
Short-Duration Collateral Fund | Short-Duration Collateral Share Fund | Strategic Fixed Income Fund | U.S. Treasury Fund | World Oppor-tunity Overlay Fund | ||||||||||||||
| Currency Risk | X | X | X | X | X | X | X | X | X | |||||||||||||||||
| Focused Investment Risk | X | X | X | X | X | X | X | X | X | X | X | X | X | |||||||||||||
| Leveraging Risk | X | X | X | X | X | X | X | X | X | X | ||||||||||||||||
| Counterparty Risk | X | X | X | X | X | X | X | X | X | X | X | X | ||||||||||||||
| Market Disruption and Geopolitical Risk | X | X | X | X | X | X | X | X | X | X | X | X | X | |||||||||||||
| Large Shareholder Risk | X | X | X | X | X | X | X | X | X | X | X | X | X | |||||||||||||
| Management and Operational Risk | X | X | X | X | X | X | X | X | X | X | X | X | X | |||||||||||||
| Options Risk | X | |||||||||||||||||||||||||
| Fund of Funds Risk | X | X | X | X | X | X | X | X | X | X | ||||||||||||||||
| Non-Diversified Funds | X | X | X | X | X | X | X | X | X | X | X | X | ||||||||||||||
Investing in mutual funds involves many risks. The risks of investing in a particular Fund depend on the types of investments in its portfolio and the investment strategies the Manager employs on its behalf. This section does not describe every potential risk of investing in the Funds. Funds could be subject to additional risks because of the types of investments they make and market conditions, which may change over time.
Each Fund that invests in other GMO Funds and other investment companies is exposed to the risks to which the underlying funds in which it invests are exposed. Therefore, unless otherwise noted, the selected risks summarized below include both direct and indirect risks, and, references in this section to investments made by a Fund include those made both directly by the Fund and indirectly by the Fund through other GMO Funds and other investment companies.
An investment in a Fund is not a bank deposit and, therefore, is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
• MARKET RISK. All of the Funds are subject to market risk, which is the risk that the market value of their holdings will decline. Market risks include:
Fixed Income Investments — Funds that invest in fixed income securities (including bonds, notes, bills, synthetic debt instruments and asset-backed securities) are subject to various market risks. The market price of a fixed income investment can decline due to a number of market-related factors, including rising interest rates and widening credit spreads, or decreased liquidity stemming from the market’s uncertainty about the value of a fixed income investment (or class of fixed income investments). In addition, the market price of fixed income investments with complex structures, such as asset-backed securities and sovereign and quasi-sovereign debt instruments, can decline due to market uncertainty about their credit quality and the reliability of their payment streams. Some fixed income securities also are subject to unscheduled prepayment, and a Fund may be unable to invest prepayments at as high a yield as was provided by the fixed income security. When interest rates rise, these securities also may be repaid more slowly than anticipated, which could cause the market price of the Fund’s investment to decrease. During periods of economic uncertainty and change, the market price of a Fund’s investments in below investment grade securities (commonly referred to as “junk bonds”) may be particularly volatile. Often junk bonds are subject to greater sensitivity to interest rate and economic changes than higher rated bonds and can be more difficult to value, exposing a Fund to the risk that the price at which it sells them will be less than the value placed on them when they were held by the Fund. See “Credit Risk” and “Liquidity Risk” below for more information about these risks.
A risk run by each Fund with a significant investment in fixed income securities is that an increase in prevailing interest rates will cause the market price of those securities to decline. The risk associated with increases in interest rates (also called “interest rate risk”) is generally greater for Funds investing in fixed income securities with longer durations and in some cases duration can increase.
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The extent to which a fixed income security’s price changes with changes in interest rates is referred to as interest rate duration, which can be measured mathematically or empirically. A longer-maturity investment generally has longer interest rate duration because the investment’s fixed rate is locked in for a longer period of time. Floating-rate or adjustable-rate securities, however, generally have shorter interest rate durations because their interest rates are not fixed but rather float up and down as interest rates change. Conversely, inverse floating-rate securities have durations that move in the opposite direction from short-term interest rates and thus tend to underperform fixed rate securities when interest rates rise but outperform them when interest rates decline. Fixed income securities paying no interest, such as zero coupon and principal-only securities, create additional interest rate risk.
The market price of inflation-indexed bonds (including Inflation-Protected Securities issued by the U.S. Treasury (“TIPS”)) normally changes when real interest rates change. Their value typically will decline during periods of rising real interest rates (i.e., nominal interest rate minus inflation) and increase during periods of declining real interest rates. Real interest rates may not fluctuate in the same manner as nominal interest rates. In some interest rate environments, such as when real interest rates are rising faster than nominal interest rates, the market price of inflation-indexed bonds may decline more than the price of non-inflation-indexed (or nominal) fixed income bonds with similar maturities. The market price of a Fund’s inflation-indexed bonds, however, will not necessarily change in the same proportion as changes in nominal interest rates, and short term increases in inflation may lead to a decline in their price. Moreover, if the index measuring inflation falls, the principal value of inflation-indexed bond investments will be adjusted downward, and, consequently, the interest they pay (calculated with respect to a smaller principal amount) will be reduced. In the case of TIPS, the U.S. government guarantees the repayment of the original bond principal upon maturity (as adjusted for inflation).
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.
Market risk for fixed income securities denominated in non-U.S. currencies is also affected by currency risk. See “Currency Risk” below.
Asset-Backed Securities — Investments in asset-backed securities not only are subject to all of the market risks described above for fixed income securities but to other market risks as well.
Funds investing in asset-backed securities are exposed to the risk that these securities experience severe credit downgrades, illiquidity, defaults, and declines in market value. These risks are particularly acute during periods of adverse market conditions, such as those that occurred in 2008. Asset-backed securities may be backed by many types of assets, including pools of residential and commercial mortgages, automobile loans, educational loans, home equity loans, and credit-card receivables. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as “collateralized debt obligations” or “collateralized loan obligations”) and by the fees earned by service providers.
As described under “Market Risk — Fixed Income Investments” above, the market price of fixed income investments with complex structures, such as asset-backed securities, can decline due to a number of factors, including market uncertainty about their credit quality and the reliability of their payment streams. Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flow generated by the assets backing the securities, as well as the deal structure (e.g., 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 and the credit quality of the credit-support provider, if any, and the reliability of various other service providers with access to the payment stream. A problem in any one of these areas can lead to a reduction in the payment stream the Manager expected a Fund to receive at the time the Fund purchased the asset-backed security. Asset-backed securities involve risk of loss of principal if obligors of the underlying obligations default and the value of the defaulted obligations exceeds whatever credit support the securities may have. Asset-backed securities backed by sub-prime mortgage loans, in particular, may cause a Fund to suffer significantly greater declines in value due to defaults, as sub-prime mortgage loans are typically made to less creditworthy borrowers and thus have a higher risk of default than conventional mortgage loans. The obligations of issuers (and obligors of asset-backed securities) also are subject to bankruptcy, insolvency and other laws affecting the rights and remedies of creditors. As of the date of this report, many asset-backed securities owned by the Funds that were once rated investment grade are now rated below investment grade. See “Credit Risk” below for more information about credit risk.
With the deterioration of worldwide economic and liquidity conditions that occurred and became acute in 2008, the markets for asset-backed securities became fractured, and uncertainty about the creditworthiness of those securities (and underlying assets) caused credit spreads (the difference between yields on asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of financial institutions to make markets in many fixed income securities. These events reduced liquidity and contributed to substantial declines in the market prices of asset-backed and other fixed income securities. 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., sub-prime mortgages) have had, and may continue to have, adverse valuation and liquidity effects on asset-backed securities.
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The market price of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying assets. The insolvency of an entity that generated the assets underlying an asset-backed security is likely to result in a decline in the market price of that security, as well as costs and delays. The obligations underlying asset-backed securities, in particular securities backed by pools of residential and commercial mortgages, also are subject to unscheduled prepayment, and a Fund may be unable to invest prepayments at as high a yield as was provided by the asset-backed security. When interest rates rise, these obligations also may be repaid more slowly than anticipated, which could cause the market price of the Fund’s investment to decrease.
In addition, the existence of insurance on an asset-based security does not guarantee that the 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 risk of investing in asset-backed securities has increased since the deterioration in worldwide economic and liquidity conditions referred to above 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 correlated. See “Focused Investment Risk” below for more information about risks of investing in correlated sectors. A single financial institution may serve as a trustee for many asset-backed securities. As a result, a disruption in that institution’s business may have a material impact on many investments.
• CREDIT RISK. This is the risk that the issuer or guarantor of a fixed income investment or the obligor of an obligation underlying an asset-backed security will be unable or unwilling to satisfy its obligation to pay principal and interest or otherwise to honor its obligations in a timely manner. The market price of a fixed income investment will normally decline as a result of the issuer’s, guarantor’s or obligor’s failure to meet its payment obligations or the downgrading of its credit rating. This risk is particularly acute in environments (like those of 2008) in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions.
All fixed income securities are subject to credit risk. Financial strength and solvency of an issuer are the primary factors influencing credit risk. The risk varies depending upon whether the issuer is a corporation or U.S. or non-U.S. government (or sub-division or instrumentality) and whether the particular security has a priority over other obligations of the issuer in payment of principal and interest and whether it has any collateral backing or credit enhancement. Credit risk may change over the life of a fixed income security. U.S. government securities are subject to varying degrees of credit risk depending upon whether the securities are supported by the full faith and credit of the United States, supported by the ability to borrow from the U.S. Treasury, supported only by the credit of the issuing U.S. government agency, instrumentality, or corporation, or otherwise supported by the United States. For example, issuers of many types of U.S. government securities (e.g., the Federal Home Loan Mortgage Corporation (“Freddie Mac”), Federal National Mortgage Association (“Fannie Mae”), and Federal Home Loan Banks), although chartered or sponsored by Congress, are not funded by Congressional appropriations and their fixed income securities, including mortgage-backed and other asset-backed securities, are neither guaranteed nor insured by the U.S. government. These securities are subject to more credit risk than U.S. government securities that are supported by the full faith and credit of the United States (e.g., U.S. Treasury bonds). Investments in sovereign debt involve the risk that the governmental entities responsible for repayment may be unable or unwilling to pay interest and repay principal when due. A governmental entity’s willingness or ability to pay interest and repay principal in a timely manner may be affected by a variety of factors, including its cash flow, the size of its reserves, its access to foreign exchange, the relative size of its debt service burden to its economy as a whole, and political constraints. In addition, payment of principal of fixed income securities guaranteed by the U.S. government can be delayed because the guarantee generally only requires payment upon maturity of the securities. Investments in quasi-sovereign issuers are subject to the additional risk that the issuer may default independently of its sovereign. Sovereign debt risk is greater for fixed income securities issued or guaranteed by emerging countries.
In some cases, the credit risk of a fixed income security is reflected in its credit ratings, and a Fund holding such a security is subject to the risk that its rating will be downgraded.
Securities issued by the U.S. Treasury historically have presented minimal credit risk. However, recent events have led to a downgrade in the long-term U.S. credit rating by at least one major rating agency and have introduced greater uncertainty about the ability of the U.S. to repay its obligations. A further credit rating downgrade or a U.S. credit default could decrease the value and increase the volatility of a Fund’s investments.
As described under “Market Risk — Asset-Backed Securities” above, asset-backed securities may be backed by many types of assets and their payment of interest and repayment of principal largely depend on the cash flows generated by the assets backing them. The credit risk of a particular asset-backed security depends on many factors, as described in “Market Risk — Asset-Backed Securities” above.
The obligations of issuers also are subject to bankruptcy, insolvency and other laws affecting the rights and remedies of creditors. A Fund also is exposed to credit risk on a reference security to the extent it writes protection under credit default swaps. See “Derivatives Risk” below for more information regarding risks associated with the use of credit default swaps.
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The extent to which the market price of a fixed income security changes in response to a credit event depends on a number of factors and can be difficult to predict. For example, floating rate securities may have final maturities of ten or more years, but their effective durations will tend to be very short. If the issuer of floating rate securities experiences an adverse credit event, or a change occurs in its perceived creditworthiness, the market price of its securities could decline much more than would be predicted by a change in their yield relative to their effective duration.
Credit risk is particularly pronounced for below investment grade securities (commonly referred to as “junk bonds”). The sovereign debt of many non-U.S. governments, including their sub-divisions and instrumentalities, is below investment grade. Many asset-backed securities also are below investment grade. Below investment grade securities have speculative characteristics, often are less liquid than higher quality securities, present a greater risk of default and are more susceptible to real or perceived adverse industry conditions. In the event of default of sovereign debt, the Funds may be unable to pursue legal action against the sovereign issuer.
• LIQUIDITY RISK. Liquidity risk is the risk that low trading volume, lack of a market maker, large position size or legal restrictions (including daily price fluctuation limits or “circuit breakers”) limits or prevents a Fund from selling particular securities or unwinding derivative positions at desirable prices. In addition to these risks, a Fund is 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 a short position). All of the Funds are subject to liquidity risk, but those with the greatest risk have principal investment strategies that involve investment in asset-backed securities, emerging country debt securities, securities of companies with smaller market capitalizations or smaller total float-adjusted market capitalizations and emerging market securities. These types of investments can be difficult to value, exposing a Fund to the risk that the price at which it sells them will be less than the value placed on them when they were held by the Fund. In addition, TIPS have exhibited periods of greatly reduced liquidity when disruptions in fixed income markets have occurred, such as the events surrounding the bankruptcy of Lehman Brothers in 2008. Less liquid securities are more susceptible than other securities to price declines when market prices decline generally.
All of the Funds with benchmarks may buy securities that are less liquid than those in their benchmarks.
• DERIVATIVES RISK. The Funds 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 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. Derivatives include futures, non-U.S. 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 use of derivatives involves risks that are in addition to, and potentially greater than, the risks of investing directly in securities and other more traditional assets. In particular, a Fund’s use of OTC derivatives exposes it to the risk that the counterparties will be unable or unwilling to make timely settlement payments or otherwise honor their obligations. An OTC derivatives contract typically can be closed only with the consent of 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 it does, the Fund may decide not to pursue its claims against the counterparty to avoid incurring the cost and unpredictability of legal proceedings. The Fund, therefore, may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts, or those payments may be delayed or made only after the Fund has incurred the costs of litigation.
A Fund may invest in derivatives that (i) do not require the counterparty to post collateral (e.g., forward currency contracts), (ii) require collateral but that do not provide for the Fund’s security interest in it to be perfected, (iii) require a significant upfront deposit by the Fund unrelated to the derivative’s intrinsic value, or (iv) do not require that collateral be regularly marked-to-market. When a counterparty’s obligations are not fully secured by collateral, a Fund runs the risk of having limited recourse if the counterparty defaults. Even when obligations are required by contract to be collateralized, a Fund often will not receive the collateral the day the collateral is called for.
The Funds 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 Funds. Derivatives risk is particularly acute in environments (like those of 2008) in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. In addition, during those periods, a Fund may have a greater need for cash to provide collateral for large swings in its mark-to-market obligations under the derivatives in which it has invested.
Derivatives also present other risks described in this section, including market risk, liquidity risk, currency risk, credit 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 may not produce valuations that are consistent with the values a Fund realizes when it closes or sells an OTC derivative. Valuation risk is more pronounced when a 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 a Fund’s net asset value.
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A Fund’s 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 a Fund, the Funds will not be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund’s risk exposures, potentially resulting in losses for the Fund.
Swap contracts and other OTC derivatives are highly susceptible to liquidity risk (see “Liquidity Risk” above) 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.
A Fund’s use of derivatives may be subject to one or more special tax rules and could generate additional taxable income for shareholders.
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 (and many of the rules are not yet final), its ultimate impact remains unclear.
Under recently adopted rules and regulations, transactions in some types of swaps (including interest rate swaps and credit default swaps on North American and European indices) are required to be centrally cleared. In a transaction involving those swaps (“cleared derivatives”), a Fund’s counterparty is a clearing house, rather than a bank or broker. Since the Funds are not members of clearing houses and only members of a clearing house (“clearing members”) can participate directly in the clearing house, the Funds will hold cleared derivatives through accounts at clearing members. In cleared derivatives transactions, the Funds will make payments (including margin payments) to and receive payments from a clearing house through their accounts at clearing members. Clearing members guarantee performance of their clients’ obligations to the clearing house.
In many ways, cleared derivative arrangements are less favorable to mutual funds than bilateral arrangements. For example, the Funds may be required to provide more margin for cleared derivatives transactions than for bilateral derivatives transactions. Also, in contrast to a bilateral derivatives transaction, following a period of notice to a Fund, a clearing member generally can require termination of an existing cleared derivatives transaction at any time or an increase in margin requirements above the margin that the clearing member required at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions or to terminate those transactions at any time. Any increase in margin requirements or termination of existing cleared derivatives transactions by the clearing member or the clearing house could interfere with the ability of a Fund to pursue its investment strategy. Further, any increase in margin requirements by a clearing member could expose a Fund to greater credit risk to its clearing member, because (as described under “Counterparty Risk” below) margin for cleared derivatives transactions in excess of a clearing house’s margin requirements typically is held by the clearing member. Also, a Fund is subject to risk if it enters into a derivatives transaction that is required to be cleared (or that the Manager expects to be cleared), and no clearing member is willing or able to clear the transaction on the Fund’s behalf. While the documentation in place between the Funds and their clearing members generally provides that the clearing members will accept for clearing all cleared derivatives transactions that are within credit limits (specified in advance) for each Fund, the Funds are still subject to the risk that no clearing member will be willing or able to clear a transaction. In those cases, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of the transaction, including loss of an increase in the value of the transaction and/or loss of hedging protection. In addition, the documentation governing the relationship between the Funds and clearing members is drafted by the clearing members and generally is less favorable to the Funds than typical bilateral derivatives documentation. For example, documentation relating to cleared derivatives generally includes a one-way indemnity by the Funds in favor of the clearing member for losses the clearing member incurs as the Funds’ clearing member and typically does not provide the Funds any remedies if the clearing member defaults or becomes insolvent.
These and other new rules and regulations could, among other things, further restrict a Fund’s ability to engage in, or increase the cost to the Fund of, derivatives transactions, for example, by making some types of derivatives no longer available to the Fund, increasing margin or capital requirements, or otherwise limiting liquidity or increasing transaction costs. These regulations are new and evolving, so their potential impact on the Funds and the financial system are not yet known. While the new regulations and central clearing of some derivatives transactions are designed to reduce systemic risk (i.e., the risk that the interdependence of large derivatives dealers could cause them to suffer liquidity, solvency or other challenges simultaneously), there is no assurance that the new clearing mechanisms will achieve that result, and in the meantime, as noted above, central clearing exposes the Funds to new kinds of risks and costs.
• NON-U.S. INVESTMENT RISK. Funds that invest in non-U.S. securities are subject to additional and more varied risks than Funds whose investments are limited to U.S. securities. The securities markets of many non-U.S. countries include 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 non-U.S. securities often are not subject to the same degree of regulation as U.S. issuers. Reporting, accounting, custody and auditing standards of non-U.S. countries differ, in some cases significantly, from U.S. standards. Non-U.S. portfolio transactions generally involve higher commission rates, transfer taxes and custodial costs. In addition, some jurisdictions may limit a Fund’s ability to profit from short-term trading (as defined in the relevant jurisdiction).
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A Fund may be subject to non-U.S. taxation, including potentially on a retroactive basis, on (i) capital gains it realizes or dividends or interest it receives on non-U.S. investments, (ii) transactions in those investments and (iii) the repatriation of proceeds generated from the sale of those investments. A Fund may seek to collect a refund on taxes paid to a non-U.S. country. In those cases, all or a portion of those taxes could ultimately be recovered by a Fund. However, the recovery process could take several years and the Fund will incur expenses in its efforts to collect the refund, which will reduce the benefit of any recovery. A Fund’s efforts to collect a refund may not be successful, in which case the Fund will have incurred additional expenses for no economic benefit. A Fund’s decision to pursue a refund is in its sole discretion, and it may decide not to pursue a refund, even if eligible.
Also, investing in non-U.S. securities exposes a Fund to the risk of nationalization, expropriation, or confiscatory taxation of assets of their issuers, 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.
In some non-U.S. markets, custody arrangements for securities provide significantly less protection 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 a Fund to credit and other risks it does not have in the U.S. with respect to participating brokers, custodians, clearing banks or other clearing agents, escrow agents, and issuers. Fluctuations in non-U.S. currency exchange rates also will affect the market value of a Fund’s non-U.S. investments (see “Currency Risk” below).
U.S. investors are required to maintain a license to invest directly in many non-U.S. markets. These licenses are often subject to limitations, including maximum investment amounts. Once a license is obtained, a Fund’s 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, to obtain exposure to the market the Fund will be required to purchase American Depositary Receipts, Global Depositary Receipts, shares of other funds that are licensed to invest directly, or derivative instruments. The receipt of a non-U.S. license by one of the Manager’s clients may preclude other clients, including a Fund, from obtaining a similar license, and this could limit the Fund’s investment opportunities. In addition, the activities of another of the Manager’s clients could cause the suspension or revocation of a license and thereby limit the Funds’ investment opportunities.
Funds that invest a significant portion of their assets in securities of issuers tied economically to emerging countries (or investments related to emerging markets) are subject to greater non-U.S. investment risk than Funds investing primarily in more developed non-U.S. countries (or markets). 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 of securities in a Fund’s portfolio; greater governmental involvement in the economy; less governmental supervision and regulation of the securities markets and participants in those markets; controls on non-U.S. investment, capital controls and limitations on repatriation of invested capital, dividends, interest and other income and on a Fund’s 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. Currency risk is the risk that fluctuations in exchange rates will adversely affect the market value of a Fund’s investments. Currency risk includes the risk that the non-U.S. currencies in which a Fund’s investments are traded, in which a Fund receives income, or in which a Fund has taken a position, will decline in value relative to the U.S. dollar. Currency risk also includes the risk that the currency to which the Fund has obtained exposure through hedging declines in value relative to the currency being hedged, in which event the Fund may realize a loss both on the hedging instrument and 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 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.
Many of the Funds use derivatives to take overweighted or underweighted currency positions relative to the currency exposure of their portfolios. As a result, their currency exposure may differ (in some cases significantly) from the currency exposure of their benchmarks. If the exchange rates of the currencies involved do not move as expected, a Fund could lose money both on its holdings of a particular currency and on the derivative. See also “Non-U.S. Investment Risk” above.
Some currencies are illiquid (e.g., some emerging country currencies), and a Fund may not be able to convert them into U.S. dollars, in which case the Manager may decide to purchase U.S. dollars in a parallel market in which 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 non-U.S. 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).
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Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
• FOCUSED INVESTMENT RISK. Funds whose investments are focused in particular countries, regions, sectors, companies or industries with high positive correlations to one another (e.g., different industries within broad sectors, such as technology or financial services), or in securities from issuers with high positive correlations to one another (such as U.S. Treasury Fund’s investments in securities issued by the U.S. Treasury and other fixed income securities that are backed by the full faith and credit of the U.S. government), 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 price of a particular security held by the Fund is likely to affect the Fund’s performance more than if the Fund invested in the securities of a larger number of issuers.
A Fund that 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, 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.
Similarly, Funds having a significant portion of their assets in investments tied economically to (or related to) a particular geographic region, non-U.S. country (e.g., Taiwan or Japan) or particular market (e.g., emerging markets) have more exposure to regional and country economic risks than funds making non-U.S. investments throughout the world. The political and economic prospects of one country or group of countries within the same geographic region may affect other countries in that region, and a recession, debt crisis or decline in currency valuation in one country can spread to other countries. Furthermore, companies in a particular geographic region or country are vulnerable to events affecting other companies in that region or country because they often share common characteristics, are exposed to similar business risks and regulatory burdens, and react similarly to specific economic, market, political or other developments. See also “Non-U.S. Investment Risk” above.
• LEVERAGING RISK. The use of reverse repurchase agreements and other derivatives and securities lending creates leverage (i.e., a Fund’s investment exposures exceed its net asset value). Leverage increases a Fund’s losses when the value of its investments (including derivatives) declines. Because many derivatives have a leverage component (i.e., a notional value in excess of the assets needed to establish 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. A Fund’s use of reverse repurchase agreements also subjects it to interest costs based on the difference between the sale and repurchase price of the security involved. A Fund’s portfolio also will be leveraged if it borrows money to meet redemption requests or settle investment transactions or if it exercises its right to delay payment on a redemption.
A 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, a Fund may perform as if it were leveraged.
• COUNTERPARTY RISK. Funds that enter into contracts with counterparties, such as repurchase or reverse repurchase agreements or OTC derivatives contracts, or that lend their securities run the risk that the counterparty 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. The Funds are not subject to any limits on their exposure to any one counterparty nor to a requirement that counterparties maintain a specific rating by a nationally recognized rating organization to be considered for potential transactions. To the extent that GMO’s view with respect to a particular counterparty changes (whether due to external events or otherwise), existing transactions are not required to be terminated or modified. Additionally, new transactions may be entered into with a counterparty that is no longer considered eligible if the transaction is primarily designed to reduce the overall risk of potential exposure to that counterparty (for example, re-establishing the transaction with a lesser notional amount). Counterparty risk is pronounced during unusually adverse market conditions and is particularly acute in environments (like those of 2008) in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers 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 a Fund to greater counterparty risk than exchange-traded derivatives. A Fund is subject to the risk that a counterparty will not settle a derivative in accordance with its terms because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem. If a counterparty’s obligation to a Fund is not collateralized, then the Fund is essentially an unsecured creditor of the counterparty. If a counterparty defaults, the Fund will have contractual remedies, but the Fund may be unable to enforce them, thus causing the Fund to suffer a loss. Counterparty risk is greater for derivatives with longer maturities because of the longer time that events may occur that prevent settlement. Counterparty risk also is 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. Significant exposure to a single counterparty increases a Fund’s counterparty risk. Funds that use swap contracts are subject, in particular, to the creditworthiness of the counterparties because some types of swap contracts have durations longer than six months (and, in some cases, decades). The creditworthiness of a counterparty may be adversely affected by greater than average volatility in the markets, even if the counterparty’s net market exposure is small relative to its capital. Counterparty risk still exists even if a counterparty’s obligations are secured by collateral because the Fund’s interest in the collateral may not be perfected or additional collateral may not be promptly posted as required.
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Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The Funds also are subject to counterparty risk because they execute their 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 Funds could miss investment opportunities or be unable to dispose of investments they would prefer to sell, resulting in losses for the Funds.
Counterparty risk with respect to derivatives will be affected by new rules and regulations affecting the derivatives market. As described under “Derivatives Risk” above, some derivatives transactions are required to be centrally cleared, and a party to a cleared derivatives transaction is subject to the credit risk of the clearing house and the clearing member through which it holds its cleared position, rather than the credit risk of its original counterparty to the derivatives transaction. Credit risk of market participants with respect to derivatives that are centrally cleared is concentrated in a few clearing houses, and it is not clear how an insolvency proceeding of a clearing house would be conducted and what impact an insolvency of a clearing house would have on the financial system. A clearing member is obligated by contract and by applicable regulation to segregate all funds received from customers with respect to cleared derivatives transactions from the clearing member’s proprietary assets. However, all funds and other property received by a clearing member from its customers with respect to cleared derivatives are generally held by the clearing member on a commingled basis in an omnibus account, and the clearing member may invest those funds in certain instruments permitted under the applicable regulations. Therefore, a Fund might not be fully protected in the event of the bankruptcy of a Fund’s clearing member because the Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the clearing member’s customers for a relevant account class. Also, the clearing member is required to transfer to the clearing house the amount of margin required by the clearing house for cleared derivatives, which amounts are generally held in an omnibus account at the clearing house for all customers of the clearing member. Regulations promulgated by the Commodities Futures Trading Commission require that the clearing member notify the clearing house of the initial margin provided by the clearing member to the clearing house that is attributable to each customer. However, if the clearing member does not accurately report the Funds’ initial margin, the Funds are subject to the risk that a clearing house will use a Fund’s assets held in an omnibus account at the clearing house to satisfy payment obligations of a defaulting customer of the clearing member to the clearing house. In addition, clearing members generally provide the clearing house the net amount of variation margin required for cleared swaps for all of its customers in the aggregate, rather than individually for each customer. The Funds are therefore subject to the risk that a clearing house will not make variation margin payments owed to a Fund if another customer of the clearing member has suffered a loss and is in default, and the risk that a Fund will be required to provide additional variation margin to the clearing house before the clearing house will move the Fund’s cleared derivatives transactions to another clearing member. In addition, if a clearing member does not comply with the applicable regulations or its agreement with the Funds, or in the event of fraud or misappropriation of customer assets by a clearing member, a Fund could have only an unsecured creditor claim in an insolvency of the clearing member with respect to the margin held by the clearing member.
• MARKET DISRUPTION AND GEOPOLITICAL RISK. The Funds are subject to the risk that geopolitical and other events will disrupt securities markets, adversely affect global economies and markets and thereby decrease the value of the Funds’ investments. 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. Securities markets may be susceptible to market manipulation (e.g., the potential manipulation of the London Interbank Offered Rate (LIBOR)) or other fraudulent trade practices, which could disrupt the orderly functioning of these markets or adversely affect the value of investments traded in these markets, including investments of the Funds. While the U.S. government has honored its credit obligations continuously for the last 200 years, it remains possible that the U.S. could default on its obligations. While it is impossible to predict the consequences of such an unprecedented event, it is likely that a default by the U.S. would be highly disruptive to the U.S. and global securities markets and could significantly impair the value of the Funds’ investments. Similarly, political events within the U.S. at times have resulted, and may in the future result, in a shutdown of government services, which could negatively affect the U.S. economy, decrease the value of many Fund investments, and increase uncertainty in or impair the operation of the U.S. or other securities markets. The uncertainty surrounding the sovereign debt of a significant number of European Union countries as well as the continued existence of the European Union itself, have disrupted and may continue to disrupt markets in the U.S. and around the world. If one or more countries leave the European Union or the European Union dissolves, the world’s securities markets likely will be significantly disrupted. Substantial government interventions (e.g., currency controls) also could negatively impact the Funds. War, terrorism, economic uncertainty, 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, adversely affecting individual companies and industries, 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 “Investment and other risks” section will likely increase. Market disruptions, including sudden government interventions, can also prevent the Funds from implementing their investment programs for a period of time and achieving their investment objectives. For example, a market disruption may adversely affect the orderly functioning of the securities markets and may cause the Funds’ derivatives counterparties to discontinue offering derivatives on some underlying commodities, securities, reference rates, or indices, or to offer them on a more limited basis. To the extent that a Fund has focused its investments in the stock index of a particular region, adverse geopolitical and other events could have a disproportionate impact on the Fund.
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Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
• LARGE SHAREHOLDER RISK. To the extent that a large number of shares of a Fund is held by a single shareholder (e.g., an institutional investor or another GMO Fund) or a group of shareholders with a common investment strategy (e.g., GMO asset allocation accounts), the Fund is subject to the risk that a redemption by those shareholders of all or a large portion of their Fund shares will adversely affect the Fund’s performance if it is forced to sell portfolio securities to raise the cash needed to satisfy the redemption request. In addition, GMO Funds and other accounts over which GMO has investment discretion that invest in the Funds are not subject to restrictions on the frequency of trading of Fund shares. Asset Allocation Funds and separate accounts managed by the Manager for its clients hold substantial percentages of the shares of many Funds, and asset allocation decisions by the Manager may result in substantial redemptions from (or investments in) those Funds. These transactions may adversely affect the Fund’s performance to the extent that the Fund is required to sell investments (or invest cash) at times when it would not otherwise do so. Redemptions of a large number of shares also may increase transaction costs or, by necessitating a sale of portfolio securities, accelerate the realization of taxable income to shareholders. They also potentially limit the use of any capital loss carryforwards and certain other losses to offset future realized capital gains (if any). In addition, each Fund that invests in other GMO Funds subject to large shareholder risk is indirectly subject to this risk.
• MANAGEMENT AND OPERATIONAL RISK. Each Fund is subject to management risk because it relies on the Manager’s ability to achieve its investment objective. Each Fund runs the risk that the Manager’s investment techniques will fail to produce desired results and cause the Fund to incur significant losses. The Manager also may fail to use derivatives effectively, choosing to hedge or not to hedge positions at disadvantageous times.
For some Funds the Manager’s portfolio managers use quantitative analyses and models. Any imperfections, errors or limitations in those analyses and models could affect the ability of the portfolio managers to implement a Fund’s strategies. By necessity, these analyses and models make simplifying assumptions that limit their effectiveness. Models that appear to explain prior market data can fail to predict future market events. Further, the data used in models may be inaccurate or may not include the most recent information about a company or a security. The Funds also run the risk that GMO’s assessment of an investment may be wrong. There can be no assurance that key personnel of the Manager will continue to be employed by the Manager. The loss of their services could have an adverse impact on the Manager’s ability to achieve the Funds’ investment objectives.
The Funds also are subject to the risk of loss as a result of other services provided by the Manager and other service providers, including pricing, administrative, accounting, tax, legal, custody, transfer agency, and other services. Operational risk includes the possibility of loss caused by 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 a Fund from benefiting from potential investment gains or avoiding losses on the security. The Manager is not contractually liable to the Funds for losses associated with operational risk absent the Manager’s willful misfeasance, bad faith, gross negligence, or reckless disregard of its contractual obligations to provide services to the Funds. Other Fund service providers also have limitations on their liability to the Funds for losses resulting from their errors.
• OPTIONS RISK. There are various risks associated with transactions in exchange-traded and OTC options. The market price of options written by the Fund will be affected by many factors, including changes in the value of underlying securities or indices; changes in the dividend rates of underlying securities (or in the case of indices, the securities comprising such indices); changes in interest rates or exchange rates; changes in the actual or perceived volatility of the stock market and underlying securities; and the remaining time to an option’s expiration. The market price of an option also may be adversely affected if the market for the option 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 because the holder may only exercise the option on its expiration date. If the Fund writes a call option and does not hold the underlying security or instrument, the amount of the Fund’s potential loss is theoretically unlimited.
National securities exchanges generally have established limits on the maximum number of options an investor or group of investors acting in concert may write. The Fund, the Manager, and other funds advised by the Manager may constitute such a group. These limits could restrict the Fund’s ability to purchase or sell options on a particular security.
Unlike exchange-traded options, which are standardized with respect to the underlying instrument, expiration date, contract size, and strike price, the terms of OTC options (options not traded on exchanges) generally are established through negotiation with the other party to the option contract. While this type of arrangement allows the Fund greater flexibility to tailor an option to its needs, 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. Therefore, OTC options generally expose the Fund to greater credit risk than exchange-traded options, which are guaranteed by the clearing organization of the exchanges where they are traded. Purchasing and selling put and call options are highly specialized activities and entail greater than ordinary market risks.
Special tax rules apply to the Fund’s transactions in options, which could increase the amount of taxes payable by shareholders. In particular, the Fund’s options transactions potentially could cause a substantial portion of the Fund’s income to consist of net short-term capital gains, which, when distributed, are taxable to shareholders as ordinary income.
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Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
• FUND OF FUNDS RISK AND RELATED CONSIDERATIONS. Funds that invest in shares of other investment companies, including other GMO Funds, money market funds, and Exchange-Traded Funds (“ ETFs”) (for purposes of this risk disclosure, “underlying Funds”), are exposed to the risk that the underlying Funds will not perform as expected.
Because a Fund bears the fees and expenses of the underlying Funds in which it invests (absent reimbursement of those expenses), the Fund will incur additional expenses when investing in underlying Funds. In addition, total Fund expenses will increase if a Fund makes a new or further investment in underlying Funds with higher fees or expenses than the average fees and expenses of the underlying Funds then in the Fund’s portfolio.
The Funds also are indirectly exposed to all of the risks of an investment in the underlying Funds. Funds that invest in shares of other GMO Funds also are subject indirectly to Large Shareholder Risk because those other GMO Funds are more likely to have large shareholders (e.g., other GMO Funds). See “Large Shareholder Risk” above.
Investments in ETFs involve the risk that the ETF’s performance may not track the performance of the index the ETF is designed to track. Unlike the index, an ETF incurs administrative expenses and transaction costs in trading securities. In addition, the timing and magnitude of cash inflows and outflows from and to investors buying and redeeming shares in the ETF could create cash balances that cause the ETF’s performance to deviate from the index (which remains “fully invested” at all times). Performance of an ETF and the index it is designed to track also may diverge because the composition of the index and the securities held by the ETF may occasionally differ. In addition, ETFs often use derivatives to track the performance of the relevant index, and, therefore, investments in those ETFs are subject to the same derivatives risks discussed above.
• NON-DIVERSIFIED FUNDS. Some of the Funds are not “diversified” investment companies within the meaning of the 1940 Act. This means they are allowed to invest in the securities of a relatively small number of issuers and/or non-U.S. currencies. As a result, they may be subject to greater credit, market and other risks, and poor performance by a single issuer may have a greater impact on their performance, than if they were “diversified.”
All of the Funds (except U.S. Treasury Fund) are not diversified investment companies under the 1940 Act. In addition, each of the Funds (other than U.S. Treasury Fund) may invest in shares of one or more other GMO Funds that are not diversified investment companies under the 1940 Act.
Temporary Defensive Positions. If deemed prudent by the Manager, the Funds (other than Domestic Bond Fund, Short-Duration Collateral Fund, Short-Duration Collateral Share Fund and U.S. Treasury Fund) may take temporary defensive positions. Many of the Funds have previously taken temporary defensive positions and have exercised the right to honor redemption requests in-kind.
To the extent a Fund takes a temporary defensive position, or otherwise holds cash, cash equivalents, or high quality debt investments on a temporary basis, the Fund may not achieve its investment objective.
| 4. | Derivative financial instruments |
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 a Fund’s portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and related indices, and include foreign currency contracts, swap contracts, reverse repurchase agreements, and other exchange-traded and OTC contracts.
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 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 Fund’s exposure to the credit of an issuer through the debt instrument but adjust the Fund’s 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.
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Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Each of the Funds is not limited in its use of derivatives or in the absolute face value of its derivative positions. As a result of their derivative positions, the Funds will typically have (or may have, in the case of Domestic Bond Fund, Short-Duration Collateral Fund, Short-Duration Collateral Share Fund, and U.S. Treasury Fund) gross investment exposures in excess of their net assets (i.e., the Funds will be (or may be, in the case of Domestic Bond Fund, Short-Duration Collateral Fund, Short-Duration Collateral Share Fund, and U.S. Treasury Fund) leveraged) and therefore are subject to heightened risk of loss. The Funds’ (other than Domestic Bond Fund, Short-Duration Collateral Fund, Short-Duration Collateral Share Fund, and U.S. Treasury Fund) performance can depend substantially, if not primarily, on The performance of assets or indices underlying its derivatives even though it does not own those assets or indices.
Certain derivatives transactions used by the Funds, including certain interest rate swaps and certain credit default index swaps, are required to be transacted through a central clearing organization. The Funds hold cleared derivatives transactions through clearing members, who are members of derivatives clearing houses. In contrast to bilateral derivatives transactions, following a period of advance notice to the Fund, clearing members generally can require termination of existing cleared derivatives transactions at any time and increases in margin above the margin that it required at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions and to terminate transactions. Any such increase or termination could interfere with the ability of a Fund to pursue its investment strategy. Also, a Fund is subject to execution risk if it enters into a derivatives transaction that is required to be cleared (or that the Manager expects to be cleared), and no clearing member is willing or able to clear the transaction on the Fund’s behalf. In that case, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of any increase in the value of the transaction after the time of the transaction.
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. See “Investment and other risks” above for further information.
For Funds that held derivatives during the period ended August 31, 2013, the following table shows how the Fund used these derivatives (marked with an X):
| Type of Derivative and Objective for Use | Asset Allocation Bond Fund | Core Plus Bond Fund | Currency Hedged International Bond Fund | Debt Opportunities Fund | Domestic Bond Fund | Emerging Country Debt Fund | Global Bond Fund | International Bond Fund | Short-Duration Collateral Fund |
Short-Duration Collateral Share Fund | Strategic Fixed Income Fund | U.S. Treasury Fund | World Opportunity Overlay Fund | |||||||||||||
| Forward currency contracts | ||||||||||||||||||||||||||
| Adjust currency exchange rate risk |
X | X | X | X | X | |||||||||||||||||||||
| Adjust exposure to foreign currencies |
X | X | X | X | X | X | X | |||||||||||||||||||
| Futures contracts | ||||||||||||||||||||||||||
| Adjust exposure to certain markets |
X | |||||||||||||||||||||||||
| Adjust interest rate exposure |
X | X | X | X | X | X | X | |||||||||||||||||||
| Maintain the diversity and liquidity of the portfolio |
X | X | X | X | X | X | X | |||||||||||||||||||
| Options (Purchased) | ||||||||||||||||||||||||||
| Adjust currency exchange rate risk |
X | X | X | X | X | X | ||||||||||||||||||||
| Adjust exposure to foreign currencies |
X | X | X | X | X | X | ||||||||||||||||||||
| Adjust interest rate exposure |
X | X | ||||||||||||||||||||||||
| Maintain the diversity and liquidity of the portfolio |
X | |||||||||||||||||||||||||
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August 31, 2013 (Unaudited)
| Type of Derivative and Objective for Use | Asset Allocation Bond Fund | Core Plus Bond Fund | Currency Hedged International Bond Fund | Debt Opportunities Fund | Domestic Bond Fund | Emerging Country Debt Fund | Global Bond Fund | International Bond Fund | Short-Duration Collateral Fund |
Short-Duration Collateral Share Fund | Strategic Fixed Income Fund | U.S. Treasury Fund | World Opportunity Overlay Fund | |||||||||||||
| Options (Written) | ||||||||||||||||||||||||||
| Achieve exposure to a reference entity’s credit |
X | |||||||||||||||||||||||||
| Adjust currency exchange rate risk |
X | X | X | X | X | X | ||||||||||||||||||||
| Adjust exposure to foreign currencies |
X | X | X | X | X | X | ||||||||||||||||||||
| Adjust interest rate exposure |
X | X | ||||||||||||||||||||||||
| Maintain the diversity and liquidity of the portfolio |
X | |||||||||||||||||||||||||
| Swap Contracts | ||||||||||||||||||||||||||
| Achieve exposure to a reference entity’s credit |
X | X | X | |||||||||||||||||||||||
| Adjust exposure to certain markets |
X | X | ||||||||||||||||||||||||
| Adjust interest rate exposure |
X | X | X | X | X | X | X | |||||||||||||||||||
| Provide a measure of protection against default loss |
X | X | X | X | X | X | ||||||||||||||||||||
| Rights and/or warrants | ||||||||||||||||||||||||||
| Adjust exposure to certain markets |
X | |||||||||||||||||||||||||
Forward currency contracts
The Funds (except U.S. Treasury Fund) may enter into forward currency contracts, including forward cross currency contracts. A forward currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date (or to pay or receive the amount of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund’s forward currency contracts is marked-to-market daily using rates supplied by a quotation service and changes in value are recorded by each Fund as unrealized gains or losses. Realized gains or losses on the contracts are equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose a Fund to the market risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. Most forward currency contracts are not collateralized. Forward currency contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Futures contracts
The Funds may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price at a specified time in the future. Some futures contracts are net (cash) settled. Upon entering into a futures contract, a Fund is required to deposit cash, U.S. government and agency obligations or other liquid assets with the futures clearing broker in accordance with the initial margin requirements of the broker or exchange. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded. The value of each of the Fund’s futures contracts is marked-to-market daily and an appropriate payable or receivable for the change in value (“variation margin”) is recorded by each Fund. The payable or receivable is settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statements of Assets and Liabilities. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day’s settlement price, thereby effectively preventing liquidation of unfavorable positions. Futures contracts expose
| 125 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
the Funds to the risk that they may not be able to enter into a closing transaction due to an illiquid market. Futures contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Options
The Funds may purchase call and put options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options a Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset at a set price to the writer of the option. A Fund pays a premium for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently reflected in the marked-to-market value of the option. The potential loss associated with purchasing put and call options is limited to the premium paid. Purchased option contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
The Funds may write (i.e., sell) call and put options on futures, swaps (“swaptions”), securities or currencies they own or in which they may invest. Writing options alters a Fund’s exposure to the underlying asset by, in the case of a call option, obligating that Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating that Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g., index options), settlement will be in cash, based on a formula price. When a Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, a Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that a Fund writes call options without an offsetting exposure (e.g., call options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. OTC options expose a Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. Written option contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
When an option contract is closed, that Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction in the cost of investments purchased. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statements of Operations.
For the period ended August 31, 2013, investment activity in options contracts written by the Funds were as follows:
| Puts | Calls | |||||||||||||||||||||||
| Principal Amount of Contracts |
Number of Contracts |
Premiums | Principal Amount of Contracts |
Number of Contracts |
Premiums | |||||||||||||||||||
| Core Plus Bond |
||||||||||||||||||||||||
| Outstanding, beginning of period |
— | — | $ | — | — | — | $ | — | ||||||||||||||||
| Options written |
868,000,000 | — | 513,543 | — | — | — | ||||||||||||||||||
| Options bought back |
— | — | — | — | — | — | ||||||||||||||||||
| Options expired |
— | — | — | — | — | — | ||||||||||||||||||
| Options exercised |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Outstanding, end of period |
868,000,000 | — | $ | 513,543 | — | — | $ | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Currency Hedged International Bond Fund |
|
|||||||||||||||||||||||
| Outstanding, beginning of period |
— | — | $ | — | — | — | $ | — | ||||||||||||||||
| Options written |
256,000,000 | — | 166,406 | — | — | — | ||||||||||||||||||
| Options bought back |
— | — | — | — | — | — | ||||||||||||||||||
| Options expired |
— | — | — | — | — | — | ||||||||||||||||||
| Options exercised |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Outstanding, end of period |
256,000,000 | — | $ | 166,406 | — | — | $ | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 126 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Puts | Calls | |||||||||||||||||||||||
| Principal Amount of Contracts |
Number of Contracts |
Premiums | Principal Amount of Contracts |
Number of Contracts |
Premiums | |||||||||||||||||||
| Global Bond Fund |
||||||||||||||||||||||||
| Outstanding, beginning of period |
— | — | $ | — | — | — | $ | — | ||||||||||||||||
| Options written |
612,000,000 | — | 347,137 | — | — | — | ||||||||||||||||||
| Options bought back |
— | — | — | — | — | — | ||||||||||||||||||
| Options expired |
— | — | — | — | — | — | ||||||||||||||||||
| Options exercised |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Outstanding, end of period |
612,000,000 | — | $ | 347,137 | — | — | $ | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| International Bond Fund |
||||||||||||||||||||||||
| Outstanding, beginning of period |
— | — | $ | — | — | — | $ | — | ||||||||||||||||
| Options written |
256,000,000 | — | 166,406 | — | — | — | ||||||||||||||||||
| Options bought back |
— | — | — | — | — | — | ||||||||||||||||||
| Options expired |
— | — | — | — | — | — | ||||||||||||||||||
| Options exercised |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Outstanding, end of period |
256,000,000 | — | $ | 166,406 | — | — | $ | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Strategic Fixed Income |
||||||||||||||||||||||||
| Outstanding, beginning of period |
— | — | $ | — | — | — | $ | — | ||||||||||||||||
| Options written |
6,436,000,000 | — | 3,862,600 | — | — | — | ||||||||||||||||||
| Options bought back |
— | — | — | — | — | — | ||||||||||||||||||
| Options expired |
— | — | — | — | — | — | ||||||||||||||||||
| Options exercised |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Outstanding, end of period |
6,436,000,000 | — | $ | 3,862,600 | — | — | $ | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| World Opportunity Overlay Fund |
||||||||||||||||||||||||
| Outstanding, beginning of period |
— | — | $ | — | 6,000,000 | — | $ | 2,711,878 | ||||||||||||||||
| Options written |
16,230,002,400 | — | 7,155,605 | 16,633,750,000 | — | 10,314,226 | ||||||||||||||||||
| Options bought back |
(4,130,000,000 | ) | — | (2,763,974 | ) | (10,083,750,000 | ) | — | (4,449,141 | ) | ||||||||||||||
| Options expired |
(10,000,002,400 | ) | — | (2,421,454 | ) | (4,056,000,000 | ) | — | (4,046,784 | ) | ||||||||||||||
| Options exercised |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Outstanding, end of period |
2,100,000,000 | — | $ | 1,970,177 | 2,500,000,000 | — | $ | 4,530,179 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Exchange-traded 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. The Funds value OTC options using inputs provided by primary pricing sources and industry models.
Swap contracts
The Funds may enter into various types of swap contracts, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap contract is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap contract and during the term of the transaction, a Fund and/or the swap counterparty may post or receive cash or securities as collateral.
Initial upfront payments received or made upon entering into a swap contract are included in the fair market value of the swap. The Funds do not amortize upfront payments. Net periodic payments made or received to compensate for differences between the stated terms of the swap contract and prevailing market conditions (credit spreads, currency exchange rates, interest rates, and other relevant factors) are recorded as realized gains or losses on the Statements of Operations. A liquidation payment received or made at the termination of the swap contract is recorded as realized gain or loss in the Statements of Operations.
| 127 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Interest rate swap contracts involve an exchange by the parties of their respective commitments to pay or right to receive interest (e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal).
Total return swap contracts involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security, basket of securities, or futures contract), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.
In a credit default swap contract, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g., default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives periodic payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations so long as there is no early termination.
For credit default swap contracts on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer’s failure to pay interest or principal on a reference security, 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 contracts on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer’s bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.
In a credit linked option contract, one party makes payments to another party in exchange for the option to exercise a contract where the buyer has the right to receive a specified return if a credit event (e.g., default or similar event) occurs with respect to a reference entity or entities and a specified decrease in the value of the related collateral occurs. A writer of a credit linked option receives periodic payments in return for its obligation to pay an agreed-upon value to the other party if they exercise their option in the case of a credit event. If no credit event occurs, the seller has no payment obligation and will keep the premiums received.
Variance swap contracts 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 payable 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 be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to make a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to 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.
Generally, the Funds price their OTC swap contracts daily using industry standard models that may incorporate quotations from market makers or pricing vendors and record the change in value, if any, as unrealized gain or loss in the Statements of Operations. Gains or losses are realized upon termination of the swap contract or reset dates, as appropriate. Cleared swap contracts are valued using the quote (which may be based on a model) published by the relevant clearing house. If an updated quote for a cleared swap contract is not available by the time that a Fund calculates its net asset value on any business day, then that swap contract will generally be valued using an industry standard model, which may differ from the model used by the relevant clearing house.
The values assigned to swap contracts may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap contracts involves counterparty credit, legal, and documentation risk that is generally not reflected in the value assigned to the swap contract. Such risks include the possibility that the counterparty defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that a Fund has amounts on deposit in excess of amounts owed by that Fund, or that any collateral the other party posts is insufficient or not timely received by a Fund. Credit risk is particularly acute in economic environments 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. Swap contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Rights and warrants
The Funds 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 set price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in the section entitled “Options” above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. However, warrants and rights often do not have standardized terms, and may have longer maturities and may be less liquid than exchange-traded options. In addition, the terms of warrants or rights may limit a Fund’s ability to exercise the warrants or rights
| 128 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
at such times and in such quantities as the Fund would otherwise wish. Additionally, Emerging Country Debt Fund owns warrants linked to the price of oil. Rights and/or warrants outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
As provided by U.S. GAAP, the table below is based on market values or unrealized appreciation/(depreciation) rather than the notional amounts of derivatives. Changes to market values of reference asset(s) will tend to have a greater impact on the Funds (with correspondingly greater risk) the greater the notional amount. For further information on notional amounts, see the Schedule of Investments.
The following is a summary of the valuations of derivative instruments categorized by risk exposure:
The Effect of Derivative Instruments on the Statements of Assets and Liabilities as of August 31, 2013 and the Statements of Operations for the period ended August 31, 2013^:
| Credit Contracts |
Commodity Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate |
Other Contracts |
Total | ||||||||||||||||||||||
| Asset Allocation Bond Fund |
||||||||||||||||||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||||||
| Investments (purchased options) |
$ | — | $ | — | $ | — | $ | — | $ | (155,997 | ) | $ | — | $ | (155,997 | ) | ||||||||||||
| Futures Contracts |
— | — | — | — | 17,771 | — | 17,771 | |||||||||||||||||||||
| Written Options |
— | — | — | — | 64,320 | — | 64,320 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | — | $ | — | $ | (73,906 | ) | $ | — | $ | (73,906 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Core Plus Bond Fund |
||||||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||||||
| Investments, at value (purchased options) |
$ | — | $ | — | $ | — | $ | 1,233,819 | $ | — | $ | — | $ | 1,233,819 | ||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
— | — | — | 526,567 | — | — | 526,567 | |||||||||||||||||||||
| Unrealized Appreciation on Futures Contracts* |
— | — | — | — | 302,080 | — | 302,080 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | — | $ | 1,760,386 | $ | 302,080 | $ | — | $ | 2,062,466 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | — | $ | 1,760,386 | $ | 302,080 | $ | — | $ | 2,062,466 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Liability: |
||||||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | (819,791 | ) | $ | — | $ | — | $ | (819,791 | ) | ||||||||||||
| Unrealized Depreciation on Futures Contracts* |
— | — | — | — | (717,636 | ) | — | (717,636 | ) | |||||||||||||||||||
| Written Options, at value |
— | — | — | (661,128 | ) | — | — | (661,128 | ) | |||||||||||||||||||
| Unrealized Depreciation on Swap Contracts |
(1,116,308 | ) | — | — | — | (1,994,093 | ) | — | (3,110,401 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | (1,116,308 | ) | $ | — | $ | — | $ | (1,480,919 | ) | $ | (2,711,729 | ) | $ | — | $ | (5,308,956 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | (1,116,308 | ) | $ | — | $ | — | $ | (1,480,919 | ) | $ | (2,711,729 | ) | $ | — | $ | (5,308,956 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||||||
| Investments (purchased options) |
$ | — | $ | — | $ | — | $ | 92,187 | $ | — | $ | — | $ | 92,187 | ||||||||||||||
| Forward Currency Contracts |
— | — | — | (4,192,618 | ) | — | — | (4,192,618 | ) | |||||||||||||||||||
| Futures Contracts |
— | — | — | — | (742,566 | ) | — | (742,566 | ) | |||||||||||||||||||
| Swap Contracts |
118,324 | — | — | — | (831,492 | ) | — | (713,168 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | 118,324 | $ | — | $ | — | $ | (4,100,431 | ) | $ | (1,574,058 | ) | $ | — | $ | (5,556,165 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Change in Net Unrealized Appreciation (Depreciation): |
||||||||||||||||||||||||||||
| Investments (purchased options) |
$ | — | $ | — | $ | — | $ | 532,742 | $ | — | $ | — | $ | 532,742 | ||||||||||||||
| Forward Currency Contracts |
— | — | — | (113,995 | ) | — | — | (113,995 | ) | |||||||||||||||||||
| Futures Contracts |
— | — | — | — | (202,707 | ) | — | (202,707 | ) | |||||||||||||||||||
| Written Options |
— | — | — | (147,585 | ) | — | — | (147,585 | ) | |||||||||||||||||||
| Swap Contracts |
136,287 | — | — | — | (1,443,969 | ) | — | (1,307,682 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | 136,287 | $ | — | $ | — | $ | 271,162 | $ | (1,646,676 | ) | $ | — | $ | (1,239,227 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| 129 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Credit Contracts |
Commodity Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate |
Other Contracts |
Total | ||||||||||||||||||||||
| Currency Hedged International Bond Fund |
||||||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||||||
| Investments, at value (purchased options) |
$ | — | $ | — | $ | — | $ | 399,930 | $ | — | $ | — | $ | 399,930 | ||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
— | — | — | 179,501 | — | — | 179,501 | |||||||||||||||||||||
| Unrealized Appreciation on Futures Contracts* |
— | — | — | — | 82,675 | — | 82,675 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | — | $ | 579,431 | $ | 82,675 | $ | — | $ | 662,106 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | — | $ | 579,431 | $ | 82,675 | $ | — | $ | 662,106 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Liability: |
||||||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | (261,816 | ) | $ | — | $ | — | $ | (261,816 | ) | ||||||||||||
| Unrealized Depreciation on Futures Contracts* |
— | — | — | — | (391,067 | ) | — | (391,067 | ) | |||||||||||||||||||
| Written Options, at value |
— | — | — | (218,987 | ) | — | — | (218,987 | ) | |||||||||||||||||||
| Unrealized Depreciation on Swap Contracts |
(122,176 | ) | — | — | — | (360,202 | ) | — | (482,378 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | (122,176 | ) | $ | — | $ | — | $ | (480,803 | ) | $ | (751,269 | ) | $ | — | $ | (1,354,248 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | (122,176 | ) | $ | — | $ | — | $ | (480,803 | ) | $ | (751,269 | ) | $ | — | $ | (1,354,248 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||||||
| Investments (purchased options) |
$ | — | $ | — | $ | — | $ | 26,764 | $ | — | $ | — | $ | 26,764 | ||||||||||||||
| Forward Currency Contracts |
— | — | — | (970,823 | ) | — | — | (970,823 | ) | |||||||||||||||||||
| Futures Contracts |
— | — | — | — | (161,830 | ) | — | (161,830 | ) | |||||||||||||||||||
| Swap Contracts |
(120,322 | ) | — | — | — | (129,512 | ) | — | (249,834 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | (120,322 | ) | $ | — | $ | — | $ | (944,059 | ) | $ | (291,342 | ) | $ | — | $ | (1,355,723 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Change in Net Unrealized Appreciation (Depreciation) on: |
||||||||||||||||||||||||||||
| Investments (purchased options) |
$ | — | $ | — | $ | — | $ | 188,866 | $ | — | $ | — | $ | 188,866 | ||||||||||||||
| Forward Currency Contracts |
— | — | — | (387,043 | ) | — | — | (387,043 | ) | |||||||||||||||||||
| Futures Contracts |
— | — | — | — | (307,986 | ) | — | (307,986 | ) | |||||||||||||||||||
| Written Options |
— | — | — | (52,581 | ) | — | — | (52,581 | ) | |||||||||||||||||||
| Swap Contracts |
(40,149 | ) | — | — | — | (203,658 | ) | — | (243,807 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | (40,149 | ) | $ | — | $ | — | $ | (250,758 | ) | $ | (511,644 | ) | $ | — | $ | (802,551 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Domestic Bond Fund |
||||||||||||||||||||||||||||
| Net Realized Gain (Loss) |
||||||||||||||||||||||||||||
| Swap Contracts |
$ | (17,732 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (17,732 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | (17,732 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (17,732 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Change in Net Unrealized Appreciation (Depreciation) |
||||||||||||||||||||||||||||
| Swap Contracts |
$ | 17,101 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 17,101 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | 17,101 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 17,101 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| 130 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Credit Contracts |
Commodity Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate |
Other Contracts |
Total | ||||||||||||||||||||||
| Emerging Country Debt Fund |
||||||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||||||
| Investments, at value (rights and/or warrants) |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | 11,793,301 | $ | 11,793,301 | ||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
— | — | — | 783,386 | — | — | 783,386 | |||||||||||||||||||||
| Unrealized Appreciation on Swap Contracts |
114,668,954 | — | — | — | — | — | 114,668,954 | |||||||||||||||||||||
| Options |
168,045 | — | — | — | — | — | 168,045 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | 114,836,999 | $ | — | $ | — | $ | 783,386 | $ | — | $ | 11,793,301 | $ | 127,413,686 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | 11,793,301 | $ | 11,793,301 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | 114,836,999 | $ | — | $ | — | $ | 783,386 | $ | — | $ | — | $ | 115,620,385 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Liability: |
||||||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | (1,665,723 | ) | $ | — | $ | — | $ | (1,665,723 | ) | ||||||||||||
| Unrealized Depreciation on Swap Contracts |
(135,227,259 | ) | — | — | — | — | — | (135,227,259 | ) | |||||||||||||||||||
| Options |
(3,022,857 | ) | — | — | — | — | — | (3,022,857 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | (138,250,116 | ) | $ | — | $ | — | $ | (1,665,723 | ) | $ | — | $ | — | $ | (139,915,839 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | (138,250,116 | ) | $ | — | $ | — | $ | (1,665,723 | ) | $ | — | $ | — | $ | (139,915,839 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Net Realized Gain (Loss): |
||||||||||||||||||||||||||||
| Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | 8,551,674 | $ | — | $ | — | $ | 8,551,674 | ||||||||||||||
| Swap Contracts |
2,306,938 | — | — | — | — | (4,857,287 | ) | (2,550,349 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | 2,306,938 | $ | — | $ | — | $ | 8,551,674 | $ | — | $ | (4,857,287 | ) | $ | 6,001,325 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Change in Appreciation (Depreciation) on: |
||||||||||||||||||||||||||||
| Investments (purchased options, rights and/or warrants) |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | 780,297 | $ | 780,297 | ||||||||||||||
| Forward Currency Contracts |
— | — | — | (5,133,117 | ) | — | — | (5,133,117 | ) | |||||||||||||||||||
| Swap Contracts |
(3,099,516 | ) | — | — | — | (158,272 | ) | — | (3,257,788 | ) | ||||||||||||||||||
| Options |
(1,667,534 | ) | — | — | — | — | — | (1,667,534 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | (4,767,050 | ) | $ | — | $ | — | $ | (5,133,117 | ) | $ | (158,272 | ) | $ | 780,297 | $ | (9,278,142 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Global Bond Fund |
||||||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||||||
| Investments, at value (purchased options) |
$ | — | $ | — | $ | — | $ | 808,817 | $ | — | $ | — | $ | 808,817 | ||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
— | — | — | 801,671 | — | — | 801,671 | |||||||||||||||||||||
| Unrealized Appreciation on Futures Contracts* |
— | — | — | — | 270,580 | — | 270,580 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | — | $ | 1,610,488 | $ | 270,580 | $ | — | $ | 1,881,068 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | — | $ | 1,610,488 | $ | 270,580 | $ | — | $ | 1,881,068 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Liability: |
||||||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | (528,073 | ) | $ | — | $ | — | $ | (528,073 | ) | ||||||||||||
| Unrealized Depreciation on Futures Contracts* |
— | — | — | — | (267,870 | ) | — | (267,870 | ) | |||||||||||||||||||
| Written Options, at value |
— | — | — | (442,141 | ) | — | — | (442,141 | ) | |||||||||||||||||||
| Unrealized Depreciation on Swap Contracts |
(183,264 | ) | — | — | — | (794,828 | ) | — | (978,092 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | (183,264 | ) | $ | — | $ | — | $ | (970,214 | ) | $ | (1,062,698 | ) | $ | — | $ | (2,216,176 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | (183,264 | ) | $ | — | $ | — | $ | (970,214 | ) | $ | (1,062,698 | ) | $ | — | $ | (2,216,176 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| 131 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Credit Contracts |
Commodity Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate |
Other Contracts |
Total | ||||||||||||||||||||||
| Global Bond Fund (continued) |
||||||||||||||||||||||||||||
| Net Realized Gain (Loss): |
||||||||||||||||||||||||||||
| Investments (purchased options) |
$ | — | $ | — | $ | — | $ | 69,884 | $ | — | $ | — | $ | 69,884 | ||||||||||||||
| Forward Currency Contracts |
— | — | — | (4,869,843 | ) | — | — | (4,869,843 | ) | |||||||||||||||||||
| Futures Contracts |
— | — | — | — | (1,095,378 | ) | — | (1,095,378 | ) | |||||||||||||||||||
| Swap Contracts |
(180,483 | ) | — | — | — | (278,651 | ) | — | (459,134 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | (180,483 | ) | $ | — | $ | — | $ | (4,799,959 | ) | $ | (1,374,029 | ) | $ | — | $ | (6,354,471 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Change in Net Unrealized Appreciation (Depreciation): |
||||||||||||||||||||||||||||
| Investments (purchased options) |
$ | — | $ | — | $ | — | $ | 360,946 | $ | — | $ | — | $ | 360,946 | ||||||||||||||
| Forward Currency Contracts |
— | — | — | 1,353,218 | — | — | 1,353,218 | |||||||||||||||||||||
| Futures Contracts |
— | — | — | — | (215,920 | ) | — | (215,920 | ) | |||||||||||||||||||
| Written Options |
— | — | — | (95,004 | ) | — | — | (95,004 | ) | |||||||||||||||||||
| Swap Contracts |
(60,224 | ) | — | — | — | (405,688 | ) | — | (465,912 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | (60,224 | ) | $ | — | $ | — | $ | 1,619,160 | $ | (621,608 | ) | $ | — | $ | 937,328 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| International Bond Fund |
||||||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||||||
| Investments, at value (purchased options) |
$ | — | $ | — | $ | — | $ | 391,796 | $ | — | $ | — | $ | 391,796 | ||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
— | — | — | 373,300 | — | — | 373,300 | |||||||||||||||||||||
| Unrealized Appreciation on Futures Contracts* |
— | — | — | — | 36,863 | — | 36,863 | |||||||||||||||||||||
| Unrealized Appreciation on Swap Contracts |
— | — | — | — | — | — | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | — | $ | 765,096 | $ | 36,863 | $ | — | $ | 801,959 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | — | $ | 765,096 | $ | 36,863 | $ | — | $ | 801,959 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Liability: |
||||||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | (261,153 | ) | $ | — | $ | — | $ | (261,153 | ) | ||||||||||||
| Unrealized Depreciation on Futures Contracts* |
— | — | — | — | (198,933 | ) | — | (198,933 | ) | |||||||||||||||||||
| Written Options, at value |
— | — | — | (218,987 | ) | — | — | (218,987 | ) | |||||||||||||||||||
| Unrealized Depreciation on Swap Contracts |
(293,747 | ) | — | — | — | (316,942 | ) | — | (610,689 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | (293,747 | ) | $ | — | $ | — | $ | (480,140 | ) | $ | (515,875 | ) | $ | — | $ | (1,289,762 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | (293,747 | ) | $ | — | $ | — | $ | (480,140 | ) | $ | (515,875 | ) | $ | — | $ | (1,289,762 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||||||
| Investments (purchased options) |
$ | — | $ | — | $ | — | $ | 31,225 | $ | — | $ | — | $ | 31,225 | ||||||||||||||
| Forward Currency Contracts |
— | — | — | (2,768,942 | ) | — | — | (2,768,942 | ) | |||||||||||||||||||
| Futures Contracts |
— | — | — | — | (283,728 | ) | — | (283,728 | ) | |||||||||||||||||||
| Swap Contracts |
(26,997 | ) | — | — | — | (140,925 | ) | — | (167,922 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | (26,997 | ) | $ | — | $ | — | $ | (2,737,717 | ) | $ | (424,653 | ) | $ | — | $ | (3,189,367 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Change in Net Unrealized Appreciation (Depreciation) on: |
||||||||||||||||||||||||||||
| Investments (purchased options) |
$ | — | $ | — | $ | — | $ | 191,711 | $ | — | $ | — | $ | 191,711 | ||||||||||||||
| Forward Currency Contracts |
— | — | — | 985,148 | — | — | 985,148 | |||||||||||||||||||||
| Futures Contracts |
— | — | — | — | (310,761 | ) | — | (310,761 | ) | |||||||||||||||||||
| Written options |
— | — | — | (52,581 | ) | — | — | (52,581 | ) | |||||||||||||||||||
| Swap Contracts |
132,150 | — | — | — | (156,657 | ) | — | (24,507 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | 132,150 | $ | — | $ | — | $ | 1,124,278 | $ | (467,418 | ) | $ | — | $ | 789,010 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| 132 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Credit Contracts |
Commodity Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate |
Other Contracts |
Total | ||||||||||||||||||||||
| Strategic Fixed Income Fund |
||||||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||||||
| Investments, at value (purchased options) |
$ | — | $ | — | $ | — | $ | 8,982,077 | $ | — | $ | — | $ | 8,982,077 | ||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
— | — | — | 3,772,315 | — | — | 3,772,315 | |||||||||||||||||||||
| Unrealized Appreciation on Futures Contracts* |
— | — | — | — | 1,244,719 | — | 1,244,719 | |||||||||||||||||||||
| Unrealized Appreciation on Swap Contracts |
— | — | — | — | 6,472,792 | — | 6,472,792 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | — | $ | 12,754,392 | $ | 7,717,511 | $ | — | $ | 20,471,903 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | — | $ | 12,754,392 | $ | 7,717,511 | $ | — | $ | 20,471,903 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Liability: |
||||||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | (5,253,539 | ) | $ | — | $ | — | $ | (5,253,539 | ) | ||||||||||||
| Unrealized Depreciation on Futures Contracts* |
— | — | — | — | (3,546,150 | ) | — | (3,546,150 | ) | |||||||||||||||||||
| Written Options, at value |
— | — | — | (4,990,103 | ) | — | — | (4,990,103 | ) | |||||||||||||||||||
| Unrealized Depreciation on Swap Contracts |
— | — | — | — | (7,515,198 | ) | — | (7,515,198 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | — | $ | (10,243,642 | ) | $ | (11,061,348 | ) | $ | — | $ | (21,304,990 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | — | $ | (10,243,642 | ) | $ | (11,061,348 | ) | $ | — | $ | (21,304,990 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||||||
| Investments (purchased options) |
$ | — | $ | — | $ | — | $ | 878,756 | $ | — | $ | — | $ | 878,756 | ||||||||||||||
| Forward Currency Contracts |
— | — | — | (30,815,580 | ) | — | — | (30,815,580 | ) | |||||||||||||||||||
| Futures Contracts |
— | — | — | — | (1,052,496 | ) | — | (1,052,496 | ) | |||||||||||||||||||
| Swap Contracts |
— | — | — | — | (1,447,339 | ) | — | (1,447,339 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | — | $ | (29,936,824 | ) | $ | (2,499,835 | ) | $ | — | $ | (32,436,659 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Change in Net Unrealized Appreciation (Depreciation) on: |
||||||||||||||||||||||||||||
| Investments (purchased options) |
$ | — | $ | — | $ | — | $ | 4,233,739 | $ | — | $ | — | $ | 4,233,739 | ||||||||||||||
| Forward Currency Contracts |
— | — | — | (112,404 | ) | — | — | (112,404 | ) | |||||||||||||||||||
| Futures Contracts |
— | — | — | — | (250,598 | ) | — | (250,598 | ) | |||||||||||||||||||
| Written options |
— | — | — | (1,127,503 | ) | — | — | (1,127,503 | ) | |||||||||||||||||||
| Swap Contracts |
— | — | — | — | (6,938,343 | ) | — | (6,938,343 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | — | $ | 2,993,832 | $ | (7,188,941 | ) | $ | — | $ | (4,195,109 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| World Opportunity Overlay Fund |
||||||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||||||
| Investments, at value (purchased options) |
$ | — | $ | — | $ | — | $ | 19,825 | $ | 12,512,571 | $ | — | $ | 12,532,396 | ||||||||||||||
| Unrealized Appreciation on Swap Contracts |
— | — | — | — | 15,360,531 | — | 15,360,531 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | — | $ | 19,825 | $ | 27,873,102 | $ | — | $ | 27,892,927 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | — | $ | 19,825 | $ | 27,873,102 | $ | — | $ | 27,892,927 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Liability: |
||||||||||||||||||||||||||||
| Written Options, at value |
$ | — | $ | — | $ | — | $ | — | $ | (2,676,240 | ) | $ | — | $ | (2,676,240 | ) | ||||||||||||
| Unrealized Depreciation on Swap Contracts |
— | — | — | — | (55,828,940 | ) | — | (55,828,940 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | — | $ | — | $ | (58,505,180 | ) | $ | — | $ | (58,505,180 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | (58,505,180 | ) | $ | — | $ | (58,505,180 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| 133 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Credit Contracts |
Commodity Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate |
Other Contracts |
Total | ||||||||||||||||||||||
| World Opportunity Overlay Fund (continued) |
|
|||||||||||||||||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||||||
| Investments (purchased options) |
$ | — | $ | — | $ | — | $ | 2,008,172 | $ | 4,264,012 | $ | — | $ | 6,272,184 | ||||||||||||||
| Futures Contracts |
— | — | — | — | 3,909,102 | — | 3,909,102 | |||||||||||||||||||||
| Written Options |
— | — | — | 167,090 | 3,957,362 | — | 4,124,452 | |||||||||||||||||||||
| Swap Contracts |
— | — | — | — | (16,090,964 | ) | — | (16,090,964 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | — | $ | 2,175,262 | $ | (3,960,488 | ) | $ | — | $ | (1,785,226 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Change in Net Unrealized Appreciation (Depreciation): |
||||||||||||||||||||||||||||
| Investments (purchased options) |
$ | — | $ | — | $ | — | $ | 1,709,151 | $ | (10,123,213 | ) | $ | — | $ | (8,414,062 | ) | ||||||||||||
| Written Options |
— | — | — | (2,471,744 | ) | 3,824,114 | — | 1,352,370 | ||||||||||||||||||||
| Swap Contracts |
— | — | — | — | 23,717,209 | — | 23,717,209 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | — | $ | (762,593 | ) | $ | 17,418,110 | $ | — | $ | 16,655,517 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
The risks referenced in the tables above are not intended to be inclusive of all risks. Please see the “Investment and other risks” and “Portfolio valuation” sections for a further discussion of risks.
| ^ | Because the Funds recognize changes in value through the Statements of Operations, they do not qualify for hedge accounting under authoritative guidance for derivative instruments. The Funds’ investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables. |
| * | The table includes cumulative appreciation/depreciation of futures and cleared swap contracts as reported in the Schedule of Investments. Period end variation margin on open futures and cleared swap contracts is reported within the Statements of Assets and Liabilities. |
The Funds are party to International Swaps and Derivatives Association, Inc. Master Agreements, Global Master Repurchase Agreements or other similar types of agreements (collectively, “Master Agreements”) that generally govern the terms of some over-the-counter derivative transactions, repurchase agreements and reverse repurchase agreements. The Master Agreements may include collateral posting terms and netting provisions that apply in the event of a default and/or termination event. Upon the occurrence of such an event, including the bankruptcy or insolvency of the counterparty, the Master Agreements may permit the non-defaulting party to calculate a single net payment to close out applicable transactions. However, there is no guarantee that the terms of a Master Agreement will be enforceable; for example, when bankruptcy or insolvency laws impose restrictions on or prohibitions against the right of offset obligations. Additionally, the netting and close out provisions of a Master Agreement may not extend to the obligations of the counterparty’s affiliates or across varying types of transactions. Termination events may also include a decline in the net assets of a Fund below a certain level over a specified period of time and may entitle a counterparty to elect to terminate early with respect to some or all the transactions under the Master Agreement with that counterparty. Such an election by one or more of the counterparties could have a material adverse impact on a Fund’s operations. For more information about other uncertainties and risks, see the Investment and Other Risks note.
For financial reporting purposes, on the Statements of Assets and Liabilities any cash collateral that has been pledged to cover obligations of the Funds is reported as Due from Broker and any cash collateral received from the counterparty is reported as Due to Broker. Any non-cash collateral pledged by the Funds is noted in the Schedules of Investments. The tables below show the potential effect of netting arrangements made available by the Master Agreements on the financial position of the Funds. For financial reporting purposes, the Funds’ Statements of Assets and Liabilities generally show derivative assets and derivative liabilities (regardless of whether they are subject to netting arrangements) on a gross basis, which reflects the full risks and exposures of the Fund prior to netting. See Note 2 for information on repurchase agreements and reverse repurchase agreements held by the Funds at August 31, 2013, if any.
| 134 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The tables above present the Funds’ derivative assets and liabilities by type of financial instrument. The following tables present the Funds’ OTC derivative assets and liabilities by counterparty net of amounts that may be available for offset under the Master Agreements and net of the related collateral received or pledged by the Funds as of August 31, 2013:
Core Plus Bond Fund
| Counterparty | Gross Derivative Assets Subject to Master Agreements |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Barclays Bank PLC |
$ | 1,164,249 | $ | — | $ | (641,509 | ) | $ | 522,740 | |||||||
| Citibank N.A. |
316,397 | — | (224,296 | ) | 92,101 | |||||||||||
| Deutsche Bank AG |
5,056 | — | 5,056 | — | ||||||||||||
| JPMorgan Chase Bank, N.A. |
274,684 | — | (186,390 | ) | 88,294 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 1,760,386 | $ | — | $ | (1,047,139 | ) | $ | 703,135 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Barclays Bank PLC |
$ | 2,063,116 | $ | (1,421,607 | ) | $ | 641,509 | $ | — | |||||||
| Citibank N.A. |
224,296 | — | 224,296 | — | ||||||||||||
| Deutsche Bank AG |
691,602 | (666,635 | ) | (5,056 | ) | 19,911 | ||||||||||
| Goldman Sachs International |
14,551 | — | — | 14,551 | ||||||||||||
| JPMorgan Chase Bank, N.A. |
702,759 | (516,369 | ) | 186,390 | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 3,696,324 | $ | (2,604,611 | ) | $ | 1,047,139 | $ | 34,462 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
Currency Hedged International Bond Fund
| Counterparty | Gross Derivative Assets Subject to Master Agreements |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Barclays Bank PLC |
$ | 396,839 | $ | — | $ | (45,256 | ) | $ | 351,583 | |||||||
| Citibank N.A. |
102,374 | — | (81,272 | ) | 21,102 | |||||||||||
| Deutsche Bank AG |
1,539 | — | 1,539 | — | ||||||||||||
| JPMorgan Chase Bank, N.A. |
78,679 | — | 78,679 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 579,431 | $ | — | $ | (46,310 | ) | $ | 372,685 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Barclays Bank PLC |
$ | 45,256 | $ | — | $ | 45,256 | $ | — | ||||||||
| Citibank N.A. |
81,272 | — | 81,272 | — | ||||||||||||
| Deutsche Bank AG |
324,462 | (265,591 | ) | (1,539 | ) | 57,332 | ||||||||||
| Goldman Sachs International |
4,388 | — | — | 4,388 | ||||||||||||
| JPMorgan Chase Bank, N.A. |
234,678 | (80,347 | ) | (78,679 | ) | 75,652 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 690,056 | $ | (345,938 | ) | $ | 46,310 | $ | 137,372 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 135 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Emerging Country Debt Fund
| Counterparty |
Gross Derivative |
Collateral |
Derivative |
Net Amount |
||||||||||||
| Barclays Bank PLC |
$ | 170,620 | $ | — | $ | — | $ | 170,620 | ||||||||
| Citibank N.A. |
3,772,175 | — | (3,219,268 | ) | 552,907 | |||||||||||
| Deutsche Bank AG |
109,746,214 | — | (109,029,503 | ) | 716,711 | |||||||||||
| Goldman Sachs International |
1,931,376 | (1,931,376 | ) | — | — | * | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 115,620,385 | $ | (1,931,376 | ) | $ | (112,248,771 | ) | $ | 1,440,238 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Barclays Bank PLC |
$ | 3,374,981 | $ | (3,374,981 | ) | $ | — | $ | — | * | ||||||
| Citibank N.A. |
3,687,959 | (468,691 | ) | 3,219,268 | — | |||||||||||
| Deutsche Bank AG |
114,750,875 | (5,721,372 | ) | 109,029,503 | — | |||||||||||
| JPMorgan Chase Bank, N.A. |
18,102,024 | (17,703,218 | ) | — | 398,806 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 139,915,839 | $ | (27,268,262 | ) | $ | 112,248,771 | $ | 398,806 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
Global Bond Fund
| Counterparty |
Gross Derivative |
Collateral |
Derivative |
Net
Amount |
||||||||||||
| Barclays Bank PLC |
$ | 749,693 | $ | (645,025 | ) | $ | 104,668 | $ | — | |||||||
| Citibank N.A. |
545,036 | (545,036 | ) | — | — | * | ||||||||||
| Deutsche Bank AG |
2,858 | — | 2,858 | — | ||||||||||||
| JPMorgan Chase Bank, N.A. |
312,901 | — | (243,826 | ) | 69,075 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 1,610,488 | $ | (1,190,061 | ) | $ | (136,300 | ) | $ | 69,075 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty |
Gross Derivative |
Collateral |
Derivative |
Net Amount |
||||||||||||
| Barclays Bank PLC |
$ | 142,081 | $ | — | $ | (104,668 | ) | $ | 37,413 | |||||||
| Citibank N.A. |
132,966 | — | — | 132,966 | ||||||||||||
| Deutsche Bank AG |
625,507 | (594,689 | ) | (2,858 | ) | 27,960 | ||||||||||
| Goldman Sachs International |
3,465 | — | — | 3,465 | ||||||||||||
| JPMorgan Chase Bank, N.A. |
462,395 | (218,569 | ) | 243,826 | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 1,366,414 | $ | (813,258 | ) | $ | 136,300 | $ | 201,804 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 136 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
International Bond Fund
| Counterparty | Gross Derivative Assets Subject to Master Agreements |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Barclays Bank PLC |
$ | 363,792 | $ | (282,439 | ) | $ | (73,595 | ) | $ | 7,758 | ||||||
| Citibank N.A. |
292,581 | (167,508 | ) | (71,812 | ) | 53,261 | ||||||||||
| Deutsche Bank AG |
4,783 | — | 4,783 | — | ||||||||||||
| JPMorgan Chase Bank, N.A. |
103,940 | — | 103,940 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 765,096 | $ | (449,947 | ) | $ | (36,684 | ) | $ | 61,019 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Barclays Bank PLC |
$ | 73,595 | $ | — | $ | 73,595 | $ | — | ||||||||
| Citibank N.A. |
71,812 | — | 71,812 | — | ||||||||||||
| Deutsche Bank AG |
489,019 | (444,140 | ) | (4,783 | ) | 40,096 | ||||||||||
| Goldman Sachs International |
4,157 | — | — | 4,157 | ||||||||||||
| JPMorgan Chase Bank, N.A. |
228,967 | (92,622 | ) | (103,940 | ) | 32,405 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 867,550 | $ | (536,762 | ) | $ | 36,684 | $ | 76,658 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
Strategic Fixed Income Fund
| Counterparty | Gross Derivative Assets Subject to Master Agreements |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Barclays Bank PLC |
$ | 12,834,724 | $ | (11,695,573 | ) | $ | (1,063,820 | ) | $ | 75,331 | ||||||
| Citibank N.A. |
4,092,848 | (2,450,768 | ) | (1,378,656 | ) | 263,424 | ||||||||||
| Deutsche Bank AG |
102,698 | — | 102,698 | — | ||||||||||||
| JPMorgan Chase Bank, N.A. |
2,196,914 | — | 2,196,914 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 19,227,184 | $ | (14,146,341 | ) | $ | (142,864 | ) | $ | 338,755 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Barclays Bank PLC |
$ | 1,063,820 | $ | — | $ | 1,063,820 | $ | — | ||||||||
| Citibank N.A. |
1,378,656 | — | 1,378,656 | — | ||||||||||||
| Deutsche Bank AG |
3,990,863 | (2,966,565 | ) | (102,698 | ) | 921,600 | ||||||||||
| Goldman Sachs International |
92,618 | — | — | 92,618 | ||||||||||||
| JPMorgan Chase Bank, N.A. |
5,266,778 | (2,628,683 | ) | (2,196,914 | ) | 441,181 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 11,792,735 | $ | (5,595,248 | ) | $ | 142,864 | $ | 1,455,399 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 137 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
World Opportunity Overlay Fund
| Counterparty | Gross Derivative Assets Subject to Master Agreements |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Barclays Bank PLC |
$ | 2,181,371 | $ | (264,996 | ) | $ | (1,854,366 | ) | $ | 62,009 | ||||||
| Citibank N.A. |
1,189,954 | (675,620 | ) | (430,127 | ) | 84,207 | ||||||||||
| JPMorgan Chase Bank, N.A. |
19,825 | — | — | 19,825 | ||||||||||||
| Morgan Stanley & Co. International PLC |
9,141,246 | (6,500,000 | ) | 2,641,246 | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 12,532,396 | $ | (7,440,616 | ) | $ | 356,753 | $ | 166,041 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Barclays Bank PLC |
$ | 1,854,366 | $ | — | $ | 1,854,366 | $ | — | ||||||||
| Citibank N.A. |
430,127 | — | 430,127 | — | ||||||||||||
| JPMorgan Chase Bank, N.A. |
23,651,793 | (23,651,793 | ) | — | — | * | ||||||||||
| Merrill Lynch Capital Services, Inc. |
8,317,872 | (8,317,872 | ) | — | — | * | ||||||||||
| Morgan Stanley & Co. International PLC |
2,734,027 | — | (2,641,246 | ) | 92,781 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 36,988,185 | $ | (31,969,665 | ) | $ | (356,753 | ) | $ | 92,781 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | In some instances, the actual collateral received and/or pledged may be more than the amount shown. |
The following tables present the Funds’ exchange-traded or cleared derivative assets and liabilities by counterparty net of amounts that may be available for offset under the Master Agreements and net of the related collateral received or pledged by the Funds as of August 31, 2013:
Core Plus Bond Fund
| Counterparty | Gross Derivative Assets in the Statement of Assets and Liabilities |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Barclays Bank PLC |
$ | 28,332 | $ | — | $ | — | $ | 28,332 | * | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 28,332 | $ | — | $ | — | $ | 28,332 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities in the Statement of Assets and Liabilities |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| J.P.Morgan Securities LLC |
$ | 52,304 | $ | (52,304 | ) | $ | — | $ | — | * | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 52,304 | $ | (52,304 | ) | $ | — | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 138 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Currency Hedged International Bond Fund
| Counterparty |
Gross Derivative |
Collateral |
Derivative |
Net Amount |
||||||||||||
| Barclays Bank PLC |
$ | 9,832 | $ | — | $ | — | $ | 9,832 | * | |||||||
| J.P.Morgan Securities LLC |
1,459 | — | — | 1,459 | * | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 11,291 | $ | — | $ | — | $ | 11,291 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Global Bond Fund
| Counterparty |
Gross Derivative |
Collateral |
Derivative |
Net
Amount |
||||||||||||
| Barclays Bank PLC |
$ | 18,347 | $ | — | $ | — | $ | 18,347 | * | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 18,347 | $ | — | $ | — | $ | 18,347 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty |
Gross Derivative |
Collateral |
Derivative |
Net
Amount |
||||||||||||
| J.P.Morgan Securities LLC |
$ | 4,236 | $ | (4,236 | ) | $ | — | $ | — | * | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 4,236 | $ | (4,236 | ) | $ | — | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
International Bond Fund
| Counterparty |
Gross Derivative |
Collateral |
Derivative |
Net Amount |
||||||||||||
| Barclays Bank PLC |
$ | 6,771 | $ | — | $ | — | $ | 6,771 | * | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 6,771 | $ | — | $ | — | $ | 6,771 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty |
Gross Derivative |
Collateral |
Derivative |
Net
Amount |
||||||||||||
| J.P.Morgan Securities LLC |
$ | 1,738 | $ | (1,738 | ) | $ | — | $ | — | * | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 1,738 | $ | (1,738 | ) | $ | — | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 139 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Strategic Fixed Income Fund
| Counterparty | Gross Derivative Assets in the Statement of Assets and Liabilities |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Barclays Bank PLC |
$ | 172,518 | $ | — | $ | — | $ | 172,518 | * | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 172,518 | $ | — | $ | — | $ | 172,518 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities in the Statement of Assets and Liabilities |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| J.P.Morgan Securities LLC |
$ | 139,069 | $ | (139,069 | ) | $ | — | $ | — | * | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 139,069 | $ | (139,069 | ) | $ | — | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
World Opportunity Overlay Fund
| Counterparty | Gross Derivative Assets in the Statement of Assets and Liabilities |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Barclays Bank PLC |
$ | 69,615 | $ | — | $ | — | $ | 69,615 | * | |||||||
| Credit Suisse Securities (USA) LLC |
151,959 | — | — | 151,959 | * | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 221,574 | $ | — | $ | — | $ | 221,574 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | In some instances, the actual collateral received and/or pledged may be more than the amount shown. |
The average derivative activity, based on absolute values (forward currency contracts, futures contracts, rights and/or warrants), notional amounts (swap contracts) or principal amounts (options) outstanding at each month-end, was as follows for the period ended August 31, 2013.
| Fund Name | Forward Currency Contracts ($) |
Futures Contracts ($) |
Swap Contracts ($) |
Options ($) | Rights and/or Warrants ($) |
|||||||||||||||
| Asset Allocation Bond Fund |
— | 5,139,291* | — | 143,478* | — | |||||||||||||||
| Core Plus Bond Fund |
154,332,567 | 242,367,007 | 224,144,248 | 38,212,802 | — | |||||||||||||||
| Currency Hedged International Bond Fund |
70,992,376 | 68,276,707 | 23,347,327 | 11,954,322 | — | |||||||||||||||
| Domestic Bond Fund |
— | — | 1,250,000* | — | — | |||||||||||||||
| Emerging Country Debt Fund |
455,003,688 | — | 3,510,181,559 | 309,166,667 | 11,819,647 | |||||||||||||||
| Global Bond Fund |
155,957,050 | 137,823,047 | 41,618,366 | 25,404,678 | — | |||||||||||||||
| International Bond Fund |
88,370,151 | 48,438,726 | 23,850,019 | 11,759,439 | — | |||||||||||||||
| Strategic Fixed Income Fund |
1,136,725,602 | 1,216,767,568 | 455,981,202 | 278,320,953 | — | |||||||||||||||
| World Opportunity Overlay Fund |
— | — | 4,852,865,952 | 1,334,503,970 | — | |||||||||||||||
| * | During the period ended August 31, 2013, the Fund did not hold this investment type at any month-end, therefore, the average amount outstanding was calculated using daily outstanding absolute values, notional amounts or principal amounts. |
| 140 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| 5. | Fees and other transactions with affiliates |
GMO receives a management fee for the services it provides to each Fund. That fee, if any, is paid monthly at the annual rate equal to the percentage of each Fund’s average daily net assets set forth in the table below:
| Asset Allocation Bond Fund |
Core Plus Bond Fund |
Currency Hedged Interna-tional Bond Fund |
Debt Oppor-tunities Fund |
Domestic Bond Fund |
Emerging Country Debt Fund |
Global Bond Fund |
Interna-tional Bond Fund |
Short-Duration Collateral Fund |
Short-Duration Collateral Share Fund |
Strategic Fixed Income Fund |
U.S. Treasury Fund |
World Oppo-rtuni ty Overlay Fund | ||||||||||||||
| Management Fee | 0.25% | 0.25% | 0.25% | 0.25% | 0.10% (currently 0.05% waived) |
0.35% | 0.19% | 0.25% | — | 0.05% | 0.25% | 0.08% (currently 0.08% waived) |
— |
In addition, each class of shares of certain Funds 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. Shareholder service fees are paid monthly equal to the percentage of each applicable Fund’s average daily net assets set forth in the table below:
| Fund Name | Class III | Class IV | Class VI | |||||||||
| Asset Allocation Bond Fund |
0.15% | 0.055% | ||||||||||
| Core Plus Bond Fund |
0.15% | 0.10% | ||||||||||
| Currency Hedged International Bond Fund |
0.15% | |||||||||||
| Debt Opportunities Fund |
0.15% | * | 0.055% | |||||||||
| Domestic Bond Fund |
0.15% | 0.055% | ||||||||||
| Emerging Country Debt Fund |
0.15% | 0.10% | ||||||||||
| Global Bond Fund |
0.15% | |||||||||||
| International Bond Fund |
0.15% | |||||||||||
| Short-Duration Collateral Share Fund |
0.15% | 0.055% | * | |||||||||
| Strategic Fixed Income Fund |
0.15% | 0.055% | ||||||||||
| * | Class is offered but currently has no shareholders as of August 31, 2013. |
For each Fund other than Global Bond Fund and Emerging Country Debt Fund, the Manager has contractually agreed to reimburse the Fund for its “Specified Operating Expenses” (as defined below). Any such reimbursements are paid to a Fund concurrently with the Fund’s payment of management fees to the Manager. For Global Bond Fund, the Manager has contractually agreed to reimburse the Fund for the portion of its “Specified Operating Expenses” (as defined below) that exceeds 0.06% of the Fund’s average daily net assets.
“Specified Operating Expenses” means only the following expenses to the extent that they are borne by a Fund: audit expenses, fund accounting expenses, pricing service expenses, expenses of non-investment related tax services, transfer agency expenses, expenses of non-investment related legal services provided to the Funds by or at the direction of the Manager, federal securities law filing expenses, printing expenses, state and federal registration fees and custody expenses.
| 141 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
For each Fund that charges a management fee, the Manager will waive and/or reduce the Fund’s management fee, but not below zero, to the extent necessary to offset the management fees directly or indirectly paid by the Fund to the Manager as a result of the Fund’s direct or indirect investments in other GMO Funds.
For each Fund that charges a shareholder service fee, the Manager will waive and/or reduce the shareholder service fee charged by each class of shares of the Fund, but not below zero, to the extent necessary to offset the shareholder service fees directly or indirectly paid by the class of shares of the Fund to the Manager as a result of the Fund’s direct or indirect investments in other GMO Funds.
These contractual waivers and reimbursements will continue through at least June 30, 2014 for each Fund unless the Funds’ Board of Trustees authorizes their modification or termination, or reduces the fee rates paid to the Manager under the Fund’s management contract or servicing and supplement support agreement.
In addition to the contractual waivers and reimbursements described above, the Manager has voluntarily agreed to waive Domestic Bond Fund’s management fee by 0.05% and U.S. Treasury Fund’s entire management fee. The Manager may change or terminate these voluntary waivers at any time.
The Funds’ portion of the gross fees paid by the Trust to the Trust’s independent Trustees and their legal counsel and any agents unaffiliated with the Manager during the period ended August 31, 2013 is shown in the table below and included in the Statements of Operations.
| Fund Name | Independent Trustees and their legal counsel ($) |
Agents unaffiliated with the Manager ($) |
||||||
| Asset Allocation Bond Fund |
828 | 184 | ||||||
| Core Plus Bond Fund |
1,104 | 184 | ||||||
| Currency Hedged International Bond Fund |
316 | 5 | ||||||
| Debt Opportunities Fund |
4,442 | 552 | ||||||
| Domestic Bond Fund |
1,012 | 184 | ||||||
| Emerging Country Debt Fund |
23,404 | 1,840 | ||||||
| Global Bond Fund |
828 | 184 | ||||||
| International Bond Fund |
332 | 5 | ||||||
| Short-Duration Collateral Fund |
3,864 | 552 | ||||||
| Short-Duration Collateral Share Fund |
184 | 5 | ||||||
| Strategic Fixed Income Fund |
9,200 | 1,380 | ||||||
| U.S. Treasury Fund |
16,234 | 2,396 | ||||||
| World Opportunity Overlay Fund |
3,465 | 552 | ||||||
| 142 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Certain Funds incur fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2013, these indirect fees and expenses expressed as an annualized percentage of each Fund’s average daily net assets were as follows:
| Fund Name | Indirect Net Expenses (excluding shareholder service fees) |
Indirect Shareholder Service Fees |
Indirect Interest Expense |
Total Indirect Expenses |
||||||||||||
| Asset Allocation Bond Fund |
<0.000% | 0.000% | 0.000% | <0.000% | ||||||||||||
| Core Plus Bond Fund* |
0.092% | 0.004% | 0.009% | 0.105% | ||||||||||||
| Currency Hedged International Bond Fund* |
0.034% | 0.004% | 0.009% | 0.047% | ||||||||||||
| Debt Opportunities Fund |
<0.000% | 0.000% | 0.000% | <0.000% | ||||||||||||
| Domestic Bond Fund* |
0.004% | 0.000% | 0.000% | 0.004% | ||||||||||||
| Emerging Country Debt Fund* |
0.002% | 0.000% | <0.001% | 0.002% | ||||||||||||
| Global Bond Fund* |
0.076% | 0.005% | 0.009% | 0.090% | ||||||||||||
| International Bond Fund* |
0.122% | 0.004% | 0.009% | 0.135% | ||||||||||||
| Short-Duration Collateral Fund |
0.000% | 0.000% | 0.000% | 0.000% | ||||||||||||
| Short-Duration Collateral Share Fund |
0.003% | 0.000% | 0.000% | 0.003% | ||||||||||||
| Strategic Fixed Income Fund |
0.018% | 0.004% | 0.010% | 0.032% | ||||||||||||
| U.S. Treasury Fund |
0.000% | 0.000% | 0.000% | 0.000% | ||||||||||||
| World Opportunity Overlay Fund |
0.000% | 0.000% | 0.000% | 0.000% | ||||||||||||
| * | During the period, the Fund incurred non-recurring indirect legal expenses in connection with the final settlement of pending litigation. Subsequent to the receipt of the settlement proceeds, the underlying fund was liquidated. |
| 6. | Purchases and sales of securities |
Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2013 are noted in the table below:
| Purchases ($) | Purchases ($) | Sales ($) | Sales ($) | |||||||||||||
| Fund Name | U.S. Government Securities |
Investments (Non-U.S. Government Securities) |
U.S. Government Securities |
Investments (Non-U.S. Government Securities) |
||||||||||||
| Asset Allocation Bond Fund |
2,229,745,013 | 175,929,485 | 177,543,344 | 105,500,000 | ||||||||||||
| Core Plus Bond Fund |
185,125,952 | 19,943,694 | 197,367,194 | 37,091,530 | ||||||||||||
| Currency Hedged International Bond Fund |
3,937,331 | 2,940,828 | 3,828,806 | 2,294,594 | ||||||||||||
| Debt Opportunities Fund |
— | 426,911,416 | 1,371,790 | 158,048,463 | ||||||||||||
| Domestic Bond Fund |
25,760,733 | 24,500,000 | 26,582,910 | 16,652,238 | ||||||||||||
| Emerging Country Debt Fund |
149,420,892 | 685,563,793 | 69,671,447 | 168,078,265 | ||||||||||||
| Global Bond Fund |
3,150,151 | 20,111,746 | 3,172,404 | 49,292,205 | ||||||||||||
| International Bond Fund |
3,600,419 | 4,191,146 | 3,454,471 | 16,671,564 | ||||||||||||
| Short-Duration Collateral Fund |
— | — | 7,865,602 | 126,094,160 | ||||||||||||
| Short-Duration Collateral Share Fund |
— | 7,569,185 | — | 376,500 | ||||||||||||
| Strategic Fixed Income Fund |
80,100,228 | 116,100,000 | 77,943,256 | 569,465,000 | ||||||||||||
| U.S. Treasury Fund |
— | — | — | — | ||||||||||||
| World Opportunity Overlay Fund |
367,861,456 | 17,034,120 | 368,107,063 | 51,595,485 | ||||||||||||
| 143 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| 7. | Guarantees |
In the normal course of business the Funds enter into contracts with third-party service providers that contain a variety of representations and warranties and that provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown, as it involves possible future claims that may or may not be made against the Funds. Based on experience, the Manager is of the view that the risk of loss to the Funds in connection with the Funds’ indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Funds.
| 8. | Principal shareholders and related parties as of August 31, 2013 |
| Fund Name | Number of shareholders that held more than 10% of the outstanding shares of the Fund |
Percentage of outstanding shares of the Fund held by those shareholders owning greater than 10% of the outstanding shares of the Fund |
Percentage of the shares of the Fund held by senior management of the Manager and GMO Trust officers |
Percentage of the Fund’s shares held by accounts for which the Manager has investment discretion |
||||||||||||
| Asset Allocation Bond Fund |
3 | * | 73.29% | — | 100.00% | |||||||||||
| Core Plus Bond Fund |
4 | 95.28% | 0.03 | % | 14.43% | |||||||||||
| Currency Hedged International Bond Fund |
1 | 94.04% | 0.01 | % | 94.04% | |||||||||||
| Debt Opportunities Fund |
4 | ** | 90.66% | 0.01 | % | 99.84% | ||||||||||
| Domestic Bond Fund |
3 | *** | 89.57% | — | 99.52% | |||||||||||
| Emerging Country Debt Fund |
2 | *** | 23.95% | 0.07 | % | 46.38% | ||||||||||
| Global Bond Fund |
3 | 67.22% | — | 63.58% | ||||||||||||
| International Bond Fund |
2 | 83.84% | 5.63 | % | 0.00% | |||||||||||
| Short-Duration Collateral Fund |
2 | * | 75.69% | — | 100.00% | |||||||||||
| Short-Duration Collateral Share Fund |
3 | 92.17% | 61.49 | % | 0.00% | |||||||||||
| Strategic Fixed Income Fund |
2 | *** | 72.15% | — | 100.00% | |||||||||||
| U.S. Treasury Fund |
2 | * | 54.46% | 0.13 | % | 95.20% | ||||||||||
| World Opportunity Overlay Fund |
2 | *** | 72.09% | — | 100.00% | |||||||||||
| * | Two of the shareholders are other funds of the Trust. |
| ** | Three of the shareholders are other funds of the Trust. |
| *** | One of the shareholders is another fund of the Trust. |
| 144 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| 9. | Share transactions |
The Declaration of Trust permits each Fund to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Funds’ shares were as follows:
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Asset Allocation Bond Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
3,952,997 | $ | 97,101,423 | 2,070,300 | $ | 50,655,398 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
— | — | 33,254 | 807,729 | ||||||||||||
| Shares repurchased |
(448 | ) | (10,948 | ) | (675,900 | ) | (16,454,900 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
3,952,549 | $ | 97,090,475 | 1,427,654 | $ | 35,008,227 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class VI: |
||||||||||||||||
| Shares sold |
82,793,402 | $ | 2,040,692,216 | 3,476,815 | $ | 85,079,880 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
— | — | 44,519 | 1,081,817 | ||||||||||||
| Shares repurchased |
(595,072 | ) | (14,550,207 | ) | (4,660,888 | ) | (113,592,513 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
82,198,330 | $ | 2,026,142,009 | (1,139,554 | ) | $ | (27,430,816 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Core Plus Bond Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
— | $ | — | 16,631 | $ | 122,601 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
2,308 | 16,571 | 6,657 | 48,286 | ||||||||||||
| Shares repurchased |
(82,674 | ) | (592,454 | ) | (20,196 | ) | (150,173 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(80,366 | ) | $ | (575,883 | ) | 3,092 | $ | 20,714 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV: |
||||||||||||||||
| Shares sold |
— | $ | — | 12,990 | $ | 95,672 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
410,789 | 2,957,677 | 1,142,149 | 8,301,987 | ||||||||||||
| Shares repurchased |
(3,880 | ) | (28,088 | ) | (1,929,418 | ) | (14,142,374 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
406,909 | $ | 2,929,589 | (774,279 | ) | $ | (5,744,715 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Currency Hedged International Bond Fund |
| |||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
— | $ | — | 61,437 | $ | 510,381 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
106,416 | 911,980 | 308,625 | 2,669,608 | ||||||||||||
| Shares repurchased |
(22,960 | ) | (203,278 | ) | (1,063,707 | ) | (8,978,407 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
83,456 | $ | 708,702 | (693,645 | ) | $ | (5,798,418 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Debt Opportunities Fund |
| |||||||||||||||
| Class VI: |
||||||||||||||||
| Shares sold |
8,798,924 | $ | 239,778,505 | 21,056,932 | $ | 552,417,644 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
266,539 | 7,196,557 | 928,322 | 24,359,664 | ||||||||||||
| Shares repurchased |
(87,624 | ) | (2,388,319 | ) | (71,734 | ) | (1,838,578 | ) | ||||||||
| Purchase premium fees |
— | 957,728 | — | 2,214,206 | ||||||||||||
| Redemption fees |
— | 4,336 | — | 3,033 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
8,977,839 | $ | 245,548,807 | 21,913,520 | $ | 577,155,969 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 145 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Domestic Bond Fund |
| |||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
— | $ | — | — | $ | — | ||||||||||
| Shares repurchased |
(66,105 | ) | (1,045,063 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(66,105 | ) | $ | (1,045,063 | ) | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class VI: |
||||||||||||||||
| Shares sold |
— | $ | — | — | $ | — | ||||||||||
| Shares repurchased |
(24,184 | ) | (393,235 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(24,184 | ) | $ | (393,235 | ) | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Emerging Country Debt Fund |
| |||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
6,750,687 | $ | 68,527,960 | 11,551,938 | $ | 117,933,939 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
471,523 | 4,540,768 | 2,987,123 | 30,018,467 | ||||||||||||
| Shares repurchased |
(468,904 | ) | (4,788,676 | ) | (44,032,466 | ) | (438,865,618 | ) | ||||||||
| Purchase premiums |
— | 535,881 | — | 846,685 | ||||||||||||
| Redemption fees |
— | 50,565 | — | 591,943 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
6,753,306 | $ | 68,866,498 | (29,493,405 | ) | $ | (289,474,584 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV: |
||||||||||||||||
| Shares sold |
53,814,080 | $ | 529,580,807 | 94,347,392 | $ | 946,845,601 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
1,878,381 | 18,070,027 | 10,665,343 | 107,808,489 | ||||||||||||
| Shares repurchased |
(6,053,552 | ) | (60,102,659 | ) | (36,884,162 | ) | (357,467,931 | ) | ||||||||
| Purchase premiums |
— | 2,404,798 | — | 2,330,408 | ||||||||||||
| Redemption fees |
— | 209,347 | — | 1,226,714 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
49,638,909 | $ | 490,162,320 | 68,128,573 | $ | 700,743,281 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Global Bond Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
1,343,589 | $ | 11,337,032 | 2,837,706 | $ | 23,577,950 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
36,175 | 295,185 | 212,699 | 1,778,023 | ||||||||||||
| Shares repurchased |
(5,270,183 | ) | (43,870,188 | ) | (3,425,293 | ) | (28,283,825 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(3,890,419 | ) | $ | (32,237,971 | ) | (374,888 | ) | $ | (2,927,852 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| International Bond Fund |
| |||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
— | $ | — | 86,204 | $ | 586,912 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
— | — | 109,873 | 727,361 | ||||||||||||
| Shares repurchased |
(1,993,149 | ) | (13,504,294 | ) | (113,111 | ) | (782,676 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(1,993,149 | ) | $ | (13,504,294 | ) | 82,966 | $ | 531,597 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Duration Collateral Fund |
| |||||||||||||||
| Shares issued to shareholders in reinvestment of distributions |
2,145,296 | $ | 7,569,185 | 4,330,237 | $ | 19,558,309 | ||||||||||
| Shares repurchased |
(108,740 | ) | (376,500 | ) | (1,694,994 | ) | (6,939,554 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
2,036,556 | $ | 7,192,685 | 2,635,243 | $ | 12,618,755 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 146 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Short-Duration Collateral Share Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
— | $ | — | — | $ | — | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
1,931 | 41,884 | 15,382 | 310,730 | ||||||||||||
| Shares repurchased |
(15,665 | ) | (341,820 | ) | (26,005 | ) | (513,346 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(13,734 | ) | $ | (299,936 | ) | (10,623 | ) | $ | (202,616 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Strategic Fixed Income Fund |
| |||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
466,663 | $ | 7,634,780 | 4,421,324 | $ | 73,477,169 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
122,911 | 1,970,258 | 495,003 | 7,990,328 | ||||||||||||
| Shares repurchased |
(1,450,369 | ) | (23,513,109 | ) | (1,542,929 | ) | (25,227,561 | ) | ||||||||
| Purchase premiums |
— | 2,464 | — | 16,252 | ||||||||||||
| Redemption fees |
— | 84,476 | — | 77,741 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(860,795 | ) | $ | (13,821,131 | ) | 3,373,398 | $ | 56,333,929 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class VI: |
||||||||||||||||
| Shares sold |
932,911 | $ | 15,393,026 | 5,866,043 | $ | 97,724,127 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
1,691,697 | 27,117,909 | 9,642,991 | 155,806,074 | ||||||||||||
| Shares repurchased |
(30,933,933 | ) | (497,895,495 | ) | (59,770,229 | ) | (980,587,712 | ) | ||||||||
| Purchase premium fees |
— | 30,848 | — | 272,112 | ||||||||||||
| Redemption fees |
— | 945,527 | — | 1,879,192 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(28,309,325 | ) | $ | (454,408,185 | ) | (44,261,195 | ) | $ | (724,906,207 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| U.S. Treasury Fund |
| |||||||||||||||
| Shares sold |
205,348,425 | $ | 5,134,890,651 | 355,478,405 | $ | 8,887,223,258 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
39,130 | 978,509 | 64,744 | 1,618,607 | ||||||||||||
| Shares repurchased |
(212,057,308 | ) | (5,302,817,323 | ) | (321,319,710 | ) | (8,033,205,655 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(6,669,753 | ) | $ | (166,948,163 | ) | 34,223,439 | $ | 855,636,210 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| World Opportunity Overlay Fund |
| |||||||||||||||
| Shares sold |
— | $ | — | 226,302 | $ | 5,575,000 | ||||||||||
| Shares repurchased |
(5,974,205 | ) | (155,920,000 | ) | (8,934,717 | ) | (216,595,142 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(5,974,205 | ) | $ | (155,920,000 | ) | (8,708,415 | ) | $ | (211,020,142 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 10. | Investments in affiliated issuers |
A summary of the Funds’ transactions in the shares of other funds of the Trust during the period ended August 31, 2013 is set forth below:
| Affiliate | Value, beginning of period |
Purchases | Sales Proceeds |
Dividend Income* |
Distributions of Realized Gains* |
Return of Capital* |
Value, end of period |
|||||||||||||||||||||
| Asset Allocation Bond Fund |
||||||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 500,127 | $ | 175,929,485 | $ | 105,500,000 | $ | 20,784 | $ | 8,701 | $ | — | $ | 70,907,506 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| 147 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Affiliate | Value, beginning of period |
Purchases | Sales Proceeds |
Dividend Income* |
Distributions of Realized Gains* |
Return of Capital* |
Value, end of period |
|||||||||||||||||||||
| Core Plus Bond Fund |
||||||||||||||||||||||||||||
| GMO Emerging Country Debt Fund, Class IV |
$ | 10,477,792 | $ | 124,050 | $ | — | $ | 124,050 | $ | — | $ | — | $ | 9,840,596 | ||||||||||||||
| GMO Short-Duration Collateral Fund |
28,926,511 | — | — | 118,132 | — | 5,300,768 | 24,550,449 | |||||||||||||||||||||
| GMO Special Purpose Holding Fund |
50,683 | — | 141,703 | — | — | 3,986,337 | — | |||||||||||||||||||||
| GMO U.S. Treasury Fund |
39,587,555 | 14,811,344 | 35,600,000 | 9,400 | 1,944 | — | 18,797,337 | |||||||||||||||||||||
| GMO World Opportunity Overlay Fund |
52,142,116 | — | — | — | — | — | 53,177,649 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Totals |
$ | 131,184,657 | $ | 14,935,394 | $ | 35,741,703 | $ | 251,582 | $ | 1,944 | $ | 9,287,105 | $ | 106,366,031 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Currency Hedged International Bond Fund |
||||||||||||||||||||||||||||
| GMO Emerging Country Debt Fund, Class IV |
$ | 3,108,722 | $ | 36,805 | $ | — | $ | 36,801 | $ | — | $ | — | $ | 2,919,668 | ||||||||||||||
| GMO Short-Duration Collateral Fund |
10,463,896 | — | — | 42,734 | — | 1,917,503 | 8,880,897 | |||||||||||||||||||||
| GMO Special Purpose Holding Fund |
2,968 | — | 8,297 | — | — | 233,409 | — | |||||||||||||||||||||
| GMO U.S. Treasury Fund |
6,719,605 | 2,904,023 | 1,700,000 | 3,303 | 732 | — | 7,923,187 | |||||||||||||||||||||
| GMO World Opportunity Overlay Fund |
15,400,692 | — | — | — | — | — | 15,706,547 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Totals |
$ | 35,695,883 | $ | 2,940,828 | $ | 1,708,297 | $ | 82,838 | $ | 732 | $ | 2,150,912 | $ | 35,430,299 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Debt Opportunities Fund |
||||||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 28,007,742 | $ | 50,011,510 | $ | 39,000,000 | $ | 11,508 | $ | 2 | $ | — | $ | 39,020,848 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Domestic Bond Fund |
||||||||||||||||||||||||||||
| GMO Short-Duration Collateral Fund |
$ | 177,756,635 | $ | — | $ | — | $ | 725,934 | $ | — | $ | 32,573,809 | $ | 150,865,247 | ||||||||||||||
| GMO Special Purpose Holding Fund |
801 | — | 2,238 | — | — | 62,970 | — | |||||||||||||||||||||
| GMO U.S. Treasury Fund |
365,351 | 24,500,000 | 16,650,000 | 1,731 | 10 | — | 8,212,252 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Totals |
$ | 178,122,787 | $ | 24,500,000 | $ | 16,652,238 | $ | 727,665 | $ | 10 | $ | 32,636,779 | $ | 159,077,499 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Emerging Country Debt Fund |
||||||||||||||||||||||||||||
| GMO Short-Duration Collateral Fund |
$ | 15,506,720 | $ | — | $ | — | $ | 63,328 | $ | — | $ | 2,841,598 | $ | 13,160,831 | ||||||||||||||
| GMO Special Purpose Holding Fund |
11,561 | — | 32,323 | — | — | 909,295 | — | |||||||||||||||||||||
| GMO U.S. Treasury Fund |
31 | 74,004,379 | — | 4,379 | — | — | 73,984,416 | |||||||||||||||||||||
| GMO World Opportunity Overlay Fund |
38,916,722 | — | — | — | — | — | 39,689,601 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Totals |
$ | 54,435,034 | $ | 74,004,379 | $ | 32,323 | $ | 67,707 | $ | — | $ | 3,750,893 | $ | 126,834,848 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Global Bond Fund |
||||||||||||||||||||||||||||
| GMO Emerging Country Debt Fund, Class IV |
$ | 8,188,930 | $ | 96,951 | $ | 2,328,000 | $ | 96,951 | $ | — | $ | — | $ | 5,405,057 | ||||||||||||||
| GMO Short-Duration Collateral Fund |
30,705,579 | — | — | 125,397 | — | 5,626,781 | 26,060,376 | |||||||||||||||||||||
| GMO Special Purpose Holding Fund |
24,753 | — | 69,205 | — | — | 1,946,842 | — | |||||||||||||||||||||
| GMO U.S. Treasury Fund |
33,345,121 | 20,014,795 | 39,600,000 | 12,010 | 2,785 | — | 13,759,912 | |||||||||||||||||||||
| GMO World Opportunity Overlay Fund |
37,691,995 | — | 7,295,000 | — | — | — | 31,117,235 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Totals |
$ | 109,956,378 | $ | 20,111,746 | $ | 49,292,205 | $ | 234,358 | $ | 2,785 | $ | 7,573,623 | $ | 76,342,580 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| International Bond Fund |
||||||||||||||||||||||||||||
| GMO Emerging Country Debt Fund, Class IV |
$ | 3,087,707 | $ | 36,556 | $ | 590,000 | $ | 36,556 | $ | — | $ | — | $ | 2,321,511 | ||||||||||||||
| GMO Short-Duration Collateral Fund |
15,524,056 | — | — | 63,398 | — | 2,844,775 | 13,175,545 | |||||||||||||||||||||
| GMO Special Purpose Holding Fund |
20,231 | — | 56,564 | — | — | 1,591,252 | — | |||||||||||||||||||||
| GMO U.S. Treasury Fund |
10,208,382 | 4,154,590 | 13,500,000 | 3,683 | 907 | — | 866,489 | |||||||||||||||||||||
| GMO World Opportunity Overlay Fund |
15,702,723 | — | 2,525,000 | — | — | — | 13,480,196 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Totals |
$ | 44,543,099 | $ | 4,191,146 | $ | 16,671,564 | $ | 103,637 | $ | 907 | $ | 4,436,027 | $ | 29,843,741 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Short-Duration Collateral Share Fund |
||||||||||||||||||||||||||||
| GMO Short-Duration Collateral Fund |
$ | 38,038,518 | $ | 7,569,185 | $ | 376,500 | $ | 165,008 | $ | — | $ | 7,404,177 | $ | 39,024,971 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| 148 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Affiliate | Value, beginning of period |
Purchases | Sales Proceeds |
Dividend Income* |
Distributions of Realized Gains* |
Return of Capital* |
Value, end of period |
|||||||||||||||||||||
| Strategic Fixed Income Fund |
||||||||||||||||||||||||||||
| GMO Emerging Country Debt Fund, Class IV |
$ | 71,686,956 | $ | — | $ | 12,465,000 | $ | 848,724 | $ | — | $ | — | $ | 54,312,364 | ||||||||||||||
| GMO Short-Duration Collateral Fund |
411,040,185 | — | — | 1,678,633 | — | 75,322,895 | 348,857,183 | |||||||||||||||||||||
| GMO U.S. Treasury Fund |
402,640,955 | 116,100,000 | 410,900,000 | 153,195 | 36,937 | — | 107,954,702 | |||||||||||||||||||||
| GMO World Opportunity Overlay Fund |
453,187,336 | — | 146,100,000 | — | — | — | 315,580,831 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Totals |
$ | 1,338,555,432 | $ | 116,100,000 | $ | 569,465,000 | $ | 2,680,552 | $ | 36,937 | $ | 75,322,895 | $ | 826,705,080 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| * | The table above includes estimated sources of all distributions paid by the underlying funds during the period March 1, 2013 through August 31, 2013. The actual tax characterization of distributions paid by the underlying funds will be determined at the end of the fiscal year ending February 28, 2014. |
| 149 |
GMO Trust Funds
Board Review of Management Agreements
August 31, 2013 (Unaudited)
Asset Allocation Bond Fund
Approval of renewal of management agreement for GMO Asset Allocation Bond Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. In addition, the Trustees took into account their discussion with representatives of the Manager regarding ways to evaluate the performance of the Fund, given that the Fund is not a standalone investment and the investment strategies the Manager pursues for the Fund are intended to complement the strategies being pursued by the Manager in other GMO funds or accounts. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees noted in particular that some GMO funds in which the Fund invests (“underlying GMO funds”) do not charge any advisory fees and that with respect to all other underlying GMO funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager in effect reimburses the Fund for management fees, shareholder servicing fees and most other expenses of the underlying GMO funds, all of which the Fund would otherwise bear as a result of its investments in them. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
| 150 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
Core Plus Bond Fund
Approval of renewal of management agreement for GMO Core Plus Bond Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees noted in particular that some GMO funds in which the Fund invests (“underlying GMO funds”) do not charge any advisory fees and that with respect to all other underlying GMO funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager in effect reimburses the Fund for management fees, shareholder servicing fees and most other expenses of the underlying GMO funds, all of which the Fund would otherwise bear as a result of its investments in them. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
| 151 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
Currency Hedged International Bond Fund
Approval of renewal of management agreement for GMO Currency Hedged International Bond Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees noted in particular that some GMO funds in which the Fund invests (“underlying GMO funds”) do not charge any advisory fees and that with respect to all other underlying GMO funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager in effect reimburses the Fund for management fees, shareholder servicing fees and most other expenses of the underlying GMO funds, all of which the Fund would otherwise bear as a result of its investments in them. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
| 152 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
Debt Opportunities Fund
Approval of renewal of management agreement for GMO Debt Opportunities Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees noted in particular that some GMO funds in which the Fund invests (“underlying GMO funds”) do not charge any advisory fees and that with respect to all other underlying GMO funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager in effect reimburses the Fund for management fees, shareholder servicing fees and most other expenses of the underlying GMO funds, all of which the Fund would otherwise bear as a result of its investments in them. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
| 153 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
Domestic Bond Fund
Approval of renewal of management agreement for GMO Domestic Bond Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees noted in particular that some GMO funds in which the Fund invests (“underlying GMO funds”) do not charge any advisory fees and that with respect to all other underlying GMO funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager in effect reimburses the Fund for management fees, shareholder servicing fees and most other expenses of the underlying GMO funds, all of which the Fund would otherwise bear as a result of its investments in them. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
| 154 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
Emerging Country Debt Fund
Approval of renewal of management agreement for GMO Emerging Country Debt Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
| 155 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
Global Bond Fund
Approval of renewal of management agreement for GMO Global Bond Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees noted in particular that some GMO funds in which the Fund invests (“underlying GMO funds”) do not charge any advisory fees and that with respect to all other underlying GMO funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager in effect reimburses the Fund for management fees, shareholder servicing fees and most other expenses of the underlying GMO funds, all of which the Fund would otherwise bear as a result of its investments in them. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
| 156 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
International Bond Fund
Approval of renewal of management agreement for GMO International Bond Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees noted in particular that some GMO funds in which the Fund invests (“underlying GMO funds”) do not charge any advisory fees and that with respect to all other underlying GMO funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager in effect reimburses the Fund for management fees, shareholder servicing fees and most other expenses of the underlying GMO funds, all of which the Fund would otherwise bear as a result of its investments in them. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
| 157 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
Short-Duration Collateral Fund
Approval of renewal of management agreement for GMO Short-Duration Collateral Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees gave substantial consideration to the fact that the Fund does not pay a fee to the Manager under the Fund’s management agreement or any shareholder servicing and supplemental support agreement. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 158 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
Short-Duration Collateral Share Fund
Approval of renewal of management agreement for GMO Short-Duration Collateral Share Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees noted that the Fund invests substantially all of its assets in another series of the Trust, GMO Short-Duration Collateral Fund (“SDCF”) and, therefore, that the Fund’s investment objective and principal investment strategies are identical to those of SDCF.
The Trustees considered the Fund’s and SDCF’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund and SDCF. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund and SDCF had performed as expected given market conditions in recent years. The Trustees’ review of the Fund’s and SDCF’s performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees noted that the Fund’s expense ratio reflects total expenses payable by the Fund and SDCF. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund and SDCF.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements, and noted that SDCF does not pay a fee to the Manager under SDCF’s management agreement or any shareholder servicing and supplemental support agreement. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund and SDCF, the Manager’s overall profitability, and its profitability by division and with respect to the Fund and SDCF. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund and SDCF, the Manager’s reputation and relationship with Fund and SDCF investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund and SDCF.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
| 159 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
Strategic Fixed Income Fund
Approval of renewal of management agreement for GMO Strategic Fixed Income Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. In addition, the Trustees took into account their discussion with representatives of the Manager regarding ways to evaluate the performance of the Fund, given that the Fund is not a standalone investment and the investment strategies the Manager pursues for the Fund are intended to complement the strategies being pursued by the Manager in other GMO funds or accounts. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees noted in particular that some GMO funds in which the Fund invests (“underlying GMO funds”) do not charge any advisory fees and that with respect to all other underlying GMO funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager in effect reimburses the Fund for management fees, shareholder servicing fees and most other expenses of the underlying GMO funds, all of which the Fund would otherwise bear as a result of its investments in them. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
| 160 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
U.S. Treasury Fund
Approval of renewal of management agreement for GMO U.S. Treasury Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management agreement. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees noted in particular that some GMO funds in which the Fund invests (“underlying GMO funds”) do not charge any advisory fees and that with respect to all other underlying GMO funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager in effect reimburses the Fund for management fees, shareholder servicing fees and most other expenses of the underlying GMO funds, all of which the Fund would otherwise bear as a result of its investments in them. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
| 161 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
World Opportunity Overlay Fund
Approval of renewal of management agreement for GMO World Opportunity Overlay Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees gave substantial consideration to the fact that the Fund does not pay a fee to the Manager under the Fund’s management agreement or any shareholder servicing and supplemental support agreement. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 162 |
GMO Trust Funds
(A Series of GMO Trust)
August 31, 2013 (Unaudited)
Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2013.
As a shareholder of the Funds, you may incur two types of costs: (1) transactions costs, including purchase premium and redemption fees, if applicable; and (2) ongoing costs, including direct and/or indirect management fees, direct and/or indirect shareholder services fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in Dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2013 through August 31, 2013.
Actual Expense
This section of the table for each class below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
This section of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Funds’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, this section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Actual | Hypothetical |
|
||||||||||||||||||||||||||
| Beginning Account Value March 1, 2013 |
Ending Account Value August 31, 2013 |
Expenses Paid* During the Period |
Beginning Account Value March 1, 2013 |
Ending Account Value August 31, 2013 |
Expenses Paid* During the Period |
Annualized Net Expense Ratio |
||||||||||||||||||||||
| Asset Allocation Bond Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $985.70 | $2.00 | $1,000.00 | $1,023.19 | $2.04 | 0.40% | |||||||||||||||||||||
| Class VI |
$1,000.00 | $986.10 | $1.55 | $1,000.00 | $1,023.64 | $1.58 | 0.31% | |||||||||||||||||||||
| Core Plus Bond Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $977.60 | $2.44 | $1,000.00 | $1,022.74 | $2.50 | 0.49% | |||||||||||||||||||||
| Class IV |
$1,000.00 | $976.40 | $2.19 | $1,000.00 | $1,022.99 | $2.24 | 0.44% | |||||||||||||||||||||
| Currency Hedged International Bond Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $980.70 | $2.25 | $1,000.00 | $1,022.94 | $2.29 | 0.45% | |||||||||||||||||||||
| Debt Opportunities Fund |
|
|||||||||||||||||||||||||||
| Class VI |
$1,000.00 | $1,012.80 | $1.57 | $1,000.00 | $1,023.64 | $1.58 | 0.31% | |||||||||||||||||||||
| Domestic Bond Fund |
||||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,029.20 | $1.07 | $1,000.00 | $1,024.15 | $1.07 | 0.21% | |||||||||||||||||||||
| Class VI |
$1,000.00 | $1,029.90 | $0.56 | $1,000.00 | $1,024.65 | $0.56 | 0.11% | |||||||||||||||||||||
| Emerging Country Debt Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $939.10 | $2.79 | $1,000.00 | $1,022.33 | $2.91 | 0.57% | |||||||||||||||||||||
| Class IV |
$1,000.00 | $939.20 | $2.54 | $1,000.00 | $1,022.58 | $2.65 | 0.52% | |||||||||||||||||||||
| Global Bond Fund |
||||||||||||||||||||||||||||
| Class III |
$1,000.00 | $976.20 | $2.34 | $1,000.00 | $1,022.84 | $2.40 | 0.47% | |||||||||||||||||||||
| International Bond Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $992.70 | $2.71 | $1,000.00 | $1,022.48 | $2.75 | 0.54% | |||||||||||||||||||||
| Short-Duration Collateral Fund |
|
|||||||||||||||||||||||||||
| Core Shares |
$1,000.00 | $1,035.90 | $0.00 | $1,000.00 | $1,025.21 | $0.00 | 0.00% | |||||||||||||||||||||
| 163 |
GMO Trust Funds
(A Series of GMO Trust)
Fund Expenses — (Continued)
August 31, 2013 (Unaudited)
| Actual | Hypothetical |
|
||||||||||||||||||||||||||
| Beginning Account Value March 1, 2013 |
Ending Account Value August 31, 2013 |
Expenses Paid* During the Period |
Beginning Account Value March 1, 2013 |
Ending Account Value August 31, 2013 |
Expenses Paid* During the Period |
Annualized Net Expense Ratio |
||||||||||||||||||||||
| Short-Duration Collateral Share Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,034.90 | $1.03 | $1,000.00 | $1,024.20 | $1.02 | 0.20% | |||||||||||||||||||||
| Strategic Fixed Income Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $991.20 | $2.06 | $1,000.00 | $1,023.14 | $2.09 | 0.41% | |||||||||||||||||||||
| Class VI |
$1,000.00 | $991.30 | $1.61 | $1,000.00 | $1,023.59 | $1.63 | 0.32% | |||||||||||||||||||||
| U.S. Treasury Fund |
||||||||||||||||||||||||||||
| Core Shares |
$1,000.00 | $1,000.50 | $0.00 | $1,000.00 | $1,025.21 | $0.00 | 0.00% | |||||||||||||||||||||
| World Opportunity Overlay Fund |
|
|||||||||||||||||||||||||||
| Core Shares |
$1,000.00 | $1,019.90 | $0.20 | $1,000.00 | $1,025.00 | $0.20 | 0.04% | |||||||||||||||||||||
| * | Expenses are calculated using each Class’s annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2013, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year. |
| 164 |
GMO Trust
Semiannual Report
August 31, 2013
Foreign Fund
Foreign Small Companies Fund
Global Focused Equity Fund
For a free copy of the Funds’ proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) or visit the Securities and Exchange Commission’s website at www.sec.gov. 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 GMO’s website at www.gmo.com, or on the Securities and Exchange Commission’s website at www.sec.gov.
The Funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission’s website at www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Funds have a policy with respect to disclosure of portfolio holdings under which they may also make available on GMO’s website at www.gmo.com a complete schedule of portfolio holdings.
This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in these Funds and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.
| Foreign Fund: |
||||
| 1 | ||||
| 2 | ||||
| 5 | ||||
| 6 | ||||
| 9 | ||||
| 10 | ||||
| 12 | ||||
| 13 | ||||
| 14 | ||||
| 15 | ||||
| 17 | ||||
| 20 | ||||
| 43 | ||||
| 46 |
GMO Foreign Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 1 |
GMO Foreign Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 2 | See accompanying notes to the financial statements. |
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 3 |
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 4 | See accompanying notes to the financial statements. |
GMO Foreign Small Companies Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 5 |
GMO Foreign Small Companies Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 6 | See accompanying notes to the financial statements. |
GMO Foreign Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 7 |
GMO Foreign Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 8 | See accompanying notes to the financial statements. |
GMO Global Focused Equity Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 9 |
GMO Global Focused Equity Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 10 | See accompanying notes to the financial statements. |
GMO Global Focused Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 11 |
GMO Trust Funds
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
| 12 | See accompanying notes to the financial statements. |
Statements of Assets and Liabilities — August 31, 2013 (Unaudited)
| Foreign Fund | Foreign Small Companies Fund |
Global Focused Equity Fund |
||||||||||
| Assets: |
|
|||||||||||
| Investments in unaffiliated issuers, at value (Note 2)(a) |
$ | 389,319,375 | $ | 846,717,350 | $ | 8,902,798 | ||||||
| Investments in affiliated issuers, at value (Notes 2 and 10)(b) |
7,440,422 | 31,931,352 | 440,597 | |||||||||
| Foreign currency, at value (Note 2)(c) |
77,799 | 218,276 | 1,295 | |||||||||
| Receivable for investments sold |
26,013,291 | 1,127,385 | 15,000 | |||||||||
| Receivable for Fund shares sold |
100,319 | — | — | |||||||||
| Dividends receivable |
1,085,438 | 797,324 | 2,079 | |||||||||
| Foreign taxes receivable |
515,429 | 209,521 | 4,378 | |||||||||
| Receivable for foreign currency sold |
134,484 | 326 | — | |||||||||
| Receivable for expenses reimbursed and/or waived by Manager (Note 5) |
51,398 | 56,544 | 13,946 | |||||||||
| Miscellaneous receivable |
422 | 1,352 | 26 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total assets |
424,738,377 | 881,059,430 | 9,380,119 | |||||||||
|
|
|
|
|
|
|
|||||||
| Liabilities: |
||||||||||||
| Payable for investments purchased |
2,745,164 | 151,911 | 190,589 | |||||||||
| Payable for Fund shares repurchased |
29,827,941 | — | — | |||||||||
| Payable to affiliate for (Note 5): |
||||||||||||
| Management fee |
223,964 | 536,978 | 4,803 | |||||||||
| Shareholder service fee |
62,048 | 92,970 | 1,201 | |||||||||
| Payable to agents unaffiliated with the Manager |
62 | 93 | 5 | |||||||||
| Payable to Trustees and related expenses |
1,270 | 775 | — | |||||||||
| Accrued expenses |
292,354 | 230,249 | 67,406 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total liabilities |
33,152,803 | 1,012,976 | 264,004 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net assets |
$ | 391,585,574 | $ | 880,046,454 | $ | 9,116,115 | ||||||
|
|
|
|
|
|
|
|||||||
| Net assets consist of: |
||||||||||||
| Paid-in capital |
$ | 981,160,523 | $ | 745,509,886 | $ | 7,585,767 | ||||||
| Accumulated undistributed net investment income |
6,483,845 | 403,638 | 73,715 | |||||||||
| Accumulated net realized gain (loss) |
(624,293,848 | ) | 8,305,246 | 581,862 | ||||||||
| Net unrealized appreciation (depreciation) |
28,235,054 | 125,827,684 | 874,771 | |||||||||
|
|
|
|
|
|
|
|||||||
| $ | 391,585,574 | $ | 880,046,454 | $ | 9,116,115 | |||||||
|
|
|
|
|
|
|
|||||||
| Net assets attributable to: |
||||||||||||
| Class II shares |
$ | 157,368,523 | $ | — | $ | — | ||||||
|
|
|
|
|
|
|
|||||||
| Class III shares |
$ | 165,286,968 | $ | 373,056,580 | $ | 9,116,115 | ||||||
|
|
|
|
|
|
|
|||||||
| Class IV shares |
$ | 68,930,083 | $ | 506,989,874 | $ | — | ||||||
|
|
|
|
|
|
|
|||||||
| Shares outstanding: |
||||||||||||
| Class II |
13,171,114 | — | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Class III |
13,749,861 | 24,223,736 | 367,765 | |||||||||
|
|
|
|
|
|
|
|||||||
| Class IV |
5,596,699 | 32,970,753 | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Net asset value per share: |
||||||||||||
| Class II |
$ | 11.95 | $ | — | $ | — | ||||||
|
|
|
|
|
|
|
|||||||
| Class III |
$ | 12.02 | $ | 15.40 | $ | 24.79 | ||||||
|
|
|
|
|
|
|
|||||||
| Class IV |
$ | 12.32 | $ | 15.38 | $ | — | ||||||
|
|
|
|
|
|
|
|||||||
| (a) Cost of investments – unaffiliated issuers: |
$ | 361,063,743 | $ | 720,887,283 | $ | 8,027,995 | ||||||
| (b) Cost of investments – affiliated issuers: |
$ | 7,440,639 | $ | 31,934,046 | $ | 440,706 | ||||||
| (c) Cost of foreign currency: |
$ | 77,802 | $ | 218,251 | $ | 1,295 | ||||||
| See accompanying notes to the financial statements. | 13 |
GMO Trust Funds
Statements of Operations — Six Months Ended August 31, 2013 (Unaudited)
| Foreign Fund | Foreign Small Companies Fund |
Global Focused Equity Fund |
||||||||||
| Investment Income: |
|
|||||||||||
| Dividends from unaffiliated issuers (Net of withholding tax)(a) |
$ | 9,639,027 | $ | 12,035,006 | $ | 135,037 | ||||||
| Dividends from affiliated issuers (Note 10) |
2,726 | 6,919 | 136 | |||||||||
| Interest |
2,547 | 5,355 | 143 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
9,644,300 | 12,047,280 | 135,316 | |||||||||
|
|
|
|
|
|
|
|||||||
| Expenses: |
|
|||||||||||
| Management fee (Note 5) |
1,438,959 | 2,985,833 | 27,478 | |||||||||
| Shareholder service fee – Class II (Note 5) |
189,026 | — | — | |||||||||
| Shareholder service fee – Class III (Note 5) |
170,557 | 264,452 | 6,869 | |||||||||
| Shareholder service fee – Class IV (Note 5) |
36,181 | 250,246 | — | |||||||||
| Audit and tax fees |
51,980 | 42,228 | 39,008 | |||||||||
| Custodian and fund accounting agent fees |
249,872 | 243,340 | 25,576 | |||||||||
| Legal fees |
3,036 | 9,331 | 92 | |||||||||
| Registration fees |
8,188 | 2,024 | — | |||||||||
| Transfer agent fees |
25,944 | 21,436 | 13,708 | |||||||||
| Trustees fees and related expenses (Note 5) |
2,392 | 4,211 | 31 | |||||||||
| Miscellaneous |
14,364 | 14,650 | 4,789 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
2,190,499 | 3,837,751 | 117,551 | |||||||||
| Fees and expenses reimbursed and/or waived by Manager (Note 5) |
(341,964 | ) | (325,167 | ) | (81,604 | ) | ||||||
| Expense reductions (Note 2) |
(2 | ) | (31 | ) | — | |||||||
|
|
|
|
|
|
|
|||||||
| Net expenses |
1,848,533 | 3,512,553 | 35,947 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income (loss) |
7,795,767 | 8,534,727 | 99,369 | |||||||||
|
|
|
|
|
|
|
|||||||
| Realized and unrealized gain (loss): |
|
|||||||||||
| Net realized gain (loss) on: |
||||||||||||
| Investments in unaffiliated issuers (Net of foreign capital gains tax) (Note 2)(b) |
21,934,705 | 25,384,641 | 583,278 | |||||||||
| Investments in affiliated issuers |
251 | 7,982 | 219 | |||||||||
| Realized gain distributions from affiliated issuers (Note 10) |
201 | 1,081 | 18 | |||||||||
| Foreign currency, forward contracts and foreign currency related transactions |
(65,808 | ) | 126,503 | (1,411 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net realized gain (loss) |
21,869,349 | 25,520,207 | 582,104 | |||||||||
|
|
|
|
|
|
|
|||||||
| Change in net unrealized appreciation (depreciation) on: |
||||||||||||
| Investments in unaffiliated issuers |
(8,990,404 | ) | 27,136,485 | 147,901 | ||||||||
| Investments in affiliated issuers |
(217 | ) | (2,694 | ) | (109 | ) | ||||||
| Foreign currency, forward contracts and foreign currency related transactions |
(3,109 | ) | 69,635 | 85 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net unrealized gain (loss) |
(8,993,730 | ) | 27,203,426 | 147,877 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net realized and unrealized gain (loss) |
12,875,619 | 52,723,633 | 729,981 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net increase (decrease) in net assets resulting from operations |
$ | 20,671,386 | $ | 61,258,360 | $ | 829,350 | ||||||
|
|
|
|
|
|
|
|||||||
| (a) Withholding tax: |
$ | 997,459 | $ | 1,302,738 | $ | 17,280 | ||||||
| (b) Foreign capital gains tax: |
$ | 19,121 | $ | 708 | $ | — | ||||||
| 14 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Changes in Net Assets
| Foreign Fund | Foreign Small Companies Fund | |||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 7,795,767 | $ | 23,671,476 | $ | 8,534,727 | $ | 9,437,180 | ||||||||
| Net realized gain (loss) |
21,869,349 | 40,444,425 | 25,520,207 | 16,533,964 | ||||||||||||
| Change in net unrealized appreciation (depreciation) |
(8,993,730 | ) | (20,229,518 | ) | 27,203,426 | 59,049,081 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
20,671,386 | 43,886,383 | 61,258,360 | 85,020,225 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income: |
||||||||||||||||
| Class II |
(1,119,513 | ) | (7,175,647 | ) | — | — | ||||||||||
| Class III |
(1,671,379 | ) | (8,804,177 | ) | (2,423,138 | ) | (3,541,755 | ) | ||||||||
| Class IV |
(579,423 | ) | (12,926,825 | ) | (3,324,510 | ) | (6,097,276 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net investment income |
(3,370,315 | ) | (28,906,649 | ) | (5,747,648 | ) | (9,639,031 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Class II |
(66,131,922 | ) | (45,826,748 | ) | — | — | ||||||||||
| Class III |
(65,219,956 | ) | (187,746,070 | ) | 35,981,599 | (208,090,031 | ) | |||||||||
| Class IV |
(22,669,031 | ) | (306,949,085 | ) | 2,366,123 | 363,479,701 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase (decrease) in net assets resulting from net share transactions |
(154,020,909 | ) | (540,521,903 | ) | 38,347,722 | 155,389,670 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Purchase premiums and redemption fees (Notes 2 and 9): |
||||||||||||||||
| Class III |
— | — | 71,187 | 567,500 | ||||||||||||
| Class IV |
— | — | 99,703 | 183,773 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase in net assets resulting from purchase premiums and redemption fees |
— | — | 170,890 | 751,273 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets resulting from net share transactions, purchase premiums and redemption fees |
(154,020,909 | ) | (540,521,903 | ) | 38,518,612 | 156,140,943 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
(136,719,838 | ) | (525,542,169 | ) | 94,029,324 | 231,522,137 | ||||||||||
| Net assets: | ||||||||||||||||
| Beginning of period |
528,305,412 | 1,053,847,581 | 786,017,130 | 554,494,993 | ||||||||||||
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|||||||||
| End of period |
$ | 391,585,574 | $ | 528,305,412 | $ | 880,046,454 | $ | 786,017,130 | ||||||||
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|||||||||
| Accumulated undistributed net investment income |
$ | 6,483,845 | $ | 2,058,393 | $ | 403,638 | $ | — | ||||||||
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|
|
|
|
|
|
|||||||||
| Distributions in excess of net investment income |
$ | — | $ | — | $ | — | $ | (2,383,441 | ) | |||||||
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|||||||||
| See accompanying notes to the financial statements. | 15 |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| Global Focused Equity Fund | ||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||
| Increase (decrease) in net assets: |
||||||||
| Operations: |
||||||||
| Net investment income (loss) |
$ | 99,369 | $ | 95,906 | ||||
| Net realized gain (loss) |
582,104 | 383,212 | ||||||
| Change in net unrealized appreciation (depreciation) |
147,877 | 379,744 | ||||||
|
|
|
|
|
|||||
| Net increase (decrease) in net assets from operations |
829,350 | 858,862 | ||||||
|
|
|
|
|
|||||
| Distributions to shareholders from: |
||||||||
| Net investment income |
||||||||
| Class III |
(36,459 | ) | (95,315 | ) | ||||
| Net realized gains |
||||||||
| Class III |
(377,132 | ) | (76,834 | ) | ||||
|
|
|
|
|
|||||
| Net share transactions (Note 9): |
||||||||
| Class III |
(10,988 | ) | 3,390,538 | |||||
|
|
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|
|
|||||
| Total increase (decrease) in net assets |
404,771 | 4,077,251 | ||||||
| Net assets: | ||||||||
| Beginning of period |
8,711,344 | 4,634,093 | ||||||
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|
|||||
| End of period |
$ | 9,116,115 | $ | 8,711,344 | ||||
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|
|||||
| Accumulated undistributed net investment income |
$ | 73,715 | $ | 10,805 | ||||
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|
|||||
| 16 | See accompanying notes to the financial statements. |
GMO Trust Funds
(For a share outstanding throughout each period)
FOREIGN FUND
| Class II Shares | Class III Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 11.57 | $ | 11.21 | $ | 12.88 | $ | 11.07 | $ | 8.03 | $ | 16.52 | $ | 11.64 | $ | 11.27 | $ | 12.95 | $ | 11.13 | $ | 8.07 | $ | 16.59 | ||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Income (loss) from investment operations: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment income (loss)† |
0.19 | 0.29 | 0.31 | 0.24 | 0.26 | 0.45 | 0.19 | 0.30 | 0.34 | 0.24 | 0.28 | 0.47 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
0.28 | 0.43 | (1.43 | ) | 1.79 | 3.24 | (7.95 | ) | 0.28 | 0.44 | (1.47 | ) | 1.81 | 3.25 | (7.99 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Total from investment operations |
0.47 | 0.72 | (1.12 | ) | 2.03 | 3.50 | (7.50 | ) | 0.47 | 0.74 | (1.13 | ) | 2.05 | 3.53 | (7.52 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Less distributions to shareholders: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From net investment income |
(0.09 | ) | (0.36 | ) | (0.55 | ) | (0.22 | ) | (0.46 | ) | (0.33 | ) | (0.09 | ) | (0.37 | ) | (0.55 | ) | (0.23 | ) | (0.47 | ) | (0.34 | ) | ||||||||||||||||||||||||||||||||||||
| From net realized gains |
— | — | — | — | — | (0.66 | ) | — | — | — | — | — | (0.66 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Total distributions |
(0.09 | ) | (0.36 | ) | (0.55 | ) | (0.22 | ) | (0.46 | ) | (0.99 | ) | (0.09 | ) | (0.37 | ) | (0.55 | ) | (0.23 | ) | (0.47 | ) | (1.00 | ) | ||||||||||||||||||||||||||||||||||||
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| Net asset value, end of period |
$ | 11.95 | $ | 11.57 | $ | 11.21 | $ | 12.88 | $ | 11.07 | $ | 8.03 | $ | 12.02 | $ | 11.64 | $ | 11.27 | $ | 12.95 | $ | 11.13 | $ | 8.07 | ||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Total Return(a) |
4.02 | %** | 6.65 | % | (8.38 | )% | 18.71 | % | 43.95 | % | (47.49 | )% | 4.02 | %** | 6.75 | % | (8.36 | )% | 18.80 | % | 44.10 | % | (47.42 | )% | ||||||||||||||||||||||||||||||||||||
| Ratios/Supplemental Data: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 157,369 | $ | 217,052 | $ | 259,270 | $ | 417,685 | $ | 545,336 | $ | 765,201 | $ | 165,287 | $ | 222,262 | $ | 403,157 | $ | 1,440,952 | $ | 1,591,717 | $ | 2,054,885 | ||||||||||||||||||||||||||||||||||||
| Net expenses to average daily net assets |
0.83 | %(b)(d)* | 0.84 | %(b)(d) | 0.82 | %(b) | 0.82 | %(b) | 0.82 | %(b) | 0.82 | %(c) | 0.76 | %(b)(d)* | 0.77 | %(b)(d) | 0.75 | %(b) | 0.75 | %(b) | 0.75 | %(b) | 0.75 | %(c) | ||||||||||||||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets |
3.16 | %* | 2.65 | % | 2.71 | % | 2.09 | % | 2.53 | % | 3.42 | % | 3.17 | %* | 2.78 | % | 2.89 | % | 2.08 | % | 2.65 | % | 3.51 | % | ||||||||||||||||||||||||||||||||||||
| Portfolio turnover rate |
44 | %** | 91 | % | 58 | % | 55 | % | 59 | % | 39 | % | 44 | %** | 91 | % | 58 | % | 55 | % | 59 | % | 39 | % | ||||||||||||||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.14 | %* | 0.07 | % | 0.07 | % | 0.06 | % | 0.05 | % | 0.05 | % | 0.14 | %* | 0.07 | % | 0.08 | % | 0.06 | % | 0.05 | % | 0.05 | % | ||||||||||||||||||||||||||||||||||||
| See accompanying notes to the financial statements. | 17 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
FOREIGN SMALL COMPANIES FUND
| Class III Shares | Class IV Shares | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Sixth Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Period
from August 12, 2009 through February 28, 2010(a) |
Period from March 1, 2009 through March 16, 2009(a) |
Year Ended February 28, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | 2013 | 2012 | 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 14.40 | $ | 12.91 | $ | 14.22 | $ | 10.74 | $ | 6.41 | $ | 14.63 | $ | 14.37 | $ | 12.90 | $ | 14.20 | $ | 10.73 | $ | 9.84 | $ | 6.42 | $ | 14.64 | |||||||||||||||||||||||||||||||||||||||
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| Income (loss) from investment operations: |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment income (loss)† |
0.15 | 0.23 | 0.19 | 0.14 | 0.13 | 0.30 | 0.16 | 0.12 | 0.17 | 0.13 | 0.02 | 0.01 | 0.33 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
0.95 | 1.43 | (1.27 | )(b) | 3.47 | 4.32 | (7.43 | ) | 0.95 | 1.54 | (1.23 | )(b) | 3.47 | 1.00 | 0.01 | (7.46 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
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||||||||||||||||||||||||||||||||||||||||
| Total from investment operations |
1.10 | 1.66 | (1.08 | ) | 3.61 | 4.45 | (7.13 | ) | 1.11 | 1.66 | (1.06 | ) | 3.60 | 1.02 | 0.02 | (7.13 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
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||||||||||||||||||||||||||||||||||||||||
| Less distributions to shareholders: |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From net investment income |
(0.10 | ) | (0.17 | ) | (0.23 | ) | (0.13 | ) | (0.12 | ) | (0.27 | ) | (0.10 | ) | (0.19 | ) | (0.24 | ) | (0.13 | ) | (0.13 | ) | — | (0.27 | ) | ||||||||||||||||||||||||||||||||||||||||
| From net realized gains |
— | — | — | — | — | (0.81 | ) | — | — | — | — | — | — | (0.81 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Return of capital |
— | — | — | — | — | (0.01 | ) | — | — | — | — | — | — | (0.01 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
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||||||||||||||||||||||||||||||||||||||||
| Total distributions |
(0.10 | ) | (0.17 | ) | (0.23 | ) | (0.13 | ) | (0.12 | ) | (1.09 | ) | (0.10 | ) | (0.19 | ) | (0.24 | ) | (0.13 | ) | (0.13 | ) | — | (1.09 | ) | ||||||||||||||||||||||||||||||||||||||||
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||||||||||||||||||||||||||||||||||||||||
| Net asset value, end of period |
$ | 15.40 | $ | 14.40 | $ | 12.91 | $ | 14.22 | $ | 10.74 | $ | 6.41 | $ | 15.38 | $ | 14.37 | $ | 12.90 | $ | 14.20 | $ | 10.73 | $ | 6.44 | $ | 6.42 | |||||||||||||||||||||||||||||||||||||||
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||||||||||||||||||||||||||||||||||||||||
| Total Return(c) |
7.66 | %** | 12.93 | % | (7.45 | )% | 33.67 | % | 69.44 | % | (51.33 | )% | 7.75 | %** | 12.96 | % | (7.33 | )% | 33.67 | % | 10.33 | %** | 0.31 | %** | (51.29 | )% | |||||||||||||||||||||||||||||||||||||||
| Ratios/Supplemental Data: |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 373,057 | $ | 314,389 | $ | 483,122 | $ | 398,648 | $ | 292,852 | $ | 185,298 | $ | 506,990 | $ | 471,628 | $ | 71,373 | $ | 147,131 | $ | 84,225 | $ | 144,101 | $ | 143,564 | |||||||||||||||||||||||||||||||||||||||
| Net expenses to average daily net assets |
0.85 | %(d)(e)* | 0.85 | %(d)(e) | 0.86 | %(d) | 0.85 | %(d) | 0.86 | %(d) | 0.85 | %(f) | 0.80 | %(d)(e)* | 0.80 | %(d)(e) | 0.81 | %(d) | 0.80 | %(d) | 0.81 | %(d)* | 0.81 | %(d)* | 0.80 | %(f) | |||||||||||||||||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets |
1.95 | %* | 1.83 | % | 1.43 | % | 1.15 | % | 1.40 | % | 2.59 | % | 2.04 | %* | 0.90 | % | 1.34 | % | 1.07 | % | 0.35 | %* | 3.28 | %* | 2.74 | % | |||||||||||||||||||||||||||||||||||||||
| Portfolio turnover rate |
26 | %** | 56 | % | 46 | % | 61 | % | 78 | % | 42 | % | 26 | %** | 56 | % | 46 | % | 61 | % | 78 | %†† | 40 | %††† | 42 | % | |||||||||||||||||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.08 | %* | 0.09 | % | 0.10 | % | 0.14 | % | 0.14 | % | 0.11 | % | 0.08 | %* | 0.10 | % | 0.10 | % | 0.14 | % | 0.08 | %* | 0.22 | %* | 0.11 | % | |||||||||||||||||||||||||||||||||||||||
| Purchase premiums and redemption fees consisted of the following per share amounts (Note 2):† |
$ | 0.00 | (g) | $ | 0.02 | $ | 0.00 | (g) | $ | 0.01 | $ | 0.02 | $ | 0.00 | (g) | $ | 0.00 | (g) | $ | 0.01 | $ | 0.01 | $ | 0.02 | $ | 0.00 | (g) | $ | 0.00 | (g) | $ | 0.00 | (g) | ||||||||||||||||||||||||||||||||
| (a) | The class was inactive from March 17, 2009 to August 11, 2009. |
| (b) | The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain (loss) on investments due to the timing of purchases and redemptions of Fund shares in relation to fluctuating market values of the investments of the Fund. |
| (c) | The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown, if applicable, and assumes the effect of reinvested distributions, if any. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder purchasing or redeeming Fund shares, if any. |
| (d) | The net expense ratio does not include the effect of expense reductions (Note 2). |
| (e) | Net expenses exclude expenses incurred indirectly through investment in the underlying funds (Note 5). |
| (f) | The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions. |
| (g) | Purchase premiums and redemption fees were less than $0.01 per share. |
| * | Annualized. |
| ** | Not annualized. |
| † | Calculated using average shares outstanding throughout the period. |
| †† | Calculation represents portfolio turnover of the Fund for the period ended February 28, 2010. |
| ††† | Calculation represents portfolio turnover of the Fund for the period ended August 31, 2009. |
| 18 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
GLOBAL FOCUSED EQUITY FUND
| See accompanying notes to the financial statements. | 19 |
GMO Trust Funds
August 31, 2013 (Unaudited)
| 1. | Organization |
Each of Foreign Fund, Foreign Small Companies Fund, and Global Focused Equity Fund (each a “Fund” and collectively the “Funds”) is a series of GMO Trust (the “Trust”). The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust was established as a Massachusetts business trust under the laws of The Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees of the Trust (“Trustees”) to create an unlimited number of series of shares (Funds) and to subdivide Funds into classes. The Funds are advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager” or “GMO”).
The Funds may invest in U.S. Treasury Fund and unaffiliated money market funds.
The following table provides information about the Funds’ principal investment objectives and benchmarks (if any):
| Fund Name | Benchmark | Principal Investment Objective | ||
| Foreign Fund | MSCI EAFE Index | Total return in excess of benchmark | ||
| Foreign Small Companies Fund | S&P Developed ex-U.S. Small Cap Index | Total return in excess of benchmark | ||
| Global Focused Equity Fund | Not Applicable | Total return | ||
Foreign Small Companies Fund currently limits subscriptions.
| 2. | Significant accounting policies |
The following is a summary of significant accounting policies followed by each Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently followed by the Funds in preparing these financial statements. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The accounting records of the Funds are maintained in U.S. Dollars.
Portfolio valuation
Exchange-traded securities (other than exchange-traded options) for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price or (iii) most recent quoted price published by the exchange (if no reported last sale or official closing price) or (iv) the quoted price provided by a pricing source (in the event the Manager deems the private market to be a more reliable indicator of market value than the exchange). Exchange-traded 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. Cleared derivatives are valued using the quote (which may be based on a model) published by the relevant clearing house. If an updated quote for a cleared derivative is not available by the time that a Fund calculates its net asset value on any business day, then that derivative will generally be valued using an industry standard model, which may differ from the model used by the relevant clearing house. Unlisted securities (including debt instruments) for which market quotations are readily available are generally valued at the most recent quoted price. In the case of non-emerging market debt instruments with a remaining maturity of sixty days or less, the instrument may be valued at amortized cost, which approximates market value, if the issuer is deemed to present minimal credit risk. Shares of open-end registered investment companies are valued at their most recent net asset value. If quotations are not readily available or circumstances make an existing valuation methodology or procedure unreliable, derivatives and other securities are valued at fair value as determined in good faith by the Trustees or persons acting at their direction pursuant to procedures approved by the Trustees. Because of the uncertainty inherent in pricing, and in particular fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. See the table below for information about securities and derivatives, if any, that were fair valued using methods determined in good faith by or at the direction of the Trustees. The Funds classify such securities as Level 3 (levels defined below). For the period ended August 31, 2013, the Funds did not reduce the value of any of their over-the-counter (“OTC”) derivatives contracts, if any, based on the creditworthiness of their counterparties. See Note 4 “Derivative financial instruments” for a further discussion on valuation of derivatives.
The foregoing valuation methodologies are modified for equity securities listed on foreign exchanges and that trade in securities markets that close prior to the close of the New York Stock Exchange (“NYSE”) due to time zone differences, including the value of equity securities that underlie futures, options and other derivatives (to the extent the market for those derivatives closes prior to the close of the NYSE). In those cases, the value will generally be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees to reflect estimated valuation changes through the NYSE close. The table below shows the percentage of the net assets of the Funds that were valued using fair value inputs obtained from that independent pricing service as of August 31, 2013. These securities listed on foreign exchanges (including the value of equity securities that underlie futures, options and other derivatives (to the extent the market for such instruments closes prior to the close of the NYSE)) are classified as Level 2 (levels defined below) in the table below.
| 20 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
“Quotation” or “quoted price” typically means the bid price for securities held long and the ask price for securities sold short. If the pricing convention for a security does not involve a bid or an ask, “quotation” or “quoted price” may be a market quotation provided by a market participant or other third party pricing source in accordance with the convention for that security. If an updated quote for a security is not available by the time that the Funds calculate their net asset value on any business day, the Funds will generally use a quoted price from a prior day to value that security.
As discussed above, certain of the Funds invest in securities and/or derivatives which may have been fair valued using methods determined in good faith by or at the direction of the Trustees or fair valued using inputs obtained from an independent pricing service and presented in the table below on a net basis. The net aggregate direct and/or indirect exposure to these valuation methodologies (based on each Fund’s net assets) as of August 31, 2013 is as follows:
Securities
| Fund Name | Fair valued using inputs obtained from an independent pricing service |
|||
| Foreign Fund |
98% | |||
| Foreign Small Companies Fund |
88% | |||
| Global Focused Equity Fund |
73% | |||
U.S. GAAP requires the Funds to disclose the fair value of their investments in a three-level hierarchy (Levels 1, 2, and 3). The valuation hierarchy is based upon the relative observability of inputs to the valuation of the Funds’ investments. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Changes in valuation techniques may result in transfers into or out of an investment’s assigned level within the fair value hierarchy. In addition, in periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition, as well as changes related to the liquidity of investments, could cause a security to be reclassified between levels.
U.S. GAAP requires additional disclosures about fair value measurements for material Level 3 securities and derivatives, if any (determined by each category of asset or liability as compared to a Fund’s total net assets separately identified in the “Valuation Inputs” table below). At August 31, 2013, there were no direct material Level 3 classes of investments or derivatives with significant unobservable inputs subject to this additional disclosure.
The three levels are defined as follows:
Level 1 – Valuations based on quoted prices for identical securities in active markets.
The types of assets and liabilities categorized in Level 1 generally include actively traded domestic and certain foreign equity securities, certain U.S. government obligations with a remaining maturity of greater than 60 days, derivatives actively traded on a national securities exchange (such as some futures and options), and shares of open-end mutual funds (even if their investments are valued using Level 2 or Level 3 inputs).
Level 2 – Valuations determined using other significant direct or indirect observable inputs.
The types of assets and liabilities categorized in Level 2 generally include debt securities such as U.S. government securities with a remaining maturity of 60 days or less valued at amortized cost; cleared derivatives and certain OTC derivatives such as swaps, options, swaptions, and forward currency contracts valued using industry standard models; certain restricted securities valued at the most recent available market or quoted price; and certain foreign equity securities that are adjusted based on inputs from an independent pricing service approved by the Trustees, including the value of equity securities that underlie futures, options and other derivatives (to the extent the market for such instruments closes prior to the close of the NYSE) to reflect estimated valuation changes through the NYSE close.
Level 3 – Valuations based primarily on inputs that are unobservable and significant
The types of assets and liabilities categorized in Level 3 generally include, but are not limited to, securities whose trading has been suspended or that have been de-listed from their current primary trading exchange valued at the most recent available market or quoted price; securities in default or bankruptcy proceedings for which there is no current market quotation valued at the most recent available market or quoted price; third-party investment funds where valuations are provided by fund sponsors and which are adjusted for liquidity considerations as well as the timing of the receipt of information; and certain securities that are valued at the local price and adjusted by applying a premium or discount when the holdings exceed foreign ownership limitations; certain equity securities valued based on the last traded exchange price adjusted for the movement in a securities index; and certain securities that are valued using a price from a comparable security related to the same issuer.
| 21 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The following is a summary of the respective levels assigned to the Funds’ direct securities and derivatives, if any, as of August 31, 2013:
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Foreign Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 26,575,155 | $ | — | $ | 26,575,155 | ||||||||
| Belgium |
— | 4,249,442 | — | 4,249,442 | ||||||||||||
| France |
— | 63,270,525 | — | 63,270,525 | ||||||||||||
| Germany |
— | 27,268,370 | — | 27,268,370 | ||||||||||||
| Hong Kong |
— | 4,489,158 | — | 4,489,158 | ||||||||||||
| Ireland |
— | 1,423,026 | — | 1,423,026 | ||||||||||||
| Israel |
— | 1,477,805 | — | 1,477,805 | ||||||||||||
| Italy |
— | 26,934,085 | — | 26,934,085 | ||||||||||||
| Japan |
— | 95,107,684 | — | 95,107,684 | ||||||||||||
| Mexico |
298,891 | — | — | 298,891 | ||||||||||||
| Netherlands |
— | 17,162,692 | — | 17,162,692 | ||||||||||||
| Norway |
— | 1,509,337 | — | 1,509,337 | ||||||||||||
| Panama |
1,883,232 | — | — | 1,883,232 | ||||||||||||
| Philippines |
— | 14,731 | — | 14,731 | ||||||||||||
| Russia |
— | 2,128,875 | — | 2,128,875 | ||||||||||||
| South Korea |
— | 3,586,267 | — | 3,586,267 | ||||||||||||
| Spain |
— | 6,109,625 | — | 6,109,625 | ||||||||||||
| Sweden |
— | 5,843,092 | — | 5,843,092 | ||||||||||||
| Switzerland |
— | 14,835,310 | — | 14,835,310 | ||||||||||||
| Taiwan |
— | 2,216,888 | — | 2,216,888 | ||||||||||||
| United Kingdom |
— | 73,886,077 | — | 73,886,077 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
2,182,123 | 378,088,144 | — | 380,270,267 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Germany |
— | 5,805,592 | — | 5,805,592 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
— | 5,805,592 | — | 5,805,592 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Rights/Warrants |
||||||||||||||||
| Italy |
— | — | 73 | 73 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL RIGHTS/WARRANTS |
— | — | 73 | 73 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
7,440,422 | — | — | 7,440,422 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
7,440,422 | — | — | 7,440,422 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Short-Term Investments |
3,243,443 | — | — | 3,243,443 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
12,865,988 | 383,893,736 | 73 | 396,759,797 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 12,865,988 | $ | 383,893,736 | $ | 73 | $ | 396,759,797 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Foreign Small Companies Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 45,838,099 | $ | — | $ | 45,838,099 | ||||||||
| Austria |
— | 11,498,024 | — | 11,498,024 | ||||||||||||
| Belgium |
— | 12,012,855 | — | 12,012,855 | ||||||||||||
| Brazil |
5,959,945 | — | — | 5,959,945 | ||||||||||||
| Canada |
31,647,386 | — | — | 31,647,386 | ||||||||||||
| Chile |
2,175,404 | — | — | 2,175,404 | ||||||||||||
| 22 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Foreign Small Companies Fund (continued) |
||||||||||||||||
| Asset Valuation Inputs (continued) |
||||||||||||||||
| Finland |
$ | — | $ | 6,217,231 | $ | — | $ | 6,217,231 | ||||||||
| France |
— | 108,327,899 | — | 108,327,899 | ||||||||||||
| Germany |
— | 49,515,377 | — | 49,515,377 | ||||||||||||
| Hong Kong |
— | 7,182,126 | — | 7,182,126 | ||||||||||||
| India |
— | 1,546,855 | — | 1,546,855 | ||||||||||||
| Ireland |
— | 4,089,268 | — | 4,089,268 | ||||||||||||
| Italy |
— | 64,853,717 | — | 64,853,717 | ||||||||||||
| Japan |
— | 190,462,522 | — | 190,462,522 | ||||||||||||
| Mexico |
18,371,629 | — | — | 18,371,629 | ||||||||||||
| Netherlands |
— | 5,506,611 | — | 5,506,611 | ||||||||||||
| New Zealand |
— | 9,396,493 | — | 9,396,493 | ||||||||||||
| Norway |
— | 16,140,568 | — | 16,140,568 | ||||||||||||
| Philippines |
— | 156,742 | — | 156,742 | ||||||||||||
| Singapore |
— | 7,302,693 | — | 7,302,693 | ||||||||||||
| South Korea |
7,670,795 | 20,426,580 | — | 28,097,375 | ||||||||||||
| Spain |
— | 11,553,028 | — | 11,553,028 | ||||||||||||
| Sweden |
— | 4,192,566 | — | 4,192,566 | ||||||||||||
| Switzerland |
— | 28,143,451 | — | 28,143,451 | ||||||||||||
| Thailand |
— | 578,289 | — | 578,289 | ||||||||||||
| United Kingdom |
— | 168,306,119 | — | 168,306,119 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
65,825,159 | 773,247,113 | — | 839,072,272 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Chile |
3,685,693 | — | — | 3,685,693 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
3,685,693 | — | — | 3,685,693 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
31,931,352 | — | — | 31,931,352 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
31,931,352 | — | — | 31,931,352 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Short-Term Investments |
3,959,385 | — | — | 3,959,385 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
105,401,589 | 773,247,113 | — | 878,648,702 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 105,401,589 | $ | 773,247,113 | $ | — | $ | 878,648,702 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Global Focused Equity Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 104,400 | $ | — | $ | 104,400 | ||||||||
| Austria |
— | 253,152 | — | 253,152 | ||||||||||||
| Canada |
266,258 | — | — | 266,258 | ||||||||||||
| France |
— | 1,389,008 | — | 1,389,008 | ||||||||||||
| Germany |
— | 1,067,705 | — | 1,067,705 | ||||||||||||
| Italy |
— | 986,422 | — | 986,422 | ||||||||||||
| Japan |
— | 968,806 | — | 968,806 | ||||||||||||
| Netherlands |
— | 989,095 | — | 989,095 | ||||||||||||
| Russia |
— | 239,038 | — | 239,038 | ||||||||||||
| Switzerland |
— | 314,060 | — | 314,060 | ||||||||||||
| Thailand |
— | 118,103 | — | 118,103 | ||||||||||||
| United Kingdom |
— | 215,596 | — | 215,596 | ||||||||||||
| United States |
1,269,834 | — | — | 1,269,834 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
1,536,092 | 6,645,385 | — | 8,181,477 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 23 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Global Focused Equity Fund (continued) |
||||||||||||||||
| Asset Valuation Inputs (continued) |
||||||||||||||||
| Mutual Funds |
||||||||||||||||
| United States |
$ | 440,597 | $ | — | $ | — | $ | 440,597 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
440,597 | — | — | 440,597 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Short-Term Investments |
721,321 | — | — | 721,321 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
2,698,010 | 6,645,385 | — | 9,343,395 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 2,698,010 | $ | 6,645,385 | $ | — | $ | 9,343,395 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The Funds’ investments in other GMO Funds (“underlying funds”) held at period end are classified above as Level 1. For the summary of valuation inputs of the underlying funds, please refer to the underlying funds’ Notes to Financial Statements.
For all Funds for the period ended August 31, 2013, there were no material transfers between Level 1 and Level 2.
The following is a reconciliation of securities and derivatives, if any, in which significant unobservable inputs (Level 3) were used in determining value:
| Balances as of February 28, 2013 |
Purchases | Sales | Accrued Discounts/ Premiums |
Total Realized Gain/ (Loss) |
Change in Unrealized Appreciation (Depreciation) |
Transfer into Level 3* |
Transfer out of Level 3* |
Balances as of August 31, 2013 |
Net Change in Unrealized Appreciation (Depreciation) from Investments Still Held as of August 31, 2013 |
|||||||||||||||||||||||||||||||
| Foreign Fund |
||||||||||||||||||||||||||||||||||||||||
| Rights and/or warrants |
|
|||||||||||||||||||||||||||||||||||||||
| Italy |
$— | $0 | ** | $— | $— | $— | $73 | $— | $— | $73 | $73 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total |
$— | $0 | $— | $— | $— | $73 | $— | $— | $73 | $73 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| * | The Funds account for securities and derivatives, if any, transferred into and out of Level 3 at the value at the end of the period. |
| ** | Financial assets were acquired as a result of a corporate action. |
Cash
Cash and Foreign Currency, if any, on the Statements of Assets and Liabilities consists of cash balances held with the custodian.
Due to/from broker
Due to/from broker in the Statements of Assets and Liabilities includes collateral on swap contracts, futures contracts, option contracts and forward currency contracts, if any, and may include mark-to-market amounts related to foreign currency.
Foreign currency translation
The market values of foreign securities, currency holdings and related assets and liabilities are typically translated into U.S. Dollars at the close of regular trading on the NYSE, generally at 4:00 pm Boston time. Income and expenses denominated in foreign currencies are typically translated into U.S. Dollars at the close of regular trading on the NYSE. Fluctuations in the value of currency holdings and other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains or losses. Realized gains or losses and unrealized appreciation or depreciation on investment securities and income and expenses are translated on the respective dates of such transactions. The effects of changes in foreign currency exchange rates on investments in securities are not separated on the Statements of Operations from the effects of changes in market prices of those securities, but are included with the net realized and unrealized gain or loss on investment securities.
Taxes and distributions
Each Fund intends to qualify each tax year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). Each Fund intends to distribute substantially all of its net investment income, if any, and all of its net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryforwards for U.S. federal income tax purposes. Therefore, each Fund makes no provision for U.S. federal income or excise taxes. Taxes on foreign interest and dividend income are generally withheld in
| 24 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
accordance with the applicable country’s tax treaty with the United States. The foreign withholding rates applicable to a Fund’s investments in certain jurisdictions may be higher if a significant portion of the Fund is held by non-U.S. shareholders.
Each Fund’s policy is to declare and pay distributions of its net investment income, if any, semi-annually. Each Fund also intends to distribute net realized short-term and long-term capital gains, if any, at least annually. Typically, distributions are reinvested in additional shares of each Fund, at net asset value, unless the shareholder elects to receive cash distributions. Distributions to shareholders are recorded by each Fund on the ex-dividend date.
Foreign taxes paid by each Fund may be treated, to the extent permissible under the Code and if that Fund so elects, as if paid by U.S. shareholders of that Fund.
Each Fund may be subject to taxation on realized capital gains, repatriation proceeds and other transaction-based taxes imposed by certain countries in which it invests. Taxes related to capital gains realized during the period ended August 31, 2013, if any, are reflected as part of Net realized gain (loss) in the Statements of Operations. Changes in tax liabilities related to capital gain taxes on unrealized investment gains, if any, are reflected as part of Change in net unrealized appreciation (depreciation) in the Statements of Operations. Transaction-based charges are generally calculated as a percentage of the transaction amount.
Income and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will likely reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over-distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Distributions in excess of tax basis earnings and profits, if significant, are reported in the Funds’ financial statements as a return of capital.
As of February 28, 2013, the Funds listed below had capital loss carryforwards available to offset future realized gains, if any, to the extent permitted by the Code. Net capital losses recognized in taxable years beginning on or after March 1, 2011 are carried forward without expiration and generally retain their short-term and/or long-term tax character, as applicable. In addition, such losses should be utilized prior to losses scheduled to expire on or before February 28, 2019. As a result of this ordering rule, losses that are subject to expiration may expire unused. Utilization of the capital loss carryforwards, post-October capital losses, late-year ordinary losses, and losses realized subsequent to February 28, 2013, if any, could be subject to further limitations imposed by the Code related to share ownership activity. The Funds’ capital loss carryforwards are as follows:
| Short-Term ($) | Long- Term ($) |
|||||||||||||||||||
| Fund Name |
Expiration Date 2/28/2018 |
Expiration Date 2/28/2019 |
No Expiration Date |
Total Short- Term ($) |
No Expiration Date |
|||||||||||||||
| Foreign Fund |
(587,518,459) | — | (18,094,912) | (605,613,371) | (28,795,275) | |||||||||||||||
| Foreign Small Companies Fund |
(13,498,730) | (1,656,694) | — | (15,155,424) | — | |||||||||||||||
As of August 31, 2013, the approximate cost for U.S. federal income tax purposes and the aggregate investment-level gross and net unrealized appreciation (depreciation) in the value of investments were as follows:
| Fund Name | Aggregate Cost ($) |
Gross Unrealized Appreciation ($) |
Gross Unrealized (Depreciation) ($) |
Net Unrealized Appreciation (Depreciation) ($) |
||||||||||||
| Foreign Fund |
373,255,625 | 32,721,160 | (9,216,988) | 23,504,172 | ||||||||||||
| Foreign Small Companies Fund |
762,432,728 | 141,120,003 | (24,904,029) | 116,215,974 | ||||||||||||
| Global Focused Equity Fund |
8,492,309 | 1,095,386 | (244,300) | 851,086 | ||||||||||||
| 25 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The Funds are subject to authoritative guidance related to the accounting and disclosure of uncertain tax positions under U.S. GAAP. This guidance sets forth a minimum threshold for the financial statement recognition of tax positions taken based on the technical merits of such positions. United States and non-U.S. tax rules (including the interpretation and application of tax laws) are subject to change. The Funds file tax returns and/or adopt certain tax positions in various jurisdictions. Non-U.S. taxes are provided for based on the Funds’ understanding of the prevailing tax rules of the non-U.S. markets in which they invest. Recently enacted tax rules, including interpretations of tax laws (e.g., regulations pertaining to the U.S. Foreign Account Tax Compliance Act) and proposed legislation currently under consideration in various jurisdictions, including the U.S., might affect the way the Funds and their investors are taxed prospectively and/or retroactively. Prior to the expiration of the relevant statutes of limitations, if any, the Funds are subject to examination by U.S. federal, state, local and non-U.S. jurisdictions with respect to the tax returns they have filed and the tax positions they have adopted. The Funds’ U.S. federal income tax returns are generally subject to examination by the Internal Revenue Service for a period of three years after they are filed. State, local and/or non-U.S. tax returns and/or other filings may be subject to examination for different periods, depending upon the tax rules of each applicable jurisdiction.
Security transactions and related investment income
Security transactions are accounted for in the financial statements on trade date. For purposes of daily net asset value calculations, the Funds’ policy is that security transactions are generally accounted for on the following business day. The Manager may override that policy and a Fund may account for security transactions on trade date if it experiences significant purchases or redemptions or engages in significant portfolio transactions. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when a Fund is informed of the ex-dividend date. Income dividends and capital gain distributions from the underlying funds are recorded on the ex-dividend date. Interest income is recorded on the accrual basis and is adjusted for the amortization of premiums and accretion of discounts. Principal on inflation-indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or investment loss. Coupon income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Funds use the identified cost basis.
Expenses
Most of the expenses of the Trust are directly identifiable to an individual Fund. Common expenses are allocated among the Funds based on, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses, purchase premiums and redemption fees, if any, and realized and unrealized gains and losses are allocated among the classes of shares of the Funds, if applicable, based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class’s operations. In addition, the Funds may incur fees and expenses indirectly as a shareholder in the underlying funds (See Note 5).
Brown Brothers Harriman & Co. (“BBH”) serves as the Funds’ custodian and fund accounting agent. State Street Bank and Trust Company (“State Street”) serves as the Funds’ transfer agent. State Street’s transfer agent fees may be reduced by an earnings allowance calculated on the average daily cash balances each Fund maintains in a State Street transfer agent account. Earnings allowances are reported as a reduction of expenses in the Statement of Operations.
Purchases and redemptions of Fund shares
Purchase premiums and redemption fees (if applicable) are paid to and retained by a Fund to help offset estimated portfolio transaction costs and other related costs (e.g., bid to ask spreads, stamp duties and transfer fees) incurred by the Fund (directly or indirectly through investments in underlying funds) as a result of the purchase or redemption by allocating estimated transaction costs to the purchasing or redeeming shareholder. Such fees are recorded as a component of the Funds’ net share transactions. A Fund may impose a new purchase premium and/or redemption fee or modify an existing fee at any time.
Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of a Fund’s shares if the Fund will not incur transaction costs or will incur reduced transaction costs.
The Manager will waive or reduce the purchase premium when securities are used to purchase a Fund’s shares except to the extent that the Fund incurs transaction costs (e.g., stamp duties or transfer fees) in connection with its acquisition of those securities. The Funds may waive or reduce redemption fees when they use portfolio securities to redeem their shares. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may nonetheless charge a redemption fee equal to known or estimated costs.
| 26 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Purchase premiums or redemption fees generally will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with the Trust to transmit orders for purchases and redemptions the day after those orders are received.
As of August 31, 2013, the premium on cash purchases and the fee on cash redemptions were as follows:
| Foreign Fund | Foreign Small Companies Fund | Global Focused Equity Fund | ||||
| Purchase Premium | — | 0.50% | — | |||
| Redemption Fee | — | 0.50% | — | |||
| 3. | Investment and other risks |
The following chart identifies selected risks associated with each Fund. Risks not marked for a particular Fund may, however, still apply to some extent to that Fund at various times:
| Foreign Fund | Foreign Small Companies Fund | Global Focused Equity Fund | ||||
| Market Risk – Equities | X | X | X | |||
| Liquidity Risk | X | X | X | |||
| Smaller Company Risk | X | X | X | |||
| Derivatives Risk | X | X | X | |||
| Non-U.S. Investment Risk | X | X | X | |||
| Currency Risk | X | X | X | |||
| Focused Investment Risk | X | X | X | |||
| Leveraging Risk | X | X | X | |||
| Counterparty Risk | X | X | X | |||
| Market Disruption and Geopolitical Risk | X | X | X | |||
| Large Shareholder Risk | X | X | X | |||
| Management and Operational Risk | X | X | X | |||
| Non-Diversified Funds | X | X | ||||
Investing in mutual funds involves many risks. The risks of investing in a particular Fund depend on the types of investments in its portfolio and the investment strategies the Manager employs on its behalf. This section does not describe every potential risk of investing in the Funds. Funds could be subject to additional risks because of the types of investments they make and market conditions, which may change over time.
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Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Each Fund that invests in other GMO Funds and other investment companies is exposed to the risks to which the underlying funds in which it invests are exposed. Therefore, unless otherwise noted, the selected risks summarized below include both direct and indirect risks, and, references in this section to investments made by a Fund include those made both directly by the Fund and indirectly by the Fund through other GMO Funds and other investment companies.
An investment in a Fund is not a bank deposit and, therefore, is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
• MARKET RISK. All of the Funds are subject to market risk, which is the risk that the market value of their holdings will decline. Market risks include:
Equities — Funds that invest in equities run the risk that the market prices of those investments will decline. The market prices of equities may decline for reasons that directly relate to the issuing company, such as poor management performance or reduced demand for its goods or services. They also may decline due to factors that affect a particular industry, such as a decline in demand, labor or raw material shortages, or increased production costs. In addition, market prices may decline as a result of general market conditions 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. Equities generally have significant price volatility, and the market prices of equities can decline in a rapid or unpredictable manner.
The Funds invest a substantial portion of their assets in equities and as a result, declines in stock market prices generally are likely to reduce the net asset values of those Funds’ shares.
If a Fund purchases equities 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 appreciate or will decline for a variety of reasons, one of which may be the Manager’s overestimation of the value of those investments.
The market prices of equities trading at high multiples of current earnings often are more sensitive to changes in future earnings expectations than the market prices of equities trading at lower multiples.
• LIQUIDITY RISK. Liquidity risk is the risk that low trading volume, lack of a market maker, large position size or legal restrictions (including daily price fluctuation limits or “circuit breakers”) limits or prevents a Fund from selling particular securities or unwinding derivative positions at desirable prices. In addition to these risks, a Fund is 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 a short position). All of the Funds are subject to liquidity risk, but those with the greatest risk have principal investment strategies that involve investment in asset-backed securities, emerging country debt securities, securities of companies with smaller market capitalizations or smaller total float-adjusted market capitalizations and emerging market securities. These types of investments can be difficult to value, exposing a Fund to the risk that the price at which it sells them will be less than the value placed on them when they were held by the Fund. In addition, Inflation-Protected Securities issued by the U.S. Treasury (“TIPS”) have exhibited periods of greatly reduced liquidity when disruptions in fixed income markets have occurred, such as the events surrounding the bankruptcy of Lehman Brothers in 2008. Less liquid securities are more susceptible than other securities to price declines when market prices decline generally.
All of the Funds with benchmarks may buy securities that are less liquid than those in their benchmarks.
• SMALLER COMPANY RISK. Companies with smaller market capitalizations, including small- and mid-cap 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 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. In addition, market risk and liquidity risk are particularly pronounced for securities of these companies.
• DERIVATIVES RISK. All of the Funds 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 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. Derivatives include futures, non-U.S. 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 use of derivatives involves risks that are in addition to, and potentially greater than, the risks of investing directly in securities and other more traditional assets. In particular, a Fund’s use of OTC derivatives exposes it to the risk that the counterparties will be unable or unwilling to make timely settlement payments or otherwise honor their obligations. An OTC derivatives contract typically can be closed only with the consent of the
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GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
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 it does, the Fund may decide not to pursue its claims against the counterparty to avoid incurring the cost and unpredictability of legal proceedings. The Fund, therefore, may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts, or those payments may be delayed or made only after the Fund has incurred the costs of litigation.
A Fund may invest in derivatives that (i) do not require the counterparty to post collateral (e.g., forward currency contracts), (ii) require collateral but that do not provide for the Fund’s security interest in it to be perfected, (iii) require a significant upfront deposit by the Fund unrelated to the derivative’s intrinsic value, or (iv) do not require that collateral be regularly marked-to-market. When a counterparty’s obligations are not fully secured by collateral, a Fund runs the risk of having limited recourse if the counterparty defaults. Even when obligations are required by contract to be collateralized, a Fund often will not receive the collateral the day the collateral is called for.
The Funds 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 Funds. Derivatives risk is particularly acute in environments (like those of 2008) in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. In addition, during those periods, a Fund may have a greater need for cash to provide collateral for large swings in its mark-to-market obligations under the derivatives in which it has invested.
Derivatives also present other risks described in this section, including market risk, liquidity risk, currency risk, credit 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 may not produce valuations that are consistent with the values a Fund realizes when it closes or sells an OTC derivative. Valuation risk is more pronounced when a 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 a Fund’s net asset value.
A Fund’s 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 a Fund, the Funds will not be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund’s risk exposures, potentially resulting in losses for the Fund.
Swap contracts and other OTC derivatives are highly susceptible to liquidity risk (see “Liquidity Risk” above) 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.
A Fund’s use of derivatives may be subject to one or more special tax rules and could generate additional taxable income for shareholders.
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 (and many of the rules are not yet final), its ultimate impact remains unclear.
Under recently adopted rules and regulations, transactions in some types of swaps (including interest rate swaps and credit default swaps on North American and European indices) are required to be centrally cleared. In a transaction involving those swaps (“cleared derivatives”), a Fund’s counterparty is a clearing house, rather than a bank or broker. Since the Funds are not members of clearing houses and only members of a clearing house (“clearing members”) can participate directly in the clearing house, the Funds will hold cleared derivatives through accounts at clearing members. In cleared derivatives transactions, the Funds will make payments (including margin payments) to and receive payments from a clearing house through their accounts at clearing members. Clearing members guarantee performance of their clients’ obligations to the clearing house.
In many ways, cleared derivative arrangements are less favorable to mutual funds than bilateral arrangements. For example, the Funds may be required to provide more margin for cleared derivatives transactions than for bilateral derivatives transactions. Also, in contrast to a bilateral derivatives transaction, following a period of notice to a Fund, a clearing member generally can require termination of an existing cleared derivatives transaction at any time or an increase in margin requirements above the margin that the clearing member required at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions or to terminate those transactions at any time. Any increase in margin requirements or termination of existing cleared derivatives transactions by the clearing member or the clearing house could interfere with the ability of a Fund to pursue its investment strategy. Further, any increase in margin requirements by a clearing member could expose a Fund to greater credit risk to its clearing member, because (as described under “Counterparty Risk” below) margin for cleared derivatives transactions in excess of a clearing house’s margin requirements typically is held by the clearing member. Also, a Fund is
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August 31, 2013 (Unaudited)
subject to risk if it enters into a derivatives transaction that is required to be cleared (or that the Manager expects to be cleared), and no clearing member is willing or able to clear the transaction on the Fund’s behalf. While the documentation in place between the Funds and their clearing members generally provides that the clearing members will accept for clearing all cleared derivatives transactions that are within credit limits (specified in advance) for each Fund, the Funds are still subject to the risk that no clearing member will be willing or able to clear a transaction. In those cases, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of the transaction, including loss of an increase in the value of the transaction and/or loss of hedging protection. In addition, the documentation governing the relationship between the Funds and clearing members is drafted by the clearing members and generally is less favorable to the Funds than typical bilateral derivatives documentation. For example, documentation relating to cleared derivatives generally includes a one-way indemnity by the Funds in favor of the clearing member for losses the clearing member incurs as the Funds’ clearing member and typically does not provide the Funds any remedies if the clearing member defaults or becomes insolvent.
These and other new rules and regulations could, among other things, further restrict a Fund’s ability to engage in, or increase the cost to the Fund of, derivatives transactions, for example, by making some types of derivatives no longer available to the Fund, increasing margin or capital requirements, or otherwise limiting liquidity or increasing transaction costs. These regulations are new and evolving, so their potential impact on the Funds and the financial system are not yet known. While the new regulations and central clearing of some derivatives transactions are designed to reduce systemic risk (i.e., the risk that the interdependence of large derivatives dealers could cause them to suffer liquidity, solvency or other challenges simultaneously), there is no assurance that the new clearing mechanisms will achieve that result, and in the meantime, as noted above, central clearing exposes the Funds to new kinds of risks and costs.
• NON-U.S. INVESTMENT RISK. Funds that invest in non-U.S. securities are subject to additional and more varied risks than Funds whose investments are limited to U.S. securities. The securities markets of many non-U.S. countries include 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 non-U.S. securities often are not subject to the same degree of regulation as U.S. issuers. Reporting, accounting, custody and auditing standards of non-U.S. countries differ, in some cases significantly, from U.S. standards. Non-U.S. portfolio transactions generally involve higher commission rates, transfer taxes and custodial costs. In addition, some jurisdictions may limit a Fund’s ability to profit from short-term trading (as defined in the relevant jurisdiction).
A Fund may be subject to non-U.S. taxation, including potentially on a retroactive basis, on (i) capital gains it realizes or dividends or interest it receives on non-U.S. investments, (ii) transactions in those investments and (iii) the repatriation of proceeds generated from the sale of those investments. A Fund may seek to collect a refund on taxes paid to a non-U.S. country. In those cases, all or a portion of those taxes could ultimately be recovered by a Fund. However, the recovery process could take several years and the Fund will incur expenses in its efforts to collect the refund, which will reduce the benefit of any recovery. A Fund’s efforts to collect a refund may not be successful, in which case the Fund will have incurred additional expenses for no economic benefit. A Fund’s decision to pursue a refund is in its sole discretion, and it may decide not to pursue a refund, even if eligible.
Also, investing in non-U.S. securities exposes a Fund to the risk of nationalization, expropriation, or confiscatory taxation of assets of their issuers, 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.
In some non-U.S. markets, custody arrangements for securities provide significantly less protection 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 a Fund to credit and other risks it does not have in the U.S. with respect to participating brokers, custodians, clearing banks or other clearing agents, escrow agents, and issuers. Fluctuations in non-U.S. currency exchange rates also will affect the market value of a Fund’s non-U.S. investments (see “Currency Risk” below).
U.S. investors are required to maintain a license to invest directly in many non-U.S. markets. These licenses are often subject to limitations, including maximum investment amounts. Once a license is obtained, a Fund’s 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, to obtain exposure to the market the Fund will be required to purchase American Depositary Receipts, Global Depositary Receipts, shares of other funds that are licensed to invest directly, or derivative instruments. The receipt of a non-U.S. license by one of the Manager’s clients may preclude other clients, including a Fund, from obtaining a similar license, and this could limit the Fund’s investment opportunities. In addition, the activities of another of the Manager’s clients could cause the suspension or revocation of a license and thereby limit the Funds’ investment opportunities.
Funds that invest a significant portion of their assets in securities of issuers tied economically to emerging countries (or investments related to emerging markets) are subject to greater non-U.S. investment risk than Funds investing primarily in more developed non-U.S. countries (or markets). 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 of securities in a Fund’s portfolio; greater governmental involvement in the economy; less governmental supervision and regulation of the securities markets and participants in those markets; controls on
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Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
non-U.S. investment, capital controls and limitations on repatriation of invested capital, dividends, interest and other income and on a Fund’s 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. Currency risk is the risk that fluctuations in exchange rates will adversely affect the market value of a Fund’s investments. Currency risk includes the risk that the non-U.S. currencies in which a Fund’s investments are traded, in which a Fund receives income, or in which a Fund has taken a position, will decline in value relative to the U.S. Dollar. Currency risk also includes the risk that the currency to which the Fund has obtained exposure through hedging declines in value relative to the currency being hedged, in which event the Fund may realize a loss both on the hedging instrument and 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 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.
Many of the Funds use derivatives to take overweighted or underweighted currency positions relative to the currency exposure of their portfolios. As a result, their currency exposure may differ (in some cases significantly) from the currency exposure of their benchmarks. If the exchange rates of the currencies involved do not move as expected, a Fund could lose money both on its holdings of a particular currency and on the derivative. See also “Non-U.S. Investment Risk” above.
Some currencies are illiquid (e.g., some emerging country currencies), and a Fund may not be able to convert them into U.S. Dollars, in which case the Manager may decide to purchase U.S. Dollars in a parallel market in which 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 non-U.S. 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).
• FOCUSED INVESTMENT RISK. Funds whose investments are focused in particular countries, regions, sectors, companies or industries with high positive correlations to one another (e.g., different industries within broad sectors, such as technology or financial services), or in securities from issuers with high positive correlations to one another (such as U.S. Treasury Fund’s investments in securities issued by the U.S. Treasury and other fixed income securities that are backed by the full faith and credit of the U.S. government), 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 price of a particular security held by the Fund is likely to affect the Fund’s performance more than if the Fund invested in the securities of a larger number of issuers.
A Fund that 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, 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.
Similarly, Funds having a significant portion of their assets in investments tied economically to (or related to) a particular geographic region, non-U.S. country (e.g., Taiwan or Japan) or particular market (e.g., emerging markets) have more exposure to regional and country economic risks than funds making non-U.S. investments throughout the world. The political and economic prospects of one country or group of countries within the same geographic region may affect other countries in that region, and a recession, debt crisis or decline in currency valuation in one country can spread to other countries. Furthermore, companies in a particular geographic region or country are vulnerable to events affecting other companies in that region or country because they often share common characteristics, are exposed to similar business risks and regulatory burdens, and react similarly to specific economic, market, political or other developments. See also “Non-U.S. Investment Risk” above.
• LEVERAGING RISK. The use of reverse repurchase agreements and other derivatives and securities lending creates leverage (i.e., a Fund’s investment exposures exceed its net asset value). Leverage increases a Fund’s losses when the value of its investments (including derivatives) declines. Because many derivatives have a leverage component (i.e., a notional value in excess of the assets needed to establish 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. A Fund’s use of reverse repurchase agreements also subjects it to interest costs based on the difference between the sale and repurchase price of the security involved. A Fund’s portfolio also will be leveraged if it borrows money to meet redemption requests or settle investment transactions or if it exercises its right to delay payment on a redemption.
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Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
A 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, a Fund may perform as if it were leveraged.
• COUNTERPARTY RISK. Funds that enter into contracts with counterparties, such as repurchase or reverse repurchase agreements or OTC derivatives contracts, or that lend their securities run the risk that the counterparty 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. The Funds are not subject to any limits on their exposure to any one counterparty nor to a requirement that counterparties maintain a specific rating by a nationally recognized rating organization to be considered for potential transactions. To the extent that GMO’s view with respect to a particular counterparty changes (whether due to external events or otherwise), existing transactions are not required to be terminated or modified. Additionally, new transactions may be entered into with a counterparty that is no longer considered eligible if the transaction is primarily designed to reduce the overall risk of potential exposure to that counterparty (for example, re-establishing the transaction with a lesser notional amount). Counterparty risk is pronounced during unusually adverse market conditions and is particularly acute in environments (like those of 2008) in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers 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 a Fund to greater counterparty risk than exchange-traded derivatives. A Fund is subject to the risk that a counterparty will not settle a derivative in accordance with its terms because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem. If a counterparty’s obligation to a Fund is not collateralized, then the Fund is essentially an unsecured creditor of the counterparty. If a counterparty defaults, the Fund will have contractual remedies, but the Fund may be unable to enforce them, thus causing the Fund to suffer a loss. Counterparty risk is greater for derivatives with longer maturities because of the longer time that events may occur that prevent settlement. Counterparty risk also is 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. Significant exposure to a single counterparty increases a Fund’s counterparty risk. Funds that use swap contracts are subject, in particular, to the creditworthiness of the counterparties because some types of swap contracts have durations longer than six months (and, in some cases, decades). The creditworthiness of a counterparty may be adversely affected by greater than average volatility in the markets, even if the counterparty’s net market exposure is small relative to its capital. Counterparty risk still exists even if a counterparty’s obligations are secured by collateral because the Fund’s interest in the collateral may not be perfected or additional collateral may not be promptly posted as required.
The Funds also are subject to counterparty risk because they execute their 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 Funds could miss investment opportunities or be unable to dispose of investments they would prefer to sell, resulting in losses for the Funds.
Counterparty risk with respect to derivatives will be affected by new rules and regulations affecting the derivatives market. As described under “Derivatives Risk” above, some derivatives transactions are required to be centrally cleared, and a party to a cleared derivatives transaction is subject to the credit risk of the clearing house and the clearing member through which it holds its cleared position, rather than the credit risk of its original counterparty to the derivatives transaction. Credit risk of market participants with respect to derivatives that are centrally cleared is concentrated in a few clearing houses, and it is not clear how an insolvency proceeding of a clearing house would be conducted and what impact an insolvency of a clearing house would have on the financial system. A clearing member is obligated by contract and by applicable regulation to segregate all funds received from customers with respect to cleared derivatives transactions from the clearing member’s proprietary assets. However, all funds and other property received by a clearing member from its customers with respect to cleared derivatives are generally held by the clearing member on a commingled basis in an omnibus account, and the clearing member may invest those funds in certain instruments permitted under the applicable regulations. Therefore, a Fund might not be fully protected in the event of the bankruptcy of a Fund’s clearing member because the Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the clearing member’s customers for a relevant account class. Also, the clearing member is required to transfer to the clearing house the amount of margin required by the clearing house for cleared derivatives, which amounts are generally held in an omnibus account at the clearing house for all customers of the clearing member. Regulations promulgated by the Commodities Futures Trading Commission require that the clearing member notify the clearing house of the initial margin provided by the clearing member to the clearing house that is attributable to each customer. However, if the clearing member does not accurately report the Funds’ initial margin, the Funds are subject to the risk that a clearing house will use a Fund’s assets held in an omnibus account at the clearing house to satisfy payment obligations of a defaulting customer of the clearing member to the clearing house. In addition, clearing members generally provide the clearing house the net amount of variation margin required for cleared swaps for all of its customers in the aggregate, rather than individually for each customer. The Funds are therefore subject to the risk that a clearing house will not make variation margin payments owed to a Fund if another customer of the clearing member has suffered a loss and is in default, and the risk that a Fund will be required to provide additional variation margin to the clearing house before the clearing house will move the Fund’s cleared derivatives transactions to another clearing member. In addition, if a clearing member does not comply with the applicable regulations or its agreement with the Funds, or in the event of fraud or misappropriation of customer assets by a clearing member, a Fund could have only an unsecured creditor claim in an insolvency of the clearing member with respect to the margin held by the clearing member.
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August 31, 2013 (Unaudited)
• MARKET DISRUPTION AND GEOPOLITICAL RISK. The Funds are subject to the risk that geopolitical and other events will disrupt securities markets, adversely affect global economies and markets and thereby decrease the value of the Funds’ investments. 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. Securities markets may be susceptible to market manipulation (e.g., the potential manipulation of the London Interbank Offered Rate (LIBOR)) or other fraudulent trade practices, which could disrupt the orderly functioning of these markets or adversely affect the value of investments traded in these markets, including investments of the Funds. While the U.S. government has honored its credit obligations continuously for the last 200 years, it remains possible that the U.S. could default on its obligations. While it is impossible to predict the consequences of such an unprecedented event, it is likely that a default by the U.S. would be highly disruptive to the U.S. and global securities markets and could significantly impair the value of the Funds’ investments. Similarly, political events within the U.S. at times have resulted, and may in the future result, in a shutdown of government services, which could negatively affect the U.S. economy, decrease the value of many Fund investments, and increase uncertainty in or impair the operation of the U.S. or other securities markets. The uncertainty surrounding the sovereign debt of a significant number of European Union countries as well as the continued existence of the European Union itself, have disrupted and may continue to disrupt markets in the U.S. and around the world. If one or more countries leave the European Union or the European Union dissolves, the world’s securities markets likely will be significantly disrupted. Substantial government interventions (e.g., currency controls) also could negatively impact the Funds. War, terrorism, economic uncertainty, 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, adversely affecting individual companies and industries, 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 “Investment and other risks” section will likely increase. Market disruptions, including sudden government interventions, can also prevent the Funds from implementing their investment programs for a period of time and achieving their investment objectives. For example, a market disruption may adversely affect the orderly functioning of the securities markets and may cause the Funds’ derivatives counterparties to discontinue offering derivatives on some underlying commodities, securities, reference rates, or indices, or to offer them on a more limited basis. To the extent that a Fund has focused its investments in the stock index of a particular region, adverse geopolitical and other events could have a disproportionate impact on the Fund.
• LARGE SHAREHOLDER RISK. To the extent that a large number of shares of a Fund is held by a single shareholder (e.g., an institutional investor or another GMO Fund) or a group of shareholders with a common investment strategy (e.g., GMO asset allocation accounts), the Fund is subject to the risk that a redemption by those shareholders of all or a large portion of their Fund shares will adversely affect the Fund’s performance if it is forced to sell portfolio securities to raise the cash needed to satisfy the redemption request. In addition, GMO Funds and other accounts over which GMO has investment discretion that invest in the Funds are not subject to restrictions on the frequency of trading of Fund shares. Asset Allocation Funds and separate accounts managed by the Manager for its clients hold substantial percentages of the shares of many Funds, and asset allocation decisions by the Manager may result in substantial redemptions from (or investments in) those Funds. These transactions may adversely affect the Fund’s performance to the extent that the Fund is required to sell investments (or invest cash) at times when it would not otherwise do so. Redemptions of a large number of shares also may increase transaction costs or, by necessitating a sale of portfolio securities, accelerate the realization of taxable income to shareholders. They also potentially limit the use of any capital loss carryforwards and certain other losses to offset future realized capital gains (if any). In addition, each Fund that invests in other GMO Funds subject to large shareholder risk is indirectly subject to this risk.
• MANAGEMENT AND OPERATIONAL RISK. Each Fund is subject to management risk because it relies on the Manager’s ability to achieve its investment objective. Each Fund runs the risk that the Manager’s investment techniques will fail to produce desired results and cause the Fund to incur significant losses. The Manager also may fail to use derivatives effectively, choosing to hedge or not to hedge positions at disadvantageous times.
For some Funds the Manager’s portfolio managers use quantitative analyses and models. Any imperfections, errors, or limitations in those analyses and models could affect the ability of the portfolio managers to implement a Fund’s strategies. By necessity, these analyses and models make simplifying assumptions that limit their effectiveness. Models that appear to explain prior market data can fail to predict future market events. Further, the data used in models may be inaccurate or may not include the most recent information about a company or a security. The Funds also run the risk that GMO’s assessment of an investment may be wrong. There can be no assurance that key personnel of the Manager will continue to be employed by the Manager. The loss of their services could have an adverse impact on the Manager’s ability to achieve the Funds’ investment objectives.
The Funds also are subject to the risk of loss as a result of other services provided by the Manager and other service providers, including pricing, administrative, accounting, tax, legal, custody, transfer agency, and other services. Operational risk includes the possibility of loss caused by 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 a Fund from benefiting from potential investment gains or avoiding losses on the security. The Manager is not
| 33 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
contractually liable to the Funds for losses associated with operational risk absent the Manager’s willful misfeasance, bad faith, gross negligence, or reckless disregard of its contractual obligations to provide services to the Funds. Other Fund service providers also have limitations on their liability to the Funds for losses resulting from their errors.
• NON-DIVERSIFIED FUNDS. Some of the Funds are not “diversified” investment companies within the meaning of the 1940 Act. This means they are allowed to invest in the securities of a relatively small number of issuers and/or non-U.S. currencies. As a result, they may be subject to greater credit, market and other risks, and poor performance by a single issuer may have a greater impact on their performance, than if they were “diversified.”
The following Funds are not diversified investment companies under the 1940 Act.
| • | Foreign Fund |
| • | Global Focused Equity Fund |
Temporary Defensive Positions.
Foreign Fund and Foreign Small Companies Fund normally do not take temporary defensive positions. Global Focused Equity Fund may hold up to 20% of its assets in cash or cash equivalents. To the extent a Fund takes a temporary defensive position, or otherwise holds cash, cash equivalents, or high quality debt investments on a temporary basis, it may not achieve its investment objective.
| 4. | Derivative financial instruments |
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 a Fund’s portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and related indices, and include foreign currency contracts, swap contracts, reverse repurchase agreements, and other exchange-traded and OTC contracts.
The Funds may 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 Fund’s portfolio) in combination with a long futures contract on another index (to synthetically “buy” exposure to that index). In adjusting their investment exposure, 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.
The Funds may have investment exposures in excess of their net assets (i.e., they may be leveraged). A Fund’s foreign currency exposure may differ significantly from the currency exposure represented by its investments.
Certain derivatives transactions used by the Funds, including certain interest rate swaps and certain credit default index swaps, are required to be transacted through a central clearing organization. The Funds hold cleared derivatives transactions through clearing members, who are members of derivatives clearing houses. In contrast to bilateral derivatives transactions, following a period of advance notice to the Fund, clearing members generally can require termination of existing cleared derivatives transactions at any time and increases in margin above the margin that it required at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions and to terminate transactions. Any such increase or termination could interfere with the ability of a Fund to pursue its investment strategy. Also, a Fund is subject to execution risk if it enters into a derivatives transaction that is required to be cleared (or that the Manager expects to be cleared), and no clearing member is willing or able to clear the transaction on the Fund’s behalf. In that case, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of any increase in the value of the transaction after the time of the transaction.
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. See “Investment and other risks” above for further information.
| 34 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
For Funds that held derivatives during the period ended August 31, 2013, the following table shows how the Fund used these derivatives (marked with an X):
| Type of Derivative and Objective for Use | Foreign Fund |
Foreign Small Companies Fund |
Global Focused Equity Fund |
|||||||||
| Forward currency contracts | ||||||||||||
| To manage against anticipated currency exchange rate changes |
X | X | ||||||||||
| Rights and/or warrants | ||||||||||||
| Received as a result of corporate actions |
X | X | X | |||||||||
Forward currency contracts
The Funds may enter into forward currency contracts, including forward cross currency contracts. A forward currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date (or to pay or receive the amount of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund’s forward currency contracts is marked-to-market daily using rates supplied by a quotation service and changes in value are recorded by each Fund as unrealized gains or losses. Realized gains or losses on the contracts are equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose a Fund to the market risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. Most forward currency contracts are not collateralized. Forward currency contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Futures contracts
The Funds may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price at a specified time in the future. Some futures contracts are net (cash) settled. Upon entering into a futures contract, a Fund is required to deposit cash, U.S. government and agency obligations or other liquid assets with the futures clearing broker in accordance with the initial margin requirements of the broker or exchange. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded (and if the futures are traded outside the U.S. and the market for such futures is closed prior to the close of NYSE due to time zone differences, the values will be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees to reflect estimated valuation changes through the NYSE close). The value of each of the Fund’s futures contracts is marked-to-market daily and an appropriate payable or receivable for the change in value (“variation margin”) is recorded by each Fund. The payable or receivable is settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statements of Assets and Liabilities. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day’s settlement price, thereby effectively preventing liquidation of unfavorable positions. Futures contracts expose the Funds to the risk that they may not be able to enter into a closing transaction due to an illiquid market. Futures contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Options
The Funds may purchase call and put options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options a Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset at a set price to the writer of the option. A Fund pays a premium for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently reflected in the marked-to-market value of the option. The potential loss associated with purchasing put and call options is limited to the premium paid. Purchased option contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
The Funds may write (i.e., sell) call and put options on futures, swaps (“swaptions”), securities or currencies they own or in which they may invest. Writing options alters a Fund’s exposure to the underlying asset by, in the case of a call option, obligating that Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating that Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g., index options), settlement will be in cash, based on a formula price. When a Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, a Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that a Fund writes call options without an offsetting
| 35 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
exposure (e.g., call options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. OTC options expose a Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. Written option contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
When an option contract is closed, that Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction in the cost of investments purchased. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statements of Operations.
Exchange-traded 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 (and if the underlying reference security closes or the official closing time of the underlying index occurs prior to the close of the NYSE due to time zone differences, the values will be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees to reflect estimated valuation changes through the NYSE close). The Funds value OTC options using inputs provided by primary pricing sources and industry models.
Swap contracts
The Funds may enter into various types of swap contracts, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap contract is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap contract and during the term of the transaction, a Fund and/or the swap counterparty may post or receive cash or securities as collateral.
Initial upfront payments received or made upon entering into a swap contract are included in the fair market value of the swap. The Funds do not amortize upfront payments. Net periodic payments made or received to compensate for differences between the stated terms of the swap contract and prevailing market conditions (credit spreads, currency exchange rates, interest rates, and other relevant factors) are recorded as realized gains or losses on the Statements of Operations. A liquidation payment received or made at the termination of the swap contract is recorded as realized gain or loss in the Statements of Operations.
Interest rate swap contracts involve an exchange by the parties of their respective commitments to pay or right to receive interest (e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal).
Total return swap contracts involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security, basket of securities, or futures contract), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.
In a credit default swap contract, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g., default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives periodic payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations so long as there is no early termination.
For credit default swap contracts on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer’s failure to pay interest or principal on a reference security, 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 contracts on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer’s bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.
Variance swap contracts 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 payable 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 be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to make a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would
| 36 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
be entitled to 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.
Generally, the Funds price their OTC swap contracts daily using industry standard models that may incorporate quotations from market makers or pricing vendors and record the change in value, if any, as unrealized gain or loss in the Statements of Operations. Gains or losses are realized upon termination of the swap contracts or reset dates, as appropriate. Cleared swap contracts are valued using the quote (which may be based on a model) published by the relevant clearing house. If an updated quote for a cleared swap contract is not available by the time that a Fund calculates its net asset value on any business day, then that swap contract will generally be valued using an industry standard model, which may differ from the model used by the relevant clearing house.
The values assigned to swap contracts may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap contracts involves counterparty credit, legal, and documentation risk that is generally not reflected in the value assigned to the swap contract. Such risks include the possibility that the counterparty defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that a Fund has amounts on deposit in excess of amounts owed by that Fund, or that any collateral the other party posts is insufficient or not timely received by a Fund. Credit risk is particularly acute in economic environments 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. Swap contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Rights and warrants
The Funds 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 set price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in the section entitled “Options” above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. However, warrants and rights often do not have standardized terms, and may have longer maturities and may be less liquid than exchange-traded options. In addition, the terms of warrants or rights may limit a Fund’s ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. Rights and/or warrants outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
As provided by U.S. GAAP, the table below is based on market values or unrealized appreciation/(depreciation) rather than the notional amounts of derivatives. Changes to market values of reference asset(s) will tend to have a greater impact on the Funds (with correspondingly greater risk) the greater the notional amount. For further information on notional amounts, see the Schedule of Investments.
The following is a summary of the valuations of derivative instruments categorized by risk exposure:
The Effect of Derivative Instruments on the Statements of Assets and Liabilities as of August 31, 2013 and the Statements of Operations for the period ended August 31, 2013^:
| |
Credit Contracts |
|
|
Equity Contracts |
|
|
Foreign Currency Contracts |
|
|
Interest Rate Contracts |
|
|
Other Contracts |
|
Total | |||||||||
| Foreign Fund |
||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||
| Investments, at value (rights and/or warrants) |
$ | — | $ | 73 | $ | — | $ | — | $ | — | $ | 73 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 73 | $ | — | $ | — | $ | — | $ | 73 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | 73 | $ | — | $ | — | $ | — | $ | 73 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | (54,473 | ) | $ | — | $ | — | $ | — | $ | (54,473 | ) | ||||||||||
| Forward Currency Contracts |
— | — | 173,391 | — | — | 173,391 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (54,473 | ) | $ | 173,391 | $ | — | $ | — | $ | 118,918 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Change in Net Unrealized Appreciation (Depreciation): |
||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | (162 | ) | $ | — | $ | — | $ | — | $ | (162 | ) | ||||||||||
| Forward Currency Contracts |
— | — | 27,294 | — | — | 27,294 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (162 | ) | $ | 27,294 | $ | — | $ | — | $ | 27,132 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 37 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| |
Credit Contracts |
|
|
Equity Contracts |
|
|
Foreign Currency Contracts |
|
|
Interest Rate Contracts |
|
|
Other Contracts |
|
Total | |||||||||
| Foreign Small Companies Fund |
||||||||||||||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||
| Forward Currency Contracts |
$ | — | $ | — | $ | 279,027 | $ | — | $ | — | $ | 279,027 | ||||||||||||
| Investments (rights and/or warrants) |
— | (1,850,169 | ) | — | — | — | (1,850,169 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (1,850,169 | ) | $ | 279,027 | $ | — | $ | — | $ | (1,571,142 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Change in Net Unrealized Appreciation (Depreciation): |
||||||||||||||||||||||||
| Forward Currency Contracts |
$ | — | $ | — | $ | 43,922 | $ | — | $ | — | $ | 43,922 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | — | $ | 43,922 | $ | — | $ | — | $ | 43,922 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Global Focused Equity Fund |
||||||||||||||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | 0 | * | $ | — | $ | — | $ | — | $ | 0 | * | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The risks referenced in the tables above are not intended to be inclusive of all risks. Please see the “Investment and other risks” and “Portfolio valuation” sections for a further discussion of risks.
| * | Rounds to $0. |
| ^ | Because the Funds recognize changes in value through the Statements of Operations, they do not qualify for hedge accounting under authoritative guidance for derivative instruments. The Funds’ investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables. |
The average derivative activity, based on absolute values (forward currency contracts and rights and/or warrants) outstanding at each month-end, was as follows for the period ended August 31, 2013.
| Fund Name | Forward Currency Contracts ($) |
Rights and/or Warrants ($) |
||||||
| Foreign Fund |
4,079,162 | 49,344 | ||||||
| Foreign Small Companies Fund |
6,564,305 | 44,262 | * | |||||
| Global Focused Equity Fund |
— | 1,079 | * | |||||
| * | During the period ended August 31, 2013, the Fund did not hold this investment type at any month-end, therefore, the average amount outstanding was calculated using daily outstanding absolute values. |
| 5. | Fees and other transactions with affiliates |
GMO receives a management fee for the services it provides to each Fund. That fee, if any, is paid monthly at the annual rate equal to the percentage of each Fund’s average daily net assets set forth in the table below:
| Foreign Fund |
Foreign Small Companies Fund |
Global Focused Equity Fund |
||||||||||
| Management Fee |
0.60% | 0.70% | 0.60% | |||||||||
In addition, each class of shares of certain Funds 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. Shareholder service fees are paid monthly equal to the percentage of each applicable Fund’s average daily net assets set forth in the table below:
| Fund Name | Class II | Class III | Class IV | |||||||||
| Foreign Fund |
0.22% | 0.15% | 0.09% | |||||||||
| Foreign Small Companies Fund |
0.15% | 0.10% | ||||||||||
| Global Focused Equity Fund |
0.15% | 0.10% | * | |||||||||
| * | Class is offered but has no shareholders as of August 31, 2013. |
| 38 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
For each Fund, the Manager has contractually agreed to reimburse the Fund for its “Specified Operating Expenses” (as defined below). Any such reimbursements are paid to a Fund concurrently with the Fund’s payment of management fees to the Manager.
“Specified Operating Expenses” means only the following expenses to the extent that they are borne by a Fund: audit expenses, fund accounting expenses, pricing service expenses, expenses of non-investment related tax services, transfer agency expenses, expenses of non-investment related legal services provided to the Funds by or at the direction of the Manager, federal securities law filing expenses, printing expenses, state and federal registration fees and custody expenses.
For each Fund that charges a management fee, the Manager will waive and/or reduce the Fund’s management fee, but not below zero, to the extent necessary to offset the management fees directly or indirectly paid by the Fund to the Manager as a result of the Fund’s direct or indirect investments in other GMO Funds.
For each Fund that charges a shareholder service fee, the Manager will waive and/or reduce the shareholder service fee charged by each class of shares of the Fund, but not below zero, to the extent necessary to offset the shareholder service fees directly or indirectly paid by the class of shares of the Fund to the Manager as a result of the Fund’s direct or indirect investments in other GMO Funds.
These contractual waivers and reimbursements will continue through at least June 30, 2014 for each Fund unless the Funds’ Board of Trustees authorizes their modification or termination, or reduces the fee rates paid to the Manager under the Fund’s management contract or servicing and supplement support agreement.
The Funds’ portion of the gross fees paid by the Trust to the Trust’s independent Trustees and their legal counsel and any agents unaffiliated with the Manager during the period ended August 31, 2013 is shown in the table below and included in the Statements of Operations.
| Fund Name | Independent Trustees and their legal counsel ($) |
Agents unaffiliated with the Manager ($) |
||||||
| Foreign Fund |
2,392 | 368 | ||||||
| Foreign Small Companies Fund |
4,211 | 552 | ||||||
| Global Focused Equity Fund |
31 | 5 | ||||||
Certain Funds incur fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2013, these indirect fees and expenses expressed as an annualized percentage of each Fund’s average daily net assets were as follows:
| Fund Name | Indirect Net Expenses (excluding shareholder service fees) |
Indirect Shareholder Service Fees |
Total Indirect Expenses | |||||||||
| Foreign Fund |
< 0.001% | 0.000% | < 0.001% | |||||||||
| Foreign Small Companies Fund |
< 0.001% | 0.000% | < 0.001% | |||||||||
| Global Focused Equity Fund |
< 0.001% | 0.000% | < 0.001% | |||||||||
| 6. | Purchases and sales of securities |
Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2013 are noted in the table below:
| Purchases ($) | Purchases ($) | Sales ($) | Sales ($) | |||||||||||||
| Fund Name | U.S. Government Securities |
Investments (Non-U.S. Government Securities) |
U.S. Government Securities |
Investments (Non-U.S. Government Securities) |
||||||||||||
| Foreign Fund |
— | 199,493,691 | — | 335,113,151 | ||||||||||||
| Foreign Small Companies Fund |
— | 277,754,206 | — | 211,693,994 | ||||||||||||
| Global Focused Equity Fund |
— | 6,273,278 | — | 6,375,847 | ||||||||||||
| 39 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| 7. | Guarantees |
In the normal course of business the Funds enter into contracts with third-party service providers that contain a variety of representations and warranties and that provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown, as it involves possible future claims that may or may not be made against the Funds. Based on experience, the Manager is of the view that the risk of loss to the Funds in connection with the Funds’ indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Funds.
| 8. | Principal shareholders and related parties as of August 31, 2013 |
| Fund Name | Number of shareholders that held more than 10% of the outstanding shares of the Fund |
Percentage of outstanding shares of the Fund held by those shareholders owning greater than 10% of the outstanding shares of the Fund |
Percentage of the shares of the Fund held by senior management of the Manager and GMO Trust officers |
Percentage of the Fund’s shares held by accounts for which the Manager has investment discretion |
||||||||||||
| Foreign Fund |
2 | 29.94% | 0.14% | 0.74% | ||||||||||||
| Foreign Small Companies Fund |
4 | 72.15% | 0.05% | — | ||||||||||||
| Global Focused Equity Fund |
3 | 78.03% | 92.25% | — | ||||||||||||
| 9. | Share transactions |
The Declaration of Trust permits each Fund to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Funds’ shares were as follows:
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Foreign Fund |
||||||||||||||||
| Class II: |
||||||||||||||||
| Shares sold |
147,155 | $ | 1,778,452 | 2,299,470 | $ | 24,402,935 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
76,345 | 908,508 | 449,055 | 4,876,994 | ||||||||||||
| Shares repurchased |
(5,814,703 | ) | (68,818,882 | ) | (7,118,690 | ) | (75,106,677 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(5,591,203 | ) | $ | (66,131,922 | ) | (4,370,165 | ) | $ | (45,826,748 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class III: |
||||||||||||||||
| Shares sold |
586,628 | $ | 6,968,482 | 2,281,734 | $ | 25,000,634 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
100,623 | 1,204,459 | 555,602 | 6,055,606 | ||||||||||||
| Shares repurchased |
(6,033,649 | ) | (73,392,897 | ) | (19,517,218 | ) | (218,802,310 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(5,346,398 | ) | $ | (65,219,956 | ) | (16,679,882 | ) | $ | (187,746,070 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV: |
||||||||||||||||
| Shares sold |
983 | $ | 12,700 | 469,631 | $ | 5,307,410 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
15,469 | 189,649 | 922,716 | 10,369,630 | ||||||||||||
| Shares repurchased |
(1,884,663 | ) | (22,871,380 | ) | (27,831,031 | ) | (322,626,125 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(1,868,211 | ) | $ | (22,669,031 | ) | (26,438,684 | ) | $ | (306,949,085 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 40 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Foreign Small Companies Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
2,227,038 | $ | 33,568,616 | 9,304,269 | $ | 124,236,252 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
160,792 | 2,423,138 | 222,312 | 3,014,051 | ||||||||||||
| Shares repurchased |
(694 | ) | (10,155 | ) | (25,098,581 | ) | (335,340,334 | ) | ||||||||
| Purchase premiums |
— | 70,330 | — | 562,384 | ||||||||||||
| Redemption fees |
— | 857 | — | 5,116 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
2,387,136 | $ | 36,052,786 | (15,572,000 | ) | $ | (207,522,531 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV: |
||||||||||||||||
| Shares sold |
784 | $ | 12,481 | 26,920,343 | $ | 358,520,424 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
184,154 | 2,771,523 | 370,030 | 5,054,564 | ||||||||||||
| Shares repurchased |
(28,827 | ) | (417,881 | ) | (6,877 | ) | (95,287 | ) | ||||||||
| Purchase premiums |
— | 98,420 | — | 183,641 | ||||||||||||
| Redemption fees |
— | 1,283 | — | 132 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
156,111 | $ | 2,465,826 | 27,283,496 | $ | 363,663,474 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Global Focused Equity Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
4,891 | $ | 124,296 | 149,149 | $ | 3,219,483 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
17,219 | 413,590 | 8,097 | 172,149 | ||||||||||||
| Shares repurchased |
(22,321 | ) | (548,874 | ) | (46 | ) | (1,094 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(211 | ) | $ | (10,988 | ) | 157,200 | $ | 3,390,538 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 41 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| 10. | Investments in affiliated issuers |
A summary of the Funds’ transactions in the shares of other funds of the Trust during the period ended August 31, 2013 is set forth below:
| Affiliate | Value, beginning of period |
Purchases | Sales Proceeds |
Dividend Income* |
Distributions of Realized Gains* |
Value, end of period |
||||||||||||||||||
| Foreign Fund |
||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 8,180,610 | $ | 33,817,894 | $ | (34,558,117 | ) | $ | 2,726 | $ | 201 | $ | 7,440,422 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Foreign Small Companies Fund |
||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 20,131,383 | $ | 55,125,355 | $ | (43,330,673 | ) | $ | 6,919 | $ | 1,081 | $ | 31,931,352 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Global Focused Equity Fund |
||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 270,041 | $ | 1,123,257 | $ | (952,810 | ) | $ | 136 | $ | 18 | $ | 440,597 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| * | The table above includes estimated sources of all distributions paid by the underlying funds during the period March 1, 2013 through August 31, 2013. The actual tax characterization of distributions paid by the underlying funds will be determined at the end of the fiscal year ending February 28, 2014. |
| 42 |
GMO Trust Funds
Board Review of Management Agreement
August 31, 2013 (Unaudited)
Foreign Fund
Approval of renewal of management agreement for GMO Foreign Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 43 |
GMO Trust Funds
Board Review of Management Agreement — (Continued)
August 31, 2013 (Unaudited)
Foreign Small Companies Fund
Approval of renewal of management agreement for GMO Foreign Small Companies Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 44 |
GMO Trust Funds
Board Review of Management Agreement — (Continued)
August 31, 2013 (Unaudited)
Global Focused Equity Fund
Approval of renewal of management agreement for GMO Global Focused Equity Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 45 |
GMO Trust Funds
(A Series of GMO Trust)
August 31, 2013 (Unaudited)
Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2013.
As a shareholder of the Funds, you may incur two types of costs: (1) transactions costs, including purchase premium and redemption fees, if applicable; and (2) ongoing costs, including direct and/or indirect management fees, direct and/or indirect shareholder services fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in Dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2013 through August 31, 2013.
Actual Expenses
This section of the table for each class below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
This section of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Funds’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premiums and redemption fees. Therefore, this section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Actual | Hypothetical |
|
||||||||||||||||||||||||||
| Beginning Account Value March 1, 2013 |
Ending Account Value August 31, 2013 |
Expenses Paid* During the Period |
Beginning Account Value March 1, 2013 |
Ending Account Value August 31, 2013 |
Expenses Paid* During the Period |
Annualized Net Expense Ratio |
||||||||||||||||||||||
| Foreign Fund |
|
|||||||||||||||||||||||||||
| Class II |
$1,000.00 | $1,040.20 | $4.27 | $1,000.00 | $1,021.02 | $4.23 | 0.83% | |||||||||||||||||||||
| Class III |
$1,000.00 | $1,040.20 | $3.91 | $1,000.00 | $1,021.37 | $3.87 | 0.76% | |||||||||||||||||||||
| Class IV |
$1,000.00 | $1,041.20 | $3.60 | $1,000.00 | $1,021.68 | $3.57 | 0.70% | |||||||||||||||||||||
| Foreign Small Companies Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,076.60 | $4.45 | $1,000.00 | $1,020.92 | $4.33 | 0.85% | |||||||||||||||||||||
| Class IV |
$1,000.00 | $1,077.50 | $4.19 | $1,000.00 | $1,021.17 | $4.08 | 0.80% | |||||||||||||||||||||
| Global Focused Equity Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,096.20 | $4.12 | $1,000.00 | $1,021.27 | $3.97 | 0.78% | |||||||||||||||||||||
| * | Expenses are calculated using each Class’s annualized net expense ratio for the six months ended August 31, 2013, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year. |
| 46 |
GMO Trust
Semiannual Report
August 31, 2013
Currency Hedged International Equity Fund
Developed World Stock Fund
International Core Equity Fund
International Growth Equity Fund
International Intrinsic Value Fund
International Small Companies Fund
Resources Fund
Risk Premium Fund
Tax-Managed International Equities Fund
For a free copy of the Funds’ proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) or visit the Securities and Exchange Commission’s website at www.sec.gov. 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 GMO’s website at www.gmo.com, or on the Securities and Exchange Commission’s website at www.sec.gov.
The Funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission’s website at www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Funds have a policy with respect to disclosure of portfolio holdings under which they may also make available on GMO’s website at www.gmo.com a complete schedule of portfolio holdings.
This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in these Funds and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.
| 1 | ||||
| 2 | ||||
| 3 | ||||
| 4 | ||||
| 10 | ||||
| 11 | ||||
| 17 | ||||
| 18 | ||||
| 25 | ||||
| 26 | ||||
| 32 | ||||
| 33 | ||||
| 40 | ||||
| 41 | ||||
| 44 | ||||
| 45 | ||||
| 46 | ||||
| 47 | ||||
| Portfolio Abbreviations, Counterparty and Currency Abbreviations |
53 | |||
| 54 | ||||
| 58 | ||||
| 60 | ||||
| 65 | ||||
| 74 | ||||
| 125 | ||||
| 133 |
GMO Currency Hedged International Equity Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 1 |
GMO Currency Hedged International Equity Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 2 | See accompanying notes to the financial statements. |
GMO Developed World Stock Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 3 |
GMO Developed World Stock Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 4 | See accompanying notes to the financial statements. |
GMO Developed World Stock Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 5 |
GMO Developed World Stock Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 6 | See accompanying notes to the financial statements. |
GMO Developed World Stock Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 7 |
GMO Developed World Stock Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 8 | See accompanying notes to the financial statements. |
GMO Developed World Stock Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 9 |
GMO International Core Equity Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 10 |
GMO International Core Equity Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 11 |
GMO International Core Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 12 | See accompanying notes to the financial statements. |
GMO International Core Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 13 |
GMO International Core Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 14 | See accompanying notes to the financial statements. |
GMO International Core Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 15 |
GMO International Core Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
| 16 | See accompanying notes to the financial statements. |
GMO International Growth Equity Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 17 |
GMO International Growth Equity Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 18 | See accompanying notes to the financial statements. |
GMO International Growth Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 19 |
GMO International Growth Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 20 | See accompanying notes to the financial statements. |
GMO International Growth Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 21 |
GMO International Growth Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 22 | See accompanying notes to the financial statements. |
GMO International Growth Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
A summary of outstanding financial instruments at August 31, 2013 is as follows:
Forward Currency Contracts
| See accompanying notes to the financial statements. | 23 |
GMO International Growth Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
As of August 31, 2013, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.
| 24 | See accompanying notes to the financial statements. |
GMO International Intrinsic Value Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 25 |
GMO International Intrinsic Value Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 26 | See accompanying notes to the financial statements. |
GMO International Intrinsic Value Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 27 |
GMO International Intrinsic Value Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 28 | See accompanying notes to the financial statements. |
GMO International Intrinsic Value Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 29 |
GMO International Intrinsic Value Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 30 | See accompanying notes to the financial statements. |
GMO International Intrinsic Value Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 31 |
GMO International Small Companies Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 32 |
GMO International Small Companies Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 33 |
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 34 | See accompanying notes to the financial statements. |
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 35 |
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 36 | See accompanying notes to the financial statements. |
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 37 |
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
A summary of outstanding financial instruments at August 31, 2013 is as follows:
Forward Currency Contracts
| 38 | See accompanying notes to the financial statements. |
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
As of August 31, 2013, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.
| See accompanying notes to the financial statements. | 39 |
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 40 |
GMO Resources Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 41 |
GMO Resources Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 42 | See accompanying notes to the financial statements. |
GMO Resources Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 43 |
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 44 |
GMO Risk Premium Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
A summary of outstanding financial instruments at August 31, 2013 is as follows:
Written Options
| Number of |
Expiration Date |
Description |
Premiums | Market Value |
||||||||||
| Put | 590 | 09/20/13 | EUR Euro STOXX 50, Strike 2,750 | $ | 384,628 | $ | (505,276 | ) | ||||||
| Put | 4,487 | 09/20/13 | EUR Euro STOXX 50, Strike 2,825 | 2,357,586 | (6,646,947 | ) | ||||||||
| Put | 604 | 09/20/13 | GBP FTSE 100, Strike 6,475 | 909,723 | (1,209,190 | ) | ||||||||
| Put | 268 | 09/27/13 | HKD Hang Seng, Strike 21,600 | 830,095 | (777,966 | ) | ||||||||
| Put | 695 | 09/13/13 | JPY Nikkei 225, Strike 13,625 | 2,865,046 | (3,617,968 | ) | ||||||||
| Put | 114 | 09/13/13 | JPY Nikkei 225, Strike 14,000 | 568,036 | (909,888 | ) | ||||||||
| Put | 7 | 09/21/13 | USD S&P 500, Strike 1,635 | 14,959 | (17,500 | ) | ||||||||
| Put | 1,427 | 09/21/13 | USD S&P 500, Strike 1,660 | 3,759,413 | (5,914,915 | ) | ||||||||
| Put | 174 | 09/20/13 | CAD S&P/TSX 60, Strike 720 | 22,262 | (13,133 | ) | ||||||||
| Put | 4,173 | 09/20/13 | CAD S&P/TSX 60, Strike 730 | 426,625 | (481,363 | ) | ||||||||
| Put | 65 | 09/19/13 | AUD SPI 200, Strike 5,075 | 75,322 | (32,430 | ) | ||||||||
| Put | 298 | 09/19/13 | AUD SPI 200, Strike 5,125 | 247,724 | (219,138 | ) | ||||||||
| Put | 622 | 09/19/13 | AUD SPI 200, Strike 5,150 | 553,579 | (515,441 | ) | ||||||||
|
|
|
|
|
|||||||||||
| $ | 13,014,998 | $ | (20,861,155 | ) | ||||||||||
|
|
|
|
|
|||||||||||
As of August 31, 2013, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.
| See accompanying notes to the financial statements. | 45 |
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 46 |
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 47 |
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 48 | See accompanying notes to the financial statements. |
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 49 |
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 50 | See accompanying notes to the financial statements. |
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 51 |
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
| 52 | See accompanying notes to the financial statements. |
GMO Trust Funds
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 53 |
Statements of Assets and Liabilities — August 31, 2013 (Unaudited)
| Currency Hedged International Equity Fund |
Developed World Stock Fund |
International Core Equity Fund |
International Growth Equity Fund |
International Intrinsic Value Fund |
||||||||||||||||
| Assets: |
|
|||||||||||||||||||
| Investments in unaffiliated issuers, at value (Note 2)(a) |
$ | 70,991,791 | $ | 370,653,051 | $ | 2,037,678,795 | $ | 1,886,824,798 | $ | 11,870,171,222 | ||||||||||
| Investments in affiliated issuers, at value (Notes 2 and 10)(b) |
2,341,789,978 | 11,480,665 | 42,281,429 | 49,161,461 | 88,307,524 | |||||||||||||||
| Foreign currency, at value (Note 2)(c) |
— | 317 | — | 885 | 702 | |||||||||||||||
| Receivable for investments sold |
— | — | 365,785 | 276,612 | 2,023,015 | |||||||||||||||
| Receivable for Fund shares sold |
— | — | 109,221 | 5,779 | 31,449 | |||||||||||||||
| Dividends and interest receivable |
— | 866,610 | 5,323,524 | 5,566,118 | 33,128,183 | |||||||||||||||
| Foreign taxes receivable |
— | 104,792 | 3,099,558 | 2,505,366 | 6,442,967 | |||||||||||||||
| Unrealized appreciation on open forward currency contracts (Note 4) |
8,108,168 | 533,372 | 3,553,947 | 2,906,925 | 13,463,792 | |||||||||||||||
| Receivable for foreign currency sold |
— | — | — | 66 | — | |||||||||||||||
| Due from broker (Note 2) |
— | 1,290,460 | 4,761,544 | 3,327,196 | 22,277,440 | |||||||||||||||
| Receivable for expenses reimbursed and/or waived by Manager (Note 5) |
1,253,324 | 35,495 | 202,523 | 120,156 | 331,328 | |||||||||||||||
| Miscellaneous receivable |
— | 588 | 2,395 | 2,141 | 5,402 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total assets |
2,422,143,261 | 384,965,350 | 2,097,378,721 | 1,950,697,503 | 12,036,183,024 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Liabilities: |
||||||||||||||||||||
| Foreign currency due to custodian |
— | — | 8,612 | — | — | |||||||||||||||
| Payable for investments purchased |
— | — | — | 289,884 | 808,717 | |||||||||||||||
| Payable for Fund shares repurchased |
909,858 | — | 260,625 | 5,999,293 | 3,339,327 | |||||||||||||||
| Accrued capital gain taxes payable (Note 2) |
— | — | — | 683 | 2,050 | |||||||||||||||
| Payable to affiliate for (Note 5): |
||||||||||||||||||||
| Management fee |
1,141,221 | 151,003 | 696,046 | 869,748 | 5,294,109 | |||||||||||||||
| Shareholder service fee |
317,006 | 40,125 | 190,214 | 170,318 | 1,044,357 | |||||||||||||||
| Payable for foreign currency purchased |
— | — | 1,613 | — | 6,184 | |||||||||||||||
| Payable for variation margin on open futures contracts (Note 4) |
— | 92,720 | 354,867 | 322,286 | 1,698,733 | |||||||||||||||
| Unrealized depreciation on open forward currency contracts (Note 4) |
7,014,069 | 141,428 | 1,548,245 | 1,444,269 | 2,353,257 | |||||||||||||||
| Payable to agents unaffiliated with the Manager |
279 | 62 | 589 | 279 | 1,240 | |||||||||||||||
| Payable to Trustees and related expenses |
2,627 | 360 | 9,736 | 2,903 | 7,260 | |||||||||||||||
| Accrued expenses |
218,846 | 141,611 | 800,865 | 385,190 | 1,036,086 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total liabilities |
9,603,906 | 567,309 | 3,871,412 | 9,484,853 | 15,591,320 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net assets |
$ | 2,412,539,355 | $ | 384,398,041 | $ | 2,093,507,309 | $ | 1,941,212,650 | $ | 12,020,591,704 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| (a) Cost of investments – unaffiliated issuers: |
$ | 70,991,791 | $ | 323,335,132 | $ | 1,889,784,409 | $ | 1,668,659,155 | $ | 11,162,689,099 | ||||||||||
| (b) Cost of investments – affiliated issuers: |
$ | 2,069,388,551 | $ | 11,483,965 | $ | 42,292,133 | $ | 49,169,894 | $ | 88,312,206 | ||||||||||
| (c) Cost of foreign currency: |
$ | — | $ | 317 | $ | — | $ | 886 | $ | 703 | ||||||||||
| 54 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Assets and Liabilities — August 31, 2013 (Unaudited) — (Continued)
| Currency Hedged International Equity Fund |
Developed World Stock Fund |
International Core Equity Fund |
International Growth Equity Fund |
International Intrinsic Value Fund |
||||||||||||||||
| Net assets consist of: |
||||||||||||||||||||
| Paid-in capital |
$ | 1,963,724,574 | $ | 418,978,197 | $ | 2,709,982,562 | $ | 1,969,975,956 | $ | 12,439,135,166 | ||||||||||
| Accumulated undistributed net investment income |
5,236,136 | 3,600,577 | 24,437,787 | 29,787,892 | 132,745,830 | |||||||||||||||
| Accumulated net realized gain (loss) |
170,083,268 | (85,841,290 | ) | (789,953,427 | ) | (277,663,450 | ) | (1,267,155,275 | ) | |||||||||||
| Net unrealized appreciation (depreciation) |
273,495,377 | 47,660,557 | 149,040,387 | 219,112,252 | 715,865,983 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| $ | 2,412,539,355 | $ | 384,398,041 | $ | 2,093,507,309 | $ | 1,941,212,650 | $ | 12,020,591,704 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net assets attributable to: |
||||||||||||||||||||
| Class II shares |
$ | — | $ | — | $ | — | $ | — | $ | 147,714,589 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class III shares |
$ | 2,412,539,355 | $ | 150,494,868 | $ | 558,892,146 | $ | 254,772,038 | $ | 1,400,704,518 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class IV shares |
$ | — | $ | 233,903,173 | $ | 1,403,860,545 | $ | 1,686,440,612 | $ | 10,472,172,597 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class VI shares |
$ | — | $ | — | $ | 130,754,618 | $ | — | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Shares outstanding: |
||||||||||||||||||||
| Class II |
— | — | — | — | 6,664,502 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class III |
98,373,226 | 7,195,886 | 18,447,696 | 9,673,074 | 62,506,418 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class IV |
— | 11,174,588 | 46,365,737 | 64,011,138 | 467,835,374 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class VI |
— | — | 4,323,801 | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value per share: |
||||||||||||||||||||
| Class II |
$ | — | $ | — | $ | — | $ | — | $ | 22.16 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class III |
$ | 24.52 | $ | 20.91 | $ | 30.30 | $ | 26.34 | $ | 22.41 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class IV |
$ | — | $ | 20.93 | $ | 30.28 | $ | 26.35 | $ | 22.38 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class VI |
$ | — | $ | — | $ | 30.24 | $ | — | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| See accompanying notes to the financial statements. | 55 |
GMO Trust Funds
Statements of Assets and Liabilities — August 31, 2013 (Unaudited) — (Continued)
| International Small Companies Fund |
Resources Fund |
Risk Premium Fund |
Tax-Managed International Equities Fund |
|||||||||||||
| Assets: |
|
|||||||||||||||
| Investments in unaffiliated issuers, at value (Note 2)(a) |
$ | 319,218,673 | $ | 187,962,623 | $ | 49,956,766 | $ | 474,761,904 | ||||||||
| Investments in affiliated issuers, at value (Notes 2 and 10)(b) |
8,131,457 | 3,156,914 | 278,253,028 | 5,931,149 | ||||||||||||
| Foreign currency, at value (Note 2)(c) |
230,183 | 62,721 | — | — | ||||||||||||
| Receivable for investments sold |
— | — | 2,203,989 | — | ||||||||||||
| Dividends receivable |
598,414 | 725,857 | 17,022 | 1,338,569 | ||||||||||||
| Foreign taxes receivable |
142,467 | 12,226 | — | 312,871 | ||||||||||||
| Unrealized appreciation on open forward currency contracts (Note 4) |
465,980 | — | — | 662,935 | ||||||||||||
| Receivable for foreign currency sold |
15 | — | — | — | ||||||||||||
| Due from broker (Note 2) |
1,599,520 | — | 413,781,205 | — | ||||||||||||
| Receivable for expenses reimbursed and/or waived by Manager (Note 5) |
41,509 | 20,764 | 27,993 | 52,142 | ||||||||||||
| Miscellaneous receivable |
303 | 207 | 739 | 200 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
330,428,521 | 191,941,312 | 744,240,742 | 483,059,770 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities: |
||||||||||||||||
| Payable for investments purchased |
— | — | 385,882 | — | ||||||||||||
| Payable for Fund shares repurchased |
— | — | 492,952 | — | ||||||||||||
| Accrued foreign taxes payable (Note 2) |
— | — | — | 239 | ||||||||||||
| Payable to affiliate for (Note 5): |
||||||||||||||||
| Management fee |
174,687 | 83,057 | 272,749 | 211,318 | ||||||||||||
| Shareholder service fee |
43,671 | 20,143 | 34,282 | 63,396 | ||||||||||||
| Payable for variation margin on open futures contracts (Note 4) |
136,379 | — | — | — | ||||||||||||
| Unrealized depreciation on open forward currency contracts (Note 4) |
147,556 | — | — | 432,012 | ||||||||||||
| Written options outstanding, at value (Note 4)(d) |
— | — | 20,861,155 | — | ||||||||||||
| Payable to agents unaffiliated with the Manager |
31 | 31 | 93 | 62 | ||||||||||||
| Payable to Trustees and related expenses |
343 | 124 | 622 | 622 | ||||||||||||
| Accrued expenses |
181,747 | 110,867 | 94,950 | 232,277 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total liabilities |
684,414 | 214,222 | 22,142,685 | 939,926 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net assets |
$ | 329,744,107 | $ | 191,727,090 | $ | 722,098,057 | $ | 482,119,844 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (a) Cost of investments – unaffiliated issuers: |
$ | 289,779,562 | $ | 196,037,186 | $ | 49,956,766 | $ | 390,290,286 | ||||||||
| (b) Cost of investments – affiliated issuers: |
$ | 8,132,668 | $ | 3,157,811 | $ | 278,323,000 | $ | 5,931,701 | ||||||||
| (c) Cost of foreign currency: |
$ | 233,708 | $ | 64,203 | $ | — | $ | — | ||||||||
| (d) Premiums on written options: |
$ | — | $ | — | $ | 13,014,998 | $ | — | ||||||||
| 56 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Assets and Liabilities — August 31, 2013 (Unaudited) — (Continued)
| International Small Companies Fund |
Resources Fund |
Risk Premium Fund |
Tax-Managed International Equities Fund |
|||||||||||||
| Net assets consist of: |
||||||||||||||||
| Paid-in capital |
$ | 303,160,242 | $ | 196,713,365 | $ | 731,301,653 | $ | 478,710,346 | ||||||||
| Accumulated undistributed net investment income |
— | 2,476,953 | — | 5,837,489 | ||||||||||||
| Distributions in excess of net investment income |
(3,065,544 | ) | — | (2,013,546 | ) | — | ||||||||||
| Accumulated net realized gain (loss) |
616,412 | 612,065 | 725,823 | (87,128,334 | ) | |||||||||||
| Net unrealized appreciation (depreciation) |
29,032,997 | (8,075,293 | ) | (7,915,873 | ) | 84,700,343 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 329,744,107 | $ | 191,727,090 | $ | 722,098,057 | $ | 482,119,844 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net assets attributable to: |
||||||||||||||||
| Class III shares |
$ | 329,744,107 | $ | 81,697,234 | $ | 7,152,754 | $ | 482,119,844 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV shares |
$ | — | $ | 110,029,856 | $ | 26,811,011 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class VI shares |
$ | — | $ | — | $ | 688,134,292 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Shares outstanding: |
||||||||||||||||
| Class III |
38,063,352 | 3,945,603 | 705,240 | 31,240,259 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV |
— | 5,317,083 | 2,640,375 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class VI |
— | — | 67,791,463 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net asset value per share: |
||||||||||||||||
| Class III |
$ | 8.66 | $ | 20.71 | $ | 10.14 | $ | 15.43 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV |
$ | — | $ | 20.69 | $ | 10.15 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class VI |
$ | — | $ | — | $ | 10.15 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| See accompanying notes to the financial statements. | 57 |
GMO Trust Funds
Statements of Operations — Six Months Ended August 31, 2013 (Unaudited)
| Currency Hedged International Equity Fund |
Developed World Stock Fund |
International Core Equity Fund |
International Growth Equity Fund |
International Intrinsic Value Fund |
||||||||||||||||
| Investment Income: |
|
|||||||||||||||||||
| Dividends from unaffiliated issuers (Net of withholding tax)(a) |
$ | — | $ | 5,566,328 | $ | 75,649,706 | $ | 41,201,144 | $ | 213,032,572 | ||||||||||
| Dividends from affiliated issuers (Note 10) |
16,663,436 | 3,986 | 12,086 | 11,803 | 37,928 | |||||||||||||||
| Interest |
16,607 | 1,350 | 18,967 | 11,412 | 89,469 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total investment income |
16,680,043 | 5,571,664 | 75,680,759 | 41,224,359 | 213,159,969 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Expenses: |
|
|||||||||||||||||||
| Management fee (Note 5) |
6,399,632 | 866,058 | 6,388,983 | 5,705,741 | 27,702,495 | |||||||||||||||
| Shareholder service fee – Class II (Note 5) |
— | — | — | — | 186,408 | |||||||||||||||
| Shareholder service fee – Class III (Note 5) |
1,777,676 | 114,048 | 452,792 | 215,599 | 1,105,012 | |||||||||||||||
| Shareholder service fee – Class IV (Note 5) |
— | 116,425 | 651,709 | 897,674 | 4,246,361 | |||||||||||||||
| Shareholder service fee – Class VI (Note 5) |
— | — | 360,431 | — | — | |||||||||||||||
| 12b-1 fee – Class M* (Note 5) |
— | — | — | — | 2,286 | |||||||||||||||
| Administration fee – Class M* (Note 5) |
— | — | — | — | 1,829 | |||||||||||||||
| Audit and tax fees |
28,336 | 37,628 | 43,332 | 43,516 | 46,276 | |||||||||||||||
| Custodian and fund accounting agent fees |
102,488 | 128,432 | 1,022,488 | 595,884 | 1,671,824 | |||||||||||||||
| Legal fees |
20,056 | 4,876 | 44,620 | 21,988 | 94,024 | |||||||||||||||
| Registration fees |
1,564 | 1,288 | 8,740 | 368 | 12,328 | |||||||||||||||
| Transfer agent fees |
13,708 | 21,252 | 25,484 | 22,448 | 33,028 | |||||||||||||||
| Trustees fees and related expenses (Note 5) |
11,316 | 1,907 | 23,552 | 11,960 | 51,191 | |||||||||||||||
| Miscellaneous |
10,580 | 11,409 | 34,730 | 28,622 | 65,685 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total expenses |
8,365,356 | 1,303,323 | 9,056,861 | 7,543,800 | 35,218,747 | |||||||||||||||
| Fees and expenses reimbursed and/or waived by Manager (Note 5) |
(175,076 | ) | (203,228 | ) | (1,170,516 | ) | (706,744 | ) | (1,915,348 | ) | ||||||||||
| Expense reductions (Note 2) |
(1 | ) | — | — | (1 | ) | (24 | ) | ||||||||||||
| Indirectly incurred fees waived or borne by Manager (Note 5) |
(5,804,764 | ) | — | — | — | — | ||||||||||||||
| Shareholder service fee waived (Note 5) |
(1,044,858 | ) | — | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net expenses |
1,340,657 | 1,100,095 | 7,886,345 | 6,837,055 | 33,303,375 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net investment income (loss) |
15,339,386 | 4,471,569 | 67,794,414 | 34,387,304 | 179,856,594 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Realized and unrealized gain (loss): |
|
|||||||||||||||||||
| Net realized gain (loss) on: |
||||||||||||||||||||
| Investments in unaffiliated issuers |
— | 7,252,983 | 212,509,480 | 182,882,376 | 216,499,946 | |||||||||||||||
| Investments in affiliated issuers |
154,569,640 | 2,640 | 999 | (11,105 | ) | — | ||||||||||||||
| Realized gain distributions from affiliated issuers (Note 10) |
— | 929 | 467 | 4,299 | 7,771 | |||||||||||||||
| Futures contracts |
— | 2,019,038 | 8,804,692 | 9,337,309 | 46,699,185 | |||||||||||||||
| Foreign currency, forward contracts and foreign currency related transactions |
30,089,330 | (339,194 | ) | 11,247,904 | 9,590,967 | (17,406,920 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net realized gain (loss) |
184,658,970 | 8,936,396 | 232,563,542 | 201,803,846 | 245,799,982 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Change in net unrealized appreciation (depreciation) on: |
||||||||||||||||||||
| Investments in unaffiliated issuers |
— | 18,095,087 | (17,996,700 | ) | (114,850,392 | ) | 207,186,386 | |||||||||||||
| Investments in affiliated issuers |
(26,542,888 | ) | (3,300 | ) | (10,704 | ) | (8,433 | ) | — | |||||||||||
| Futures contracts |
— | (680,649 | ) | 7,765,366 | 1,219,135 | (14,736,402 | ) | |||||||||||||
| Foreign currency, forward contracts and foreign currency related transactions |
(9,592,818 | ) | 110,337 | 225,927 | (278,498 | ) | (541,642 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net unrealized gain (loss) |
(36,135,706 | ) | 17,521,475 | (10,016,111 | ) | (113,918,188 | ) | 191,908,342 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net realized and unrealized gain (loss) |
148,523,264 | 26,457,871 | 222,547,431 | 87,885,658 | 437,708,324 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net increase (decrease) in net assets resulting from operations |
$ | 163,862,650 | $ | 30,929,440 | $ | 290,341,845 | $ | 122,272,962 | $ | 617,564,918 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| (a) Withholding tax: |
$ | — | $ | 438,116 | $ | 8,721,084 | $ | 3,535,854 | $ | 21,815,335 | ||||||||||
| * | Class M liquidated on March 27, 2013. |
| 58 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Operations — Six Months Ended August 31, 2013 (Unaudited) — (Continued)
| International Small Companies Fund |
Resources Fund |
Risk Premium Fund |
Tax-Managed International Equities Fund |
|||||||||||||
| Investment Income: |
|
|||||||||||||||
| Dividends from unaffiliated issuers (Net of withholding tax)(a) |
$ | 5,431,060 | $ | 3,113,792 | $ | — | $ | 9,630,608 | ||||||||
| Dividends from affiliated issuers (Note 10) |
1,527 | 893 | 119,509 | 1,501 | ||||||||||||
| Interest |
1,770 | 1,595 | — | 1,493 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total investment income |
5,434,357 | 3,116,280 | 119,509 | 9,633,602 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Expenses: |
|
|||||||||||||||
| Management fee (Note 5) |
1,004,005 | 403,542 | 1,588,605 | 1,230,864 | ||||||||||||
| Shareholder service fee – Class III (Note 5) |
251,001 | 63,894 | 5,248 | 369,259 | ||||||||||||
| Shareholder service fee – Class IV (Note 5) |
— | 38,112 | 4,278 | — | ||||||||||||
| Shareholder service fee – Class VI (Note 5) |
— | — | 189,886 | — | ||||||||||||
| Audit and tax fees |
45,540 | 33,856 | 28,244 | 45,444 | ||||||||||||
| Custodian and fund accounting agent fees |
186,484 | 115,276 | 112,792 | 204,976 | ||||||||||||
| Legal fees |
4,048 | 1,472 | 7,084 | 4,784 | ||||||||||||
| Registration fees |
1,380 | 414 | 3,809 | 1,380 | ||||||||||||
| Transfer agent fees |
13,800 | 13,892 | — | 13,708 | ||||||||||||
| Trustees fees and related expenses (Note 5) |
1,658 | 904 | 3,486 | 2,576 | ||||||||||||
| Miscellaneous |
21,162 | 7,064 | 5,957 | 20,148 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total expenses |
1,529,078 | 678,426 | 1,949,389 | 1,893,139 | ||||||||||||
| Fees and expenses reimbursed and/or waived by Manager (Note 5) |
(262,752 | ) | (88,211 | ) | (156,989 | ) | (282,256 | ) | ||||||||
| Expense reductions (Note 2) |
(11 | ) | (31 | ) | (23 | ) | — | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net expenses |
1,266,315 | 590,184 | 1,792,377 | 1,610,883 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net investment income (loss) |
4,168,042 | 2,526,096 | (1,672,868 | ) | 8,022,719 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Realized and unrealized gain (loss): |
|
|||||||||||||||
| Net realized gain (loss) on: |
||||||||||||||||
| Investments in unaffiliated issuers (Net of foreign capital gains tax) (Note 2)(b) |
19,802,640 | 860,274 | — | 12,302,339 | ||||||||||||
| Investments in affiliated issuers |
1,198 | (1,189 | ) | — | (2,442 | ) | ||||||||||
| Realized gain distributions from affiliated issuers (Note 10) |
520 | 98 | 24,486 | 438 | ||||||||||||
| Futures contracts |
1,518,268 | — | — | — | ||||||||||||
| Written options |
— | — | 769,169 | — | ||||||||||||
| Foreign currency, forward contracts and foreign currency related transactions |
226,156 | (60,566 | ) | 77,156 | 327,689 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized gain (loss) |
21,548,782 | 798,617 | 870,811 | 12,628,024 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Change in net unrealized appreciation (depreciation) on: |
||||||||||||||||
| Investments in unaffiliated issuers |
(5,277,869 | ) | (8,976,813 | ) | — | 9,839,921 | ||||||||||
| Investments in affiliated issuers |
(1,211 | ) | (897 | ) | — | 1,605 | ||||||||||
| Futures contracts |
(339,656 | ) | — | — | — | |||||||||||
| Written options |
— | — | (10,684,532 | ) | — | |||||||||||
| Foreign currency, forward contracts and foreign currency related transactions |
318,404 | (4,098 | ) | 1,602 | 156,528 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net unrealized gain (loss) |
(5,300,332 | ) | (8,981,808 | ) | (10,682,930 | ) | 9,998,054 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized and unrealized gain (loss) |
16,248,450 | (8,183,191 | ) | (9,812,119 | ) | 22,626,078 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
$ | 20,416,492 | $ | (5,657,095 | ) | $ | (11,484,987 | ) | $ | 30,648,797 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (a) Withholding tax: |
$ | 431,052 | $ | 364,971 | $ | — | $ | 1,020,095 | ||||||||
| (b) Foreign capital gains tax: |
$ | 2,288 | $ | — | $ | — | $ | — | ||||||||
| See accompanying notes to the financial statements. | 59 |
GMO Trust Funds
Statements of Changes in Net Assets
| Currency Hedged International Equity Fund |
Developed World Stock Fund |
|||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 15,339,386 | $ | 82,273,805 | $ | 4,471,569 | $ | 8,123,323 | ||||||||
| Net realized gain (loss) |
184,658,970 | 138,375,815 | 8,936,396 | 13,618,415 | ||||||||||||
| Change in net unrealized appreciation (depreciation) |
(36,135,706 | ) | 157,889,396 | 17,521,475 | 6,760,707 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
163,862,650 | 378,539,016 | 30,929,440 | 28,502,445 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income: |
||||||||||||||||
| Class III |
(86,130,676 | ) | (67,902,089 | ) | (1,212,646 | ) | (3,758,014 | ) | ||||||||
| Class IV |
— | — | (1,872,251 | ) | (5,564,409 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net investment income |
(86,130,676 | ) | (67,902,089 | ) | (3,084,897 | ) | (9,322,423 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized gains: |
||||||||||||||||
| Class III |
(49,885,344 | ) | (35,023,168 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net realized gains |
(49,885,344 | ) | (35,023,168 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Class III |
127,978,259 | (437,064,588 | ) | (5,669,259 | ) | (10,090,587 | ) | |||||||||
| Class IV |
— | — | 1,872,250 | 5,584,649 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase (decrease) in net assets resulting from net share transactions |
127,978,259 | (437,064,588 | ) | (3,797,009 | ) | (4,505,938 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Purchase premiums and redemption fees (Notes 2 and 9): |
||||||||||||||||
| Class III |
— | — | 16,141 | 42,712 | ||||||||||||
| Class IV |
— | — | — | 144 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase in net assets resulting from purchase premiums and redemption fees |
— | — | 16,141 | 42,856 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets resulting from net share transactions, purchase premiums and redemption fees |
127,978,259 | (437,064,588 | ) | (3,780,868 | ) | (4,463,082 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
155,824,889 | (161,450,829 | ) | 24,063,675 | 14,716,940 | |||||||||||
| Net assets: | ||||||||||||||||
| Beginning of period |
2,256,714,466 | 2,418,165,295 | 360,334,366 | 345,617,426 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 2,412,539,355 | $ | 2,256,714,466 | $ | 384,398,041 | $ | 360,334,366 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated undistributed net investment income |
$ | 5,236,136 | $ | 76,027,426 | $ | 3,600,577 | $ | 2,213,905 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 60 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| International Core Equity Fund |
International Growth Equity Fund |
|||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 67,794,414 | $ | 119,887,032 | $ | 34,387,304 | $ | 58,008,017 | ||||||||
| Net realized gain (loss) |
232,563,542 | 133,365,973 | 201,803,846 | 120,017,765 | ||||||||||||
| Change in net unrealized appreciation (depreciation) |
(10,016,111 | ) | 109,342,955 | (113,918,188 | ) | 118,731,538 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
290,341,845 | 362,595,960 | 122,272,962 | 296,757,320 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income: |
||||||||||||||||
| Class III |
(8,560,181 | ) | (29,456,208 | ) | (2,001,736 | ) | (12,148,477 | ) | ||||||||
| Class IV |
(20,229,728 | ) | (36,106,544 | ) | (15,312,923 | ) | (79,860,968 | ) | ||||||||
| Class VI |
(33,961,224 | ) | (80,427,858 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net investment income |
(62,751,133 | ) | (145,990,610 | ) | (17,314,659 | ) | (92,009,445 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Class III |
(92,323,689 | ) | (311,705,125 | ) | (80,533,015 | ) | (99,281,827 | ) | ||||||||
| Class IV |
(53,981,719 | ) | 262,914,776 | (559,173,044 | ) | (575,068,164 | ) | |||||||||
| Class VI |
(2,486,340,622 | ) | 118,842,565 | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase (decrease) in net assets resulting from net share transactions |
(2,632,646,030 | ) | 70,052,216 | (639,706,059 | ) | (674,349,991 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
(2,405,055,318 | ) | 286,657,566 | (534,747,756 | ) | (469,602,116 | ) | |||||||||
| Net assets: | ||||||||||||||||
| Beginning of period |
4,498,562,627 | 4,211,905,061 | 2,475,960,406 | 2,945,562,522 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 2,093,507,309 | $ | 4,498,562,627 | $ | 1,941,212,650 | $ | 2,475,960,406 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated undistributed net investment income |
$ | 24,437,787 | $ | 19,394,506 | $ | 29,787,892 | $ | 12,715,247 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| See accompanying notes to the financial statements. | 61 |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| International Intrinsic Value Fund |
International Small Companies Fund |
|||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 179,856,594 | $ | 221,431,862 | $ | 4,168,042 | $ | 8,162,271 | ||||||||
| Net realized gain (loss) |
245,799,982 | (8,664,702 | ) | 21,548,782 | 3,073,350 | |||||||||||
| Change in net unrealized appreciation (depreciation) |
191,908,342 | 638,802,410 | (5,300,332 | ) | 31,372,037 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
617,564,918 | 851,569,570 | 20,416,492 | 42,607,658 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income: |
||||||||||||||||
| Class II |
(1,076,010 | ) | (5,511,657 | ) | — | — | ||||||||||
| Class III |
(9,291,917 | ) | (58,931,056 | ) | (8,018,041 | ) | (12,800,768 | ) | ||||||||
| Class IV |
(76,150,664 | ) | (221,765,571 | ) | — | — | ||||||||||
| Class M* |
— | (355,017 | ) | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net investment income |
(86,518,591 | ) | (286,563,301 | ) | (8,018,041 | ) | (12,800,768 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Class II |
(32,126,422 | ) | (127,322,319 | ) | — | — | ||||||||||
| Class III |
(231,516,873 | ) | (357,557,478 | ) | 3,695,099 | (84,805,041 | ) | |||||||||
| Class IV |
2,677,213,280 | 1,844,735,604 | — | — | ||||||||||||
| Class M* |
(12,304,995 | ) | (385,380 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase (decrease) in net assets resulting from net share transactions |
2,401,264,990 | 1,359,470,427 | 3,695,099 | (84,805,041 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Purchase premiums and redemption fees (Notes 2 and 9): |
||||||||||||||||
| Class III |
— | — | 93,438 | 181,108 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets resulting from net share transactions, purchase premiums and redemption fees |
2,401,264,990 | 1,359,470,427 | 3,788,537 | (84,623,933 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
2,932,311,317 | 1,924,476,696 | 16,186,988 | (54,817,043 | ) | |||||||||||
| Net assets: | ||||||||||||||||
| Beginning of period |
9,088,280,387 | 7,163,803,691 | 313,557,119 | 368,374,162 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 12,020,591,704 | $ | 9,088,280,387 | $ | 329,744,107 | $ | 313,557,119 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated undistributed net investment income |
$ | 132,745,830 | $ | 39,407,827 | $ | — | $ | 784,455 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions in excess of net investment income |
$ | — | $ | — | $ | (3,065,544 | ) | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | Class M liquidated on March 27, 2013. |
| 62 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| Resources Fund | Risk Premium Fund | |||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Period from November 15, 2012 (commencement of operations) through February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 2,526,096 | $ | 417,401 | $ | (1,672,868 | ) | $ | (663,980 | ) | ||||||
| Net realized gain (loss) |
798,617 | 806,525 | 870,811 | 16,174,891 | ||||||||||||
| Change in net unrealized appreciation (depreciation) |
(8,981,808 | ) | 48,070 | (10,682,930 | ) | 2,767,057 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
(5,657,095 | ) | 1,271,996 | (11,484,987 | ) | 18,277,968 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income: |
||||||||||||||||
| Class III |
(23,418 | ) | (390,434 | ) | — | — | ||||||||||
| Class IV |
(80,176 | )* | — | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net investment income |
(103,594 | ) | — | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized gains: |
||||||||||||||||
| Class III |
(267,595 | ) | (263,708 | ) | (152,446 | ) | — | |||||||||
| Class IV |
(539,995 | )* | — | (184,888 | ) | — | ||||||||||
| Class VI |
— | — | (15,659,243 | ) | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net realized gains |
(807,590 | ) | — | (15,996,577 | ) | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Class III |
(21,395,315 | ) | 95,234,121 | 617,430 | 6,696,024 | |||||||||||
| Class IV |
115,157,328 | * | — | 18,972,971 | 8,059,007 | |||||||||||
| Class VI |
— | — | 98,332,957 | 597,548,727 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase (decrease) in net assets resulting from net share transactions |
93,762,013 | 95,234,121 | 117,923,358 | 612,303,758 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Purchase premiums and redemption fees (Notes 2 and 9): |
||||||||||||||||
| Class III |
215,540 | 288,096 | 1,524 | 2,569 | ||||||||||||
| Class IV |
77,147 | * | — | 2,615 | 367 | |||||||||||
| Class VI |
— | — | 150,562 | 916,900 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase in net assets resulting from purchase premiums and redemption fees |
292,687 | 288,096 | 154,701 | 919,836 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets resulting from net share transactions, purchase premiums and redemption fees |
94,054,700 | 95,522,217 | 118,078,059 | 613,223,594 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
87,486,421 | 96,140,071 | 90,596,495 | 631,501,562 | ||||||||||||
| Net assets: | ||||||||||||||||
| Beginning of period |
104,240,669 | 8,100,598 | 631,501,562 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 191,727,090 | $ | 104,240,669 | $ | 722,098,057 | $ | 631,501,562 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated undistributed net investment income |
$ | 2,476,953 | $ | 54,451 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions in excess of net investment income |
$ | — | $ | — | $ | (2,013,546 | ) | $ | (340,678 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | Period from March 20, 2013 (commencement of operations) through August 31, 2013. |
| See accompanying notes to the financial statements. | 63 |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| Tax-Managed International Equities Fund |
||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||
| Increase (decrease) in net assets: |
||||||||
| Operations: |
||||||||
| Net investment income (loss) |
$ | 8,022,719 | $ | 13,357,401 | ||||
| Net realized gain (loss) |
12,628,024 | 3,533,244 | ||||||
| Change in net unrealized appreciation (depreciation) |
9,998,054 | 22,618,274 | ||||||
|
|
|
|
|
|||||
| Net increase (decrease) in net assets from operations |
30,648,797 | 39,508,919 | ||||||
|
|
|
|
|
|||||
| Distributions to shareholders from: |
||||||||
| Net investment income: |
||||||||
| Class III |
(2,219,460 | ) | (14,995,061 | ) | ||||
|
|
|
|
|
|||||
| Total distributions from net investment income |
(2,219,460 | ) | (14,995,061 | ) | ||||
|
|
|
|
|
|||||
| Net share transactions (Note 9): |
||||||||
| Class III |
(25,314,885 | ) | (50,790,609 | ) | ||||
|
|
|
|
|
|||||
| Increase (decrease) in net assets resulting from net share transactions |
(25,314,885 | ) | (50,790,609 | ) | ||||
|
|
|
|
|
|||||
| Total increase (decrease) in net assets |
3,114,452 | (26,276,751 | ) | |||||
| Net assets: | ||||||||
| Beginning of period |
479,005,392 | 505,282,143 | ||||||
|
|
|
|
|
|||||
| End of period |
$ | 482,119,844 | $ | 479,005,392 | ||||
|
|
|
|
|
|||||
| Accumulated undistributed net investment income |
$ | 5,837,489 | $ | 34,230 | ||||
|
|
|
|
|
|||||
| 64 | See accompanying notes to the financial statements. |
GMO Trust Funds
(For a share outstanding throughout each period)
CURRENCY HEDGED INTERNATIONAL EQUITY FUND
| See accompanying notes to the financial statements. | 65 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
DEVELOPED WORLD STOCK FUND
| Class III Shares | Class IV Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 19.41 | $ | 18.35 | $ | 19.24 | $ | 16.28 | $ | 11.34 | $ | 21.88 | $ | 19.42 | $ | 18.36 | $ | 19.26 | $ | 16.30 | $ | 11.35 | $ | 21.90 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Income (loss) from investment operations: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment income (loss)† |
0.24 | 0.44 | 0.43 | 0.33 | 0.29 | 0.51 | 0.25 | 0.44 | 0.44 | 0.34 | 0.30 | 0.51 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
1.43 | 1.12 | (0.78 | )(a) | 3.09 | 5.03 | (10.20 | ) | 1.43 | 1.13 | (0.79 | )(a) | 3.09 | 5.04 | (10.20 | ) | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Total from investment operations |
1.67 | 1.56 | (0.35 | ) | 3.42 | 5.32 | (9.69 | ) | 1.68 | 1.57 | (0.35 | ) | 3.43 | 5.34 | (9.69 | ) | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Less distributions to shareholders: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From net investment income |
(0.17 | ) | (0.50 | ) | (0.54 | ) | (0.46 | ) | (0.38 | ) | (0.64 | ) | (0.17 | ) | (0.51 | ) | (0.55 | ) | (0.47 | ) | (0.39 | ) | (0.65 | ) | ||||||||||||||||||||||||||||||||||||
| From net realized gains |
— | — | — | — | — | (0.21 | ) | — | — | — | — | — | (0.21 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Total distributions |
(0.17 | ) | (0.50 | ) | (0.54 | ) | (0.46 | ) | (0.38 | ) | (0.85 | ) | (0.17 | ) | (0.51 | ) | (0.55 | ) | (0.47 | ) | (0.39 | ) | (0.86 | ) | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Net asset value, end of period |
$ | 20.91 | $ | 19.41 | $ | 18.35 | $ | 19.24 | $ | 16.28 | $ | 11.34 | $ | 20.93 | $ | 19.42 | $ | 18.36 | $ | 19.26 | $ | 16.30 | $ | 11.35 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Total Return(b) |
8.59 | %** | 8.68 | % | (1.64 | )% | 21.41 | % | 47.03 | % | (45.56 | )% | 8.65 | %** | 8.74 | % | (1.61 | )% | 21.44 | % | 47.16 | % | (45.52 | )% | ||||||||||||||||||||||||||||||||||||
| Ratios/Supplemental Data: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 150,495 | $ | 145,072 | $ | 147,629 | $ | 210,780 | $ | 171,842 | $ | 155,560 | $ | 233,903 | $ | 215,262 | $ | 197,989 | $ | 201,121 | $ | 165,445 | $ | 112,438 | ||||||||||||||||||||||||||||||||||||
| Net expenses to average daily net assets |
0.60 | %(e)* | 0.60 | %(e) | 0.60 | %(c)(e) | 0.60 | %(c)(e) | 0.60 | %(c) | 0.61 | %(d) | 0.55 | %(e)* | 0.55 | %(e) | 0.55 | %(c)(e) | 0.55 | %(c)(e) | 0.55 | %(c) | 0.56 | %(d) | ||||||||||||||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets |
2.30 | %* | 2.38 | % | 2.40 | % | 1.93 | % | 1.93 | % | 2.79 | % | 2.34 | %* | 2.40 | % | 2.42 | % | 1.98 | % | 1.94 | % | 2.82 | % | ||||||||||||||||||||||||||||||||||||
| Portfolio turnover rate |
21 | %** | 50 | % | 56 | % | 34 | % | 47 | % | 50 | % | 21 | %** | 50 | % | 56 | % | 34 | % | 47 | % | 50 | % | ||||||||||||||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.11 | %* | 0.11 | % | 0.11 | % | 0.11 | % | 0.11 | % | 0.12 | % | 0.11 | %* | 0.11 | % | 0.11 | % | 0.11 | % | 0.11 | % | 0.12 | % | ||||||||||||||||||||||||||||||||||||
| Purchase premiums and redemption fees consisted of the following per share amounts:† |
$ | 0.00 | (f) | $ | 0.01 | $ | 0.01 | $ | 0.00 | (f) | $ | 0.02 | $ | 0.01 | — | $ | 0.00 | (f) | $ | 0.00 | (f) | $ | 0.00 | (f) | — | — | ||||||||||||||||||||||||||||||||||
| (a) | The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain (loss) on investments due to the timing of purchases and redemptions of the Fund shares in relation to fluctuating market values of the investments of the Fund. |
| (b) | The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown, if applicable, and assumes the effect of reinvested distributions, if any. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder purchasing or redeeming Fund shares, if any. |
| (c) | The net expense ratio does not include the effect of expense reductions (Note 2). |
| (d) | The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions. |
| (e) | Net expenses exclude expenses incurred indirectly through investment in the underlying funds (Note 5). |
| (f) | Purchase premiums and redemption fees were less than $0.01 per share. |
| † | Calculated using average shares outstanding throughout the period. |
| * | Annualized. |
| ** | Not annualized. |
| 66 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
INTERNATIONAL CORE EQUITY FUND
| Class III Shares | Class IV Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 28.96 | $ | 27.50 | $ | 30.77 | $ | 25.63 | $ | 18.15 | $ | 37.25 | $ | 28.94 | $ | 27.48 | $ | 30.75 | $ | 25.62 | $ | 18.14 | $ | 37.23 | ||||||||||||||||||||||||||||||||||||
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| Income (loss) from investment operations: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment income (loss)† |
0.54 | 0.77 | 0.87 | 0.62 | 0.55 | 0.92 | 0.54 | 0.80 | 0.90 | 0.61 | 0.64 | 0.94 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
1.21 | 1.62 | (3.15 | ) | 5.11 | 7.79 | (18.54 | ) | 1.22 | 1.60 | (3.17 | ) | 5.13 | 7.71 | (18.53 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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| Total from investment operations |
1.75 | 2.39 | (2.28 | ) | 5.73 | 8.34 | (17.62 | ) | 1.76 | 2.40 | (2.27 | ) | 5.74 | 8.35 | (17.59 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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| Less distributions to shareholders: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From net investment income |
(0.41 | ) | (0.93 | ) | (0.99 | ) | (0.59 | ) | (0.86 | ) | (1.19 | ) | (0.42 | ) | (0.94 | ) | (1.00 | ) | (0.61 | ) | (0.87 | ) | (1.21 | ) | ||||||||||||||||||||||||||||||||||||
| From net realized gains |
— | — | — | — | — | (0.29 | ) | — | — | — | — | — | (0.29 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
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| Total distributions |
(0.41 | ) | (0.93 | ) | (0.99 | ) | (0.59 | ) | (0.86 | ) | (1.48 | ) | (0.42 | ) | (0.94 | ) | (1.00 | ) | (0.61 | ) | (0.87 | ) | (1.50 | ) | ||||||||||||||||||||||||||||||||||||
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| Net asset value, end of period |
$ | 30.30 | $ | 28.96 | $ | 27.50 | $ | 30.77 | $ | 25.63 | $ | 18.15 | $ | 30.28 | $ | 28.94 | $ | 27.48 | $ | 30.75 | $ | 25.62 | $ | 18.14 | ||||||||||||||||||||||||||||||||||||
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| Total Return(a) |
6.01 | %** | 8.93 | % | (7.25 | )% | 22.61 | % | 45.97 | % | (48.61 | )% | 6.04 | %** | 9.00 | % | (7.19 | )% | 22.68 | % | 46.04 | % | (48.56 | )% | ||||||||||||||||||||||||||||||||||||
| Ratios/Supplemental Data: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 558,892 | $ | 621,870 | $ | 885,023 | $ | 857,774 | $ | 1,017,207 | $ | 855,690 | $ | 1,403,861 | $ | 1,394,919 | $ | 1,078,912 | $ | 1,235,303 | $ | 797,730 | $ | 1,166,165 | ||||||||||||||||||||||||||||||||||||
| Net expenses to average daily net assets |
0.53 | %(c)* | 0.53 | %(b)(c) | 0.53 | %(b)(c) | 0.53 | %(b)(c) | 0.53 | %(b) | 0.53 | %(d) | 0.47 | %(c)* | 0.47 | %(b)(c) | 0.47 | %(b)(c) | 0.47 | %(b)(c) | 0.47 | %(b) | 0.47 | %(d) | ||||||||||||||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets |
3.56 | %* | 2.87 | % | 3.10 | % | 2.28 | % | 2.22 | % | 3.08 | % | 3.56 | %* | 2.93 | % | 3.18 | % | 2.24 | % | 2.65 | % | 3.18 | % | ||||||||||||||||||||||||||||||||||||
| Portfolio turnover rate |
22 | %** | 47 | % | 34 | % | 40 | % | 48 | % | 41 | % | 22 | %** | 47 | % | 34 | % | 40 | % | 48 | % | 41 | % | ||||||||||||||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.08 | %* | 0.05 | % | 0.04 | % | 0.05 | % | 0.05 | % | 0.05 | % | 0.08 | %* | 0.05 | % | 0.05 | % | 0.05 | % | 0.05 | % | 0.05 | % | ||||||||||||||||||||||||||||||||||||
| See accompanying notes to the financial statements. | 67 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
INTERNATIONAL GROWTH EQUITY FUND
| Class III Shares | Class IV Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 25.35 | $ | 22.73 | $ | 23.86 | $ | 19.68 | $ | 14.46 | $ | 27.68 | $ | 25.35 | $ | 22.73 | $ | 23.88 | $ | 19.69 | $ | 14.46 | $ | 27.70 | ||||||||||||||||||||||||||||||||||||
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| Income (loss) from investment operations: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment income (loss)† |
0.40 | 0.52 | 0.57 | 0.37 | 0.37 | 0.54 | 0.40 | 0.54 | 0.54 | 0.38 | 0.35 | 0.55 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
0.79 | 2.91 | (1.32 | )(a) | 4.03 | 5.52 | (11.93 | ) | 0.80 | 2.91 | (1.28 | )(a) | 4.05 | 5.56 | (11.95 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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| Total from investment operations |
1.19 | 3.43 | (0.75 | ) | 4.40 | 5.89 | (11.39 | ) | 1.20 | 3.45 | (0.74 | ) | 4.43 | 5.91 | (11.40 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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| Less distributions to shareholders: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From net investment income |
(0.20 | ) | (0.81 | ) | (0.38 | ) | (0.22 | ) | (0.67 | ) | (0.88 | ) | (0.20 | ) | (0.83 | ) | (0.41 | ) | (0.24 | ) | (0.68 | ) | (0.89 | ) | ||||||||||||||||||||||||||||||||||||
| From net realized gains |
— | — | — | — | — | (0.95 | ) | — | — | — | — | — | (0.95 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
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| Total distributions |
(0.20 | ) | (0.81 | ) | (0.38 | ) | (0.22 | ) | (0.67 | ) | (1.83 | ) | (0.20 | ) | (0.83 | ) | (0.41 | ) | (0.24 | ) | (0.68 | ) | (1.84 | ) | ||||||||||||||||||||||||||||||||||||
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| Net asset value, end of period |
$ | 26.34 | $ | 25.35 | $ | 22.73 | $ | 23.86 | $ | 19.68 | $ | 14.46 | $ | 26.35 | $ | 25.35 | $ | 22.73 | $ | 23.88 | $ | 19.69 | $ | 14.46 | ||||||||||||||||||||||||||||||||||||
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| Total Return(b) |
4.70 | %** | 15.61 | % | (3.06 | )% | 22.48 | % | 41.10 | % | (43.54 | )% | 4.75 | %** | 15.69 | % | (3.01 | )% | 22.59 | % | 41.26 | % | (43.53 | )% | ||||||||||||||||||||||||||||||||||||
| Ratios/Supplemental Data: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 254,772 | $ | 322,692 | $ | 391,497 | $ | 713,815 | $ | 599,455 | $ | 564,067 | $ | 1,686,441 | $ | 2,153,269 | $ | 2,554,065 | $ | 2,829,393 | $ | 2,220,138 | $ | 1,420,407 | ||||||||||||||||||||||||||||||||||||
| Net expenses to average daily net assets |
0.65 | %(c)(e)* | 0.65 | %(c)(e) | 0.65 | %(c)(e) | 0.65 | %(c) | 0.65 | %(c) | 0.66 | %(d) | 0.59 | %(c)(e)* | 0.59 | %(c)(e) | 0.59 | %(c)(e) | 0.59 | %(c) | 0.59 | %(c) | 0.60 | %(d) | ||||||||||||||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets |
3.03 | %* | 2.25 | % | 2.49 | % | 1.74 | % | 2.00 | % | 2.43 | % | 3.01 | %* | 2.35 | % | 2.37 | % | 1.79 | % | 1.89 | % | 2.47 | % | ||||||||||||||||||||||||||||||||||||
| Portfolio turnover rate |
30 | %** | 55 | % | 53 | % | 59 | % | 65 | % | 63 | % | 30 | %** | 55 | % | 53 | % | 59 | % | 65 | % | 63 | % | ||||||||||||||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.06 | %* | 0.05 | % | 0.05 | % | 0.05 | % | 0.06 | % | 0.06 | % | 0.06 | %* | 0.05 | % | 0.05 | % | 0.05 | % | 0.06 | % | 0.06 | % | ||||||||||||||||||||||||||||||||||||
| (a) | The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain (loss) on investments due to the timing of purchases and redemptions of the Fund shares in relation to fluctuating market values of the investments of the Fund. |
| (b) | The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown, if applicable, and assumes the effect of reinvested distributions, if any. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder purchasing or redeeming Fund shares, if any. |
| (c) | The net expense ratio does not include the effect of expense reductions (Note 2). |
| (d) | The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions. |
| (e) | Net expenses exclude expenses incurred indirectly through investment in the underlying funds (Note 5). |
| † | Calculated using average shares outstanding throughout the period. |
| * | Annualized. |
| ** | Not annualized. |
| 68 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
INTERNATIONAL INTRINSIC VALUE FUND
| Class II Shares | Class III Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 20.94 | $ | 20.18 | $ | 23.07 | $ | 19.35 | $ | 13.86 | $ | 29.69 | $ | 21.16 | $ | 20.39 | $ | 23.31 | $ | 19.56 | $ | 14.00 | $ | 29.97 | ||||||||||||||||||||||||||||||||||||
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| Income (loss) from investment operations: |
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| Net investment income (loss)† |
0.37 | 0.56 | 0.63 | 0.48 | 0.41 | 0.79 | 0.38 | 0.56 | 0.65 | 0.47 | 0.42 | 0.79 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
1.00 | 0.85 | (2.83 | )(a) | 3.51 | 5.68 | (14.01 | ) | 1.02 | 0.88 | (2.86 | )(a) | 3.58 | 5.76 | (14.13 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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| Total from investment operations |
1.37 | 1.41 | (2.20 | ) | 3.99 | 6.09 | (13.22 | ) | 1.40 | 1.44 | (2.21 | ) | 4.05 | 6.18 | (13.34 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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| Less distributions to shareholders: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From net investment income |
(0.15 | ) | (0.65 | ) | (0.69 | ) | (0.27 | ) | (0.60 | ) | (0.99 | ) | (0.15 | ) | (0.67 | ) | (0.71 | ) | (0.30 | ) | (0.62 | ) | (1.01 | ) | ||||||||||||||||||||||||||||||||||||
| From net realized gains |
— | — | — | — | — | (1.62 | ) | — | — | — | — | — | (1.62 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
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| Total distributions |
(0.15 | ) | (0.65 | ) | (0.69 | ) | (0.27 | ) | (0.60 | ) | (2.61 | ) | (0.15 | ) | (0.67 | ) | (0.71 | ) | (0.30 | ) | (0.62 | ) | (2.63 | ) | ||||||||||||||||||||||||||||||||||||
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| Net asset value, end of period |
$ | 22.16 | $ | 20.94 | $ | 20.18 | $ | 23.07 | $ | 19.35 | $ | 13.86 | $ | 22.41 | $ | 21.16 | $ | 20.39 | $ | 23.31 | $ | 19.56 | $ | 14.00 | ||||||||||||||||||||||||||||||||||||
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| Total Return(b) |
6.55 | %** | 7.23 | % | (9.51 | )% | 20.79 | % | 44.05 | % | (48.04 | )% | 6.63 | %** | 7.30 | % | (9.47 | )% | 20.88 | % | 44.21 | % | (48.01 | )% | ||||||||||||||||||||||||||||||||||||
| Ratios/Supplemental Data: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 147,715 | $ | 169,056 | $ | 292,379 | $ | 217,090 | $ | 394,009 | $ | 394,070 | $ | 1,400,705 | $ | 1,540,203 | $ | 1,812,184 | $ | 2,257,078 | $ | 1,925,104 | $ | 1,487,839 | ||||||||||||||||||||||||||||||||||||
| Net expenses to average daily net assets |
0.72 | %(c)(d)* | 0.72 | %(c)(d) | 0.72 | %(c)(d) | 0.72 | %(c)(d) | 0.72 | %(c) | 0.74 | %(e) | 0.65 | %(c)(d)* | 0.65 | %(c)(d) | 0.65 | %(c)(d) | 0.65 | %(c)(d) | 0.65 | %(c) | 0.67 | %(e) | ||||||||||||||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets |
3.37 | %* | 2.87 | % | 3.04 | % | 2.36 | % | 2.21 | % | 3.41 | % | 3.40 | %* | 2.82 | % | 3.09 | % | 2.30 | % | 2.19 | % | 3.38 | % | ||||||||||||||||||||||||||||||||||||
| Portfolio turnover rate |
14 | %** | 40 | % | 37 | % | 40 | % | 40 | % | 53 | % | 14 | %** | 40 | % | 37 | % | 40 | % | 40 | % | 53 | % | ||||||||||||||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.04 | %* | 0.04 | % | 0.05 | % | 0.05 | % | 0.05 | % | 0.05 | % | 0.04 | %* | 0.04 | % | 0.05 | % | 0.05 | % | 0.05 | % | 0.05 | % | ||||||||||||||||||||||||||||||||||||
| See accompanying notes to the financial statements. | 69 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
INTERNATIONAL SMALL COMPANIES FUND
| 70 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
RESOURCES FUND
| Class III Shares | Class IV Shares | |||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Period from December 28, 2011 (commencement of operations) through February 29, 2012 |
Period from March 20, 2013 (commencement of operations) through August 31, 2013 (Unaudited) |
|||||||||||||
| Net asset value, beginning of period |
$ | 21.59 | $ | 22.96 | $ | 20.00 | $ | 21.40 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Income (loss) from investment operations: |
||||||||||||||||
| Net investment income (loss)† |
0.32 | 0.32 | 0.03 | 0.30 | ||||||||||||
| Net realized and unrealized gain (loss) |
(1.09 | )(a) | (1.25 | )(a) | 2.93 | (0.89 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total from investment operations |
(0.77 | ) | (0.93 | ) | 2.96 | (0.59 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Less distributions to shareholders: |
||||||||||||||||
| From net investment income |
(0.01 | ) | (0.20 | ) | — | (0.02 | ) | |||||||||
| From net realized gains |
(0.10 | ) | (0.24 | ) | — | (0.10 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions |
(0.11 | ) | (0.44 | ) | — | (0.12 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net asset value, end of period |
$ | 20.71 | $ | 21.59 | $ | 22.96 | $ | 20.69 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Return(b) |
(3.54 | )%** | (4.00 | )% | 14.80 | %** | (2.75 | )%** | ||||||||
| Ratios/Supplemental Data: |
||||||||||||||||
| Net assets, end of period (000’s) |
$ | 81,697 | $ | 104,241 | $ | 8,101 | $ | 110,030 | ||||||||
| Net expenses to average daily net assets |
0.75 | %*(c)(d) | 0.77 | %(c) | 0.75 | %* | 0.70 | %*(c)(d) | ||||||||
| Net investment income (loss) to average daily net assets |
3.05 | %* | 1.48 | % | 0.78 | %* | 3.22 | %* | ||||||||
| Portfolio turnover rate |
23 | %** | 51 | % | 15 | %** | 23 | %** | ||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.10 | %* | 0.73 | % | 7.69 | %* | 0.12 | %* | ||||||||
| Purchase premiums and redemption fees consisted of the following per share amounts (Note 2):† |
$ | 0.05 | $ | 0.22 | $ | 0.06 | $ | 0.02 | ||||||||
| (a) | The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain (loss) on investments due to the timing of purchases and redemptions of the Fund shares in relation to fluctuating market values of the investments of the Fund. |
| (b) | The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown, if applicable, and assumes the effect of reinvested distributions, if any. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder purchasing or redeeming Fund shares, if any. |
| (c) | Net expenses exclude expenses incurred indirectly through investment in the underlying funds (Note 5). |
| (d) | The net expense ratio does not include the effect of expense reductions (Note 2). |
| † | Calculated using average shares outstanding throughout the period. |
| * | Annualized. |
| ** | Not annualized. |
| See accompanying notes to the financial statements. | 71 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
RISK PREMIUM FUND
| Class III Shares | Class IV Shares | Class VI Shares | ||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Period from December 14, 2012 (commencement of operations) through February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Period from December 17, 2012 (commencement of operations) through February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Period from November 15, 2012 (commencement of operations) through February 28, 2013 | |||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 10.53 | $ | 10.27 | $ | 10.54 | $ | 10.30 | $ | 10.53 | $ | 10.00 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Income (loss) from investment operations: |
||||||||||||||||||||||||||||||
| Net investment income (loss)† |
(0.03 | ) | (0.01 | ) | (0.03 | ) | (0.01 | ) | (0.03 | ) | (0.01 | ) | ||||||||||||||||||
| Net realized and unrealized gain (loss) |
(0.12 | ) | 0.27 | (0.12 | ) | 0.25 | (0.11 | ) | 0.54 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Total from investment operations |
(0.15 | ) | 0.26 | (0.15 | ) | 0.24 | (0.14 | ) | 0.53 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Less distributions to shareholders: |
||||||||||||||||||||||||||||||
| From net realized gains |
(0.24 | ) | — | (0.24 | ) | — | (0.24 | ) | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Total distributions |
(0.24 | ) | — | (0.24 | ) | — | (0.24 | ) | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Net asset value, end of period |
$ | 10.14 | $ | 10.53 | $ | 10.15 | $ | 10.54 | $ | 10.15 | $ | 10.53 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Total Return(a) |
(1.48 | )%** | 2.53 | %** | (1.48 | )%** | 2.33 | %** | (1.39 | )%** | 5.30 | %** | ||||||||||||||||||
| Ratios/Supplemental Data: |
||||||||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 7,153 | $ | 6,793 | $ | 26,811 | $ | 8,244 | $ | 688,134 | $ | 616,464 | ||||||||||||||||||
| Net expenses to average daily net assets(b)(c) |
0.60 | %* | 0.60 | %* | 0.55 | %* | 0.55 | %* | 0.51 | %* | 0.51 | %* | ||||||||||||||||||
| Net investment income (loss) to average daily net assets |
(0.57 | )%* | (0.56 | )%* | (0.52 | )%* | (0.51 | )%* | (0.47 | )%* | (0.46 | )%* | ||||||||||||||||||
| Portfolio turnover rate |
0 | %** | 0 | %** | 0 | %** | 0 | %** | 0 | %** | 0 | %** | ||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.04 | %* | 0.08 | %* | 0.04 | %* | 0.07 | %* | 0.04 | %* | 0.10 | %* | ||||||||||||||||||
| Purchase premiums and redemption fees consisted of the following per share amounts (Note 2):† |
$ | 0.00 | (d) | $ | 0.01 | $ | 0.00 | (d) | $ | 0.00 | (d) | $ | 0.00 | (d) | $ | 0.02 | ||||||||||||||
| (a) | The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown, if applicable, and assumes the effect of reinvested distributions, if any. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder purchasing or redeeming Fund shares, if any. |
| (b) | The net expense ratio does not include the effect of expense reductions (Note 2). |
| (c) | Net expenses exclude expenses incurred indirectly through investment in the underlying funds (Note 5). |
| (d) | Purchase premiums and redemption fees were less than $0.01 per share. |
| † | Calculated using average shares outstanding throughout the period. |
| * | Annualized. |
| ** | Not annualized. |
| 72 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
TAX-MANAGED INTERNATIONAL EQUITIES FUND
| See accompanying notes to the financial statements. | 73 |
GMO Trust Funds
August 31, 2013 (Unaudited)
| 1. | Organization |
Each of Currency Hedged International Equity Fund, Developed World Stock Fund, International Core Equity Fund, International Growth Equity Fund, International Intrinsic Value Fund, International Small Companies Fund, Resources Fund, Risk Premium Fund and Tax-Managed International Equities Fund (each a “Fund” and collectively the “Funds”) is a series of GMO Trust (the “Trust”). The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust was established as a Massachusetts business trust under the laws of The Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees of the Trust (“Trustees”) to create an unlimited number of series of shares (Funds) and to subdivide Funds into classes. The Funds are advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager” or “GMO”).
The Funds may invest in U.S. Treasury Fund and unaffiliated money market funds. The Funds may also invest in other GMO Funds (“underlying funds”).
The following table provides information about the Funds’ principal investment objectives and benchmarks (if any):
| Fund Name | Benchmark | Principal Investment Objective | ||
| Currency Hedged International Equity Fund | MSCI EAFE Index (Hedged) | Total return greater than benchmark | ||
| Developed World Stock Fund | MSCI World Index | High total return | ||
| International Core Equity Fund | MSCI EAFE Index | High total return | ||
| International Growth Equity Fund | MSCI EAFE Growth Index | High total return | ||
| International Intrinsic Value Fund | MSCI EAFE Value Index | High total return | ||
| International Small Companies Fund | MSCI EAFE Small Cap Index | High total return | ||
| Resources Fund | MSCI ACWI Commodity Producers |
Total return | ||
| Risk Premium Fund | Not Applicable | Total return | ||
| Tax-Managed International Equities Fund | MSCI EAFE Index (after tax) | High after-tax total return | ||
International Small Companies Fund and Risk Premium Fund currently limit subscriptions.
| 2. | Significant accounting policies |
The following is a summary of significant accounting policies followed by each Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently followed by the Funds in preparing these financial statements. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The accounting records of the Funds are maintained in U.S. Dollars.
Portfolio valuation
Exchange-traded securities (other than exchange-traded options) for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price or (iii) most recent quoted price published by the exchange (if no reported last sale or official closing price) or (iv) the quoted price provided by a pricing source (in the event the Manager deems the private market to be a more reliable indicator of market value than the exchange). Exchange-traded 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. Cleared derivatives are valued using the quote (which may be based on a model) published by the relevant clearing house. If an updated quote for a cleared derivative is not available by the time that a Fund calculates its net asset value on any business day, then that derivative will generally be valued using an industry standard model, which may differ from the model used by the relevant clearing house. Unlisted securities (including debt instruments) for which market quotations are readily available are generally valued at the most recent quoted price. In the case of non-emerging market debt instruments with a remaining maturity of sixty days or less, the instrument may be valued at amortized cost, which approximates market value, if the issuer is deemed to present minimal credit risk. Shares of the underlying funds and other open-end registered investment companies are valued at their most recent net asset value. If quotations are not readily available or circumstances make an existing valuation methodology or procedure unreliable, derivatives and other securities are valued at fair value as determined in good faith by the Trustees or persons acting at their direction pursuant to procedures approved by the Trustees. Because of the uncertainty inherent in pricing, and in particular fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. See the table below for information about securities and derivatives, if any, that were fair valued using methods determined in good faith by or at the direction of the Trustees. The Funds and/or the underlying funds classify such securities as Level 3 (levels defined below). For the period ended
| 74 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
August 31, 2013, the Funds did not reduce the value of any of their over-the-counter (“OTC”) derivatives contracts, if any, based on the creditworthiness of their counterparties. See Note 4 “Derivative financial instruments” for a further discussion on valuation of derivatives.
The foregoing valuation methodologies are modified for equity securities listed on foreign exchanges and that trade in securities markets that close prior to the close of the New York Stock Exchange (“NYSE”) due to time zone differences, including the value of equity securities that underlie futures, options and other derivatives (to the extent the market for those derivatives closes prior to the close of the NYSE). In those cases, the value will generally be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees to reflect estimated valuation changes through the NYSE close. The table below shows the percentage of the net assets of the Funds, held either directly or through investments in the underlying funds, that were valued using fair value inputs obtained from that independent pricing service as of August 31, 2013. These securities listed on foreign exchanges (including the value of equity securities that underlie futures, options and other derivatives (to the extent the market for such instruments closes prior to the close of the NYSE)) are classified as Level 2 (levels defined below) in the table below.
“Quotation” or “quoted price” typically means the bid price for securities held long and the ask price for securities sold short. If the pricing convention for a security does not involve a bid or an ask, “quotation” or “quoted price” may be a market quotation provided by a market participant or other third party pricing source in accordance with the convention for that security. If an updated quote for a security is not available by the time that the Funds calculate their net asset value on any business day, the Funds will generally use a quoted price from a prior day to value that security.
As discussed above, certain of the Funds and underlying funds invest in securities and/or derivatives which may have been fair valued using methods determined in good faith by or at the direction of the Trustees or fair valued using inputs obtained from an independent pricing service and presented in the table below on a net basis. The net aggregate direct and/or indirect exposure to these valuation methodologies (based on each Fund’s net assets) as of August 31, 2013 is as follows:
Securities and Derivatives
| Fund Name | Fair valued using methods determined in good faith by or at the direction of the Trustees |
Fair valued using inputs obtained from an independent pricing service |
||||||
| Currency Hedged International Equity Fund |
— | 94% | ||||||
| Developed World Stock Fund |
— | 43% | ||||||
| International Core Equity Fund |
0% | * | 95% | |||||
| International Growth Equity Fund |
— | 94% | ||||||
| International Intrinsic Value Fund |
— | 97% | ||||||
| International Small Companies Fund |
<1% | 93% | ||||||
| Resources Fund |
— | 67% | ||||||
| Risk Premium Fund |
— | (2)% | ||||||
| Tax-Managed International Equities Fund |
— | 97% | ||||||
| * | Represents the interest in securities that were determined to have a fair value of zero at August 31, 2013. |
U.S. GAAP requires the Funds to disclose the fair value of their investments in a three-level hierarchy (Levels 1, 2, and 3). The valuation hierarchy is based upon the relative observability of inputs to the valuation of the Funds’ investments. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Changes in valuation techniques may result in transfers into or out of an investment’s assigned level within the fair value hierarchy. In addition, in periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition, as well as changes related to the liquidity of investments, could cause a security to be reclassified between levels.
U.S. GAAP requires additional disclosures about fair value measurements for material Level 3 securities and derivatives, if any (determined by each category of asset or liability as compared to a Fund’s total net assets separately identified in the “Valuation Inputs” table below). At August 31, 2013, there were no direct material Level 3 classes of investments or derivatives with significant unobservable inputs subject to this additional disclosure.
| 75 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The three levels are defined as follows:
Level 1 – Valuations based on quoted prices for identical securities in active markets.
The types of assets and liabilities categorized in Level 1 generally include actively traded domestic and certain foreign equity securities, certain U.S. government obligations with a remaining maturity of greater than 60 days, derivatives actively traded on a national securities exchange (such as some futures and options), and shares of open-end mutual funds (even if their investments are valued using Level 2 or Level 3 inputs).
Level 2 – Valuations determined using other significant direct or indirect observable inputs.
The types of assets and liabilities categorized in Level 2 generally include debt securities such as U.S. government securities with a remaining maturity of 60 days or less valued at amortized cost; cleared derivatives and certain OTC derivatives such as swaps, options, swaptions, and forward currency contracts valued using industry standard models; certain restricted securities valued at the most recent available market or quoted price; and certain foreign equity securities that are adjusted based on inputs from an independent pricing service approved by the Trustees, including the value of equity securities that underlie futures, options and other derivatives (to the extent the market for such instruments closes prior to the close of the NYSE) to reflect estimated valuation changes through the NYSE close.
Level 3 – Valuations based primarily on inputs that are unobservable and significant.
The types of assets and liabilities categorized in Level 3 generally include, but are not limited to, securities whose trading has been suspended or that have been de-listed from their current primary trading exchange valued at the most recent available market or quoted price; securities in default or bankruptcy proceedings for which there is no current market quotation valued at the most recent available market or quoted price; third-party investment funds where valuations are provided by fund sponsors and which are adjusted for liquidity considerations as well as the timing of the receipt of information; certain securities that are valued at the local price and adjusted by applying a premium or discount when the holdings exceed foreign ownership limitations; certain equity securities valued based on the last traded exchange price adjusted for the movement in a securities index; and certain securities that are valued using a price from a comparable security related to the same issuer.
The following is a summary of the respective levels assigned to the Funds’ direct securities and derivatives, if any, as of August 31, 2013:
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Currency Hedged International Equity Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Mutual Funds |
||||||||||||||||
| United States |
$ | 2,341,789,978 | $ | — | $ | — | $ | 2,341,789,978 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
2,341,789,978 | — | — | 2,341,789,978 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
70,991,791 | — | — | 70,991,791 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
2,412,781,769 | — | — | 2,412,781,769 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign currency risk |
— | 8,108,168 | — | 8,108,168 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 2,412,781,769 | $ | 8,108,168 | $ | — | $ | 2,420,889,937 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign currency risk |
$ | — | $ | (7,014,069 | ) | $ | — | $ | (7,014,069 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | — | $ | (7,014,069 | ) | $ | — | $ | (7,014,069 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 76 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Developed World Stock Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 4,055,159 | $ | — | $ | 4,055,159 | ||||||||
| Austria |
— | 1,458,673 | — | 1,458,673 | ||||||||||||
| Canada |
774,178 | — | — | 774,178 | ||||||||||||
| Finland |
— | 1,042,491 | — | 1,042,491 | ||||||||||||
| France |
— | 29,999,290 | — | 29,999,290 | ||||||||||||
| Germany |
— | 13,485,810 | — | 13,485,810 | ||||||||||||
| Hong Kong |
— | 1,489,744 | — | 1,489,744 | ||||||||||||
| Ireland |
— | 815,098 | — | 815,098 | ||||||||||||
| Italy |
— | 15,051,147 | — | 15,051,147 | ||||||||||||
| Japan |
— | 40,051,061 | — | 40,051,061 | ||||||||||||
| Netherlands |
— | 1,874,933 | — | 1,874,933 | ||||||||||||
| Norway |
— | 1,232,418 | — | 1,232,418 | ||||||||||||
| Portugal |
— | 910,680 | — | 910,680 | ||||||||||||
| Singapore |
— | 1,751,657 | — | 1,751,657 | ||||||||||||
| Spain |
— | 14,967,562 | — | 14,967,562 | ||||||||||||
| Sweden |
— | 271,271 | — | 271,271 | ||||||||||||
| Switzerland |
— | 2,540,058 | — | 2,540,058 | ||||||||||||
| United Kingdom |
— | 32,464,941 | — | 32,464,941 | ||||||||||||
| United States |
202,237,454 | — | — | 202,237,454 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
203,011,632 | 163,461,993 | — | 366,473,625 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Germany |
— | 2,115,533 | — | 2,115,533 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
— | 2,115,533 | — | 2,115,533 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
11,480,665 | — | — | 11,480,665 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
11,480,665 | — | — | 11,480,665 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
2,063,893 | — | — | 2,063,893 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
$ | 216,556,190 | $ | 165,577,526 | $ | — | $ | 382,133,716 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign currency risk |
— | 533,372 | — | 533,372 | ||||||||||||
| Futures Contracts |
||||||||||||||||
| Equity risk |
— | 164,570 | — | 164,570 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 216,556,190 | $ | 166,275,468 | $ | — | $ | 382,831,658 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign currency Risk |
$ | — | $ | (141,428 | ) | $ | — | $ | (141,428 | ) | ||||||
| Futures Contracts |
||||||||||||||||
| Equity risk |
(25,257 | ) | (184,784 | ) | — | (210,041 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (25,257 | ) | $ | (326,212 | ) | $ | — | $ | (351,469 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| 77 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| International Core Equity |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 106,936,113 | $ | — | $ | 106,936,113 | ||||||||
| Austria |
— | 13,102,854 | — | 13,102,854 | ||||||||||||
| Belgium |
— | 16,807,552 | — | 16,807,552 | ||||||||||||
| Canada |
26,538,406 | — | — | 26,538,406 | ||||||||||||
| Denmark |
— | 2,478,409 | — | 2,478,409 | ||||||||||||
| Finland |
— | 21,031,972 | — | 21,031,972 | ||||||||||||
| France |
— | 260,293,662 | — | 260,293,662 | ||||||||||||
| Germany |
— | 119,694,259 | — | 119,694,259 | ||||||||||||
| Greece |
— | 9,022,319 | — | 9,022,319 | ||||||||||||
| Hong Kong |
— | 41,148,432 | — | 41,148,432 | ||||||||||||
| Ireland |
— | 4,949,337 | — | 4,949,337 | ||||||||||||
| Israel |
— | 4,435,977 | — | 4,435,977 | ||||||||||||
| Italy |
— | 101,216,863 | — | 101,216,863 | ||||||||||||
| Japan |
— | 442,092,978 | — | 442,092,978 | ||||||||||||
| Malta |
— | — | 0 | ** | 0 | ** | ||||||||||
| Netherlands |
— | 27,162,383 | 0 | ** | 27,162,383 | |||||||||||
| New Zealand |
— | 11,266,851 | — | 11,266,851 | ||||||||||||
| Norway |
— | 8,946,096 | — | 8,946,096 | ||||||||||||
| Portugal |
— | 8,981,964 | — | 8,981,964 | ||||||||||||
| Singapore |
— | 24,122,386 | — | 24,122,386 | ||||||||||||
| Spain |
— | 158,650,425 | — | 158,650,425 | ||||||||||||
| Sweden |
— | 22,131,189 | — | 22,131,189 | ||||||||||||
| Switzerland |
— | 61,699,542 | — | 61,699,542 | ||||||||||||
| United Kingdom |
— | 515,992,261 | 0 | ** | 515,992,261 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
26,538,406 | 1,982,163,824 | 0 | ** | 2,008,702,230 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Germany |
— | 13,789,153 | — | 13,789,153 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
— | 13,789,153 | — | 13,789,153 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
42,281,429 | 42,281,429 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
42,281,429 | — | — | 42,281,429 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
15,187,412 | — | — | 15,187,412 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
84,007,247 | 1,995,952,977 | 0 | ** | 2,079,960,224 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | 3,553,947 | — | 3,553,947 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 84,007,247 | $ | 1,999,506,924 | $ | — | $ | 2,083,514,171 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
$ | — | $ | (1,548,245 | ) | $ | — | $ | (1,548,245 | ) | ||||||
| Futures Contracts |
||||||||||||||||
| Equity Risk |
(364,258 | ) | (609,932 | ) | (974,190 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (364,258 | ) | $ | (2,158,177 | ) | $ | — | $ | (2,522,435 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| 78 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| International Growth Equity Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 119,908,875 | $ | — | $ | 119,908,875 | ||||||||
| Austria |
— | 4,909,328 | 0 | ** | 4,909,328 | |||||||||||
| Belgium |
— | 20,837,781 | — | 20,837,781 | ||||||||||||
| Canada |
54,973,321 | — | — | 54,973,321 | ||||||||||||
| Denmark |
— | 46,751,002 | — | 46,751,002 | ||||||||||||
| Finland |
— | 29,038,803 | — | 29,038,803 | ||||||||||||
| France |
— | 118,919,923 | — | 118,919,923 | ||||||||||||
| Germany |
— | 118,182,976 | — | 118,182,976 | ||||||||||||
| Greece |
— | 595,610 | — | 595,610 | ||||||||||||
| Hong Kong |
— | 59,030,558 | — | 59,030,558 | ||||||||||||
| Ireland |
20 | 16,555,934 | — | 16,555,954 | ||||||||||||
| Israel |
— | 10,822,613 | — | 10,822,613 | ||||||||||||
| Italy |
— | 21,600,743 | — | 21,600,743 | ||||||||||||
| Japan |
— | 403,557,954 | — | 403,557,954 | ||||||||||||
| Netherlands |
— | 45,680,628 | — | 45,680,628 | ||||||||||||
| New Zealand |
— | 1,976,089 | — | 1,976,089 | ||||||||||||
| Norway |
— | 17,330,470 | — | 17,330,470 | ||||||||||||
| Portugal |
— | 341,847 | — | 341,847 | ||||||||||||
| Singapore |
— | 45,554,874 | — | 45,554,874 | ||||||||||||
| Spain |
— | 45,873,109 | — | 45,873,109 | ||||||||||||
| Sweden |
— | 49,749,545 | — | 49,749,545 | ||||||||||||
| Switzerland |
— | 201,044,546 | — | 201,044,546 | ||||||||||||
| United Kingdom |
— | 429,884,292 | — | 429,884,292 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
54,973,341 | 1,808,147,500 | 0 | ** | 1,863,120,841 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Germany |
— | 19,741,792 | — | 19,741,792 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
— | 19,741,792 | — | 19,741,792 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Rights/Warrants |
||||||||||||||||
| Canada |
1,455 | — | — | 1,455 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL RIGHTS/WARRANTS |
1,455 | — | — | 1,455 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
49,161,461 | — | — | 49,161,461 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
49,161,461 | — | — | 49,161,461 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
3,960,710 | — | — | 3,960,710 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
108,096,967 | 1,827,889,292 | 0 | ** | 1,935,986,259 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign currency risk |
— | 2,906,925 | — | 2,906,925 | ||||||||||||
| Futures Contracts |
||||||||||||||||
| Equity risk |
— | 597,982 | — | 597,982 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 108,096,967 | $ | 1,831,394,199 | $ | 0 | ** | $ | 1,939,491,166 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 79 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| International Growth Equity Fund (continued) |
||||||||||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign currency risk |
$ | — | $ | (1,444,269 | ) | $ | — | $ | (1,444,269 | ) | ||||||
| Futures Contracts |
||||||||||||||||
| Equity risk |
(78,389 | ) | (1,060,049 | ) | — | (1,138,438 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (78,389 | ) | $ | (2,504,318 | ) | $ | — | $ | (2,582,707 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| International Intrinsic Value Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 443,166,938 | $ | — | $ | 443,166,938 | ||||||||
| Austria |
— | 52,175,611 | 0 | ** | 52,175,611 | |||||||||||
| Belgium |
— | 46,890,921 | — | 46,890,921 | ||||||||||||
| Canada |
135,850,349 | — | — | 135,850,349 | ||||||||||||
| Denmark |
— | 1,363,552 | — | 1,363,552 | ||||||||||||
| Finland |
— | 81,969,149 | — | 81,969,149 | ||||||||||||
| France |
— | 1,707,108,795 | — | 1,707,108,795 | ||||||||||||
| Germany |
— | 628,498,122 | — | 628,498,122 | ||||||||||||
| Greece |
— | 33,570,258 | — | 33,570,258 | ||||||||||||
| Hong Kong |
— | 164,912,086 | — | 164,912,086 | ||||||||||||
| Ireland |
— | 24,537,232 | — | 24,537,232 | ||||||||||||
| Israel |
— | 32,220,865 | — | 32,220,865 | ||||||||||||
| Italy |
— | 813,321,504 | — | 813,321,504 | ||||||||||||
| Japan |
— | 2,595,523,369 | — | 2,595,523,369 | ||||||||||||
| Malta |
— | — | 0 | ** | 0 | ** | ||||||||||
| Netherlands |
— | 155,447,646 | — | 155,447,646 | ||||||||||||
| New Zealand |
— | 40,083,564 | — | 40,083,564 | ||||||||||||
| Norway |
— | 75,839,739 | — | 75,839,739 | ||||||||||||
| Portugal |
— | 41,274,229 | — | 41,274,229 | ||||||||||||
| Singapore |
— | 127,716,794 | — | 127,716,794 | ||||||||||||
| Spain |
— | 997,940,832 | — | 997,940,832 | ||||||||||||
| Sweden |
— | 129,223,112 | — | 129,223,112 | ||||||||||||
| Switzerland |
— | 270,693,738 | — | 270,693,738 | ||||||||||||
| United Kingdom |
— | 3,086,376,262 | — | 3,086,376,262 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
135,850,349 | 11,549,854,318 | — | 11,685,704,667 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Germany |
— | 46,377,526 | — | 46,377,526 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
— | 46,377,526 | — | 46,377,526 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
88,307,524 | — | — | 88,307,524 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
88,307,524 | — | — | 88,307,524 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
138,089,029 | — | — | 138,089,029 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
362,246,902 | 11,596,231,844 | — | 11,958,478,746 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 80 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| International Intrinsic Value Fund (continued) |
||||||||||||||||
| Asset Valuation Inputs (continued) |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign currency risk |
$ | — | $ | 13,463,792 | $ | — | $ | 13,463,792 | ||||||||
| Futures Contracts |
||||||||||||||||
| Equity risk |
— | 1,469,574 | — | 1,469,574 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 362,246,902 | $ | 11,611,165,210 | $ | — | $ | 11,973,412,112 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign currency risk |
$ | — | $ | (2,353,257 | ) | $ | — | $ | (2,353,257 | ) | ||||||
| Futures Contracts |
||||||||||||||||
| Equity risk |
(1,396,650 | ) | (2,767,368 | ) | — | (4,164,018 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (1,396,650 | ) | $ | (5,120,625 | ) | $ | — | $ | (6,517,275 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| International Small Companies Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 12,449,431 | $ | — | $ | 12,449,431 | ||||||||
| Austria |
— | 797,314 | 0 | ** | 797,314 | |||||||||||
| Belgium |
— | 1,878,721 | 18 | 1,878,739 | ||||||||||||
| Brazil |
1,044,945 | — | — | 1,044,945 | ||||||||||||
| Canada |
9,439,006 | — | — | 9,439,006 | ||||||||||||
| China |
— | 2,207,179 | — | 2,207,179 | ||||||||||||
| Czech Republic |
— | 95,785 | — | 95,785 | ||||||||||||
| Denmark |
— | 3,551,808 | — | 3,551,808 | ||||||||||||
| Finland |
— | 1,375,115 | — | 1,375,115 | ||||||||||||
| France |
— | 15,669,512 | — | 15,669,512 | ||||||||||||
| Germany |
— | 19,244,082 | — | 19,244,082 | ||||||||||||
| Greece |
— | 4,327,859 | 6,015 | 4,333,874 | ||||||||||||
| Hong Kong |
— | 5,801,368 | — | 5,801,368 | ||||||||||||
| India |
— | 519,111 | — | 519,111 | ||||||||||||
| Indonesia |
— | 498,401 | 196,607 | 695,008 | ||||||||||||
| Ireland |
— | 10,081,833 | — | 10,081,833 | ||||||||||||
| Israel |
— | 1,433,679 | — | 1,433,679 | ||||||||||||
| Italy |
— | 18,524,052 | — | 18,524,052 | ||||||||||||
| Japan |
— | 84,689,972 | — | 84,689,972 | ||||||||||||
| Mexico |
1,044,324 | — | — | 1,044,324 | ||||||||||||
| Netherlands |
— | 5,243,529 | 0 | ** | 5,243,529 | |||||||||||
| New Zealand |
— | 418,109 | — | 418,109 | ||||||||||||
| Norway |
— | 2,698,484 | — | 2,698,484 | ||||||||||||
| Philippines |
— | 155,077 | — | 155,077 | ||||||||||||
| Portugal |
— | 1,568,395 | — | 1,568,395 | ||||||||||||
| Singapore |
— | 6,984,927 | — | 6,984,927 | ||||||||||||
| South Africa |
— | 385,120 | — | 385,120 | ||||||||||||
| South Korea |
— | 3,474,030 | — | 3,474,030 | ||||||||||||
| Spain |
— | 10,883,465 | — | 10,883,465 | ||||||||||||
| Sweden |
— | 3,200,090 | 2,093 | 3,202,183 | ||||||||||||
| Switzerland |
— | 8,760,004 | — | 8,760,004 | ||||||||||||
| Taiwan |
— | 2,235,045 | 0 | ** | 2,235,045 | |||||||||||
| Thailand |
— | 810,857 | — | 810,857 | ||||||||||||
| 81 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| International Small Companies Fund (continued) |
||||||||||||||||
| Asset Valuation Inputs (continued) |
||||||||||||||||
| Turkey |
$ | — | $ | 586,883 | $ | — | $ | 586,883 | ||||||||
| United Kingdom |
— | 70,837,396 | — | 70,837,396 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
11,528,275 | 301,386,633 | 204,733 | 313,119,641 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Brazil |
1,124,052 | — | — | 1,124,052 | ||||||||||||
| Germany |
— | 1,508,359 | — | 1,508,359 | ||||||||||||
| Russia |
— | 1,968,632 | — | 1,968,632 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
1,124,052 | 3,476,991 | — | 4,601,043 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Rights/Warrants |
||||||||||||||||
| Malaysia |
— | 1,675 | — | 1,675 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL RIGHTS/WARRANTS |
— | 1,675 | — | 1,675 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
8,131,457 | — | — | 8,131,457 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
8,131,457 | — | — | 8,131,457 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
1,496,314 | — | — | 1,496,314 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
22,280,098 | 304,865,299 | 204,733 | 327,350,130 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign currency risk |
— | 465,980 | — | 465,980 | ||||||||||||
| Futures Contracts |
||||||||||||||||
| Equity risk |
— | 46,916 | — | 46,916 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 22,280,098 | $ | 305,378,195 | $ | 204,733 | $ | 327,863,026 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign currency risk |
$ | — | $ | (147,556 | ) | $ | — | $ | (147,556 | ) | ||||||
| Futures Contracts |
||||||||||||||||
| Equity risk |
(230,441 | ) | (541,093 | ) | — | (771,534 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (230,441 | ) | $ | (688,649 | ) | $ | — | $ | (919,090 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| Resources Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 728,260 | $ | — | $ | 728,260 | ||||||||
| Austria |
— | 1,954,323 | — | 1,954,323 | ||||||||||||
| Belgium |
— | 287,915 | — | 287,915 | ||||||||||||
| Brazil |
4,906,835 | — | — | 4,906,835 | ||||||||||||
| Canada |
10,887,989 | — | — | 10,887,989 | ||||||||||||
| China |
— | 5,310,937 | — | 5,310,937 | ||||||||||||
| Czech Republic |
— | 1,668,285 | — | 1,668,285 | ||||||||||||
| Denmark |
— | 1,314,329 | — | 1,314,329 | ||||||||||||
| France |
— | 9,292,678 | — | 9,292,678 | ||||||||||||
| Germany |
— | 1,865,248 | — | 1,865,248 | ||||||||||||
| Greece |
— | 487,866 | — | 487,866 | ||||||||||||
| Hungary |
— | 620,687 | — | 620,687 | ||||||||||||
| Israel |
— | 1,458,576 | — | 1,458,576 | ||||||||||||
| 82 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Resources Fund (continued) |
||||||||||||||||
| Asset Valuation Inputs (continued) |
||||||||||||||||
| Italy |
$ | — | $ | 4,927,683 | $ | — | $ | 4,927,683 | ||||||||
| Japan |
— | 25,399,692 | — | 25,399,692 | ||||||||||||
| Netherlands |
— | 849,680 | — | 849,680 | ||||||||||||
| Norway |
— | 11,967,259 | — | 11,967,259 | ||||||||||||
| Poland |
— | 3,010,708 | — | 3,010,708 | ||||||||||||
| Russia |
— | 13,125,687 | — | 13,125,687 | ||||||||||||
| Singapore |
— | 2,514,828 | — | 2,514,828 | ||||||||||||
| South Africa |
— | 1,052,394 | — | 1,052,394 | ||||||||||||
| Spain |
— | 7,231,352 | — | 7,231,352 | ||||||||||||
| Sweden |
— | 1,123,266 | — | 1,123,266 | ||||||||||||
| Taiwan |
— | 351,761 | — | 351,761 | ||||||||||||
| Thailand |
— | 812,494 | — | 812,494 | ||||||||||||
| Turkey |
— | 1,117,153 | — | 1,117,153 | ||||||||||||
| United Kingdom |
366,696 | 29,229,205 | — | 29,595,901 | ||||||||||||
| United States |
38,057,049 | — | — | 38,057,049 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
54,218,569 | 127,702,266 | — | 181,920,835 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Brazil |
5,967,747 | — | — | 5,967,747 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
5,967,747 | — | — | 5,967,747 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| RIGHTS/WARRANTS |
||||||||||||||||
| Italy |
— | — | 99 | 99 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL RIGHTS/WARRANTS |
— | — | 99 | 99 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
3,156,914 | — | — | 3,156,914 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
3,156,914 | — | — | 3,156,914 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
73,942 | — | — | 73,942 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
63,417,172 | 127,702,266 | 99 | 191,119,537 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 63,417,172 | $ | 127,702,266 | $ | 99 | $ | 191,119,537 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Risk Premium Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Mutual Funds |
||||||||||||||||
| United States |
$ | 278,253,028 | $ | — | $ | — | $ | 278,253,028 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
278,253,028 | — | — | 278,253,028 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
49,956,766 | — | — | 49,956,766 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
328,209,794 | — | — | 328,209,794 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 328,209,794 | $ | — | $ | — | $ | 328,209,794 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Written Options |
||||||||||||||||
| Equity Risk |
$ | (6,426,911 | ) | $ | (14,434,244 | ) | $ | — | $ | (20,861,155 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (6,426,911 | ) | $ | (14,434,244 | ) | $ | — | $ | (20,861,155 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| 83 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Tax-Managed International Equities Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 19,536,590 | $ | — | $ | 19,536,590 | ||||||||
| Austria |
— | 3,392,025 | 0 | ** | 3,392,025 | |||||||||||
| Belgium |
— | 5,513,335 | — | 5,513,335 | ||||||||||||
| Canada |
5,095,265 | — | — | 5,095,265 | ||||||||||||
| Denmark |
— | 1,074,528 | — | 1,074,528 | ||||||||||||
| Finland |
— | 3,472,243 | — | 3,472,243 | ||||||||||||
| France |
— | 65,465,360 | 21 | 65,465,381 | ||||||||||||
| Germany |
— | 29,646,274 | — | 29,646,274 | ||||||||||||
| Greece |
— | 1,299,363 | — | 1,299,363 | ||||||||||||
| Hong Kong |
— | 9,264,243 | — | 9,264,243 | ||||||||||||
| Ireland |
— | 2,277,549 | — | 2,277,549 | ||||||||||||
| Israel |
— | 731,119 | — | 731,119 | ||||||||||||
| Italy |
— | 25,153,672 | — | 25,153,672 | ||||||||||||
| Japan |
— | 100,843,569 | — | 100,843,569 | ||||||||||||
| Malta |
— | — | 0 | ** | 0 | ** | ||||||||||
| Netherlands |
— | 5,554,826 | — | 5,554,826 | ||||||||||||
| New Zealand |
— | 1,474,282 | — | 1,474,282 | ||||||||||||
| Norway |
— | 1,435,727 | — | 1,435,727 | ||||||||||||
| Portugal |
— | 2,496,290 | — | 2,496,290 | ||||||||||||
| Singapore |
— | 7,196,478 | — | 7,196,478 | ||||||||||||
| Spain |
— | 38,929,665 | — | 38,929,665 | ||||||||||||
| Sweden |
— | 3,124,922 | — | 3,124,922 | ||||||||||||
| Switzerland |
— | 15,570,133 | — | 15,570,133 | ||||||||||||
| United Kingdom |
— | 122,633,516 | — | 122,633,516 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
5,095,265 | 466,085,709 | 21 | 471,180,995 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Germany |
— | 2,623,489 | — | 2,623,489 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
— | 2,623,489 | — | 2,623,489 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
5,931,149 | — | — | 5,931,149 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
5,931,149 | — | — | 5,931,149 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
957,420 | — | — | 957,420 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
11,983,834 | 468,709,198 | 21 | 480,693,053 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign currency risk |
— | 662,935 | — | 662,935 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 11,983,834 | $ | 469,372,133 | $ | 21 | $ | 481,355,988 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign currency risk |
$ | — | $ | (432,012 | ) | $ | — | $ | (432,012 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | — | $ | (432,012 | ) | $ | — | $ | (432,012 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 84 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The risks referenced in the tables above are not intended to be inclusive of all risks. Please see the “Investment and other risks” and “Derivative financial instruments” sections below for a further discussion of risks.
| * | The tables above are based on market values or unrealized appreciation/(depreciation) rather than the notional amounts of derivatives. The uncertainties surrounding the valuation inputs for a derivative are likely to be more significant to the Funds’ net asset values than the uncertainties surrounding inputs for a non-derivative security with the same market value. |
| ** | Represents the interest in securities that were determined to have a fair value of zero at August 31, 2013. |
The underlying funds held at period end are classified above as Level 1. For the summary of valuation inputs of the underlying funds, please refer to the underlying funds’ Notes to Financial Statements.
For all Funds for the period ended August 31, 2013, there were no material transfers between Level 1 and Level 2.
The following is a reconciliation of securities and derivatives, if any, in which significant unobservable inputs (Level 3) were used in determining value:
| Balances as of February 28, 2013 |
Purchases | Sales | Accrued Discounts/ Premiums |
Total Realized Gain/ (Loss) |
Change in Unrealized Appreciation (Depreciation) |
Transfer into Level 3* |
Transfer out of Level 3* |
Balances as of August 31, 2013 |
Net Change in Unrealized Appreciation (Depreciation) from Investments Still Held as of August 31, 2013 |
|||||||||||||||||||||||||||||||
| International Core Equity Fund |
||||||||||||||||||||||||||||||||||||||||
| Common Stocks |
||||||||||||||||||||||||||||||||||||||||
| Netherlands |
$ | 1,026,047 | $ | — | $ | — | $ | — | $ | — | $ | (1,026,047 | ) | $ | — | $ | — | $ | 0 | *** | $ | (1,026,047 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total |
$ | 1,026,047 | $ | — | $ | — | $ | — | $ | — | $ | (1,026,047 | ) | $ | — | $ | — | $ | 0 | *** | $ | (1,026,047 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| International Small Companies Fund |
||||||||||||||||||||||||||||||||||||||||
| Common Stocks |
||||||||||||||||||||||||||||||||||||||||
| Austria |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 0 | *** | $ | — | |||||||||||||||||||
| Belgium |
18 | — | — | — | — | — | — | — | 18 | 0 | ||||||||||||||||||||||||||||||
| Greece |
5,942 | — | — | — | — | 73 | — | — | 6,015 | 73 | ||||||||||||||||||||||||||||||
| Indonesia |
222,158 | — | — | — | — | (25,551 | ) | — | — | 196,607 | (25,551 | ) | ||||||||||||||||||||||||||||
| Netherlands |
214,242 | — | — | — | — | (214,242 | ) | — | — | 0 | *** | (214,242 | ) | |||||||||||||||||||||||||||
| Sweden |
7,818 | — | (595 | ) | — | (916,013 | ) | 910,883 | — | — | 2,093 | (52 | ) | |||||||||||||||||||||||||||
| Taiwan |
— | — | — | — | — | — | — | — | 0 | *** | — | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total |
$ | 450,178 | $ | — | $ | (595 | ) | $ | — | $ | (916,013 | ) | $ | 671,163 | $ | — | $ | — | $ | 204,733 | $ | (239,772 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Resources Fund |
||||||||||||||||||||||||||||||||||||||||
| Rights and/or Warrants |
||||||||||||||||||||||||||||||||||||||||
| Italy |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | 99 | $ | — | $ | — | $ | 99 | $ | 99 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | 99 | $ | — | $ | — | $ | 99 | $ | 99 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Tax-Managed International Equities Fund |
||||||||||||||||||||||||||||||||||||||||
| Common Stocks |
||||||||||||||||||||||||||||||||||||||||
| France |
$ | 21 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 21 | $ | — | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total |
$ | 21 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 21 | $ | — | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| * | The Funds account for securities and derivatives, if any, transferred into and out of Level 3 at the value at the end of the period. |
| ** | Financial assets transferred between Level 2 and Level 3, if any, were due to a change in observable and/or unobservable inputs |
| *** | Represents the interest in securities that were determined to have a fair value of zero at August 31, 2013. |
| 85 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The net aggregate direct and/or indirect exposure to investments in securities using Level 3 inputs (based on the Funds’ net assets) as of August 31, 2013 were as follows:
| Fund Name | Level 3 securities | |||
| Currency Hedged International Equity Fund |
— | |||
| Developed World Stock Fund |
— | |||
| International Core Equity Fund |
0% | * | ||
| International Growth Equity Fund |
0% | * | ||
| International Intrinsic Value Fund |
0% | * | ||
| International Small Companies Fund |
<1% | |||
| Resources Fund |
<1% | |||
| Risk Premium Fund |
— | |||
| Tax-Managed International Equities Fund |
<1% | |||
| * | Represents the interest in securities that were determined to have a fair value of zero at August 31, 2013. |
Cash
Cash and Foreign Currency, if any, on the Statements of Assets and Liabilities consists of cash balances held with the custodian.
Due to/from broker
Due to/from broker in the Statements of Assets and Liabilities includes collateral on swap contracts, futures contracts, option contracts and forward currency contracts, if any, and may include mark-to-market amounts related to foreign currency.
Foreign currency translation
The market values of foreign securities, currency holdings and related assets and liabilities are typically translated into U.S. Dollars at the close of regular trading on the NYSE, generally at 4:00 pm Boston time. Income and expenses denominated in foreign currencies are typically translated into U.S. Dollars at the close of regular trading on the NYSE. Fluctuations in the value of currency holdings and other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains or losses. Realized gains or losses and unrealized appreciation or depreciation on investment securities and income and expenses are translated on the respective dates of such transactions. The effects of changes in foreign currency exchange rates on investments in securities are not separated on the Statements of Operations from the effects of changes in market prices of those securities, but are included with the net realized and unrealized gain or loss on investment securities.
Taxes and distributions
Each Fund intends to qualify each tax year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). Each Fund intends to distribute substantially all of its net investment income, if any, and all of its net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryforwards for U.S. federal income tax purposes. Therefore, each Fund makes no provision for U.S. federal income or excise taxes. Taxes on foreign interest and dividend income are generally withheld in accordance with the applicable country’s tax treaty with the United States. The foreign withholding rates applicable to a Fund’s investments in certain jurisdictions may be higher if a significant portion of the Fund is held by non-U.S. shareholders.
Each Fund’s policy is to declare and pay distributions of its net investment income, if any, semi-annually. Each Fund also intends to distribute net realized short-term and long-term capital gains, if any, at least annually. Typically, distributions are reinvested in additional shares of each Fund, at net asset value, unless the shareholder elects to receive cash distributions. Distributions to shareholders are recorded by each Fund on the ex-dividend date.
Foreign taxes paid by each Fund may be treated, to the extent permissible under the Code and if that Fund so elects, as if paid by U.S. shareholders of that Fund.
Each Fund may be subject to taxation on realized capital gains, repatriation proceeds and other transaction-based taxes imposed by certain countries in which it invests. Taxes related to capital gains realized during the period ended August 31, 2013, if any, are reflected as part of Net realized gain (loss) in the Statements of Operations. Changes in tax liabilities related to capital gain taxes on unrealized investment gains, if any, are reflected as part of Change in net unrealized appreciation (depreciation) in the Statements of Operations. Transaction-based charges are generally calculated as a percentage of the transaction amount.
| 86 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Income and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will likely reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over-distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Distributions in excess of tax basis earnings and profits, if significant, are reported in the Funds’ financial statements as a return of capital.
As of February 28, 2013, the Funds listed below elected to defer to March 1, 2013 late-year ordinary losses and post-October capital losses as follows:
| Fund Name |
Late-Year Ordinary Losses ($) |
Post- Capital Losses ($) |
||||||
| International Intrinsic Value Fund |
— | (15,899,642) | ||||||
| Risk Premium Fund |
(340,678) | — | ||||||
| Tax-Managed International Equities Fund |
— | (2,623,168) | ||||||
As of February 28, 2013, the Funds listed below had capital loss carryforwards available to offset future realized gains, if any, to the extent permitted by the Code. Net capital losses recognized in taxable years beginning on or after March 1, 2011 are carried forward without expiration and generally retain their short-term and/or long-term tax character, as applicable. In addition, such losses should be utilized prior to losses scheduled to expire on or before February 28, 2019. As a result of this ordering rule, losses that are subject to expiration may expire unused. Utilization of the capital loss carryforwards, post-October capital losses, late-year ordinary losses and losses realized subsequent to February 28, 2013, if any, could be subject to further limitations imposed by the Code related to share ownership activity. The Funds’ capital loss carryforwards are as follows:
|
Fund Name |
Short-Term ($) | Total Short- Term ($) |
Long- Term ($) |
|||||||||||||||||||||
| Expiration Date 2/28/2017 |
Expiration Date 2/28/2018 |
Expiration Date 2/28/2019 |
No Expiration Date |
No Expiration Date |
||||||||||||||||||||
| Currency Hedged International Equity Fund |
— | (4,202,627) | — | — | (4,202,627) | — | ||||||||||||||||||
| Developed World Stock Fund |
(1,215,292) | (76,431,352) | (13,491,492) | — | (91,138,136) | — | ||||||||||||||||||
| International Core Equity Fund |
(17,648,106) | (906,840,158) | (47,181,759) | — | (971,670,023) | — | ||||||||||||||||||
| International Growth Equity Fund |
— | (461,122,519) | — | — | (461,122,519) | — | ||||||||||||||||||
| International Intrinsic Value Fund |
(111,903,032) | (948,787,215) | (163,539,321) | (7,292,886) | (1,231,522,454) | (173,117,030) | ||||||||||||||||||
| International Small Companies Fund |
— | (13,357,765) | — | (4,056,634) | (17,414,399) | — | ||||||||||||||||||
| Tax-Managed International Equities Fund |
— | (94,049,954) | — | (2,679,210) | (96,729,164) | — | ||||||||||||||||||
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GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
As of August 31, 2013, the approximate cost for U.S. federal income tax purposes and the aggregate investment-level gross and net unrealized appreciation (depreciation) in the value of investments were as follows:
| Fund Name | Aggregate Cost ($) |
Gross Unrealized Appreciation ($) |
Gross Unrealized (Depreciation) ($) |
Net Unrealized Appreciation (Depreciation) ($) |
||||||||||||
| Currency Hedged International Equity Fund |
2,149,308,473 | 263,473,296 | — | 263,473,296 | ||||||||||||
| Developed World Stock Fund |
338,802,112 | 57,603,453 | (14,271,849) | 43,331,604 | ||||||||||||
| International Core Equity Fund |
1,991,080,283 | 179,109,268 | (90,229,327) | 88,879,941 | ||||||||||||
| International Growth Equity Fund |
1,737,277,524 | 248,332,393 | (49,623,658) | 198,708,735 | ||||||||||||
| International Intrinsic Value Fund |
11,409,019,733 | 1,117,522,323 | (568,063,310) | 549,459,013 | ||||||||||||
| International Small Companies Fund |
308,223,058 | 42,865,863 | (23,738,791) | 19,127,072 | ||||||||||||
| Resources Fund |
199,779,083 | 5,725,147 | (14,384,693) | (8,659,546) | ||||||||||||
| Risk Premium Fund |
328,279,766 | — | (69,972) | (69,972) | ||||||||||||
| Tax-Managed International Equities Fund |
398,752,859 | 91,494,544 | (9,554,350) | 81,940,194 | ||||||||||||
The Funds are subject to authoritative guidance related to the accounting and disclosure of uncertain tax positions under U.S. GAAP. This guidance sets forth a minimum threshold for the financial statement recognition of tax positions taken based on the technical merits of such positions. United States and non-U.S. tax rules (including the interpretation and application of tax laws) are subject to change. The Funds file tax returns and/or adopt certain tax positions in various jurisdictions. Non-U.S. taxes are provided for based on the Funds’ understanding of the prevailing tax rules of the non-U.S. markets in which they invest. Recently enacted tax rules, including interpretations of tax laws (e.g., regulations pertaining to the U.S. Foreign Account Tax Compliance Act) and proposed legislation currently under consideration in various jurisdictions, including the U.S., might affect the way the Funds and their investors are taxed prospectively and/or retroactively. Prior to the expiration of the relevant statutes of limitations, if any, the Funds are subject to examination by U.S. federal, state, local and non-U.S. jurisdictions with respect to the tax returns they have filed and the tax positions they have adopted. The Funds’ U.S. federal income tax returns are generally subject to examination by the Internal Revenue Service for a period of three years after they are filed. State, local and/or non-U.S. tax returns and/or other filings may be subject to examination for different periods, depending upon the tax rules of each applicable jurisdiction.
Security transactions and related investment income
Security transactions are accounted for in the financial statements on trade date. For purposes of daily net asset value calculations, the Funds’ policy is that security transactions are generally accounted for on the following business day. The Manager may override that policy and a Fund may account for security transactions on trade date if it experiences significant purchases or redemptions or engages in significant portfolio transactions. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when a Fund is informed of the ex-dividend date. Income dividends and capital gain distributions from the underlying funds are recorded on the ex-dividend date. Interest income is recorded on the accrual basis and is adjusted for the amortization of premiums and accretion of discounts. Principal on inflation-indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or investment loss. Coupon income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Funds use the identified cost basis.
Expenses
Most of the expenses of the Trust are directly identifiable to an individual Fund. Common expenses are allocated among the Funds based on, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses, purchase premiums and redemption fees, if any, and realized and unrealized gains and losses are allocated among the classes of shares of the Funds, if applicable, based on the relative net assets of each class. Shareholder service fees, 12b-1 and administration fees, if any, which are directly attributable to a class of shares, are charged to that class’s operations. In addition, the Funds may incur fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different expense and fee levels and the Funds may own different proportions of the underlying funds at different times, the amount of fees and expenses indirectly incurred by a Fund will vary (See Note 5).
Brown Brothers Harriman & Co. (“BBH”) serves as the Funds’ custodian and fund accounting agent except for Risk Premium Fund. For Risk Premium Fund, State Street Bank and Trust Company (“State Street”) serves as the custodian and fund accounting agent. State Street serves as the transfer agent for all Funds. State Street’s transfer agent fees may be reduced by an earnings allowance calculated on the average daily cash balances each Fund maintains in a State Street transfer agent account. Earnings allowances are reported as a reduction of expenses in the Statement of Operations. Prior to December 31, 2012 for Risk Premium Fund, State Street’s custodian fees may have been reduced by an earnings
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GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
allowance calculated on the average daily cash balance maintained in a State Street custodial account. Earnings allowances were reported as a reduction of expenses in the Statements of Operations. Effective January 1, 2013 for Risk Premium Fund, any cash balances maintained at the custodian are held in a Demand Deposit Account and interest income earned, if any, is shown as interest income in the Statements of Operations.
Purchases and redemptions of Fund shares
Purchase premiums and redemption fees (if applicable) are paid to and retained by a Fund to help offset estimated portfolio transaction costs and other related costs (e.g., bid to ask spreads, stamp duties and transfer fees) incurred by the Fund (directly or indirectly through investments in underlying funds) as a result of the purchase or redemption by allocating estimated transaction costs to the purchasing or redeeming shareholder. Such fees are recorded as a component of the Funds’ net share transactions. A Fund may impose a new purchase premium and/or redemption fee or modify an existing fee at any time.
Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of a Fund’s shares if the Fund will not incur transaction costs or will incur reduced transaction costs.
The Manager will waive or reduce the purchase premium when securities are used to purchase a Fund’s shares except to the extent that the Fund incurs transaction costs (e.g., stamp duties or transfer fees) in connection with its acquisition of those securities. The Funds may waive or reduce redemption fees when they use portfolio securities to redeem their shares. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may nonetheless charge a redemption fee equal to known or estimated costs.
Purchase premiums or redemption fees generally will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with the Trust to transmit orders for purchases and redemptions the day after those orders are received.
As of August 31, 2013, the premium on cash purchases and the fee on cash redemptions were as follows:
| Currency Hedged Inter- national Equity Fund |
Developed World Stock Fund |
Inter- national Core Equity Fund |
Inter- national Growth Equity Fund |
Inter- national Intrinsic Value Fund |
Inter- national Small Companies Fund |
Resources Fund |
Risk Premium Fund |
Tax- Managed Inter- national Equities Fund | ||||||||||
| Purchase Premium | — | 0.25% | — | — | — | 0.50% | 0.30% | 0.15% | — | |||||||||
| Redemption Fee | — | 0.25% | — | — | — | 0.50% | 0.30% | 0.15% | — | |||||||||
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GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| 3. | Investment and other risks |
The following chart identifies selected risks associated with each Fund. Risks not marked for a particular Fund may, however, still apply to some extent to that Fund at various times:
| Currency Hedged Inter- national Equity Fund |
Developed World Stock Fund |
Inter- national Core Equity Fund |
Inter- national Growth Equity Fund |
Inter- national Intrinsic Value Fund |
Inter- national Small Companies Fund |
Resources Fund |
Risk Premium Fund |
Tax- Managed Inter- national Equities Fund | ||||||||||
| Market Risk – Equities | X | X | X | X | X | X | X | X | X | |||||||||
| Options Risk | X | |||||||||||||||||
| Liquidity Risk | X | X | X | X | X | |||||||||||||
| Smaller Company Risk | X | X | X | X | X | X | X | |||||||||||
| Derivatives Risk | X | X | X | X | X | X | X | X | X | |||||||||
| Non-U.S. Investment Risk | X | X | X | X | X | X | X | X | X | |||||||||
| Currency Risk | X | X | X | X | X | X | X | X | X | |||||||||
| Focused Investment Risk | X | X | X | X | X | X | X | X | X | |||||||||
| Leveraging Risk | X | X | X | X | X | X | X | X | ||||||||||
| Counterparty Risk | X | X | X | X | X | X | X | X | X | |||||||||
| Market Risk – Fixed Income Investments | X | |||||||||||||||||
| Credit Risk | X | |||||||||||||||||
| Natural Resources Risk | X | |||||||||||||||||
| Commodities Risk | X | |||||||||||||||||
| Market Disruption and Geopolitical Risk | X | X | X | X | X | X | X | X | X | |||||||||
| Large Shareholder Risk | X | X | X | X | X | X | X | X | X | |||||||||
| Management and Operational Risk | X | X | X | X | X | X | X | X | X | |||||||||
| Fund of Funds Risk | X | |||||||||||||||||
| Non-Diversified Funds | X | X | X | X | X | |||||||||||||
Investing in mutual funds involves many risks. The risks of investing in a particular Fund depend on the types of investments in its portfolio and the investment strategies the Manager employs on its behalf. This section does not describe every potential risk of investing in the Funds. Funds could be subject to additional risks because of the types of investments they make and market conditions, which may change over time.
Each Fund that invests in other GMO Funds and other investment companies is exposed to the risks to which the underlying funds in which it invests are exposed. Therefore, unless otherwise noted, the selected risks summarized below include both direct and indirect risks, and, references in this section to investments made by a Fund include those made both directly by the Fund and indirectly by the Fund through other GMO Funds and other investment companies.
An investment in a 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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GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
• MARKET RISK. All of the Funds are subject to market risk, which is the risk that the market value of their holdings will decline. Market risks include:
Equities. Funds that invest in equities run the risk that the market prices of those investments will decline. The market prices of equities may decline for reasons that directly relate to the issuing company, such as poor management performance or reduced demand for its goods or services. They also may decline due to factors that affect a particular industry, such as a decline in demand, labor or raw material shortages, or increased production costs. In addition, market prices may decline as a result of general market conditions 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. Equities generally have significant price volatility, and the market prices of equities can decline in a rapid or unpredictable manner.
The Funds invest a substantial portion of their assets in equities and, as a result, declines in stock market prices generally are likely to reduce the net asset values of those Funds’ shares.
If a Fund purchases equities 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 appreciate or will decline for a variety of reasons, one of which may be the Manager’s overestimation of the value of those investments.
The market prices of equities trading at high multiples of current earnings often are more sensitive to changes in future earnings expectations than the market prices of equities trading at lower multiples.
Because of Risk Premium Fund’s emphasis on selling put options on stock indices, its shares are expected to decline in value when those indices decline in value. Also, Risk Premium Fund’s investment strategy of writing put options on stock indices can be expected to cause the Fund to underperform the equity markets on which its puts were written when those markets rise rapidly because the Fund does not have exposure to the upside of the equity markets.
• OPTIONS RISK. There are various risks associated with transactions in exchange-traded and OTC options. The market price of options written by the Fund will be affected by many factors, including changes in the value of underlying securities or indices; changes in the dividend rates of underlying securities (or in the case of indices, the securities comprising such indices); changes in interest rates or exchange rates; changes in the actual or perceived volatility of the stock market and underlying securities; and the remaining time to an option’s expiration. The market price of an option also may be adversely affected if the market for the option 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 because the holder may only exercise the option on its expiration date. If the Fund writes a call option and does not hold the underlying security or instrument, the amount of the Fund’s potential loss is theoretically unlimited.
National securities exchanges generally have established limits on the maximum number of options an investor or group of investors acting in concert may write. The Fund, the Manager, and other funds advised by the Manager may constitute such a group. These limits could restrict the Fund’s ability to purchase or sell options on a particular security.
Unlike exchange-traded options, which are standardized with respect to the underlying instrument, expiration date, contract size, and strike price, the terms of OTC options (options not traded on exchanges) generally are established through negotiation with the other party to the option contract. While this type of arrangement allows the Fund greater flexibility to tailor an option to its needs, 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. Therefore, OTC options generally expose the Fund to greater credit risk than exchange-traded options, which are guaranteed by the clearing organization of the exchanges where they are traded. Purchasing and selling put and call options are highly specialized activities and entail greater than ordinary market risks.
Special tax rules apply to the Fund’s transactions in options, which could increase the amount of taxes payable by shareholders. In particular, the Fund’s options transactions potentially could cause a substantial portion of the Fund’s income to consist of net short-term capital gains, which, when distributed, are taxable to shareholders as ordinary income. Due to Risk Premium Fund’s primary investment strategy of selling put options on various stock indices, a substantial portion of that Fund’s income could consist of short-term capital gains.
• LIQUIDITY RISK. Liquidity risk is the risk that low trading volume, lack of a market maker, large position size or legal restrictions (including daily price fluctuation limits or “circuit breakers”) limits or prevents a Fund from selling particular securities or unwinding derivative positions at desirable prices. In addition to these risks, a Fund is 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 a short position). All of the Funds are subject to liquidity risk, but those with the greatest risk have principal investment strategies that involve investment in asset-backed securities, emerging country debt
| 91 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
securities, securities of companies with smaller market capitalizations or smaller total float-adjusted market capitalizations and emerging market securities. These types of investments can be difficult to value, exposing a Fund to the risk that the price at which it sells them will be less than the value placed on them when they were held by the Fund. In addition, Inflation-Protected Securities issued by the U.S. Treasury (“TIPS”) have exhibited periods of greatly reduced liquidity when disruptions in fixed income markets have occurred, such as the events surrounding the bankruptcy of Lehman Brothers in 2008. Less liquid securities are more susceptible than other securities to price declines when market prices decline generally.
All of the Funds with benchmarks may buy securities that are less liquid than those in their benchmarks.
Risk Premium Fund’s ability to use options as part of its investment program depends on the liquidity of those instruments. In addition, a liquid market may not exist when Risk Premium Fund seeks to close out an option position. Also, the hours of trading for options on an exchange may not conform to the hours during which the securities held by the 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 markets for underlying securities that are not immediately reflected in the options markets. If Risk Premium Fund receives a redemption request and is unable to close out an option that it has sold, the Fund may temporarily be leveraged in relation to its assets.
• SMALLER COMPANY RISK. Companies with smaller market capitalizations, including small- and mid-cap 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 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. In addition, market risk and liquidity risk are particularly pronounced for securities of these companies.
• DERIVATIVES RISK. The Funds 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 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. Derivatives include futures, non-U.S. 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 use of derivatives involves risks that are in addition to, and potentially greater than, the risks of investing directly in securities and other more traditional assets. In particular, a Fund’s use of OTC derivatives exposes it to the risk that the counterparties will be unable or unwilling to make timely settlement payments or otherwise honor their obligations. An OTC derivatives contract typically can be closed only with the consent of 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 it does, the Fund may decide not to pursue its claims against the counterparty to avoid incurring the cost and unpredictability of legal proceedings. The Fund, therefore, may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts, or those payments may be delayed or made only after the Fund has incurred the costs of litigation.
A Fund may invest in derivatives that (i) do not require the counterparty to post collateral (e.g., forward currency contracts), (ii) require collateral but that do not provide for the Fund’s security interest in it to be perfected, (iii) require a significant upfront deposit by the Fund unrelated to the derivative’s intrinsic value, or (iv) do not require that collateral be regularly marked-to-market. When a counterparty’s obligations are not fully secured by collateral, a Fund runs the risk of having limited recourse if the counterparty defaults. Even when obligations are required by contract to be collateralized, a Fund often will not receive the collateral the day the collateral is called for.
The Funds 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 Funds. Derivatives risk is particularly acute in environments (like those of 2008) in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. In addition, during those periods, a Fund may have a greater need for cash to provide collateral for large swings in its mark-to-market obligations under the derivatives in which it has invested.
Derivatives also present other risks described in this section, including market risk, liquidity risk, currency risk, credit 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 may not produce valuations that are consistent with the values a Fund realizes when it closes or sells an OTC derivative. Valuation risk is more pronounced when a 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 a Fund’s net asset value.
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GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
A Fund’s 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 a Fund, the Funds will not be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund’s risk exposures, potentially resulting in losses for the Fund.
Swap contracts and other OTC derivatives are highly susceptible to liquidity risk (see “Liquidity Risk” above) 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.
A Fund’s use of derivatives may be subject to one or more special tax rules and could generate additional taxable income for shareholders.
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 (and many of the rules are not yet final), its ultimate impact remains unclear.
Under recently adopted rules and regulations, transactions in some types of swaps (including interest rate swaps and credit default swaps on North American and European indices) are required to be centrally cleared. In a transaction involving those swaps (“cleared derivatives”), a Fund’s counterparty is a clearing house, rather than a bank or broker. Since the Funds are not members of clearing houses and only members of a clearing house (“clearing members”) can participate directly in the clearing house, the Funds will hold cleared derivatives through accounts at clearing members. In cleared derivatives transactions, the Funds will make payments (including margin payments) to and receive payments from a clearing house through their accounts at clearing members. Clearing members guarantee performance of their clients’ obligations to the clearing house.
In many ways, cleared derivative arrangements are less favorable to mutual funds than bilateral arrangements. For example, the Funds may be required to provide more margin for cleared derivatives transactions than for bilateral derivatives transactions. Also, in contrast to a bilateral derivatives transaction, following a period of notice to a Fund, a clearing member generally can require termination of an existing cleared derivatives transaction at any time or an increase in margin requirements above the margin that the clearing member required at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions or to terminate those transactions at any time. Any increase in margin requirements or termination of existing cleared derivatives transactions by the clearing member or the clearing house could interfere with the ability of a Fund to pursue its investment strategy. Further, any increase in margin requirements by a clearing member could expose a Fund to greater credit risk to its clearing member, because (as described under “Counterparty Risk” below) margin for cleared derivatives transactions in excess of a clearing house’s margin requirements typically is held by the clearing member. Also, a Fund is subject to risk if it enters into a derivatives transaction that is required to be cleared (or that the Manager expects to be cleared), and no clearing member is willing or able to clear the transaction on the Fund’s behalf. While the documentation in place between the Funds and their clearing members generally provides that the clearing members will accept for clearing all cleared derivatives transactions that are within credit limits (specified in advance) for each Fund, the Funds are still subject to the risk that no clearing member will be willing or able to clear a transaction. In those cases, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of the transaction, including loss of an increase in the value of the transaction and/or loss of hedging protection. In addition, the documentation governing the relationship between the Funds and clearing members is drafted by the clearing members and generally is less favorable to the Funds than typical bilateral derivatives documentation. For example, documentation relating to cleared derivatives generally includes a one-way indemnity by the Funds in favor of the clearing member for losses the clearing member incurs as the Funds’ clearing member and typically does not provide the Funds any remedies if the clearing member defaults or becomes insolvent.
These and other new rules and regulations could, among other things, further restrict a Fund’s ability to engage in, or increase the cost to the Fund of, derivatives transactions, for example, by making some types of derivatives no longer available to the Fund, increasing margin or capital requirements, or otherwise limiting liquidity or increasing transaction costs. These regulations are new and evolving, so their potential impact on the Funds and the financial system are not yet known. While the new regulations and central clearing of some derivatives transactions are designed to reduce systemic risk (i.e., the risk that the interdependence of large derivatives dealers could cause them to suffer liquidity, solvency or other challenges simultaneously), there is no assurance that the new clearing mechanisms will achieve that result, and in the meantime, as noted above, central clearing exposes the Funds to new kinds of risks and costs.
• NON-U.S. INVESTMENT RISK. Funds that invest in non-U.S. securities are subject to additional and more varied risks than Funds whose investments are limited to U.S. securities. The securities markets of many non-U.S. countries include 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 non-U.S. securities often are not subject to the same degree of regulation as U.S. issuers. Reporting, accounting, custody and auditing standards of non-U.S. countries differ, in some cases significantly, from U.S. standards. Non-U.S. portfolio transactions generally involve higher commission rates, transfer taxes and custodial costs. In addition, some jurisdictions may limit a Fund’s ability to profit from short-term trading (as defined in the relevant jurisdiction).
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GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
A Fund may be subject to non-U.S. taxation, including potentially on a retroactive basis, on (i) capital gains it realizes or dividends or interest it receives on non-U.S. investments, (ii) transactions in those investments and (iii) the repatriation of proceeds generated from the sale of those investments. A Fund may seek to collect a refund on taxes paid to a non-U.S. country. In those cases, all or a portion of those taxes could ultimately be recovered by a Fund. However, the recovery process could take several years and the Fund will incur expenses in its efforts to collect the refund, which will reduce the benefit of any recovery. A Fund’s efforts to collect a refund may not be successful, in which case the Fund will have incurred additional expenses for no economic benefit. A Fund’s decision to pursue a refund is in its sole discretion, and it may decide not to pursue a refund, even if eligible.
Also, investing in non-U.S. securities exposes a Fund to the risk of nationalization, expropriation or confiscatory taxation of assets of their issuers, 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.
In some non-U.S. markets, custody arrangements for securities provide significantly less protection 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 a Fund to credit and other risks it does not have in the U.S. with respect to participating brokers, custodians, clearing banks or other clearing agents, escrow agents, and issuers. Fluctuations in non-U.S. currency exchange rates also will affect the market value of a Fund’s non-U.S. investments (see “Currency Risk” below).
U.S. investors are required to maintain a license to invest directly in many non-U.S. markets. These licenses are often subject to limitations, including maximum investment amounts. Once a license is obtained, a Fund’s 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, to obtain exposure to the market the Fund will be required to purchase American Depositary Receipts, Global Depositary Receipts, shares of other funds that are licensed to invest directly, or derivative instruments. The receipt of a non-U.S. license by one of the Manager’s clients may preclude other clients, including a Fund, from obtaining a similar license, and this could limit the Fund’s investment opportunities. In addition, the activities of another of the Manager’s clients could cause the suspension or revocation of a license and thereby limit the Funds’ investment opportunities.
Funds that invest a significant portion of their assets in securities of issuers tied economically to emerging countries (or investments related to emerging markets) are subject to greater non-U.S. investment risk than Funds investing primarily in more developed non-U.S. countries (or markets). 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 of securities in a Fund’s portfolio; greater governmental involvement in the economy; less governmental supervision and regulation of the securities markets and participants in those markets; controls on non-U.S. investment, capital controls and limitations on repatriation of invested capital, dividends, interest and other income and on a Fund’s 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. Currency risk is the risk that fluctuations in exchange rates will adversely affect the market value of a Fund’s investments. Currency risk includes the risk that the non-U.S. currencies in which a Fund’s investments are traded, in which a Fund receives income, or in which a Fund has taken a position, will decline in value relative to the U.S. Dollar. Currency risk also includes the risk that the currency to which the Fund has obtained exposure through hedging declines in value relative to the currency being hedged, in which event the Fund may realize a loss both on the hedging instrument and 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 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.
Many of the Funds use derivatives to take overweighted or underweighted currency positions relative to the currency exposure of their portfolios. As a result, their currency exposure may differ (in some cases significantly) from the currency exposure of their benchmarks. If the exchange rates of the currencies involved do not move as expected, a Fund could lose money both on its holdings of a particular currency and on the derivative. See also “Non-U.S. Investment Risk” above.
Some currencies are illiquid (e.g., some emerging country currencies), and a Fund may not be able to convert them into U.S. Dollars, in which case the Manager may decide to purchase U.S. Dollars in a parallel market in which 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.
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Derivative transactions in non-U.S. 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).
• FOCUSED INVESTMENT RISK. Funds whose investments are focused in particular countries, regions, sectors, companies or industries with high positive correlations to one another (e.g., different industries within broad sectors, such as technology or financial services), or in securities from issuers with high positive correlations to one another (such as U.S.Treasury Fund’s investments in securities issued by the U.S. Treasury and other fixed income securities that are backed by the full faith and credit of the U.S. government), 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 price of a particular security held by the Fund is likely to affect the Fund’s performance more than if the Fund invested in the securities of a larger number of issuers.
A Fund that 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, 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.
Similarly, Funds having a significant portion of their assets in investments tied economically to (or related to) a particular geographic region, non-U.S. country (e.g., Taiwan or Japan) or particular market (e.g., emerging markets) have more exposure to regional and country economic risks than funds making non-U.S. investments throughout the world. The political and economic prospects of one country or group of countries within the same geographic region may affect other countries in that region, and a recession, debt crisis or decline in currency valuation in one country can spread to other countries. Furthermore, companies in a particular geographic region or country are vulnerable to events affecting other companies in that region or country because they often share common characteristics, are exposed to similar business risks and regulatory burdens, and react similarly to specific economic, market, political or other developments. See also “Non-U.S. Investment Risk” above.
Because Risk Premium Fund can have substantial exposure through a limited number of options contracts and because the Fund’s exposures may relate to a relatively small number of U.S. and/or international stock indices, the Fund is subject to additional risk.
• LEVERAGING RISK. The use of reverse repurchase agreements and other derivatives and securities lending creates leverage (i.e., a Fund’s investment exposures exceed its net asset value). Leverage increases a Fund’s losses when the value of its investments (including derivatives) declines. Because many derivatives have a leverage component (i.e., a notional value in excess of the assets needed to establish 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. A Fund’s use of reverse repurchase agreements also subjects it to interest costs based on the difference between the sale and repurchase price of the security involved. A Fund’s portfolio also will be leveraged if it borrows money to meet redemption requests or settle investment transactions or if it exercises its right to delay payment on a redemption.
A 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, a Fund may perform as if it were leveraged.
• COUNTERPARTY RISK. Funds that enter into contracts with counterparties, such as repurchase or reverse repurchase agreements or OTC derivatives contracts, or that lend their securities run the risk that the counterparty 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. The Funds are not subject to any limits on their exposure to any one counterparty nor to a requirement that counterparties maintain a specific rating by a nationally recognized rating organization to be considered for potential transactions. To the extent that GMO’s view with respect to a particular counterparty changes (whether due to external events or otherwise), existing transactions are not required to be terminated or modified. Additionally, new transactions may be entered into with a counterparty that is no longer considered eligible if the transaction is primarily designed to reduce the overall risk of potential exposure to that counterparty (for example, re-establishing the transaction with a lesser notional amount). Counterparty risk is pronounced during unusually adverse market conditions and is particularly acute in environments (like those of 2008) in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers 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 a Fund to greater counterparty risk than exchange-traded derivatives. A Fund is subject to the risk that a counterparty will not settle a derivative in accordance with its terms because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem. If a counterparty’s obligation to a Fund is not collateralized, then the Fund is essentially an unsecured creditor of the counterparty. If a counterparty defaults, the Fund will have contractual remedies, but the Fund
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may be unable to enforce them, thus causing the Fund to suffer a loss. Counterparty risk is greater for derivatives with longer maturities because of the longer time that events may occur that prevent settlement. Counterparty risk also is 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. Significant exposure to a single counterparty increases a Fund’s counterparty risk. Funds that use swap contracts are subject, in particular, to the creditworthiness of the counterparties because some types of swap contracts have durations longer than six months (and, in some cases, decades). The creditworthiness of a counterparty may be adversely affected by greater than average volatility in the markets, even if the counterparty’s net market exposure is small relative to its capital. Counterparty risk still exists even if a counterparty’s obligations are secured by collateral because the Fund’s interest in the collateral may not be perfected or additional collateral may not be promptly posted as required.
The Funds also are subject to counterparty risk because they execute their 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 Funds could miss investment opportunities or be unable to dispose of investments they would prefer to sell, resulting in losses for the Funds.
Counterparty risk with respect to derivatives will be affected by new rules and regulations affecting the derivatives market. As described under “Derivatives Risk” above, some derivatives transactions are required to be centrally cleared, and a party to a cleared derivatives transaction is subject to the credit risk of the clearing house and the clearing member through which it holds its cleared position, rather than the credit risk of its original counterparty to the derivatives transaction. Credit risk of market participants with respect to derivatives that are centrally cleared is concentrated in a few clearing houses, and it is not clear how an insolvency proceeding of a clearing house would be conducted and what impact an insolvency of a clearing house would have on the financial system. A clearing member is obligated by contract and by applicable regulation to segregate all funds received from customers with respect to cleared derivatives transactions from the clearing member’s proprietary assets. However, all funds and other property received by a clearing member from its customers with respect to cleared derivatives are generally held by the clearing member on a commingled basis in an omnibus account, and the clearing member may invest those funds in certain instruments permitted under the applicable regulations. Therefore, a Fund might not be fully protected in the event of the bankruptcy of a Fund’s clearing member because the Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the clearing member’s customers for a relevant account class. Also, the clearing member is required to transfer to the clearing house the amount of margin required by the clearing house for cleared derivatives, which amounts are generally held in an omnibus account at the clearing house for all customers of the clearing member. Regulations promulgated by the Commodities Futures Trading Commission require that the clearing member notify the clearing house of the initial margin provided by the clearing member to the clearing house that is attributable to each customer. However, if the clearing member does not accurately report the Funds’ initial margin, the Funds are subject to the risk that a clearing house will use a Fund’s assets held in an omnibus account at the clearing house to satisfy payment obligations of a defaulting customer of the clearing member to the clearing house. In addition, clearing members generally provide the clearing house the net amount of variation margin required for cleared swaps for all of its customers in the aggregate, rather than individually for each customer. The Funds are therefore subject to the risk that a clearing house will not make variation margin payments owed to a Fund if another customer of the clearing member has suffered a loss and is in default, and the risk that a Fund will be required to provide additional variation margin to the clearing house before the clearing house will move the Fund’s cleared derivatives transactions to another clearing member. In addition, if a clearing member does not comply with the applicable regulations or its agreement with the Funds, or in the event of fraud or misappropriation of customer assets by a clearing member, a Fund could have only an unsecured creditor claim in an insolvency of the clearing member with respect to the margin held by the clearing member.
• MARKET RISK — Fixed Income Investments. Funds that invest in fixed income securities (including bonds, notes, bills, synthetic debt instruments and asset-backed securities) are subject to various market risks. The market price of a fixed income investment can decline due to a number of market-related factors, including rising (or, in some limited cases, declining) interest rates and widening credit spreads, or decreased liquidity that reflect the market’s uncertainty about the value of a fixed income investment (or class of fixed income investments). In addition, the market price of fixed income investments with complex structures, such as asset-backed securities and sovereign and quasi-sovereign debt instruments, can decline due to market uncertainty about their credit quality and the reliability of their payment streams. During periods of economic uncertainty and change, the market price of a Fund’s investments in below investment grade securities (commonly referred to as “junk bonds”) may be particularly volatile. Often junk bonds are subject to greater sensitivity to interest rate and economic changes than higher rated bonds and can be more difficult to value, resulting in differences between the prices realized on their sale and the value at which they are carried on the books of a Fund. See “Credit Risk” below and “Liquidity Risk” above for more information about these risks.
A risk run by each Fund with a significant investment in fixed income securities is that an increase in prevailing interest rates will cause the market price of those securities to decline. The risk associated with increases in interest rates (also called “interest rate risk”) is generally greater for Funds investing in fixed income securities with longer durations and in some cases duration can increase.
The extent to which a fixed income security’s price changes with changes in interest rates is referred to as interest rate duration, which can be measured mathematically or empirically. A longer maturity investment generally has longer interest rate duration because the investment’s fixed rate is locked in for a longer period of time. Floating-rate or adjustable-rate securities, however, generally have shorter interest rate durations because their interest rates are not fixed but rather float up and down as interest rates change. Conversely, inverse floating-rate securities have durations that move in the opposite direction from short-term interest rates and thus tend to underperform fixed rate securities when interest rates
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rise but outperform them when interest rates decline. Fixed income securities paying no interest, such as zero coupon and principal-only securities, create additional interest rate risk.
The market price of inflation-indexed bonds (including Inflation-Protected Securities issued by the U.S. Treasury (“TIPS”)) normally changes when real interest rates change. Their value typically will decline during periods of rising real interest rates (i.e., nominal interest rate minus inflation) and increase during periods of declining real interest rates. Real interest rates may not fluctuate in the same manner as nominal interest rates. In some interest rate environments, such as when real interest rates are rising faster than nominal interest rates, the price of inflation-indexed bonds may decline more than the price of non-inflation-indexed (or nominal) fixed income bonds with similar maturities. The price of a Fund’s inflation-indexed bonds, however, will not necessarily change in the same proportion as changes in nominal interest rates, and short term increases in inflation may lead to a decline in their price. Moreover, if the index measuring inflation falls, the principal value of inflation-indexed bond investments will be adjusted downward, and, consequently, the interest they pay (calculated with respect to a smaller principal amount) will be reduced. In the case of TIPS, the U.S. government guarantees the repayment of the original bond principal upon maturity (as adjusted for inflation).
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.
Market risk for fixed income securities denominated in non-U.S. currencies is also affected by currency risk.
• CREDIT RISK. This is the risk that the issuer or guarantor of a fixed income investment or the obligor of an obligation underlying an asset-backed security will be unable or unwilling to satisfy its obligation to pay principal and interest or otherwise to honor its obligations in a timely manner. The market price of a fixed income investment will normally decline as a result of the issuer’s, guarantor’s or obligor’s failure to meet its payment obligations or the downgrading of its credit rating. This risk is particularly acute in environments (like those of 2008) in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions.
All fixed income securities are subject to credit risk. Financial strength and solvency of an issuer are the primary factors influencing credit risk. The risk varies depending upon whether the issuer is a corporation or U.S. or non-U.S. government (or sub-division or instrumentality) and whether the particular security has a priority over other obligations of the issuer in payment of principal and interest and whether it has any collateral backing or credit enhancement. Credit risk may change over the life of a fixed income security. U.S. government securities are subject to varying degrees of credit risk depending upon whether the securities are supported by the full faith and credit of the United States, supported by the ability to borrow from the U.S. Treasury, supported only by the credit of the issuing U.S. government agency, instrumentality, or corporation, or otherwise supported by the United States. For example, issuers of many types of U.S. government securities (e.g., the Federal Home Loan Mortgage Corporation (“Freddie Mac”), Federal National Mortgage Association (“Fannie Mae”), and Federal Home Loan Banks), although chartered or sponsored by Congress, are not funded by Congressional appropriations and their fixed income securities, including mortgage-backed and other asset-backed securities, are neither guaranteed nor insured by the U.S. government. These securities are subject to more credit risk than U.S. government securities that are supported by the full faith and credit of the United States (e.g., U.S. Treasury bonds). Investments in sovereign debt involve the risk that the governmental entities responsible for repayment may be unable or unwilling to pay interest and repay principal when due. A governmental entity’s willingness or ability to pay interest and repay principal in a timely manner may be affected by a variety of factors, including its cash flow, the size of its reserves, its access to foreign exchange, the relative size of its debt service burden to its economy as a whole, and political constraints. In addition, payment of principal of fixed income securities guaranteed by the U.S. government can be delayed because the guarantee generally only requires payment upon maturity of the securities. Investments in quasi-sovereign issuers are subject to the additional risk that the issuer may default independently of its sovereign. Sovereign debt risk is greater for fixed income securities issued or guaranteed by emerging countries.
In some cases, the credit risk of a fixed income security is reflected in its credit ratings, and a Fund holding such a security is subject to the risk that its rating will be downgraded.
Securities issued by the U.S. Treasury historically have presented minimal credit risk. However, recent events have led to a downgrade in the long-term U.S. credit rating by at least one major rating agency and have introduced greater uncertainty about the ability of the U.S. to repay its obligations. A further credit rating downgrade or a U.S. credit default could decrease the value and increase the volatility of the Fund’s investments.
Asset-backed securities may be backed by many types of assets and their payment of interest and repayment of principal largely depend on the cash flows generated by the assets backing them. The credit risk of a particular asset-backed security depends on many factors.
The obligations of issuers also are subject to bankruptcy, insolvency and other laws affecting the rights and remedies of creditors. A Fund also is exposed to credit risk on a reference security to the extent it writes protection under credit default swaps. See “Derivatives Risk” above for more information regarding risks associated with the use of credit default swaps.
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The extent to which the market price of a fixed income security changes in response to a credit event depends on a number of factors and can be difficult to predict. For example, floating rate securities may have final maturities of ten or more years, but their effective durations will tend to be very short. If the issuer of floating rate securities experiences an adverse credit event, or a change occurs in its perceived creditworthiness, the market price of its securities could decline much more than would be predicted by a change in their yield relative to their effective duration.
Credit risk is particularly pronounced for below investment grade securities (commonly referred to as “junk bonds”). The sovereign debt of many non-U.S. governments, including their sub-divisions and instrumentalities, is below investment grade. Many asset backed securities also are below investment grade. Below investment grade securities have speculative characteristics, often are less liquid than higher quality securities, present a greater risk of default and are more susceptible to real or perceived adverse industry conditions. In the event of default of sovereign debt, the Funds may be unable to pursue legal action against the sovereign issuer.
• NATURAL RESOURCES RISK. Resources Fund concentrates its investments in the natural resources sector, and so is particularly exposed to adverse developments, including adverse price movements, affecting issuers in the natural resources sector and is subject to greater risks than a fund that invests in a wider range of industries. In addition, the market prices of securities of companies in the natural resources sector may be more volatile than those of securities of companies in other industries. Some of the commodities used as raw materials or produced by these companies are subject to broad price fluctuations as a result of industry wide supply and demand factors. Companies in the natural resources sector often have limited pricing power over supplies or for the products they sell, which can affect their profitability. Companies in the natural resources sector also may be subject to special risks associated with natural or man-made disasters. In addition, the natural resources sector can be especially affected by political and economic developments, government regulations including changes in tax law or interpretations of law, energy conservation, and the success of exploration projects. Specifically, the natural resource sector can be significantly affected by import controls, worldwide competition, changes in consumer sentiment and spending, and can be subject to liability for, among other things, environmental damage, depletion of resources, and mandated expenditures for safety and pollution control.
Resources Fund’s concentration in the securities of natural resource companies exposes it to the price movements of natural resources to a greater extent than if it were more broadly diversified. Because Resources Fund invests primarily in the natural resources sector, it runs the risk of performing poorly during an economic downturn or a decline in demand for natural resources.
• COMMODITIES RISK. Commodity prices can be extremely volatile and are 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, nationalization, expropriation, or other confiscation, international regulatory, political and economic developments (e.g., regime changes and changes in economic activity levels), and developments 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, and tariffs. Alternative Asset Opportunity Fund invests in commodity-related derivatives. The value of these derivatives may fluctuate more than the commodity or commodities or commodity index to which they relate. Certain Funds are exposed to the risks of investments in commodities to the extent they invest in Alternative Asset Opportunity Fund.
• MARKET DISRUPTION AND GEOPOLITICAL RISK. The Funds are subject to the risk that geopolitical and other events will disrupt securities markets, adversely affect global economies and markets and thereby decrease the value of the Funds’ investments. 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. Securities markets may be susceptible to market manipulation (e.g., the potential manipulation of the London Interbank Offered Rate (LIBOR)) or other fraudulent trade practices, which could disrupt the orderly functioning of these markets or adversely affect the value of investments traded in these markets, including investments of the Funds. While the U.S. government has honored its credit obligations continuously for the last 200 years, it remains possible that the U.S. could default on its obligations. While it is impossible to predict the consequences of such an unprecedented event, it is likely that a default by the U.S. would be highly disruptive to the U.S. and global securities markets and could significantly impair the value of the Funds’ investments. Similarly, political events within the U.S. at times have resulted, and may in the future result, in a shutdown of government services, which could negatively affect the U.S. economy, decrease the value of many Fund investments, and increase uncertainty in or impair the operation of the U.S. or other securities markets. The uncertainty surrounding the sovereign debt of a significant number of European Union countries as well as the continued existence of the European Union itself, have disrupted and may continue to disrupt markets in the U.S. and around the world. If one or more countries leave the European Union or the European Union dissolves, the world’s securities markets likely will be significantly disrupted. Substantial government interventions (e.g., currency controls) also could negatively impact the Funds. War, terrorism, economic uncertainty, 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, adversely affecting individual companies and industries, 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 “Investment and other risks” section will likely increase. Market disruptions, including sudden government
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interventions, can also prevent the Funds from implementing their investment programs for a period of time and achieving their investment objectives. For example, a market disruption may adversely affect the orderly functioning of the securities markets and may cause the Funds’ derivatives counterparties to discontinue offering derivatives on some underlying commodities, securities, reference rates, or indices, or to offer them on a more limited basis. To the extent that a Fund has focused its investments in the stock index of a particular region, adverse geopolitical and other events could have a disproportionate impact on the Fund.
• LARGE SHAREHOLDER RISK. To the extent that a large number of shares of a Fund is held by a single shareholder (e.g., an institutional investor or another GMO Fund) or a group of shareholders with a common investment strategy (e.g., GMO asset allocation accounts), the Fund is subject to the risk that a redemption by those shareholders of all or a large portion of their Fund shares will adversely affect the Fund’s performance if it is forced to sell portfolio securities to raise the cash needed to satisfy the redemption request. In addition, GMO Funds and other accounts over which GMO has investment discretion that invest in the Funds are not subject to restrictions on the frequency of trading of Fund shares. Asset Allocation Funds and separate accounts managed by the Manager for its clients hold substantial percentages of the shares of many Funds, and asset allocation decisions by the Manager may result in substantial redemptions from (or investments in) those Funds. These transactions may adversely affect the Fund’s performance to the extent that the Fund is required to sell investments (or invest cash) at times when it would not otherwise do so. Redemptions of a large number of shares also may increase transaction costs or, by necessitating a sale of portfolio securities, accelerate the realization of taxable income to shareholders. They also potentially limit the use of any capital loss carryforwards and certain other losses to offset future realized capital gains (if any). In addition, each Fund that invests in other GMO Funds subject to large shareholder risk is indirectly subject to this risk.
• MANAGEMENT AND OPERATIONAL RISK. Each Fund is subject to management risk because it relies on the Manager’s ability to achieve its investment objective. Each Fund runs the risk that the Manager’s investment techniques will fail to produce desired results and cause the Fund to incur significant losses. The Manager also may fail to use derivatives effectively, choosing to hedge or not to hedge positions at disadvantageous times.
For some Funds the Manager’s portfolio managers use quantitative analyses and models. Any imperfections, errors or limitations in those analyses and models could affect the ability of the portfolio managers to implement a Fund’s strategies. By necessity, these analyses and models make simplifying assumptions that limit their effectiveness. Models that appear to explain prior market data can fail to predict future market events. Further, the data used in models may be inaccurate or may not include the most recent information about a company or a security. The Funds also run the risk that GMO’s assessment of an investment may be wrong. There can be no assurance that key personnel of the Manager will continue to be employed by the Manager. The loss of their services could have an adverse impact on the Manager’s ability to achieve the Funds’ investment objectives.
The Funds also are subject to the risk of loss as a result of other services provided by the Manager and other service providers, including pricing, administrative, accounting, tax, legal, custody, transfer agency, and other services. Operational risk includes the possibility of loss caused by 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 a Fund from benefiting from potential investment gains or avoiding losses on the security. The Manager is not contractually liable to the Funds for losses associated with operational risk absent the Manager’s willful misfeasance, bad faith, gross negligence, or reckless disregard of its contractual obligations to provide services to the Funds. Other Fund service providers also have limitations on their liability to the Funds for losses resulting from their errors.
• FUND OF FUNDS RISK AND RELATED CONSIDERATIONS. Funds that invest in shares of other investment companies, including other GMO Funds, money market funds, and ETFs (for purposes of this risk disclosure, “underlying Funds”), are exposed to the risk that the underlying Funds will not perform as expected.
Because a Fund bears the fees and expenses of the underlying Funds in which it invests (absent reimbursement of those expenses), the Fund will incur additional expenses when investing in underlying Funds. In addition, total Fund expenses will increase if a Fund makes a new or further investment in underlying Funds with higher fees or expenses than the average fees and expenses of the underlying Funds then in the Fund’s portfolio.
The Funds also are indirectly exposed to all of the risks of an investment in the underlying Funds. Because some of their underlying Funds (e.g., many of the Fixed Income Funds) invest a substantial portion of their assets in other GMO Funds (pursuant to an exemptive order obtained from the SEC), the Asset Allocation Funds have more tiers of investments than funds in many other groups of investment companies. Many of the Funds that invest in shares of other GMO Funds are subject indirectly to Large Shareholder Risk because those other GMO Funds are more likely to have large shareholders (e.g., other GMO Funds). See “Large Shareholder Risk” above.
Investments in ETFs involve the risk that the ETF’s performance may not track the performance of the index the ETF is designed to track. Unlike the index, an ETF incurs administrative expenses and transaction costs in trading securities. In addition, the timing and magnitude of cash inflows and outflows from and to investors buying and redeeming shares in the ETF could create cash balances that cause the ETF’s performance to deviate from the index (which remains “fully invested” at all times). Performance of an ETF and the index it is designed to track also may diverge
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because the composition of the index and the securities held by the ETF may occasionally differ. In addition, ETFs often use derivatives to track the performance of the relevant index, and, therefore, investments in those ETFs are subject to the same derivatives risks discussed above.
• NON-DIVERSIFIED FUNDS. Some of the Funds are not “diversified” investment companies within the meaning of the 1940 Act. This means they are allowed to invest in the securities of a relatively small number of issuers and/or non-U.S. currencies. As a result, they may be subject to greater credit, market and other risks, and poor performance by a single issuer may have a greater impact on their performance, than if they were “diversified.”
The following Funds are not diversified investment companies under the 1940 Act:
| • | Developed World Stock Fund |
| • | Resources Fund |
| • | Risk Premium Fund |
| • | Tax-Managed International Equities Fund |
In addition, Currency Hedged International Equity Fund invests a portion of its assets in shares of one or more other GMO Funds that are not diversified investment companies under the 1940 Act.
Temporary Defensive Positions. The Funds normally do not take temporary defensive positions. To the extent a Fund takes a temporary defensive position, or otherwise holds cash, cash equivalents, or high quality debt investments on a temporary basis, the Fund may not achieve its investment objective.
| 4. | Derivative financial instruments |
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 a Fund’s portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and related indices, and include foreign currency contracts, swap contracts, reverse repurchase agreements, and other exchange-traded and OTC contracts.
The Funds may 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 Fund’s portfolio) in combination with a long futures contract on another index (to synthetically “buy” exposure to that index). In adjusting their investment exposure, 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.
The Funds may have investment exposures in excess of their net assets (i.e., they may be leveraged). While the Manager expects that Risk Premium Fund’s option positions typically will be fully collateralized at the time when the Fund is selling them, from time to time the Fund may have investment exposures in excess of its net assets (i.e., it may be leveraged). For example, if the Fund receives a redemption request and is unable to close out an option it had sold, the Fund may temporarily have gross investment exposures in excess of its net assets (i.e., the Fund will be leveraged) and therefore be subject to heightened risk of loss. The Fund’s performance can depend substantially, if not primarily, on the performance of assets or indices underlying its derivatives even though it does not own those assets or indices. The Funds’ foreign currency exposure may differ significantly from the currency exposure represented by their investments.
Certain derivatives transactions used by the Funds, including certain interest rate swaps and certain credit default index swaps, are required to be transacted through a central clearing organization. The Funds hold cleared derivatives transactions through clearing members, who are members of derivatives clearing houses. In contrast to bilateral derivatives transactions, following a period of advance notice to the Fund, clearing members
| 100 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
generally can require termination of existing cleared derivatives transactions at any time and increases in margin above the margin that it required at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions and to terminate transactions. Any such increase or termination could interfere with the ability of a Fund to pursue its investment strategy. Also, a Fund is subject to execution risk if it enters into a derivatives transaction that is required to be cleared (or that the Manager expects to be cleared), and no clearing member is willing or able to clear the transaction on the Fund’s behalf. In that case, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of any increase in the value of the transaction after the time of the transaction.
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. See “Investment and other risks” above for further information.
For Funds that held derivatives during the period ended August 31, 2013, the following table shows how the Fund used these derivatives (marked with an X):
| Type of Derivative and Objective for Use | Currency Hedged International Equity Fund | Developed World Stock Fund | International Core Equity Fund | International Growth Equity Fund | International Intrinsic Value Fund | International Small Companies Fund | Resources Fund | Risk Premium Fund | Tax-Managed International Equities Fund | |||||||||
| Forward currency contracts | ||||||||||||||||||
| Adjust exposure to foreign currencies |
X | X | X | X | X | X | ||||||||||||
| To manage against anticipated currency exchange rate changes |
X | X | X | X | X | X | ||||||||||||
| To hedge foreign currency exposure in the underlying Funds’ investments relative to the U.S. Dollar |
X | |||||||||||||||||
| Futures contracts | ||||||||||||||||||
| Adjust exposure to certain securities markets |
X | X | X | X | X | |||||||||||||
| Maintain the diversity and liquidity of the portfolio |
X | X | X | X | X | |||||||||||||
| Options (Written) | ||||||||||||||||||
| Used written put option contracts as a substitute for direct equity investment |
X | |||||||||||||||||
| Rights and/or warrants | ||||||||||||||||||
| Received as a result of corporate actions |
X | X | X | X | X | X | X | |||||||||||
Forward currency contracts
The Funds may enter into forward currency contracts, including forward cross currency contracts. A forward currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date (or to pay or receive the amount of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund’s forward currency contracts is marked-to-market daily using rates supplied by a quotation service and changes in value are recorded by each Fund as unrealized gains or losses. Realized gains or losses on the contracts are equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose a Fund to the market risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. Most forward currency contracts are not collateralized. Forward currency contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
| 101 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Futures contracts
The Funds may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price at a specified time in the future. Some futures contracts are net (cash) settled. Upon entering into a futures contract, a Fund is required to deposit cash, U.S. government and agency obligations or other liquid assets with the futures clearing broker in accordance with the initial margin requirements of the broker or exchange. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded (and if the futures are traded outside the U.S. and the market for such futures is closed prior to the close of NYSE due to time zone differences, the values will be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees to reflect estimated valuation changes through the NYSE close). The value of each of the Fund’s futures contracts is marked-to-market daily and an appropriate payable or receivable for the change in value (“variation margin”) is recorded by each Fund. The payable or receivable is settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statements of Assets and Liabilities. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day’s settlement price, thereby effectively preventing liquidation of unfavorable positions. Futures contracts expose the Funds to the risk that they may not be able to enter into a closing transaction due to an illiquid market. Futures contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments
Options
The Funds may purchase call and put options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options a Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset at a set price to the writer of the option. A Fund pays a premium for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently reflected in the marked-to-market value of the option. The potential loss associated with purchasing put and call options is limited to the premium paid. Purchased option contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
The Funds may write (i.e., sell) call and put options on futures, swaps (“swaptions”), securities or currencies they own or in which they may invest. Writing options alters a Fund’s exposure to the underlying asset by, in the case of a call option, obligating that Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating that Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g., index options), settlement will be in cash, based on a formula price. When a Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, a Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that a Fund writes call options without an offsetting exposure (e.g., call options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. OTC options expose a Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. Written option contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
When an option contract is closed, that Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction in the cost of investments purchased. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statements of Operations.
For the period ended August 31, 2013, investment activity in options contracts written by the Funds were as follows:
| Puts | Calls | |||||||||||||||||||||||
| Principal Amount of Contracts |
Number of Contracts |
Premiums | Principal Amount of Contracts |
Number of Contracts |
Premiums | |||||||||||||||||||
| Risk Premium Fund |
||||||||||||||||||||||||
| Outstanding, beginning of period |
— | 12,048 | $ | 10,179,773 | — | — | $ | — | ||||||||||||||||
| Options written |
— | 83,206 | 86,050,982 | — | — | — | ||||||||||||||||||
| Options bought back |
— | (30,570 | ) | (32,369,841 | ) | — | — | — | ||||||||||||||||
| Options expired |
— | (51,085 | ) | (50,482,549 | ) | — | — | — | ||||||||||||||||
| Options exercised |
— | (75 | ) | (363,367 | ) | — | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Outstanding, end of period |
— | 13,524 | $ | 13,014,998 | — | — | $ | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 102 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Exchange-traded 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 (and if the underlying reference security closes or the official closing time of the underlying index occurs prior to the close of the NYSE due to time zone differences, the values will be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees to reflect estimated valuation changes through the NYSE close). The Funds value OTC options using inputs provided by primary pricing sources and industry models.
Swap contracts
The Funds may enter into various types of swap contracts, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap contract is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap contract and during the term of the transaction, a Fund and/or the swap counterparty may post or receive cash or securities as collateral.
Initial upfront payments received or made upon entering into a swap contract are included in the fair market value of the swap. The Funds do not amortize upfront payments. Net periodic payments made or received to compensate for differences between the stated terms of the swap contract and prevailing market conditions (credit spreads, currency exchange rates, interest rates, and other relevant factors) are recorded as realized gains or losses on the Statements of Operations. A liquidation payment received or made at the termination of the swap contract is recorded as realized gain or loss in the Statements of Operations.
Interest rate swap contracts involve an exchange by the parties of their respective commitments to pay or right to receive interest (e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal).
Total return swap contracts involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security, basket of securities, or futures contract), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.
In a credit default swap contract, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g., default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives periodic payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations so long as there is no early termination.
For credit default swap contracts on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer’s failure to pay interest or principal on a reference security, 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 contracts on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer’s bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.
Variance swap contracts 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 payable 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 be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to make a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to 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.
Generally, the Funds price their OTC swap contracts daily using industry standard models that may incorporate quotations from market makers or pricing vendors and record the change in value, if any, as unrealized gain or loss in the Statements of Operations. Gains or losses are realized upon the termination of the swap contracts or reset dates, as appropriate. Cleared swap contracts are valued using the quote (which may be based on a model) published by the relevant clearing house. If an updated quote for a cleared swap contract is not available by the time that a Fund calculates its net asset value on any business day, then that swap contract will generally be valued using an industry standard model, which may differ from the model used by the relevant clearing house.
| 103 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The values assigned to swap contracts may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap contracts involves counterparty credit, legal, and documentation risk that is generally not reflected in the value assigned to the swap contract. Such risks include the possibility that the counterparty defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that a Fund has amounts on deposit in excess of amounts owed by that Fund, or that any collateral the other party posts is insufficient or not timely received by a Fund. Credit risk is particularly acute in economic environments 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. Swap contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Rights and warrants
The Funds 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 set price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in the section entitled “Options” above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. However, warrants and rights often do not have standardized terms, and may have longer maturities and may be less liquid than exchange-traded options. In addition, the terms of warrants or rights may limit a Fund’s ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. Rights and/or warrants outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
As provided by U.S. GAAP, the table below is based on market values or unrealized appreciation/(depreciation) rather than the notional amounts of derivatives. Changes to market values of reference asset(s) will tend to have a greater impact on the Funds (with correspondingly greater risk) the greater the notional amount. For further information on notional amounts, see the Schedule of Investments.
The following is a summary of the valuations of derivative instruments categorized by risk exposure:
The Effect of Derivative Instruments on the Statements of Assets and Liabilities as of August 31, 2013 and the Statements of Operations for the period ended August 31, 2013^:
| Credit Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate Contracts |
Other Contracts |
Total | |||||||||||||||||||
| Currency Hedged International Equity Fund |
||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
$ | — | $ | — | $ | 8,108,168 | $ | — | $ | — | $ | 8,108,168 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | — | $ | 8,108,168 | $ | — | $ | — | $ | 8,108,168 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | 8,108,168 | $ | — | $ | — | $ | 8,108,168 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liability: |
||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | (7,014,069 | ) | $ | — | $ | — | $ | (7,014,069 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | — | $ | (7,014,069 | ) | $ | — | $ | — | $ | (7,014,069 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | (7,014,069 | ) | $ | — | $ | — | $ | (7,014,069 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||
| Forward Currency Contracts |
$ | — | $ | — | $ | 31,993,865 | $ | — | $ | — | $ | 31,993,865 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | — | $ | 31,993,865 | $ | — | $ | — | $ | 31,993,865 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Change in Net Unrealized Appreciation (Depreciation) on: |
||||||||||||||||||||||||
| Forward Currency Contracts |
$ | — | $ | — | $ | (9,592,682 | ) | $ | — | $ | — | $ | (9,592,682 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | — | $ | (9,592,682 | ) | $ | — | $ | — | $ | (9,592,682 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 104 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Credit Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate Contracts |
Other Contracts |
Total | |||||||||||||||||||
| Developed World Stock Fund |
||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
$ | — | $ | — | $ | 533,372 | $ | — | $ | — | $ | 533,372 | ||||||||||||
| Unrealized Appreciation on Futures Contracts* |
164,570 | — | 164,570 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 164,570 | $ | 533,372 | $ | — | $ | — | $ | 697,942 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total subject to Master Agreements |
$ | — | $ | 164,570 | $ | 533,372 | $ | — | $ | — | $ | 697,942 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liability: |
||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | (141,428 | ) | $ | — | $ | — | $ | (141,428 | ) | ||||||||||
| Unrealized Depreciation on Futures Contracts* |
— | (210,041 | ) | — | — | — | (210,041 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (210,041 | ) | $ | (141,428 | ) | $ | — | $ | — | $ | (351,469 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total subject to Master Agreements |
$ | — | $ | (210,041 | ) | $ | (141,428 | ) | $ | — | $ | — | $ | (351,469 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | 3 | $ | — | $ | — | $ | — | $ | 3 | ||||||||||||
| Forward Currency Contracts |
— | — | (208,471 | ) | — | — | (208,471 | ) | ||||||||||||||||
| Futures Contracts |
— | 2,019,038 | — | — | — | 2,019,038 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 2,019,041 | $ | (208,471 | ) | $ | — | $ | — | $ | 1,810,570 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Change in Net Unrealized Appreciation (Depreciation) on: |
||||||||||||||||||||||||
| Forward Currency Contracts |
$ | — | $ | — | $ | 104,898 | $ | — | $ | — | $ | 104,898 | ||||||||||||
| Futures Contracts |
— | (680,649 | ) | — | — | — | (680,649 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (680,649 | ) | $ | 104,898 | $ | — | $ | — | $ | (575,751 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| International Core Equity Fund |
||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
$ | — | $ | — | $ | 3,553,947 | $ | — | $ | — | $ | 3,553,947 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | — | $ | 3,553,947 | $ | — | $ | — | $ | 3,553,947 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | 3,553,947 | $ | — | $ | — | $ | 3,553,947 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liability: |
||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | (1,548,245 | ) | $ | — | $ | — | $ | (1,548,245 | ) | ||||||||||
| Unrealized Depreciation on Futures Contracts* |
— | (974,190 | ) | — | — | — | (974,190 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (974,190 | ) | $ | (1,548,245 | ) | $ | — | $ | — | $ | (2,522,435 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total subject to Master Agreements |
$ | — | $ | (974,190 | ) | $ | (1,548,245 | ) | $ | — | $ | — | $ | (2,522,435 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | 8,089 | $ | — | $ | — | — | $ | 8,089 | |||||||||||||
| Forward Currency Contracts |
— | 11,680,058 | — | — | 11,680,058 | |||||||||||||||||||
| Futures Contracts |
— | 8,804,692 | — | — | — | 8,804,692 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 8,812,781 | $ | 11,680,058 | $ | — | $ | — | $ | 20,492,839 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Change in Net Unrealized Appreciation (Depreciation) on: |
||||||||||||||||||||||||
| Forward Currency Contracts |
$ | — | $ | — | $ | (61,012 | ) | $ | — | $ | — | $ | (61,012 | ) | ||||||||||
| Futures Contracts |
— | 7,765,366 | — | — | — | 7,765,366 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 7,765,366 | $ | (61,012 | ) | $ | — | $ | — | $ | 7,704,354 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 105 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Credit Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate Contracts |
Other Contracts |
Total | |||||||||||||||||||
| International Growth Equity Fund |
||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||
| Investments, at value (rights and/or warrants) |
$ | — | $ | 1,455 | $ | — | $ | — | $ | — | $ | 1,455 | ||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
— | — | 2,906,925 | — | — | 2,906,925 | ||||||||||||||||||
| Unrealized Appreciation on Futures Contracts* |
— | 597,982 | — | — | — | 597,982 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 599,437 | $ | 2,906,925 | $ | — | $ | — | $ | 3,506,362 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | 1,455 | $ | — | $ | — | $ | — | $ | 1,455 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total subject to Master Agreements |
$ | — | $ | 597,982 | $ | 2,906,925 | $ | — | $ | — | $ | 3,504,907 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liability: |
||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | (1,444,269 | ) | $ | — | $ | — | $ | (1,444,269 | ) | ||||||||||
| Unrealized Depreciation on Futures Contracts* |
— | (1,138,438 | ) | — | — | — | (1,138,438 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (1,138,438 | ) | $ | (1,444,269 | ) | $ | — | $ | — | $ | (2,582,707 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total subject to Master Agreements |
$ | — | $ | (1,138,438 | ) | $ | (1,444,269 | ) | $ | — | $ | — | $ | (2,582,707 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | 4,949 | $ | — | $ | — | $ | — | $ | 4,949 | ||||||||||||
| Forward Currency Contracts |
— | — | 9,798,241 | — | — | 9,798,241 | ||||||||||||||||||
| Futures Contracts |
— | 9,337,309 | — | — | — | 9,337,309 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 9,342,258 | $ | 9,798,241 | $ | — | $ | — | $ | 19,140,499 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Change in Net Unrealized Appreciation (Depreciation) on: |
||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | (2,261 | ) | $ | — | $ | — | $ | — | $ | (2,261 | ) | ||||||||||
| Forward Currency Contracts |
— | — | (333,891 | ) | — | — | (333,891 | ) | ||||||||||||||||
| Futures Contracts |
— | 1,219,135 | — | — | — | 1,219,135 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 1,216,874 | $ | (333,891 | ) | $ | — | $ | — | $ | 882,983 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| International Intrinsic Value Fund |
||||||||||||||||||||||||
| Assets: |
||||||||||||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
$ | — | $ | — | $ | 13,463,792 | $ | — | $ | — | $ | 13,463,792 | ||||||||||||
| Unrealized Appreciation on Futures Contracts* |
— | 1,469,574 | — | — | — | 1,469,574 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 1,469,574 | $ | 13,463,792 | $ | — | $ | — | $ | 14,933,366 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total subject to Master Agreements |
$ | — | $ | 1,469,574 | $ | 13,463,792 | $ | — | $ | — | $ | 14,933,366 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liabilities: |
||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | (2,353,257 | ) | $ | — | $ | — | $ | (2,353,257 | ) | ||||||||||
| Unrealized Depreciation on Futures Contracts* |
— | (4,164,018 | ) | — | — | — | (4,164,018 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (4,164,018 | ) | $ | (2,353,257 | ) | $ | — | $ | — | $ | (6,517,275 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total subject to Master Agreements |
$ | — | $ | (4,164,018 | ) | $ | (2,353,257 | ) | $ | — | $ | — | $ | (6,517,275 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 106 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Credit Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate Contracts |
Other Contracts |
Total | |||||||||||||||||||
| International Intrinsic Value Fund (continued) |
||||||||||||||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | (710,679 | ) | $ | — | $ | — | $ | — | $ | (710,679 | ) | ||||||||||
| Forward Currency Contracts |
— | — | (10,450,425 | ) | — | — | (10,450,425 | ) | ||||||||||||||||
| Futures Contracts |
— | 46,699,185 | — | — | — | 46,699,185 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 45,988,506 | $ | (10,450,425 | ) | $ | — | $ | — | $ | 35,538,081 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Change in Net Unrealized Appreciation (Depreciation) on: |
||||||||||||||||||||||||
| Forward Currency Contracts |
$ | — | $ | — | $ | (895,700 | ) | $ | — | $ | — | $ | (895,700 | ) | ||||||||||
| Futures Contracts |
— | (14,736,402 | ) | — | — | — | (14,736,402 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (14,736,402 | ) | $ | (895,700 | ) | $ | — | $ | — | $ | (15,632,102 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| International Small Companies Fund |
||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||
| Investments, at value (rights and/or warrants) |
$ | — | $ | 1,675 | $ | — | $ | — | $ | — | $ | 1,675 | ||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
— | — | 465,980 | — | — | 465,980 | ||||||||||||||||||
| Unrealized Appreciation on Futures Contracts* |
— | 46,916 | — | — | — | 46,916 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 48,591 | $ | 465,980 | $ | — | $ | — | $ | 514,571 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | 1,675 | $ | — | $ | — | $ | — | $ | 1,675 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total subject to Master Agreements |
$ | — | $ | 46,916 | $ | 465,980 | $ | — | $ | — | $ | 512,896 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liability: |
||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | (147,556 | ) | $ | — | $ | — | $ | (147,556 | ) | ||||||||||
| Unrealized Depreciation on Futures Contracts* |
— | (771,534 | ) | — | — | — | (771,534 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (771,534 | ) | $ | (147,556 | ) | $ | — | $ | — | $ | (919,090 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total subject to Master Agreements |
$ | — | $ | (771,534 | ) | $ | (147,556 | ) | $ | — | $ | — | $ | (919,090 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | (153,673 | ) | $ | — | $ | — | $ | — | $ | (153,673 | ) | ||||||||||
| Forward Currency Contracts |
— | — | 350,263 | — | — | 350,263 | ||||||||||||||||||
| Futures Contracts |
— | 1,518,268 | — | — | — | 1,518,268 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 1,364,595 | $ | 350,263 | $ | — | $ | — | $ | 1,714,858 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Change in Net Unrealized Appreciation (Depreciation) on: |
||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | 852 | $ | — | $ | — | $ | — | $ | 852 | ||||||||||||
| Forward Currency Contracts |
— | — | 304,220 | — | — | 304,220 | ||||||||||||||||||
| Futures Contracts |
(339,656 | ) | (339,656 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (338,804 | ) | $ | 304,220 | $ | — | $ | — | $ | (34,584 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Resources Fund |
||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||
| Investments, at value (rights and/or warrants) |
$ | — | $ | 99 | $ | — | $ | — | $ | — | $ | 99 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 99 | $ | — | $ | — | $ | — | $ | 99 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total subject to Master Agreements |
$ | — | $ | 99 | $ | — | $ | — | $ | — | $ | 99 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 107 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Credit Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate Contracts |
Other Contracts |
Total | |||||||||||||||||||
| Resources Fund (continued) |
||||||||||||||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | 10,654 | $ | — | $ | — | $ | — | $ | 10,654 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 10,654 | $ | — | $ | — | $ | — | $ | 10,654 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Change in Net Unrealized Appreciation (Depreciation) on: |
||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | 99 | $ | — | $ | — | $ | — | $ | 99 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 99 | $ | — | $ | — | $ | — | $ | 99 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Risk Premium Fund |
||||||||||||||||||||||||
| Liability: |
||||||||||||||||||||||||
| Written Options, at value |
$ | — | $ | (20,861,155 | ) | $ | — | $ | — | $ | — | $ | (20,861,155 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (20,861,155 | ) | $ | — | $ | — | $ | — | $ | (20,861,155 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total subject to Master Agreements |
$ | — | $ | (20,861,155 | ) | $ | — | $ | — | $ | — | $ | (20,861,155 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||
| Written Options |
— | 769,169 | — | — | — | 769,169 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 769,169 | $ | — | $ | — | $ | — | $ | 769,169 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Change in Net Unrealized Appreciation (Depreciation) on: |
||||||||||||||||||||||||
| Written Options |
— | (10,684,532 | ) | — | — | — | (10,684,532 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (10,684,532 | ) | $ | — | $ | — | $ | — | $ | (10,684,532 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Tax-Managed International Equities Fund |
||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
$ | — | $ | — | $ | 662,935 | $ | — | $ | — | $ | 662,935 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | — | $ | 662,935 | $ | — | $ | — | $ | 662,935 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | 662,935 | $ | — | $ | — | $ | 662,935 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liability: |
||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | (432,012 | ) | $ | — | $ | — | $ | (432,012 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | — | $ | (432,012 | ) | $ | — | $ | — | $ | (432,012 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | (432,012 | ) | $ | — | $ | — | $ | (432,012 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | 66,301 | $ | — | $ | — | $ | — | $ | 66,301 | ||||||||||||
| Forward Currency Contracts |
— | — | 447,629 | — | — | 447,629 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 66,301 | $ | 447,629 | $ | — | $ | — | $ | 513,930 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Change in Net Unrealized Appreciation (Depreciation) on: |
||||||||||||||||||||||||
| Forward Currency Contracts |
$ | — | $ | — | $ | 139,017 | $ | — | $ | — | $ | 139,017 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | — | $ | 139,017 | $ | — | $ | — | $ | 139,017 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The risks referenced in the tables above are not intended to be inclusive of all risks. Please see the “Investment and other risks” and “Portfolio valuation” sections for a further discussion of risks.
| ^ | Because the Funds recognize changes in value through the Statements of Operations, they do not qualify for hedge accounting under authoritative guidance for derivative instruments. The Funds’ investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables. |
| * | The table includes cumulative appreciation/depreciation of futures and cleared swap contracts as reported in the Schedule of Investments. Period end variation margin on open futures and cleared swap contracts is reported within the Statements of Assets and Liabilities. |
| 108 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The Funds are party to International Swaps and Derivatives Association, Inc. Master Agreements, Global Master Repurchase Agreements or other similar types of agreements (collectively, “Master Agreements”) that generally govern the terms of some over-the-counter derivative transactions, repurchase agreements and reverse repurchase agreements. The Master Agreements may include collateral posting terms and netting provisions that apply in the event of a default and/or termination event. Upon the occurrence of such an event, including the bankruptcy or insolvency of the counterparty, the Master Agreements may permit the non-defaulting party to calculate a single net payment to close out applicable transactions. However, there is no guarantee that the terms of a Master Agreement will be enforceable; for example, when bankruptcy or insolvency laws impose restrictions on or prohibitions against the right of offset obligations. Additionally, the netting and close out provisions of a Master Agreement may not extend to the obligations of the counterparty’s affiliates or across varying types of transactions. Termination events may also include a decline in the net assets of a Fund below a certain level over a specified period of time and may entitle a counterparty to elect to terminate early with respect to some or all the transactions under the Master Agreement with that counterparty. Such an election by one or more of the counterparties could have a material adverse impact on a Fund’s operations. For more information about other uncertainties and risks, see the Investment and Other Risks note.
For financial reporting purposes, on the Statements of Assets and Liabilities any cash collateral that has been pledged to cover obligations of the Funds is reported as Due from Broker and any cash collateral received from the counterparty is reported as Due to Broker. Any non-cash collateral pledged by the Funds is noted in the Schedules of Investments. The tables below show the potential effect of netting arrangements made available by the Master Agreements on the financial position of the Funds. For financial reporting purposes, the Funds’ Statements of Assets and Liabilities generally show derivative assets and derivative liabilities (regardless of whether they are subject to netting arrangements) on a gross basis, which reflects the full risks and exposures of the Fund prior to netting. See Note 2 for information on repurchase agreements and reverse repurchase agreements held by the Funds at August 31, 2013, if any.
The tables above present the Funds’ derivative assets and liabilities by type of financial instrument. The following tables present the Funds’ OTC derivative assets and liabilities by counterparty net of amounts that may be available for offset under the Master Agreements and net of the related collateral received or pledged by the Funds as of August 31, 2013:
Currency Hedged International Equity Fund
| Counterparty | Gross Derivative Assets Subject to Master Agreements |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Bank of America, N.A. |
$ | 14,979 | $ | — | $ | — | $ | 14,979 | ||||||||
| Barclays Bank PLC |
1,233,033 | — | 1,233,033 | — | ||||||||||||
| Brown Brothers Harriman & Co. |
133,992 | — | 133,992 | — | ||||||||||||
| Deutsche Bank AG |
416,229 | — | 416,229 | — | ||||||||||||
| Goldman Sachs International |
2,323,637 | — | (603,942 | ) | 1,719,695 | |||||||||||
| JPMorgan Chase Bank, N.A. |
1,362,609 | — | 1,362,609 | — | ||||||||||||
| Morgan Stanley & Co. International PLC |
2,623,689 | — | (434,667 | ) | 2,189,022 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 8,108,168 | $ | — | $ | 2,107,254 | $ | 3,923,696 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Barclays Bank PLC |
$ | 2,595,117 | $ | — | $ | (1,233,033 | ) | $ | 1,362,084 | |||||||
| Brown Brothers Harriman & Co. |
646,578 | — | (133,992 | ) | 512,586 | |||||||||||
| Deutsche Bank AG |
600,720 | — | (416,229 | ) | 184,491 | |||||||||||
| Goldman Sachs International |
603,942 | — | 603,942 | — | ||||||||||||
| JPMorgan Chase Bank, N.A. |
1,963,060 | — | (1,362,609 | ) | 600,451 | |||||||||||
| Morgan Stanley & Co. International PLC |
434,667 | — | 434,667 | — | ||||||||||||
| Royal Bank of Scotland PLC |
169,985 | — | — | 169,985 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 7,014,069 | $ | — | $ | (2,107,254 | ) | $ | 2,829,597 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 109 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Developed World Stock Fund
| Counterparty | Gross Derivative Assets Subject to Master Agreements |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Bank of America, N.A. |
$ | 98,591 | $ | — | $ | (35,939 | ) | $ | 62,652 | |||||||
| Bank of New York Mellon |
27,771 | — | 27,771 | — | ||||||||||||
| Barclays Bank PLC |
53,859 | — | (10,336 | ) | 43,523 | |||||||||||
| Brown Brothers Harriman & Co. |
38,109 | — | (11,037 | ) | 27,072 | |||||||||||
| Deutsche Bank AG |
104,121 | — | (33,852 | ) | 70,269 | |||||||||||
| JPMorgan Chase Bank, N.A. |
69,343 | — | (15,463 | ) | 53,880 | |||||||||||
| Morgan Stanley & Co. International PLC |
67,528 | — | (2,615 | ) | 64,913 | |||||||||||
| State Street Bank and Trust Company |
74,050 | — | (44 | ) | 74,006 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 533,372 | $ | — | $ | (81,515 | ) | $ | 396,315 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Bank of America, N.A. |
$ | 35,939 | $ | — | $ | 35,939 | $ | — | ||||||||
| Bank of New York Mellon |
30,213 | — | (27,771 | ) | 2,442 | |||||||||||
| Barclays Bank PLC |
10,336 | — | 10,336 | — | ||||||||||||
| Brown Brothers Harriman & Co. |
11,037 | — | 11,037 | — | ||||||||||||
| Deutsche Bank AG |
33,852 | — | 33,852 | — | ||||||||||||
| JPMorgan Chase Bank, N.A. |
15,463 | — | 15,463 | — | ||||||||||||
| Morgan Stanley & Co. International PLC |
2,615 | — | 2,615 | — | ||||||||||||
| Royal Bank of Scotland PLC |
1,929 | — | — | 1,929 | ||||||||||||
| State Street Bank and Trust Company |
44 | — | 44 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 141,428 | $ | — | $ | 81,515 | $ | 4,371 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 110 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
International Core Equity Fund
| Counterparty | Gross Derivative Assets Subject to Master Agreements |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Bank of America, N.A. |
$ | 490,262 | $ | — | $ | (899 | ) | $ | 489,363 | |||||||
| Bank of New York Mellon |
366,104 | — | (67,064 | ) | 299,040 | |||||||||||
| Barclays Bank PLC |
544,220 | — | (62,070 | ) | 482,150 | |||||||||||
| Brown Brothers Harriman & Co. |
162,616 | — | 162,616 | — | ||||||||||||
| Deutsche Bank AG |
409,670 | — | (158,650 | ) | 251,020 | |||||||||||
| JPMorgan Chase Bank, N.A. |
43 | — | 43 | — | ||||||||||||
| Morgan Stanley & Co. International PLC |
523,189 | — | (81,451 | ) | 441,738 | |||||||||||
| Royal Bank of Scotland PLC |
583,125 | — | (52,387 | ) | 530,738 | |||||||||||
| State Street Bank and Trust Company |
474,717 | — | (218,683 | ) | 256,034 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 3,553,946 | $ | — | $ | (478,545 | ) | $ | 2,750,083 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Bank of America, N.A. |
$ | 899 | $ | — | $ | 899 | $ | — | ||||||||
| Bank of New York Mellon |
67,064 | — | 67,064 | — | ||||||||||||
| Barclays Bank PLC |
62,070 | — | 62,070 | — | ||||||||||||
| Brown Brothers Harriman & Co. |
292,842 | — | (162,616 | ) | 130,226 | |||||||||||
| Deutsche Bank AG |
158,650 | — | 158,650 | — | ||||||||||||
| JPMorgan Chase Bank, N.A. |
614,198 | — | (43 | ) | 614,155 | |||||||||||
| Morgan Stanley & Co. International PLC |
81,451 | — | 81,451 | — | ||||||||||||
| Royal Bank of Scotland PLC |
52,387 | — | 52,387 | — | ||||||||||||
| State Street Bank and Trust Company |
218,683 | — | 218,683 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 1,548,244 | $ | — | $ | 478,545 | $ | 744,381 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 111 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
International Growth Equity Fund
| Counterparty | Gross Derivative Assets Subject to Master Agreements |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Bank of America, N.A. |
$ | 427,468 | $ | — | $ | (153,245 | ) | $ | 274,223 | |||||||
| Bank of New York Mellon |
267,320 | — | 267,320 | — | ||||||||||||
| Barclays Bank PLC |
396,870 | — | (238,823 | ) | 158,047 | |||||||||||
| Brown Brothers Harriman & Co. |
622,138 | — | (250,330 | ) | 371,808 | |||||||||||
| Deutsche Bank AG |
250,658 | — | (177,532 | ) | 73,126 | |||||||||||
| JPMorgan Chase Bank, N.A. |
232,883 | — | (419 | ) | 232,464 | |||||||||||
| Morgan Stanley & Co. International PLC |
391,893 | — | (296,438 | ) | 95,455 | |||||||||||
| Royal Bank of Scotland PLC |
56,492 | — | (10,788 | ) | 45,704 | |||||||||||
| State Street Bank and Trust Company |
261,203 | — | (488 | ) | 260,715 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 2,906,925 | $ | — | $ | (860,743 | ) | $ | 1,511,542 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Bank of America, N.A. |
$ | 153,245 | $ | — | $ | 153,245 | $ | — | ||||||||
| Bank of New York Mellon |
316,206 | — | (267,320 | ) | 48,886 | |||||||||||
| Barclays Bank PLC |
238,823 | — | 238,823 | — | ||||||||||||
| Brown Brothers Harriman & Co. |
250,330 | — | 250,330 | — | ||||||||||||
| Deutsche Bank AG |
177,532 | — | 177,532 | — | ||||||||||||
| JPMorgan Chase Bank, N.A. |
419 | — | 419 | — | ||||||||||||
| Morgan Stanley & Co. International PLC |
296,438 | — | 296,438 | — | ||||||||||||
| Royal Bank of Scotland PLC |
10,788 | — | 10,788 | — | ||||||||||||
| State Street Bank and Trust Company |
488 | — | 488 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 1,444,269 | $ | — | $ | 860,743 | $ | 48,886 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 112 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
International Intrinsic Value Fund
| Counterparty | Gross Derivative Assets Subject to Master Agreements |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Bank of America, N.A. |
$ | 2,591,993 | $ | — | $ | (112,862 | ) | $ | 2,479,131 | |||||||
| Bank of New York Mellon |
1,664,541 | — | (858,026 | ) | 806,515 | |||||||||||
| Barclays Bank PLC |
1,927,835 | — | (490,362 | ) | 1,437,473 | |||||||||||
| Brown Brothers Harriman & Co. |
1,289,850 | — | (5,610 | ) | 1,284,240 | |||||||||||
| Deutsche Bank AG |
1,456,767 | — | (650,177 | ) | 806,590 | |||||||||||
| Goldman Sachs International |
477,028 | — | (1,773 | ) | 475,255 | |||||||||||
| JPMorgan Chase Bank, N.A. |
1,032,312 | — | (59,536 | ) | 972,776 | |||||||||||
| Morgan Stanley & Co. International PLC |
909,618 | — | (173,877 | ) | 735,741 | |||||||||||
| Royal Bank of Scotland PLC |
1,088,155 | — | (1,034 | ) | 1,087,121 | |||||||||||
| State Street Bank and Trust Company |
1,025,693 | — | — | 1,025,693 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 13,463,792 | $ | — | $ | (2,353,257 | ) | $ | 11,110,535 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Bank of America, N.A. |
$ | 112,862 | $ | — | $ | 112,862 | $ | — | ||||||||
| Bank of New York Mellon |
858,026 | — | 858,026 | — | ||||||||||||
| Barclays Bank PLC |
490,362 | — | 490,362 | — | ||||||||||||
| Brown Brothers Harriman & Co. |
5,610 | — | 5,610 | — | ||||||||||||
| Deutsche Bank AG |
650,177 | — | 650,177 | — | ||||||||||||
| Goldman Sachs International |
1,773 | — | 1,773 | — | ||||||||||||
| JPMorgan Chase Bank, N.A. |
59,536 | — | 59,536 | — | ||||||||||||
| Morgan Stanley & Co. International PLC |
173,877 | — | 173,877 | — | ||||||||||||
| Royal Bank of Scotland PLC |
1,034 | — | 1,034 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 2,353,257 | $ | — | $ | 2,353,257 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 113 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
International Small Companies Fund
| Counterparty | Gross Derivative Assets Subject to Master Agreements |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Bank of America, N.A. |
$ | 74,521 | $ | — | $ | (22,680 | ) | $ | 51,841 | |||||||
| Barclays Bank PLC |
56,670 | — | (7,626 | ) | 49,044 | |||||||||||
| Brown Brothers Harriman & Co. |
88,899 | — | (1,275 | ) | 87,624 | |||||||||||
| Deutsche Bank AG |
90,251 | — | (14,852 | ) | 75,399 | |||||||||||
| JPMorgan Chase Bank, N.A. |
64,233 | — | (15,288 | ) | 48,945 | |||||||||||
| Morgan Stanley & Co. International PLC |
46,241 | — | (24,919 | ) | 21,322 | |||||||||||
| Royal Bank of Scotland PLC |
20,654 | — | (11,215 | ) | 9,439 | |||||||||||
| State Street Bank and Trust Company |
24,511 | — | (20,270 | ) | 4,241 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 465,980 | $ | — | $ | (118,125 | ) | $ | 347,855 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Bank of America, N.A. |
$ | 22,680 | $ | — | $ | 22,680 | $ | — | ||||||||
| Bank of New York Mellon |
29,431 | — | — | 29,431 | ||||||||||||
| Barclays Bank PLC |
7,626 | — | 7,626 | — | ||||||||||||
| Brown Brothers Harriman & Co. |
1,275 | — | 1,275 | — | ||||||||||||
| Deutsche Bank AG |
14,852 | — | 14,852 | — | ||||||||||||
| JPMorgan Chase Bank, N.A. |
15,288 | — | 15,288 | — | ||||||||||||
| Morgan Stanley & Co. International PLC |
24,919 | — | 24,919 | — | ||||||||||||
| Royal Bank of Scotland PLC |
11,215 | — | 11,215 | — | ||||||||||||
| State Street Bank and Trust Company |
20,270 | — | 20,270 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 147,556 | $ | — | $ | 118,125 | $ | 29,431 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 114 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Tax-Managed International Equities Fund
|
|
||||||||||||||||
| Counterparty | Gross Derivative Assets Subject to Master Agreements |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Bank of America, N.A. |
$ | 108,543 | $ | — | $ | 108,543 | $ | — | ||||||||
| Barclays Bank PLC |
60,001 | — | (24,489 | ) | 35,512 | |||||||||||
| Brown Brothers Harriman & Co. |
7,124 | — | 7,124 | — | ||||||||||||
| Deutsche Bank AG |
301,063 | — | (109,507 | ) | 191,556 | |||||||||||
| Morgan Stanley & Co. International PLC |
129,126 | — | (95,688 | ) | 33,438 | |||||||||||
| State Street Bank and Trust Company |
57,078 | — | (15,057 | ) | 42,021 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 662,935 | $ | — | $ | (129,074 | ) | $ | 302,527 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Bank of America, N.A. |
$ | 127,723 | $ | — | $ | (108,543 | ) | $ | 19,180 | |||||||
| Barclays Bank PLC |
24,489 | — | 24,489 | — | ||||||||||||
| Brown Brothers Harriman & Co. |
59,548 | — | (7,124 | ) | 52,424 | |||||||||||
| Deutsche Bank AG |
109,507 | — | 109,507 | — | ||||||||||||
| Morgan Stanley & Co. International PLC |
95,688 | — | 95,688 | — | ||||||||||||
| State Street Bank and Trust Company |
15,057 | — | 15,057 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 432,012 | $ | — | $ | 129,074 | $ | 71,604 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The following tables present the Funds’ exchange-traded or cleared derivative assets and liabilities by counterparty net of amounts that may be available for offset under the Master Agreements and net of the related collateral received or pledged by the Funds as of August 31, 2013:
Developed World Stock Fund
| Counterparty | Gross Derivative Liabilities in the Statement of Assets and Liabilities |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Goldman Sachs & Co. |
$ | 92,720 | $ | (92,720 | ) | $ | — | $ | — | * | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 92,720 | $ | (92,720 | ) | $ | — | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
International Core Equity Fund
| Counterparty | Gross Derivative Liabilities in the Statement of Assets and Liabilities |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Goldman Sachs & Co. |
$ | 354,867 | $ | (354,867 | ) | $ | — | $ | — | * | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 354,867 | $ | (354,867 | ) | $ | — | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 115 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
International Growth Equity Fund
| Counterparty | Gross Derivative Liabilities in the Statement of Assets and Liabilities |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Goldman Sachs & Co. |
$ | 322,286 | $ | (322,286 | ) | $ | — | $ | — | * | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 322,286 | $ | (322,286 | ) | $ | — | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
International Intrinsic Value Fund
| Counterparty | Gross Derivative Liabilities in the Statement of Assets and Liabilities |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Goldman Sachs & Co. |
$ | 1,698,733 | $ | (1,698,733 | ) | $ | — | $ | — | * | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 1,698,733 | $ | (1,698,733 | ) | $ | — | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
International Small Companies Fund
| Counterparty | Gross Derivative Liabilities in the Statement of Assets and Liabilities |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Goldman Sachs & Co. |
$ | 136,379 | $ | (136,379 | ) | $ | — | $ | — | * | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 136,379 | $ | (136,379 | ) | $ | — | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
Risk Premium Fund
| Counterparty | Gross Derivative Liabilities in the Statement of Assets and Liabilities |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Morgan Stanley & Co. LLC |
$ | 20,861,155 | $ | (20,861,155 | ) | $ | — | $ | — | * | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 20,861,155 | $ | (20,861,155 | ) | $ | — | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | In some instances, the actual collateral received and/or pledged may be more than the amount shown. |
| 116 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The average derivative activity, based on absolute values (forward currency contracts, futures contracts, rights and/or warrants) or, notional amounts (swap contracts) or number of contracts (options) outstanding at each month-end, was as follows for the period ended August 31, 2013:
| Fund Name | Forward Currency Contracts ($) |
Futures Contracts ($) |
Options | Rights and/or Warrants ($) |
||||||||||||
| Currency Hedged International Equity Fund |
2,293,748,630 | — | — | — | ||||||||||||
| Developed World Stock Fund |
76,157,574 | 21,118,184 | — | 8,145 | ||||||||||||
| International Core Equity Fund |
913,464,375 | 166,117,063 | — | 59,731 | ||||||||||||
| International Growth Equity Fund |
406,820,878 | 111,220,882 | — | 56,875 | ||||||||||||
| International Intrinsic Value Fund |
2,144,509,671 | 528,516,000 | — | 439,627 | ||||||||||||
| International Small Companies Fund |
61,446,055 | 27,910,412 | — | 39,249 | ||||||||||||
| Resources Fund |
— | — | — | 6,428 | ||||||||||||
| Risk Premium Fund |
— | — | 14,029 | — | ||||||||||||
| Tax-Managed International Equities Fund |
82,501,595 | — | — | 24,168 | ||||||||||||
| 5. | Fees and other transactions with affiliates |
GMO receives a management fee for the services it provides to each Fund. That fee, if any, is paid monthly at the annual rate equal to the percentage of each Fund’s average daily net assets set forth in the table below:
| Currency Hedged International Equity Fund | Developed World Stock Fund | International Core Equity Fund | International Growth Equity Fund | International Intrinsic Value Fund | International Small Companies Fund | Resources Fund | Risk Premium Fund | Tax-Managed International Equities Fund | ||||||||||
| Management Fee | 0.54% | 0.45% | 0.38% | 0.50% | 0.50% | 0.60% | 0.50% | 0.45% | 0.50% | |||||||||
In addition, each class of shares of certain Funds (except Class M shares which are described below (International Intrinsic Value Class M liquidated on March 27, 2013)) 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. Class M shares of a Fund pay the Manager an administration fee, which is used by the Manager to defray its expenses (or the expenses of a third party) in providing administration and record keeping services to certain marketplaces where Class M shares of each Fund may be purchased. The Manager may pay part or all of the administration fee to third parties for providing administration and record keeping services. In some cases, these third parties also receive compensation from the Fund’s distributor pursuant to the Trust’s Distribution and Service (12b-1) Plan. Shareholder service fees are paid monthly equal to the percentage of each applicable Fund’s average daily net assets set forth in the table below:
| 117 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Fund Name | Class II | Class III | Class IV | Class V | Class VI | |||||||||||||||
| Currency Hedged International Equity Fund |
0.15% | |||||||||||||||||||
| Developed World Stock Fund |
0.15% | 0.10% | ||||||||||||||||||
| International Core Equity Fund |
0.15% | 0.09% | 0.055% | |||||||||||||||||
| International Growth Equity Fund |
0.15% | 0.09% | ||||||||||||||||||
| International Intrinsic Value Fund |
0.22% | 0.15% | 0.09% | |||||||||||||||||
| International Small Companies Fund |
0.15% | |||||||||||||||||||
| Resources Fund |
0.15% | 0.10% | 0.085% | * | 0.055% | * | ||||||||||||||
| Risk Premium Fund |
0.15% | 0.10% | 0.085% | * | 0.055% | |||||||||||||||
| Tax-Managed International Equities Fund |
0.15% | |||||||||||||||||||
| * | Class is offered but has no shareholders as of August 31, 2013. |
For each Fund other than Resources Fund, the Manager has contractually agreed to reimburse the Fund for its “Specified Operating Expenses” (as defined below). Any such reimbursements are paid to a Fund concurrently with the Fund’s payment of management fees to the Manager. For Resources Fund, the Manager has contractually agreed to reimburse the Fund for the portion of its “Specified Operating Expenses” (as defined below) that exceeds 0.10% of the Fund’s average daily net assets.
“Specified Operating Expenses” means only the following expenses to the extent that they are borne by a Fund: audit expenses, fund accounting expenses, pricing service expenses, expenses of non-investment related tax services, transfer agency expenses, expenses of non-investment related legal services provided to the Funds by or at the direction of the Manager, federal securities law filing expenses, printing expenses, state and federal registration fees and custody expenses.
For each Fund that charges a management fee, the Manager will waive and/or reduce the Fund’s management fee, but not below zero, to the extent necessary to offset the management fees directly or indirectly paid by the Fund to the Manager as a result of the Fund’s direct or indirect investments in other GMO Funds.
For each Fund that charges a shareholder service fee, the Manager will waive and/or reduce the shareholder service fee charged by each class of shares of the Fund, but not below zero, to the extent necessary to offset the shareholder service fees directly or indirectly paid by the class of shares of the Fund to the Manager as a result of the Fund’s direct or indirect investments in other GMO Funds.
These contractual waivers and reimbursements will continue through at least June 30, 2014 for each Fund unless the Funds’ Board of Trustees authorizes their modification or termination, or reduces the fee rates paid to the Manager under the Fund’s management contract or servicing and supplement support agreement.
The Funds’ portion of the gross fees paid by the Trust to the Trust’s independent Trustees and their legal counsel and any agents unaffiliated with the Manager during the period ended August 31, 2013 is shown in the table below and included in the Statements of Operations.
| Fund Name | Independent Trustees and their legal counsel ($) |
Agents unaffiliated with the Manager ($) |
||||||
| Currency Hedged International Equity Fund |
11,316 | 1,656 | ||||||
| Developed World Stock Fund |
1,907 | 368 | ||||||
| International Core Equity Fund |
23,552 | 3,496 | ||||||
| International Growth Equity Fund |
11,960 | 1,748 | ||||||
| International Intrinsic Value Fund |
51,191 | 7,268 | ||||||
| International Small Companies Fund |
1,658 | 184 | ||||||
| Resources Fund |
904 | 92 | ||||||
| Risk Premium Fund |
3,486 | 552 | ||||||
| Tax-Managed International Equities Fund |
2,576 | 368 | ||||||
| 118 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Certain Funds incur fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2013, these indirect fees and expenses expressed as an annualized percentage of each Fund’s average daily net assets were as follows:
| Fund Name | Indirect Net Expenses (excluding shareholder |
Indirect Shareholder Service Fees |
Total Indirect Expenses | |||||||||
| Currency Hedged International Equity Fund |
0.491% | 0.088% | 0.579% | |||||||||
| Developed World Stock Fund |
< 0.001% | 0.000% | < 0.001% | |||||||||
| International Core Equity Fund |
< 0.001% | 0.000% | < 0.001% | |||||||||
| International Growth Equity Fund |
< 0.001% | 0.000% | < 0.001% | |||||||||
| International Intrinsic Value Fund |
< 0.001% | 0.000% | < 0.001% | |||||||||
| International Small Companies Fund |
< 0.001% | 0.000% | < 0.001% | |||||||||
| Resources Fund |
< 0.001% | 0.000% | < 0.001% | |||||||||
| Risk Premium Fund |
< 0.001% | 0.000% | < 0.001% | |||||||||
| Tax-Managed International Equities Fund |
< 0.001% | 0.000% | < 0.001% | |||||||||
| 6. | Purchases and sales of securities |
Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2013 are noted in the table below:
| Purchases ($) | Purchases ($) | Sales ($) | Sales ($) | |||||||||||||
| Fund Name | U.S. Government Securities |
Investments (Non-U.S. Government Securities) |
U.S. Government Securities |
Investments (Non-U.S. Government Securities) |
||||||||||||
| Currency Hedged International Equity Fund |
— | 798,679,423 | — | 772,767,082 | ||||||||||||
| Developed World Stock Fund |
— | 78,577,244 | — | 78,438,010 | ||||||||||||
| International Core Equity Fund |
— | 730,573,057 | — | 3,320,993,655 | ||||||||||||
| International Growth Equity Fund |
— | 656,743,177 | — | 1,216,456,440 | ||||||||||||
| International Intrinsic Value Fund |
— | 4,130,515,502 | — | 1,429,067,126 | ||||||||||||
| International Small Companies Fund |
— | 127,809,587 | — | 123,409,290 | ||||||||||||
| Resources Fund |
— | 150,435,593 | — | 36,292,485 | ||||||||||||
| Risk Premium Fund |
— | — | — | — | ||||||||||||
| Tax-Managed International Equities Fund |
— | 117,845,516 | — | 133,811,012 | ||||||||||||
| 7. | Guarantees |
In the normal course of business the Funds enter into contracts with third-party service providers that contain a variety of representations and warranties and that provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown, as it involves possible future claims that may or may not be made against the Funds. Based on experience, the Manager is of the view that the risk of loss to the Funds in connection with the Funds’ indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Funds.
| 119 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| 8. | Principal shareholders and related parties as of August 31, 2013 |
| Fund name | Number of shareholders that held more than 10% of the outstanding shares of the Fund |
Percentage of outstanding shares of the Fund held by those shareholders owning greater than 10% of the outstanding shares of the Fund (%) |
Percentage of the shares of the Fund held by senior management of the Manager and GMO Trust officers (%) |
Percentage of the Fund’s shares held by accounts for which the Manager has investment discretion (%) |
||||||||||||
| Currency Hedged International Equity Fund |
3 | * | 64.60 | — | 99.95 | |||||||||||
| Developed World Stock Fund |
3 | 90.37 | 0.04 | — | ||||||||||||
| International Core Equity Fund |
2 | 21.28 | <0.01 | 0.02 | ||||||||||||
| International Growth Equity Fund |
4 | ** | 62.75 | <0.01 | 96.97 | |||||||||||
| International Intrinsic Value Fund |
2 | *** | 30.39 | <0.01 | 86.85 | |||||||||||
| International Small Companies Fund |
3 | 60.78 | 0.11 | 0.91 | ||||||||||||
| Resources Fund |
2 | 47.44 | 9.00 | 7.53 | ||||||||||||
| Risk Premium Fund |
4 | **** | 85.12 | 0.01 | 97.26 | |||||||||||
| Tax-Managed International Equities Fund |
2 | 24.78 | 0.88 | — | ||||||||||||
| * | Two of the shareholders are other funds of the Trust. |
| ** | Four of the shareholders are other funds of the Trust. |
| *** | One of the shareholders is other funds of the Trust. |
| **** | Three of the shareholders are other funds of theTrust. |
| 9. | Share transactions |
The Declaration of Trust permits each Fund to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Funds shares were as follows:
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Currency Hedged International Equity Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
11,987,277 | $ | 304,843,871 | 49,688,032 | $ | 1,054,339,199 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
5,469,647 | 133,787,584 | 4,444,753 | 101,134,422 | ||||||||||||
| Shares repurchased |
(12,316,753 | ) | (310,653,196 | ) | (70,686,278 | ) | (1,592,538,209 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
5,140,171 | $ | 127,978,259 | (16,553,493 | ) | $ | (437,064,588 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Developed World Stock Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
— | $ | — | 121,607 | $ | 2,273,818 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
37,704 | 787,268 | 134,758 | 2,478,061 | ||||||||||||
| Shares repurchased |
(317,327 | ) | (6,456,527 | ) | (825,769 | ) | (14,842,466 | ) | ||||||||
| Purchase premiums |
— | — | — | 5,606 | ||||||||||||
| Redemption fees |
— | 16,141 | — | 37,106 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(279,623 | ) | $ | (5,653,118 | ) | (569,404 | ) | $ | (10,047,875 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 120 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Developed World Stock Fund (continued) |
||||||||||||||||
| Class IV: |
||||||||||||||||
| Shares sold |
— | $ | — | 3,106 | $ | 57,452 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
89,624 | 1,872,250 | 302,042 | 5,564,409 | ||||||||||||
| Shares repurchased |
— | — | (1,936 | ) | (37,212 | ) | ||||||||||
| Purchase premiums |
— | — | — | 144 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
89,624 | $ | 1,872,250 | 303,212 | $ | 5,584,793 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| International Core Equity Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
114,867 | $ | 3,466,679 | 5,303,352 | $ | 144,847,864 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
247,989 | 7,712,443 | 859,044 | 23,292,515 | ||||||||||||
| Shares repurchased |
(3,391,035 | ) | (103,502,811 | ) | (16,867,210 | ) | (479,845,504 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(3,028,179 | ) | $ | (92,323,689 | ) | (10,704,814 | ) | $ | (311,705,125 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV: |
||||||||||||||||
| Shares sold |
698,049 | $ | 21,132,834 | 10,604,288 | $ | 308,585,098 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
590,365 | 18,348,538 | 1,330,617 | 36,106,545 | ||||||||||||
| Shares repurchased |
(3,124,025 | ) | (93,463,091 | ) | (2,988,640 | ) | (81,776,867 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(1,835,611 | ) | $ | (53,981,719 | ) | 8,946,265 | $ | 262,914,776 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class VI: |
||||||||||||||||
| Shares sold |
13,640 | $ | 425,859 | 22,524,609 | $ | 614,368,716 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
1,092,522 | 33,922,796 | 2,952,338 | 80,343,611 | ||||||||||||
| Shares repurchased |
(82,630,233 | ) | (2,520,689,277 | ) | (21,505,510 | ) | (575,869,762 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(81,524,071 | ) | $ | (2,486,340,622 | ) | 3,971,437 | $ | 118,842,565 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| International Growth Equity Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
988,221 | $ | 26,733,318 | 1,489,980 | $ | 34,412,939 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
66,587 | 1,752,578 | 462,364 | 10,238,174 | ||||||||||||
| Shares repurchased |
(4,112,325 | ) | (109,018,911 | ) | (6,446,940 | ) | (143,932,940 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(3,057,517 | ) | $ | (80,533,015 | ) | (4,494,596 | ) | $ | (99,281,827 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV: |
||||||||||||||||
| Shares sold |
25,680,772 | $ | 691,938,379 | 29,884,448 | $ | 688,998,993 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
580,088 | 15,273,709 | 3,613,632 | 79,860,606 | ||||||||||||
| Shares repurchased |
(47,192,737 | ) | (1,266,385,132 | ) | (60,919,824 | ) | (1,343,927,763 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(20,931,877 | ) | $ | (559,173,044 | ) | (27,421,744 | ) | $ | (575,068,164 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 121 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| International Intrinsic Value Fund |
||||||||||||||||
| Class II: |
||||||||||||||||
| Shares sold |
371,289 | $ | 8,007,824 | 1,230,249 | $ | 24,762,609 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
42,212 | 913,471 | 256,870 | 5,037,027 | ||||||||||||
| Shares repurchased |
(1,822,689 | ) | (41,047,717 | ) | (7,905,099 | ) | (157,121,955 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(1,409,188 | ) | $ | (32,126,422 | ) | (6,417,980 | ) | $ | (127,322,319 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class III: |
||||||||||||||||
| Shares sold |
5,549,777 | $ | 123,834,105 | 21,082,732 | $ | 418,044,602 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
383,713 | 8,395,639 | 2,694,812 | 53,417,109 | ||||||||||||
| Shares repurchased |
(16,208,645 | ) | (363,746,617 | ) | (39,878,950 | ) | (829,019,189 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(10,275,155 | ) | $ | (231,516,873 | ) | (16,101,406 | ) | $ | (357,557,478 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV: |
||||||||||||||||
| Shares sold |
165,299,392 | $ | 3,713,276,122 | 179,162,155 | $ | 3,436,981,395 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
3,475,864 | 75,947,647 | 11,116,201 | 220,646,057 | ||||||||||||
| Shares repurchased |
(49,476,464 | ) | (1,112,010,489 | ) | (89,538,398 | ) | (1,812,891,848 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
119,298,792 | $ | 2,677,213,280 | 100,739,958 | $ | 1,844,735,604 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class M*: |
||||||||||||||||
| Shares sold |
11,217 | $ | 239,036 | 104,304 | $ | 2,052,368 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
— | — | 18,152 | 355,017 | ||||||||||||
| Shares repurchased |
(596,232 | ) | (12,544,031 | ) | (143,348 | ) | (2,792,765 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(585,015 | ) | $ | (12,304,995 | ) | (20,892 | ) | $ | (385,380 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| International Small Companies Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
2,475,897 | $ | 21,961,213 | 1,095,501 | $ | 7,496,147 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
816,150 | 7,027,048 | 1,517,039 | 11,116,742 | ||||||||||||
| Shares repurchased |
(2,831,093 | ) | (25,293,162 | ) | (14,548,664 | ) | (103,417,930 | ) | ||||||||
| Purchase premiums |
— | 38,786 | — | 37,669 | ||||||||||||
| Redemption fees |
— | 54,652 | — | 143,439 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
460,954 | $ | 3,788,537 | (11,936,124 | ) | $ | (84,623,933 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Resources Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
3,333,781 | $ | 70,131,037 | 4,473,926 | $ | 95,250,684 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
14,320 | 284,686 | 22,542 | 478,172 | ||||||||||||
| Shares repurchased |
(4,229,614 | ) | (91,811,038 | ) | (22,181 | ) | (494,735 | ) | ||||||||
| Purchase premiums |
— | 211,026 | — | 286,612 | ||||||||||||
| Redemption fees |
— | 4,514 | — | 1,484 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(881,513 | ) | $ | (21,179,775 | ) | 4,474,287 | $ | 95,522,217 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 122 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Resources Fund (continued) |
||||||||||||||||
| Class IV**: |
||||||||||||||||
| Shares sold |
5,319,428 | $ | 115,247,330 | |||||||||||||
| Shares issued to shareholders in reinvestment of distributions |
30,683 | 609,687 | ||||||||||||||
| Shares repurchased |
(33,028 | ) | (699,689 | ) | ||||||||||||
| Purchase premiums |
— | 75,048 | ||||||||||||||
| Redemption fees |
— | 2,099 | ||||||||||||||
|
|
|
|
|
|||||||||||||
| Net increase (decrease) |
5,317,083 | $ | 115,234,475 | |||||||||||||
|
|
|
|
|
|||||||||||||
| Risk Premium Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
45,232 | $ | 464,984 | 645,135 | *** | $ | 6,696,024 | *** | ||||||||
| Shares issued to shareholders in reinvestment of distributions |
14,873 | 152,446 | — | — | ||||||||||||
| Purchase premiums |
— | 1,516 | — | 2,569 | *** | |||||||||||
| Redemption fees |
— | 8 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
60,105 | $ | 618,954 | 645,135 | $ | 6,698,593 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV: |
||||||||||||||||
| Shares sold |
1,888,446 | $ | 19,281,035 | 782,428 | **** | $ | 8,059,007 | **** | ||||||||
| Shares issued to shareholders in reinvestment of distributions |
18,020 | 184,888 | — | — | ||||||||||||
| Shares repurchased |
(48,519 | ) | (492,952 | ) | — | — | ||||||||||
| Purchase premiums |
— | 2,586 | — | 367 | **** | |||||||||||
| Redemption fees |
— | 29 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
1,857,947 | $ | 18,975,586 | 782,428 | $ | 8,059,374 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class VI: |
||||||||||||||||
| Shares sold |
7,744,196 | $ | 82,707,434 | 58,524,290 | ***** | $ | 597,548,727 | ***** | ||||||||
| Shares issued to shareholders in reinvestment of distributions |
1,526,242 | 15,659,243 | — | — | ||||||||||||
| Shares repurchased |
(3,265 | ) | (33,720 | ) | — | — | ||||||||||
| Purchase premium |
— | 149,809 | — | 916,900 | ***** | |||||||||||
| Redemption fees |
— | 753 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
9,267,173 | $ | 98,483,519 | 58,524,290 | $ |
598,465,627 |
| |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Tax-Managed International Equities Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
101,358 | $ | 1,485,819 | 211,447 | $ | 2,911,172 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
75,421 | 1,141,116 | 573,850 | 7,962,239 | ||||||||||||
| Shares repurchased |
(1,840,800 | ) | (27,941,820 | ) | (4,503,828 | ) | (61,664,020 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(1,664,021 | ) | $ | (25,314,885 | ) | (3,718,531 | ) | $ | (50,790,609 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | Class M liquidated on March 27, 2013. |
| ** | Period from March 20, 2013 (commencement of operations) through August 31, 2013. |
| *** | Period from December 14, 2012 (commencement of operations) through February 28, 2013. |
| **** | Period from December 17, 2012 (commencement of operations) through February 28, 2013. |
| ***** | Period from November 15, 2012 (commencement of operations) through February 28, 2013. |
| 123 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| 10. | Investments in affiliated issuers |
A summary of the Funds’ transactions in the shares of other funds of the Trust during the period ended August 31, 2013 is set forth below:
| Affiliate | Value, beginning of period |
Purchases | Sales Proceeds |
Dividend Income* |
Distributions of Realized Gains* |
Value, end of period |
||||||||||||||||||
| Currency Hedged International Equity Fund |
||||||||||||||||||||||||
| GMO International Growth Equity Fund, Class IV |
$ | 549,081,026 | $ | 11,083,900 | $ | 593,311,683 | $ | — | $ | — | $ | — | ||||||||||||
| GMO International Intrinsic Value Fund, Class IV |
1,638,769,861 | 787,595,523 | 179,455,400 | 16,663,436 | — | 2,341,789,978 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | 2,187,850,887 | $ | 798,679,423 | $ | 772,767,083 | $ | 16,663,436 | $ | — | $ | 2,341,789,978 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Developed World Stock Fund |
||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 9,708,326 | $ | 12,797,000 | $ | 11,024,000 | $ | 3,986 | $ | 929 | $ | 11,480,665 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| International Core Equity Fund |
||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 86,633,100 | $ | 99,129,000 | $ | 143,470,966 | $ | 12,086 | $ | 467 | $ | 42,281,429 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| International Growth Equity Fund |
||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 52,767,000 | $ | 131,531,000 | $ | 135,117,000 | $ | 11,803 | $ | 4,299 | $ | 49,161,461 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| International Intrinsic Value Fund |
||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 88,307,524 | $ | — | $ | — | $ | 37,928 | $ | 7,771 | $ | 88,307,524 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| International Small Companies Fund |
||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 4,067,469 | $ | 12,704,000 | $ | 8,640,000 | $ | 1,527 | $ | 520 | $ | 8,131,457 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Resources Fund |
||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 1,041,000 | $ | 7,886,000 | $ | 5,768,000 | $ | 893 | $ | 98 | $ | 3,156,914 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Risk Premium Fund |
||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 278,253,028 | $ | — | $ | — | $ | 119,509 | $ | 24,486 | $ | 278,253,028 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Tax-Managed International Equities Fund |
||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 5,391,305 | $ | 12,221,000 | $ | 11,680,318 | $ | 1,501 | $ | 438 | $ | 5,931,149 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| * | The table above includes estimated sources of all distributions paid by the underlying funds during the period March 1, 2013 through August 31, 2013. The actual tax characterization of distributions paid by the underlying funds will be determined at the end of the fiscal year ending February 28, 2014. |
| 11. | Subsequent events |
Subsequent to August 31, 2013, GMO International Growth Equity Fund received significant redemption requests. As a result, “Large Shareholder Risk” is heightened for the Fund.
| 124 |
GMO Trust Funds
Board Review of Management Agreement
August 31, 2013 (Unaudited)
Currency Hedged International Equity Fund
Approval of renewal of management agreement for GMO Currency Hedged International Equity Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees noted in particular that some GMO funds in which the Fund invests (“underlying GMO funds”) do not charge any advisory fees and that with respect to all other underlying GMO funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager in effect reimburses the Fund for management fees, shareholder servicing fees and most other expenses of the underlying GMO funds, all of which the Fund would otherwise bear as a result of its investments in them. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 125 |
GMO Trust Funds
Board Review of Management Agreement — (Continued)
August 31, 2013 (Unaudited)
Developed World Stock Fund
Approval of renewal of management agreement for GMO Developed World Stock Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 126 |
GMO Trust Funds
Board Review of Management Agreement — (Continued)
August 31, 2013 (Unaudited)
International Core Equity Fund
Approval of renewal of management agreement for GMO International Core Equity Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with fees paid to the Manager for providing sub-advisory services to funds managed by third parties and the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides, on the one hand, to the Fund and, on the other, to the third-party funds for which the Manager serves as subadviser and to the Manager’s separately managed accounts. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 127 |
GMO Trust Funds
Board Review of Management Agreement — (Continued)
August 31, 2013 (Unaudited)
International Growth Equity Fund
Approval of renewal of management agreement for GMO International Growth Equity Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with fees paid to the Manager for providing sub-advisory services to funds managed by third parties and the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides, on the one hand, to the Fund and, on the other, to the third-party funds for which the Manager serves as subadviser and to the Manager’s separately managed accounts. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 128 |
GMO Trust Funds
Board Review of Management Agreement — (Continued)
August 31, 2013 (Unaudited)
International Intrinsic Value Fund
Approval of renewal of management agreement for GMO International Intrinsic Value Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 129 |
GMO Trust Funds
Board Review of Management Agreement — (Continued)
August 31, 2013 (Unaudited)
International Small Companies Fund
Approval of renewal of management agreement for GMO International Small Companies Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 130 |
GMO Trust Funds
Board Review of Management Agreement — (Continued)
August 31, 2013 (Unaudited)
Resources Fund
Approval of renewal of management agreement for GMO Resources Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 131 |
GMO Trust Funds
Board Review of Management Agreement — (Continued)
August 31, 2013 (Unaudited)
Tax-Managed International Equities Fund
Approval of renewal of management agreement for GMO Tax-Managed International Equities Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 132 |
GMO Trust Funds
(A Series of GMO Trust)
August 31, 2013 (Unaudited)
Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2013.
As a shareholder of the Funds, you may incur two types of costs: (1) transactions costs, including purchase premium and redemption fees, if applicable; and (2) ongoing costs, including direct and /or indirect management fees, direct and/or indirect shareholder services fees, and distribution (12b-1) and/or administration fees for Funds with Class M shares, if applicable, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2013 through August 31, 2013.
Actual Expenses
This section of the table for each class below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
This section of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Funds’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds’ actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premium and redemption fees. Therefore, this section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Actual | Hypothetical |
|
||||||||||||||||||||||||||
| Beginning Account Value March 1, 2013 |
Ending Account Value August 31, 2013 |
Expenses Paid* During the Period |
Beginning Account Value March 1, 2013 |
Ending Account Value August 31, 2013 |
Expenses Paid* During the Period |
Annualized Net Expense Ratio |
||||||||||||||||||||||
| Currency Hedged International Equity Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,072.90 | $3.61 | $1,000.00 | $1,021.73 | $3.52 | 0.69% | |||||||||||||||||||||
| Developed World Stock Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,085.90 | $3.15 | $1,000.00 | $1,022.18 | $3.06 | 0.60% | |||||||||||||||||||||
| Class IV |
$1,000.00 | $1,086.50 | $2.89 | $1,000.00 | $1,022.43 | $2.80 | 0.55% | |||||||||||||||||||||
| International Core Equity Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,060.10 | $2.75 | $1,000.00 | $1,022.53 | $2.70 | 0.53% | |||||||||||||||||||||
| Class IV |
$1,000.00 | $1,060.40 | $2.44 | $1,000.00 | $1,022.84 | $2.40 | 0.47% | |||||||||||||||||||||
| Class VI |
$1,000.00 | $1,060.20 | $2.28 | $1,000.00 | $1,022.99 | $2.24 | 0.44% | |||||||||||||||||||||
| International Growth Equity Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,047.00 | $3.35 | $1,000.00 | $1,021.93 | $3.31 | 0.65% | |||||||||||||||||||||
| Class IV |
$1,000.00 | $1,047.50 | $3.04 | $1,000.00 | $1,022.23 | $3.01 | 0.59% | |||||||||||||||||||||
| International Intrinsic Value Fund |
|
|||||||||||||||||||||||||||
| Class II |
$1,000.00 | $1,065.50 | $3.75 | $1,000.00 | $1,021.58 | $3.67 | 0.72% | |||||||||||||||||||||
| Class III |
$1,000.00 | $1,066.30 | $3.39 | $1,000.00 | $1,021.93 | $3.31 | 0.65% | |||||||||||||||||||||
| Class IV |
$1,000.00 | $1,066.20 | $3.07 | $1,000.00 | $1,022.23 | $3.01 | 0.59% | |||||||||||||||||||||
| International Small Companies Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,064.10 | $3.95 | $1,000.00 | $1,021.37 | $3.87 | 0.76% | |||||||||||||||||||||
| Resources Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $964.60 | $3.71 | $1,000.00 | $1,021.42 | $3.82 | 0.75% | |||||||||||||||||||||
| Class IV(a) |
$1,000.00 | $972.50 | $3.10 | $1,000.00 | $1,019.32 | $3.18 | 0.70% | |||||||||||||||||||||
| Risk Premium Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $985.20 | $3.00 | $1,000.00 | $1,022.18 | $3.06 | 0.60% | |||||||||||||||||||||
| Class IV |
$1,000.00 | $985.20 | $2.75 | $1,000.00 | $1,022.43 | $2.80 | 0.55% | |||||||||||||||||||||
| Class VI |
$1,000.00 | $986.10 | $2.55 | $1,000.00 | $1,022.64 | $2.60 | 0.51% | |||||||||||||||||||||
| Tax-Managed International Equities Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,064.70 | $3.38 | $1,000.00 | $1,021.93 | $3.31 | 0.65% | |||||||||||||||||||||
| * | Expenses are calculated using each Class’s annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31,2013, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year. |
| (a) | For the period March 20, 2013 (commencement of operations) through August 31, 2013. Expense is calculated using the Class’s annualized net expense ratio for the period ended August 31, 2013, multiplied by the average account value over the period, multiplied by 164 days in the period, divided by 365 days in the year. |
| 133 |
GMO Trust
Semiannual Report
August 31, 2013
Emerging Countries Fund
Emerging Domestic Opportunities Fund
Emerging Markets Fund
Taiwan Fund
For a free copy of the Funds’ proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) or visit the Securities and Exchange Commission’s website at www.sec.gov. 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 GMO’s website at www.gmo.com, or on the Securities and Exchange Commission’s website at www.sec.gov.
The Funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission’s website at www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Funds have a policy with respect to disclosure of portfolio holdings under which they may also make available on GMO’s website at www.gmo.com a complete schedule of portfolio holdings.
This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus for the GMO Trust, which contains a complete discussion of the risks associated with an investment in these Funds and other important information. The GMO Trust prospectus can be obtained at www.gmo.com.
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| 7 | ||||
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| 12 | ||||
| 13 | ||||
| 21 | ||||
| 22 | ||||
| Portfolio Abbreviations, Counterparty Abbreviations and Currency Abbreviations |
23 | |||
| 24 | ||||
| 26 | ||||
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| 67 |
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 1 |
GMO Emerging Countries Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 2 | See accompanying notes to the financial statements. |
GMO Emerging Countries Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 3 |
GMO Emerging Countries Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 4 | See accompanying notes to the financial statements. |
GMO Emerging Countries Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 5 |
GMO Emerging Countries Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 6 | See accompanying notes to the financial statements. |
GMO Emerging Domestic Opportunities Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 7 |
GMO Emerging Domestic Opportunities Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 8 | See accompanying notes to the financial statements. |
GMO Emerging Domestic Opportunities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 9 |
GMO Emerging Domestic Opportunities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
A summary of outstanding financial instruments at August 31, 2013 is as follows:
Swap Contracts
Total Return Swaps
| Notional Amount |
Expiration Date |
Counterparty |
Fund Pays |
Fund (Pays)/Receives |
Net Unrealized Appreciation/ (Depreciation) |
|||||||||||||
| 30,000,155 | USD | 9/26/2013 | JPM | MSCI Daily Total Return Thailand | 1 month USD LIBOR BBA minus 1.00% | $ | 839,963 | |||||||||||
| 11,517,274 | USD | 11/18/2013 | GS | MSCI Daily Total Return Thailand | 1 month USD LIBOR BBA minus 0.50% | 749,385 | ||||||||||||
| 9,420,296 | USD | 11/18/2013 | GS | MSCI Daily Total Return Thailand | 1 month USD LIBOR BBA minus 1.00% | 853,879 | ||||||||||||
| 7,929,274 | USD | 12/20/2013 | SG | MSCI Daily Total Return Indonesia | 1 month USD LIBOR BBA minus 0.90% | 60,542 | ||||||||||||
| 33,962,810 | USD | 12/20/2013 | JPM | MSCI Daily Total Return Thailand | 1 month USD LIBOR BBA minus 0.85% | 2,207,188 | ||||||||||||
| 14,283,974 | USD | 12/20/2013 | BNP | MSCI Daily Total Return Philippines | 1 month USD LIBOR BBA minus 0.40% | 1,353,405 | ||||||||||||
| 11,100,017 | USD | 12/20/2013 | BNP | MSCI Daily Total Return Thailand | 1 month USD LIBOR BBA minus 0.60% | 721,989 | ||||||||||||
| 14,461,582 | USD | 12/20/2013 | BNP | MSCI Daily Total Return Philippines | 1 month USD LIBOR BBA minus 0.40% | 1,370,233 | ||||||||||||
| 10 | See accompanying notes to the financial statements. |
GMO Emerging Domestic Opportunities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
Total Return Swaps (continued)
| Notional Amount |
Expiration Date |
Counterparty |
Fund Pays |
Fund (Pays)/Receives |
Net Unrealized Appreciation/ (Depreciation) |
|||||||||||||
| 10,939,906 | USD | 12/20/2013 | SG | MSCI Daily Total Return Thailand | 1 month USD LIBOR BBA minus 0.25% | $ | 712,425 | |||||||||||
| 14,614,930 | USD | 12/20/2013 | BNP | MSCI Daily Total Return Philippines | 1 month USD LIBOR BBA minus 0.40% | 1,384,763 | ||||||||||||
| 13,463,828 | USD | 12/20/2013 | BNP | MSCI Daily Total Return Thailand | 1 month USD LIBOR BBA minus 0.60% | 875,740 | ||||||||||||
| 14,961,371 | USD | 12/23/2013 | BNP | MSCI Daily Total Return Philippines | 1 month USD LIBOR BBA minus 0.60% | 363,664 | ||||||||||||
| 6,604,271 | USD | 12/24/2013 | BNP | MSCI Daily Total Return Thailand | 1 month USD LIBOR BBA minus 0.30% | 185,167 | ||||||||||||
| 5,062,404 | USD | 12/26/2013 | CSI | MSCI Daily Total Return Thailand | 1 month USD LIBOR BBA minus 0.90% | 141,768 | ||||||||||||
| 20,000,635 | USD | 1/10/2014 | BNP | MSCI Daily Total Return Philippines | 1 month USD LIBOR BBA minus 1.00% | (1,997,493 | ) | |||||||||||
| 23,631,132 | USD | 1/30/2014 | CSI | MSCI Daily Total Return Thailand | 1 month USD LIBOR BBA minus 0.90% | 95,428 | ||||||||||||
| 25,000,086 | USD | 1/30/2014 | CSI | MSCI Daily Total Return India | 1 month USD LIBOR BBA minus 0.525% | 331,409 | ||||||||||||
| 21,864,861 | USD | 1/30/2014 | CSI | MSCI Daily Total Return India | 1 month USD LIBOR BBA minus 0.10% | 344,418 | ||||||||||||
| 19,409,596 | USD | 1/30/2014 | GS | MSCI Daily Total Return Thailand | 1 month USD LIBOR BBA minus 0.70% | 80,507 | ||||||||||||
| 20,950,994 | USD | 1/30/2014 | GS | MSCI Daily Total Return Thailand | 1 month USD LIBOR BBA minus 0.70% | 85,929 | ||||||||||||
|
|
|
|||||||||||||||||
| $ | 10,760,309 | |||||||||||||||||
|
|
|
|||||||||||||||||
| Premiums to (Pay) Receive | $ | — | ||||||||||||||||
|
|
|
|||||||||||||||||
As of August 31, 2013, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.
| See accompanying notes to the financial statements. | 11 |
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 12 |
GMO Emerging Markets Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 13 |
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 14 | See accompanying notes to the financial statements. |
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 15 |
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 16 | See accompanying notes to the financial statements. |
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 17 |
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 18 | See accompanying notes to the financial statements. |
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
Additional information on each restricted security is as follows:
| Issuer Description |
Acquisition Date | Acquisition Cost |
Value as a Percentage of Fund’s Net Assets |
Value as of August 31, 2013 |
||||||||
| Anilana Hotels & Properties Ltd | 2/10/11-2/16/12 | $ | 1,890,310 | 0.02% | $ | 1,811,026 | ||||||
| The China A Share Fund Ltd - Class S1 | 10/14/08 | — | 0.00% | — | ||||||||
| The China A Share Fund Ltd - Class S2 | 4/23/10 | 2,453,738 | 0.03% | 2,287,988 | ||||||||
| Fire Capital Mauritius Private Fund | 9/06/06-10/26/09 | 11,185,180 | 0.09% | 7,760,788 | ||||||||
| NCH Eagle Fund LP | 4/6/09 | 7,816,032 | 0.05% | 4,493,017 | ||||||||
| Societe Generale Thalmann Ukraine Fund | 7/15/97 | 199,943 | 0.00% | 4,000 | ||||||||
| Steep Rock Russia Fund LP | 12/22/06-5/13/09 | 2,250,000 | 0.02% | 1,362,204 | ||||||||
| TDA India Technology Fund II LP | 2/23/00-3/23/04 | — | 0.00% | 359,801 | ||||||||
| Templeton EE FD | 12/05/97-6/24/02 | 471,720 | 0.00% | 200,654 | ||||||||
|
|
|
|||||||||||
| $ | 18,279,478 | |||||||||||
|
|
|
|||||||||||
| See accompanying notes to the financial statements. | 19 |
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
A summary of outstanding financial instruments at August 31, 2013 is as follows:
Swap Contracts
Total Return Swaps
| Notional Amount |
Expiration Date |
Counterparty |
Fund (Pays)/Receives |
Fund Receives |
Net Unrealized Appreciation/ (Depreciation) |
|||||||||||||
| 13,918,000 | USD | 9/13/13 | CSI | Depreciation of Total Return on Astra International + (3 month BBA USD LIBOR minus 4.00%) | Appreciation of Total Return on Astra International | $ | (2,760,280 | ) | ||||||||||
| 21,073,290 | USD | 9/30/13 | MSCI | Depreciation of Total Return on Asustek Computer Inc + (Daily Fed Funds Rate minus 2.00%) | Appreciation of Total Return on Asustek Computer Inc | (1,716 | ) | |||||||||||
| 7,279,500 | USD | 11/6/13 | MSCI | Depreciation of Total Return on BZ Multiplus SA + (Daily Fed Funds Rate minus 10.00%) | Appreciation of Total Return on BZ Multiplus SA | (684,032 | ) | |||||||||||
|
|
|
|||||||||||||||||
| $ | (3,446,028 | ) | ||||||||||||||||
|
|
|
|||||||||||||||||
| Premiums to (Pay) Receive | $ | — | ||||||||||||||||
|
|
|
|||||||||||||||||
As of August 31, 2013, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.
| 20 | See accompanying notes to the financial statements. |
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 21 |
GMO Taiwan Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 22 | See accompanying notes to the financial statements. |
GMO Trust Funds
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 23 |
Statements of Assets and Liabilities — August 31, 2013 (Unaudited)
| Emerging Countries Fund |
Emerging Domestic Opportunities Fund |
Emerging Markets Fund |
Taiwan Fund | |||||||||||||
| Assets: |
||||||||||||||||
| Investments in unaffiliated issuers, at value (Note 2)(a) |
$ | 76,417,585 | $ | 2,080,465,391 | $ | 8,432,860,100 | $ | 141,960,199 | ||||||||
| Investments in affiliated issuers, at value (Notes 2 and 10)(b) |
285,029 | 81,720,507 | 405,204 | 677 | ||||||||||||
| Foreign currency, at value (Note 2)(c) |
246,130 | 1,921,701 | 41,296,487 | 5,110,193 | ||||||||||||
| Receivable for investments sold |
637,279 | 246,702,836 | 179,515,269 | 2,017,431 | ||||||||||||
| Receivable for Fund shares sold |
11,037 | — | 1,830,000 | — | ||||||||||||
| Dividends receivable |
391,286 | 8,452,611 | 33,055,021 | 659,972 | ||||||||||||
| Foreign taxes receivable |
224,106 | 164,851 | 2,688,067 | — | ||||||||||||
| Receivable for open OTC swap contracts (Note 4) |
— | 12,757,802 | — | — | ||||||||||||
| Due from broker (Note 4) |
— | 6,210,000 | 5,910,000 | — | ||||||||||||
| Receivable for expenses reimbursed and/or waived by Manager (Note 5) |
31 | 16,864 | 241,080 | — | ||||||||||||
| Miscellaneous receivable |
29 | 5,855 | 665,911 | 467 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
78,212,512 | 2,438,418,418 | 8,698,467,139 | 149,748,939 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities: |
||||||||||||||||
| Payable for investments purchased |
557,791 | 228,441,328 | 114,031,753 | 5,806,941 | ||||||||||||
| Payable for Fund shares repurchased |
57,930 | — | 20,308,601 | — | ||||||||||||
| Accrued capital gain taxes payable (Note 2) |
— | — | 4,818 | — | ||||||||||||
| Due to Investment Adviser |
24,829 | — | — | — | ||||||||||||
| Payable to affiliate for (Note 5): |
||||||||||||||||
| Management fee |
43,463 | 1,471,718 | 5,558,428 | 81,925 | ||||||||||||
| Shareholder service fee |
8,181 | 242,657 | 713,032 | 15,172 | ||||||||||||
| Administration fee – Class M |
2,468 | — | — | — | ||||||||||||
| Payable for 12b-1 fee – Class M |
6,161 | — | — | — | ||||||||||||
| Payable for foreign currency purchased |
1,063 | 303,436 | 68,429 | 1,988 | ||||||||||||
| Payable for open OTC swap contracts (Note 4) |
— | 1,997,493 | 3,446,028 | — | ||||||||||||
| Miscellaneous payable |
— | — | 994,400 | — | ||||||||||||
| Payable to agents unaffiliated with the Manager |
31 | 279 | 1,209 | 5 | ||||||||||||
| Payable to Trustees and related expenses |
280 | 1,612 | 16,085 | 31 | ||||||||||||
| Accrued expenses |
313,886 | 536,672 | 5,346,261 | 97,033 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total liabilities |
1,016,083 | 232,995,195 | 150,489,044 | 6,003,095 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net assets |
$ | 77,196,429 | $ | 2,205,423,223 | $ | 8,547,978,095 | $ | 143,745,844 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (a) Cost of investments – unaffiliated issuers: |
$ | 86,002,028 | $ | 2,167,333,010 | $ | 9,359,744,135 | $ | 144,026,640 | ||||||||
| (b) Cost of investments – affiliated issuers: |
$ | 285,029 | $ | 81,720,509 | $ | 405,206 | $ | 677 | ||||||||
| (c) Cost of foreign currency: |
$ | 246,103 | $ | 1,960,388 | $ | 41,378,413 | $ | 5,108,626 | ||||||||
| 24 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Assets and Liabilities — August 31, 2013 (Unaudited) — (Continued)
| Emerging Countries Fund |
Emerging Domestic Opportunities Fund |
Emerging Markets Fund |
Taiwan Fund | |||||||||||||
| Net assets consist of: |
||||||||||||||||
| Paid-in capital |
$ | 119,152,715 | $ | 2,207,720,594 | $ | 9,891,656,966 | $ | 149,755,008 | ||||||||
| Accumulated undistributed net investment income |
1,059,746 | 23,300,215 | 171,555,822 | 1,560,719 | ||||||||||||
| Accumulated net realized gain (loss) |
(33,431,286 | ) | 50,798,454 | (585,392,388 | ) | (5,497,583 | ) | |||||||||
| Net unrealized appreciation (depreciation) |
(9,584,746 | ) | (76,396,040 | ) | (929,842,305 | ) | (2,072,300 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 77,196,429 | $ | 2,205,423,223 | $ | 8,547,978,095 | $ | 143,745,844 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net assets attributable to: |
||||||||||||||||
| Class II shares |
$ | — | $ | 482,575,558 | $ | 1,425,140,063 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class III shares |
$ | 62,780,760 | $ | 360,332,783 | $ | 561,994,070 | $ | 143,745,844 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV shares |
$ | — | $ | 750,424,094 | $ | 929,594,489 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class V shares |
$ | — | $ | — | $ | 554,764,901 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class VI shares |
$ | — | $ | 612,090,788 | $ | 5,076,484,572 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class M shares |
$ | 14,415,669 | $ | — | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Shares outstanding: |
||||||||||||||||
| Class II |
— | 21,278,713 | 137,227,549 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class III |
6,847,578 | 15,892,816 | 53,960,465 | 6,920,048 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV |
— | 33,071,608 | 89,950,181 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class V |
— | — | 53,747,290 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class VI |
— | 26,913,287 | 490,875,704 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class M |
1,596,818 | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net asset value per share: |
||||||||||||||||
| Class II |
$ | — | $ | 22.68 | $ | 10.39 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class III |
$ | 9.17 | $ | 22.67 | $ | 10.41 | $ | 20.77 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV |
$ | — | $ | 22.69 | $ | 10.33 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class V |
$ | — | $ | — | $ | 10.32 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class VI |
$ | — | $ | 22.74 | $ | 10.34 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class M |
$ | 9.03 | $ | — | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| See accompanying notes to the financial statements. | 25 |
GMO Trust Funds
Statements of Operations — Six Months Ended August 31, 2013 (Unaudited)
| Emerging Countries Fund |
Emerging Domestic Opportunities Fund |
Emerging Markets Fund |
Taiwan Fund | |||||||||||||
| Investment from unaffiliated issuers income: |
||||||||||||||||
| Dividends from unaffiliated issuers (Net of withholding tax)(a) |
$ | 2,994,733 | $ | 34,368,075 | $ | 222,548,329 | $ | 2,221,825 | ||||||||
| Dividends from affiliated issuers (Note 10) |
496 | 40,785 | 26,276 | 839 | ||||||||||||
| Interest |
322 | 176,716 | 22,137 | 329 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total investment income |
2,995,551 | 34,585,576 | 222,596,742 | 2,222,993 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Expenses: |
||||||||||||||||
| Management fee (Note 5) |
390,352 | 8,173,162 | 35,530,376 | 288,787 | ||||||||||||
| Shareholder service fee – Class II (Note 5) |
— | 526,012 | 1,875,825 | — | ||||||||||||
| Shareholder service fee – Class III (Note 5) |
78,573 | 234,953 | 517,504 | 53,479 | ||||||||||||
| Shareholder service fee – Class IV (Note 5) |
— | 378,340 | 607,655 | — | ||||||||||||
| Shareholder service fee – Class V (Note 5) |
— | — | 258,799 | — | ||||||||||||
| Shareholder service fee – Class VI (Note 5) |
— | 183,482 | 1,461,100 | — | ||||||||||||
| 12b-1 fee – Class M (Note 5) |
19,180 | — | — | — | ||||||||||||
| Administration fee – Class M (Note 5) |
15,344 | — | — | — | ||||||||||||
| Audit and tax fees |
54,648 | 59,892 | 103,408 | 44,179 | ||||||||||||
| Custodian and fund accounting agent fees |
367,995 | 887,340 | 5,837,492 | 81,880 | ||||||||||||
| Legal fees |
6,992 | 21,843 | 106,168 | 460 | ||||||||||||
| Registration fees |
22,460 | 460 | 22,024 | 552 | ||||||||||||
| Transfer agent fees |
24,196 | 25,208 | 37,076 | 13,708 | ||||||||||||
| Trustees fees and related expenses (Note 5) |
736 | 11,269 | 52,348 | 278 | ||||||||||||
| Miscellaneous |
22,734 | 12,480 | 56,017 | 6,486 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total expenses |
1,003,210 | 10,514,441 | 46,465,792 | 489,809 | ||||||||||||
| Fees and expenses reimbursed by Manager (Note 5) |
(263,113 | ) | (93,196 | ) | (1,519,624 | ) | — | |||||||||
| Expense reductions (Note 2) |
(2 | ) | (438 | ) | (38 | ) | (4 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net expenses |
740,095 | 10,420,807 | 44,946,130 | 489,805 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net investment income (loss) |
2,255,456 | 24,164,769 | 177,650,612 | 1,733,188 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Realized and unrealized gain (loss): |
||||||||||||||||
| Net realized gain (loss) on: |
||||||||||||||||
| Investments in unaffiliated issuers (net of foreign capital gains tax) (Note 2)(b) |
(8,569,851 | ) | 26,742,114 | 4,196,711 | 2,894,942 | |||||||||||
| Investments in affiliated issuers |
(1,093 | ) | 3,405 | 365,667 | (1,278 | ) | ||||||||||
| Realized gain distributions from affiliated issuers (Note 10) |
107 | 13,063 | 11,145 | 41 | ||||||||||||
| Swap contracts |
— | 27,691,078 | (11,382,040 | ) | — | |||||||||||
| Foreign currency, forward contracts and foreign currency related transactions (net of foreign tax) |
(120,426 | ) | (1,594,728 | ) | (8,132,922 | ) | (78,737 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized gain (loss) |
(8,691,263 | ) | 52,854,932 | (14,941,439 | ) | 2,814,968 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Change in net unrealized appreciation (depreciation) on: |
||||||||||||||||
| Investments in unaffiliated issuers |
(11,624,288 | ) | (256,112,497 | ) | (1,343,964,562 | ) | (2,455,782 | ) | ||||||||
| Investments in affiliated issuers |
— | (2 | ) | 6,821,306 | — | |||||||||||
| Swap contracts |
— | 10,760,309 | (4,636,141 | ) | — | |||||||||||
| Foreign currency, forward contracts and foreign currency related transactions |
3,106 | (143,843 | ) | 129,192 | (5,806 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net unrealized gain (loss) |
(11,621,182 | ) | (245,496,033 | ) | (1,341,650,205 | ) | (2,461,588 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized and unrealized gain (loss) |
(20,312,445 | ) | (192,641,101 | ) | (1,356,591,644 | ) | 353,380 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
$ | (18,056,989 | ) | $ | (168,476,332 | ) | $ | (1,178,941,032 | ) | $ | 2,086,568 | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| (a) Withholding tax: |
$ | 428,078 | $ | 3,530,719 | $ | 31,612,531 | $ | 502,492 | ||||||||
| (b) Foreign capital gains tax on realized gain: |
$ | 35,276 | $ | 101,033 | $ | 468,706 | — | |||||||||
| 26 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Changes in Net Assets
| Emerging Countries Fund | Emerging Domestic Opportunities Fund |
|||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 2,255,456 | $ | 3,175,115 | $ | 24,164,769 | $ | 11,517,084 | ||||||||
| Net realized gain (loss) |
(8,691,263 | ) | 389,248 | 52,854,932 | 39,269,669 | |||||||||||
| Change in net unrealized appreciation (depreciation) |
(11,621,182 | ) | (6,901,208 | ) | (245,496,033 | ) | 119,327,679 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
(18,056,989 | ) | (3,336,845 | ) | (168,476,332 | ) | 170,114,432 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income: |
||||||||||||||||
| Class II |
— | — | — | (1,818,077 | ) | |||||||||||
| Class III |
(1,052,700 | ) | (2,584,045 | ) | (30,139 | ) | (1,254,405 | ) | ||||||||
| Class IV |
— | — | (82,013 | ) | (2,267,159 | ) | ||||||||||
| Class VI |
— | — | (74,286 | ) | (4,163,677 | ) | ||||||||||
| Class M |
(147,400 | ) | (467,194 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net investment income |
(1,200,100 | ) | (3,051,239 | ) | (186,438 | ) | (9,503,318 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized gains: |
||||||||||||||||
| Class II |
— | — | (7,076,924 | ) | (1,837,653 | ) | ||||||||||
| Class III |
— | — | (4,587,968 | ) | (1,110,263 | ) | ||||||||||
| Class IV |
— | — | (10,563,941 | ) | (2,011,384 | ) | ||||||||||
| Class VI |
— | — | (8,885,150 | ) | (3,696,125 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net realized gains |
— | — | (31,113,983 | ) | (8,655,425 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Class II |
— | — | 175,682,663 | 203,458,003 | ||||||||||||
| Class III |
(54,717,099 | ) | (17,919,019 | ) | 287,036,644 | 89,438,256 | * | |||||||||
| Class IV |
— | — | 297,628,365 | 487,790,775 | ** | |||||||||||
| Class VI |
— | — | 8,880,423 | 159,160,871 | ||||||||||||
| Class M |
375,429 | (15,684,692 | ) | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase (decrease) in net assets resulting from net share transactions |
(54,341,670 | ) | (33,603,711 | ) | 769,228,095 | 939,847,905 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Purchase premiums and redemption fees (Notes 2 and 9): |
||||||||||||||||
| Class II |
— | — | 1,724,065 | 2,331,367 | ||||||||||||
| Class III |
— | — | 2,160,503 | 1,340,406 | * | |||||||||||
| Class IV |
— | — | 2,373,942 | 2,631,471 | ** | |||||||||||
| Class VI |
— | — | 1,534 | 1,531,907 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase in net assets resulting from purchase premiums and redemption fees |
— | — | 6,260,044 | 7,835,151 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets resulting from net share transactions, purchase premiums and redemption fees |
(54,341,670 | ) | (33,603,711 | ) | 775,488,139 | 947,683,056 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
(73,598,759 | ) | (39,991,795 | ) | 575,711,386 | 1,099,638,745 | ||||||||||
| Net assets: | ||||||||||||||||
| Beginning of period |
150,795,188 | 190,786,983 | 1,629,711,837 | 530,073,092 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 77,196,429 | $ | 150,795,188 | $ | 2,205,423,223 | $ | 1,629,711,837 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated undistributed net investment income |
$ | 1,059,746 | $ | 4,390 | $ | 23,300,215 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions in excess of net investment income |
$ | — | $ | — | $ | — | $ | (678,116 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | Period from June 29, 2012 (commencement of operations) through February 28, 2013. |
| ** | Period from May 2, 2012 (commencement of operations) through February 28, 2013. |
| See accompanying notes to the financial statements. | 27 |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| Emerging Markets Fund | Taiwan Fund | |||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 177,650,612 | $ | 218,568,651 | $ | 1,733,188 | $ | 1,058,360 | ||||||||
| Net realized gain (loss) |
(14,941,439 | ) | (59,451,625 | ) | 2,814,968 | 157,265 | ||||||||||
| Change in net unrealized appreciation (depreciation) |
(1,341,650,205 | ) | (202,095,631 | ) | (2,461,588 | ) | (4,165,144 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
(1,178,941,032 | ) | (42,978,605 | ) | 2,086,568 | (2,949,519 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income |
||||||||||||||||
| Class II |
— | (37,619,189 | ) | — | — | |||||||||||
| Class III |
— | (21,580,762 | ) | (292,653 | ) | (655,033 | ) | |||||||||
| Class IV |
— | (35,770,168 | ) | — | — | |||||||||||
| Class V |
— | (14,966,761 | ) | — | — | |||||||||||
| Class VI |
— | (121,137,674 | ) | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net investment income |
— | (231,074,554 | ) | (292,653 | ) | (655,033 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized gains |
||||||||||||||||
| Class III |
— | — | — | (1,314,571 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net realized gains |
— | — | — | (1,314,571 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Class II |
(372,083,467 | ) | (38,970,340 | ) | — | — | ||||||||||
| Class III |
(316,670,732 | ) | (316,691,915 | ) | 85,524,437 | (13,897,050 | ) | |||||||||
| Class IV |
(404,386,016 | ) | (282,675,145 | ) | — | — | ||||||||||
| Class V |
(47,707,594 | ) | 35,367,330 | — | — | |||||||||||
| Class VI |
48,346,223 | 669,170,405 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase (decrease) in net assets resulting from net share transactions |
(1,092,501,586 | ) | 66,200,335 | 85,524,437 | (13,897,050 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Purchase premiums and redemption fees (Notes 2 and 9): |
||||||||||||||||
| Class II |
3,264,683 | 3,849,559 | — | — | ||||||||||||
| Class III |
2,739,008 | 865,900 | 144,863 | 127,796 | ||||||||||||
| Class IV |
2,816,429 | 2,999,721 | — | — | ||||||||||||
| Class V |
119,708 | 267,196 | — | — | ||||||||||||
| Class VI |
3,475,235 | 10,790,098 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase in net assets resulting from purchase premiums and redemption fees |
12,415,063 | 18,772,474 | 144,863 | 127,796 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets resulting from net share transactions, purchase premiums and redemption fees |
(1,080,086,523 | ) | 84,972,809 | 85,669,300 | (13,769,254 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
(2,259,027,555 | ) | (189,080,350 | ) | 87,463,215 | (18,688,377 | ) | |||||||||
| Net assets: | ||||||||||||||||
| Beginning of period |
10,807,005,650 | 10,996,086,000 | 56,282,629 | 74,971,006 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 8,547,978,095 | $ | 10,807,005,650 | $ | 143,745,844 | $ | 56,282,629 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated undistributed net investment income |
$ | 171,555,822 | $ | — | $ | 1,560,719 | $ | 120,184 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions in excess of net investment income |
$ | — | $ | (6,094,790 | ) | $ | — | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 28 | See accompanying notes to the financial statements. |
GMO Trust Funds
(For a share outstanding throughout each period)
EMERGING COUNTRIES FUND
| Class III Shares | Class M Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 10.61 | $ | 11.03 | $ | 11.50 | $ | 9.24 | $ | 5.06 | $ | 15.26 | $ | 10.44 | $ | 10.87 | $ | 11.34 | $ | 9.12 | $ | 5.00 | $ | 15.07 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Income (loss) from investment operations: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment income (loss)† |
0.19 | 0.20 | 0.24 | 0.11 | 0.09 | 0.24 | 0.17 | 0.17 | 0.18 | 0.08 | 0.07 | 0.16 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
(1.52 | ) | (0.43 | ) | (0.50 | )(a) | 2.28 | 4.23 | (8.10 | ) | (1.49 | ) | (0.43 | ) | (0.47 | ) | 2.24 | 4.17 | (7.92 | ) | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Total from investment operations |
(1.33 | ) | (0.23 | ) | (0.26 | ) | 2.39 | 4.32 | (7.86 | ) | (1.32 | ) | (0.26 | ) | (0.29 | ) | 2.32 | 4.24 | (7.76 | ) | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Less distributions to shareholders: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From net investment income |
(0.11 | ) | (0.19 | ) | (0.21 | ) | (0.13 | ) | (0.12 | ) | (0.22 | ) | (0.09 | ) | (0.17 | ) | (0.18 | ) | (0.10 | ) | (0.10 | ) | (0.19 | ) | ||||||||||||||||||||||||||||||||||||
| From net realized gains |
— | — | — | — | (0.02 | ) | (2.12 | ) | — | — | — | — | (0.02 | ) | (2.12 | ) | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Total distributions |
(0.11 | ) | (0.19 | ) | (0.21 | ) | (0.13 | ) | (0.14 | ) | (2.34 | ) | (0.09 | ) | (0.17 | ) | (0.18 | ) | (0.10 | ) | (0.12 | ) | (2.31 | ) | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Net asset value, end of period |
$ | 9.17 | $ | 10.61 | $ | 11.03 | $ | 11.50 | $ | 9.24 | $ | 5.06 | $ | 9.03 | $ | 10.44 | $ | 10.87 | $ | 11.34 | $ | 9.12 | $ | 5.00 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Total Return(b) |
(12.52 | )%** | (2.05 | )% | (1.96 | )% | 25.89 | % | 85.52 | % | (58.58 | )% | (12.59 | )%** | (2.42 | )% | (2.27 | )% | 25.48 | % | 84.90 | % | (58.67 | )% | ||||||||||||||||||||||||||||||||||||
| Ratios/Supplemental Data: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 62,781 | $ | 134,535 | $ | 157,638 | $ | 231,921 | $ | 174,933 | $ | 89,902 | $ | 14,416 | $ | 16,261 | $ | 33,149 | $ | 28,467 | $ | 31,582 | $ | 20,948 | ||||||||||||||||||||||||||||||||||||
| Net expenses to average daily net assets |
1.19 | %(c)(d)* | 1.18 | %(c)(d) | 1.17 | %(c)(d) | 1.15 | %(c)(d) | 1.17 | %(c) | 1.16 | %(e) | 1.49 | %(c)(d)* | 1.47 | %(c)(d) | 1.46 | %(c)(d) | 1.45 | %(c)(d) | 1.47 | %(c) | 1.48 | %(e) | ||||||||||||||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets |
3.78 | %* | 1.94 | % | 2.14 | % | 1.05 | % | 1.10 | % | 2.25 | % | 3.59 | %* | 1.73 | % | 1.63 | % | 0.80 | % | 0.83 | % | 1.68 | % | ||||||||||||||||||||||||||||||||||||
| Portfolio turnover rate |
66 | %** | 108 | % | 113 | % | 124 | % | 138 | % | 128 | % | 66 | %** | 108 | % | 113 | % | 124 | % | 138 | % | 128 | % | ||||||||||||||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.44 | %* | 0.21 | % | 0.14 | % | 0.15 | % | 0.25 | % | 0.14 | % | 0.42 | %* | 0.20 | % | 0.14 | % | 0.15 | % | 0.25 | % | 0.23 | % | ||||||||||||||||||||||||||||||||||||
| (a) | The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized (loss) on the investments due to the timing of purchases and redemptions of the Fund shares in relation to fluctuating market values of the investments of the Fund. |
| (b) | The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown, if applicable, and assumes the effect of reinvested distributions, if any. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder purchasing or redeeming Fund shares, if any. |
| (c) | The net expense ratio does not include the effect of expense reductions (Note 2). |
| (d) | Net expenses exclude expenses incurred indirectly through investment in the underlying funds (Note 5). |
| (e) | The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions. |
| † | Calculated using average shares outstanding throughout the period. |
| * | Annualized. |
| ** | Not annualized. |
| See accompanying notes to the financial statements. | 29 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
EMERGING DOMESTIC OPPORTUNITIES FUND
| Class II Shares | Class III Shares | ||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Period from March 24, 2011 (commencement of operations) through February 29, 2012 |
Six Months Ended August 31, 2013 (Unaudited) |
Period from June 29, 2012 (commencement of operations) through February 28, 2013 | |||||||||||||||||||||
| Net asset value, beginning of period |
$ | 24.60 | $ | 21.39 | $ | 20.89 | $ | 24.59 | $ | 21.02 | |||||||||||||||
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| Income (loss) from investment operations: |
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| Net investment income (loss)† |
0.26 | 0.24 | 0.20 | 0.28 | 0.05 | ||||||||||||||||||||
| Net realized and unrealized gain (loss) |
(1.85 | ) | 3.27 | 0.39 | (a) | (1.87 | ) | 3.84 | |||||||||||||||||
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| Total from investment operations |
(1.59 | ) | 3.51 | 0.59 | (1.59 | ) | 3.89 | ||||||||||||||||||
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| Less distributions to shareholders: |
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| From net investment income |
— | (0.15 | ) | (0.09 | ) | (0.00 | )(e) | (0.17 | ) | ||||||||||||||||
| From net realized gains |
(0.33 | ) | (0.15 | ) | — | (0.33 | ) | (0.15 | ) | ||||||||||||||||
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| Total distributions |
(0.33 | ) | (0.30 | ) | (0.09 | ) | (0.33 | ) | (0.32 | ) | |||||||||||||||
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| Net asset value, end of period |
$ | 22.68 | $ | 24.60 | $ | 21.39 | $ | 22.67 | $ | 24.59 | |||||||||||||||
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| Total Return(b) |
(6.48 | )%** | 16.47 | % | 2.86 | %** | (6.48 | )%** | 18.57 | %** | |||||||||||||||
| Ratios/Supplemental Data: |
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| Net assets, end of period (000’s) |
$ | 482,576 | $ | 352,479 | $ | 112,056 | $ | 360,333 | $ | 104,740 | |||||||||||||||
| Net expenses to average daily net assets(c)(d) |
1.05 | %* | 1.07 | % | 1.02 | %* | 0.98 | %* | 1.00 | %* | |||||||||||||||
| Net investment income (loss) to average daily net assets |
2.04 | %* | 1.05 | % | 1.05 | %* | 2.23 | %* | 0.31 | %* | |||||||||||||||
| Portfolio turnover rate |
138 | %** | 247 | % | 459 | %**†† | 138 | %** | 247 | %**††† | |||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.01 | %* | 0.03 | % | 0.42 | %* | 0.01 | %* | 0.04 | %* | |||||||||||||||
| Purchase premiums and redemption fees consisted of the following per share amounts (Note 2):† |
$ | 0.09 | $ | 0.24 | $ | 0.45 | $ | 0.17 | $ | 0.31 | |||||||||||||||
| Class IV Shares | Class VI Shares | ||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Period from May 2, 2012 (commencement of operations) through February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Period from September 19, 2011 (commencement of operations) through February 29, 2012 | |||||||||||||||||||||
| Net asset value, beginning of period |
$ | 24.60 | $ | 22.00 | $ | 24.65 | $ | 21.41 | $ | 20.34 | |||||||||||||||
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| Income (loss) from investment operations: |
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| Net investment income (loss)† |
0.28 | 0.14 | 0.29 | 0.34 | 0.10 | ||||||||||||||||||||
| Net realized and unrealized gain (loss) |
(1.86 | ) | 2.78 | (1.87 | ) | 3.22 | 1.06 | (a) | |||||||||||||||||
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| Total from investment operations |
(1.58 | ) | 2.92 | (1.58 | ) | 3.56 | 1.16 | ||||||||||||||||||
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| Less distributions to shareholders: |
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| From net investment income |
(0.00 | )(e) | (0.17 | ) | (0.00 | )(e) | (0.17 | ) | (0.09 | ) | |||||||||||||||
| From net realized gains |
(0.33 | ) | (0.15 | ) | (0.33 | ) | (0.15 | ) | — | ||||||||||||||||
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| Total distributions |
(0.33 | ) | (0.32 | ) | (0.33 | ) | (0.32 | ) | (0.09 | ) | |||||||||||||||
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| Net asset value, end of period |
$ | 22.69 | $ | 24.60 | $ | 22.74 | $ | 24.65 | $ | 21.41 | |||||||||||||||
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| Total Return(b) |
(6.43 | )%** | 13.34 | %** | (6.42 | )%** | 16.69 | % | 5.78 | %** | |||||||||||||||
| Ratios/Supplemental Data: |
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| Net assets, end of period (000’s) |
$ | 750,424 | $ | 518,430 | $ | 612,091 | $ | 654,063 | $ | 418,017 | |||||||||||||||
| Net expenses to average daily net assets(c)(d) |
0.94 | %* | 0.95 | %* | 0.89 | %* | 0.90 | % | 0.87 | %* | |||||||||||||||
| Net investment income (loss) to average daily net assets |
2.23 | %* | 0.71 | %* | 2.32 | %* | 1.50 | % | 1.10 | %* | |||||||||||||||
| Portfolio turnover rate |
138 | %** | 247 | %**†††† | 138 | %** | 247 | % | 459 | %†† | |||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.01 | %* | 0.04 | %* | 0.01 | %* | 0.03 | % | 0.13 | %* | |||||||||||||||
| Purchase premiums and redemption fees consisted of the following per share amounts (Note 2):† |
$ | 0.08 | $ | 0.28 | $ | 0.00 | (f) | $ | 0.07 | $ | 0.18 | ||||||||||||||
| (a) | The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain (loss) on investments due to the timing of purchases and redemptions of the Fund shares in relation to fluctuating market values of the investments of the Fund. |
| (b) | The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown, if applicable, and assumes the effect of reinvested distributions, if any. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder purchasing or redeeming Fund shares, if any. |
| (c) | The net expense ratio does not include the effect of expense reductions (Note 2). |
| (d) | Net expenses exclude expenses incurred indirectly through investment in the underlying funds (Note 5). |
| (e) | Distributions from net investment income were less than $0.01 per share. |
| (f) | Purchase premiums and redemption fees were less than $0.01 per share. |
| † | Calculated using average shares outstanding throughout the period. |
| †† | Calculation represents portfolio turnover of the Fund for the period from March 1, 2011 through February 29, 2012. |
| ††† | Calculation represents portfolio turnover of the Fund for the period from June 29, 2012 through February 28, 2013. |
| †††† | Calculation represents portfolio turnover of the Fund for the period from May 2, 2012 through February 28, 2013. |
| * | Annualized. |
| ** | Not annualized. |
| 30 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
EMERGING MARKETS FUND
| Class II Shares | Class III Shares | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Period from August 12, 2009 (commencement of operations) through February 28, 2010 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 11.74 | $ | 12.10 | $ | 14.46 | $ | 11.63 | $ | 10.62 | $ | 11.77 | $ | 12.13 | $ | 14.49 | $ | 11.66 | $ | 6.30 | $ | 20.48 | |||||||||||||||||||||||||||||||||
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| Income (loss) from investment operations: |
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| Net investment income (loss)† |
0.20 | 0.22 | 0.24 | 0.16 | 0.02 | 0.20 | 0.24 | 0.26 | 0.16 | 0.21 | 0.23 | ||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
(1.55 | ) | (0.35 | ) | (0.65 | ) | 2.84 | 1.18 | (1.56 | ) | (0.36 | ) | (0.66 | ) | 2.85 | 5.34 | (10.65 | ) | |||||||||||||||||||||||||||||||||||||
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| Total from investment operations |
(1.35 | ) | (0.13 | ) | (0.41 | ) | 3.00 | 1.20 | (1.36 | ) | (0.12 | ) | (0.40 | ) | 3.01 | 5.55 | (10.42 | ) | |||||||||||||||||||||||||||||||||||||
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| Less distributions to shareholders: |
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| From net investment income |
— | (0.23 | ) | (0.21 | ) | (0.17 | ) | (0.19 | ) | — | (0.24 | ) | (0.22 | ) | (0.18 | ) | (0.19 | ) | (0.13 | ) | |||||||||||||||||||||||||||||||||||
| From net realized gains |
— | — | (1.74 | ) | — | — | — | — | (1.74 | ) | — | — | (3.63 | ) | |||||||||||||||||||||||||||||||||||||||||
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| Total distributions |
— | (0.23 | ) | (1.95 | ) | (0.17 | ) | (0.19 | ) | — | (0.24 | ) | (1.96 | ) | (0.18 | ) | (0.19 | ) | (3.76 | ) | |||||||||||||||||||||||||||||||||||
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| Net asset value, end of period |
$ | 10.39 | $ | 11.74 | $ | 12.10 | $ | 14.46 | $ | 11.63 | $ | 10.41 | $ | 11.77 | $ | 12.13 | $ | 14.49 | $ | 11.66 | $ | 6.30 | |||||||||||||||||||||||||||||||||
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| Total Return(a) |
(11.50 | )%** | (1.00 | )% | (1.94 | )% | 25.77 | % | 11.21 | %** | (11.55 | )%** | (0.96 | )% | (1.89 | )% | 25.80 | % | 88.05 | % | (58.62 | )% | |||||||||||||||||||||||||||||||||
| Ratios/Supplemental Data: |
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| Net assets, end of period (000’s) |
$ | 1,425,140 | $ | 2,004,694 | $ | 2,100,382 | $ | 2,304,697 | $ | 2,265,637 | $ | 561,994 | $ | 970,102 | $ | 1,334,720 | $ | 1,445,916 | $ | 1,014,490 | $ | 2,309,057 | |||||||||||||||||||||||||||||||||
| Net expenses to average daily net assets |
1.08 | %(b)(c)* | 1.06 | %(b)(c) | 1.05 | %(b)(c) | 1.07 | %(b)(c) | 1.07 | %* | 1.03 | %(b)(c)* | 1.01 | %(b)(c) | 1.00 | %(b)(c) | 1.02 | %(b)(c) | 1.06 | %(b) | 1.10 | %(d) | |||||||||||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets |
3.57 | %* | 1.97 | % | 1.88 | % | 1.21 | % | 0.30 | %* | 3.59 | %* | 2.12 | % | 2.00 | % | 1.17 | % | 2.25 | % | 1.77 | % | |||||||||||||||||||||||||||||||||
| Portfolio turnover rate |
42 | %** | 119 | % | 108 | % | 114 | % | 126 | %**†† | 42 | %** | 119 | % | 108 | % | 114 | % | 126 | % | 99 | % | |||||||||||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.03 | %* | 0.03 | % | 0.03 | % | 0.03 | % | 0.03 | %* | 0.01 | %* | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | |||||||||||||||||||||||||||||||||
| Purchase premiums and redemption fees consisted of the following per share amounts (Note 2):† |
$ | 0.02 | $ | 0.02 | $ | 0.02 | $ | 0.02 | $ | 0.02 | $ | 0.04 | $ | 0.01 | $ | 0.01 | $ | 0.00 | (e) | $ | 0.02 | $ | 0.04 | ||||||||||||||||||||||||||||||||
| Class IV Shares | Class V Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 11.68 | $ | 12.03 | $ | 14.40 | $ | 11.58 | $ | 6.27 | $ | 20.40 | $ | 11.66 | $ | 12.01 | $ | 14.39 | $ | 11.57 | $ | 6.26 | $ | 20.39 | ||||||||||||||||||||||||||||||||||||
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| Income (loss) from investment operations: |
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| Net investment income (loss)† |
0.20 | 0.22 | 0.26 | 0.17 | 0.16 | 0.25 | 0.21 | 0.25 | 0.26 | 0.15 | 0.20 | 0.22 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
(1.55 | ) | (0.32 | ) | (0.67 | ) | 2.83 | 5.36 | (10.62 | ) | (1.55 | ) | (0.35 | ) | (0.67 | ) | 2.86 | 5.32 | (10.58 | ) | ||||||||||||||||||||||||||||||||||||||||
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| Total from investment operations |
(1.35 | ) | (0.10 | ) | (0.41 | ) | 3.00 | 5.52 | (10.37 | ) | (1.34 | ) | (0.10 | ) | (0.41 | ) | 3.01 | 5.52 | (10.36 | ) | ||||||||||||||||||||||||||||||||||||||||
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| Less distributions to shareholders: |
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| From net investment income |
— | (0.25 | ) | (0.22 | ) | (0.18 | ) | (0.21 | ) | (0.13 | ) | — | (0.25 | ) | (0.23 | ) | (0.19 | ) | (0.21 | ) | (0.14 | ) | ||||||||||||||||||||||||||||||||||||||
| From net realized gains |
— | — | (1.74 | ) | — | — | (3.63 | ) | — | — | (1.74 | ) | — | — | (3.63 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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| Total distributions |
— | (0.25 | ) | (1.96 | ) | (0.18 | ) | (0.21 | ) | (3.76 | ) | — | (0.25 | ) | (1.97 | ) | (0.19 | ) | (0.21 | ) | (3.77 | ) | ||||||||||||||||||||||||||||||||||||||
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| Net asset value, end of period |
$ | 10.33 | $ | 11.68 | $ | 12.03 | $ | 14.40 | $ | 11.58 | $ | 6.27 | $ | 10.32 | $ | 11.66 | $ | 12.01 | $ | 14.39 | $ | 11.57 | $ | 6.26 | ||||||||||||||||||||||||||||||||||||
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| Total Return(a) |
(11.56 | )%** | (0.81 | )% | (1.90 | )% | 25.93 | % | 88.05 | % | (58.59 | )% | (11.49 | )%** | (0.78 | )% | (1.92 | )% | 26.03 | % | 88.21 | % | (58.59 | )% | ||||||||||||||||||||||||||||||||||||
| Ratios/Supplemental Data: |
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| Net assets, end of period (000’s) |
$ | 929,594 | $ | 1,481,411 | $ | 1,816,285 | $ | 1,649,840 | $ | 1,639,961 | $ | 1,345,811 | $ | 554,765 | $ | 677,796 | $ | 662,263 | $ | 835,561 | $ | 367,836 | $ | 795,586 | ||||||||||||||||||||||||||||||||||||
| Net expenses to average daily net assets |
0.98 | %(b)(c)* | 0.96 | %(b)(c) | 0.95 | %(b)(c) | 0.97 | %(b)(c) | 0.99 | %(b) | 1.06 | %(d) | 0.93 | %(b)(c)* | 0.91 | %(b)(c) | 0.90 | %(b)(c) | 0.93 | %(b)(c) | 0.98 | %(b) | 1.03 | %(d) | ||||||||||||||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets |
3.65 | %* | 1.99 | % | 2.00 | % | 1.29 | % | 1.54 | % | 1.86 | % | 3.81 | %* | 2.25 | % | 2.03 | % | 1.15 | % | 2.12 | % | 1.81 | % | ||||||||||||||||||||||||||||||||||||
| Portfolio turnover rate |
42 | %** | 119 | % | 108 | % | 114 | % | 126 | % | 99 | % | 42 | %** | 119 | % | 108 | % | 114 | % | 126 | % | 99 | % | ||||||||||||||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.01 | %* | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.04 | %* | 0.04 | % | 0.04 | % | 0.04 | % | 0.03 | % | 0.01 | % | ||||||||||||||||||||||||||||||||||||
| Purchase premiums and redemption fees consisted of the following per share amounts (Note 2):† |
$ | 0.03 | $ | 0.02 | $ | 0.02 | $ | 0.01 | $ | 0.02 | $ | 0.04 | $ | 0.00 | (e) | $ | 0.00 | (e) | $ | 0.00 | (e) | $ | 0.01 | $ | 0.01 | $ | 0.05 | |||||||||||||||||||||||||||||||||
| (a) | The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown, if applicable, and assumes the effect of reinvested distributions, if any. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder purchasing or redeeming Fund shares, if any. |
| (b) | The net expense ratio does not include the effect of expense reductions (Note 2). |
| (c) | Net expenses exclude expenses incurred indirectly through investment in the underlying funds (Note 5). |
| (d) | The net expense ratio does not include the effect of expense reductions, except for reimbursements related to securities lending transactions. |
| (e) | Purchase premiums and redemption fees were less than $0.01 per share. |
| † | Calculated using average shares outstanding throughout the period. |
| †† | Calculation represents portfolio turnover of the Fund for the six months ended August 31, 2009. |
| * | Annualized. |
| ** | Not annualized. |
| See accompanying notes to the financial statements. | 31 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
EMERGING MARKETS FUND (continued)
| 32 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
TAIWAN FUND
| See accompanying notes to the financial statements. | 33 |
GMO Trust Funds
August 31, 2013 (Unaudited)
| 1. | Organization |
Each of Emerging Countries Fund, Emerging Domestic Opportunities Fund, Emerging Markets Fund, and Taiwan Fund (each a “Fund” and collectively the “Funds”) is a series of GMO Trust (the “Trust”). The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust was established as a Massachusetts business trust under the laws of The Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees of the Trust (“Trustees”) to create an unlimited number of series of shares (Funds) and to subdivide Funds into classes. The Funds are advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager” or “GMO”).
The Funds may invest in U.S. Treasury Fund and unaffiliated money market funds.
The following table provides information about the Funds’ principal investment objectives and benchmarks (if any):
| Fund Name | Benchmark | Principal Investment Objective | ||
| Emerging Countries Fund | S&P/IFCI Composite | Total return in excess of benchmark | ||
| Emerging Domestic Opportunities Fund | Not Applicable | Total return | ||
| Emerging Markets Fund | S&P/IFCI Composite | Total return in excess of benchmark | ||
| Taiwan Fund | MSCI Taiwan Index | Total return in excess of benchmark | ||
Emerging Countries Fund and Taiwan Fund currently limit subscriptions.
| 2. | Significant accounting policies |
The following is a summary of significant accounting policies followed by each Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently followed by the Funds in preparing these financial statements. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The accounting records of the Funds are maintained in U.S. Dollars.
Portfolio valuation
Exchange-traded securities (other than exchange-traded options) for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price or (iii) most recent quoted price published by the exchange (if no reported last sale or official closing price) or (iv) the quoted price provided by a pricing source (in the event the Manager deems the private market to be a more reliable indicator of market value than the exchange). Exchange-traded 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. Cleared derivatives are valued using the quote (which may be based on a model) published by the relevant clearing house. If an updated quote for a cleared derivative is not available by the time that a Fund calculates its net asset value on any business day, then that derivative will generally be valued using an industry standard model, which may differ from the model used by the relevant clearing house. Unlisted securities (including debt instruments) for which market quotations are readily available are generally valued at the most recent quoted price. In the case of non-emerging market debt instruments with a remaining maturity of sixty days or less, the instrument may be valued at amortized cost, which approximates market value, if the issuer is deemed to present minimal credit risk. Shares of open-end registered investment companies are valued at their most recent net asset value. If quotations are not readily available or circumstances make an existing valuation methodology or procedure unreliable, derivatives and other securities are valued at fair value as determined in good faith by the Trustees or persons acting at their direction pursuant to procedures approved by the Trustees. Because of the uncertainty inherent in pricing, and in particular fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. See the table below for information about securities and derivatives, if any, that were fair valued using methods determined in good faith by or at the direction of the Trustees. The Funds classify such securities as Level 3 (levels defined below). For the period ended August 31, 2013, the Funds did not reduce the value of any of their over-the-counter (“OTC”) derivatives contracts, if any, based on the creditworthiness of their counterparties. See Note 4 “Derivative financial instruments” for a further discussion on valuation of derivatives.
The foregoing valuation methodologies are modified for equity securities listed on foreign exchanges and that trade in securities markets that close prior to the close of the New York Stock Exchange (“NYSE”) due to time zone differences, including the value of equity securities that underlie futures, options and other derivatives (to the extent the market for those derivatives closes prior to the close of the NYSE). In those cases, the value will generally be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees to reflect estimated valuation changes through the NYSE close. The table below shows the percentage of the net assets of the Funds that were valued using fair value inputs obtained from that independent pricing service as of August 31, 2013. These securities listed on foreign
| 34 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
exchanges (including the value of equity securities that underlie futures, options and other derivatives (to the extent the market for such instruments closes prior to the close of the NYSE)) are classified as Level 2 (levels defined below) in the table below.
“Quotation” or “quoted price” typically means the bid price for securities held long and the ask price for securities sold short. If the pricing convention for a security does not involve a bid or an ask, “quotation” or “quoted price” may be a market quotation provided by a market participant or other third party pricing source in accordance with the convention for that security. If an updated quote for a security is not available by the time that the Funds calculate their net asset value on any business day, the Funds will generally use a quoted price from a prior day to value that security.
As discussed above, certain of the Funds invest in securities and/or derivatives which may have been fair valued using methods determined in good faith by or at the direction of the Trustees or fair valued using inputs obtained from an independent pricing service and presented in the table below on a net basis. The net aggregate direct and/or indirect exposure to these valuation methodologies (based on each Fund’s net assets) as of August 31, 2013 is as follows:
Securities and Derivatives
| Fund Name | Fair valued using methods determined in good faith by or at the direction of the Trustees |
Fair valued using inputs obtained from an independent pricing service |
||||||
| Emerging Countries Fund |
< 1% | 72% | ||||||
| Emerging Domestic Opportunities Fund |
1% | 60% | ||||||
| Emerging Markets Fund |
< 1% | 77% | ||||||
| Taiwan Fund |
0% | * | 91% | |||||
| * | Represents an interest in securities that were determined to have a fair value of zero at August 31, 2013. |
U.S. GAAP requires the Funds to disclose the fair value of their investments in a three-level hierarchy (Levels 1, 2 and 3). The valuation hierarchy is based upon the relative observability of inputs to the valuation of the Funds’ investments. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Changes in valuation techniques may result in transfers into or out of an investment’s assigned level within the fair value hierarchy. In addition, in periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition, as well as changes related to the liquidity of investments, could cause a security to be reclassified between levels.
U.S. GAAP requires additional disclosures about fair value measurements for material Level 3 securities and derivatives, if any (determined by each category of asset or liability as compared to a Fund’s total net assets separately identified in the “Valuation Inputs” table below). At August 31, 2013, there were no direct material Level 3 classes of investments or derivatives with significant unobservable inputs subject to this additional disclosure.
The three levels are defined as follows:
Level 1 – Valuations based on quoted prices for identical securities in active markets.
The types of assets and liabilities categorized in Level 1 generally include actively traded domestic and certain foreign equity securities, certain U.S. government obligations with a remaining maturity of greater than 60 days, derivatives actively traded on a national securities exchange (such as some futures and options), and shares of open-end mutual funds (even if their investments are valued using Level 2 or Level 3 inputs).
Level 2 – Valuations determined using other significant direct or indirect observable inputs.
The types of assets and liabilities categorized in Level 2 generally include debt securities such as U.S. government securities with a remaining maturity of 60 days or less valued at amortized cost; cleared derivatives and certain OTC derivatives such as swaps, options, swaptions, and forward currency contracts valued using industry standard models; certain restricted securities valued at the most recent available market or quoted price; and certain foreign equity securities that are adjusted based on inputs from an independent pricing service approved by the Trustees, including the value of equity securities that underlie futures, options and other derivatives (to the extent the market for such instruments closes prior to the close of the NYSE) to reflect estimated valuation changes through the NYSE close.
| 35 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Level 3 – Valuations based primarily on inputs that are unobservable and significant.
The types of assets and liabilities categorized in Level 3 generally include, but are not limited to, securities whose trading has been suspended or that have been de-listed from their current primary trading exchange valued at the most recent available market or quoted price; securities in default or bankruptcy proceedings for which there is no current market quotation valued at the most recent available market or quoted price; third-party investment funds where valuations are provided by fund sponsors and which are adjusted for liquidity considerations as well as the timing of the receipt of information; certain securities that are valued at the local price and adjusted by applying a premium or discount when the holdings exceed foreign ownership limitations; certain equity securities valued based on the last traded exchange price adjusted for the movement in a securities index; and certain securities that are valued using a price from a comparable security related to the same issuer.
The following is a summary of the respective levels assigned to the Funds’ direct securities and derivatives, if any, as of August 31, 2013:
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Emerging Countries Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Brazil |
$ | 5,961,086 | $ | — | $ | — | $ | 5,961,086 | ||||||||
| China |
1,062,210 | 8,906,170 | — | 9,968,380 | ||||||||||||
| Czech Republic |
— | 1,680,235 | — | 1,680,235 | ||||||||||||
| Egypt |
— | 859,357 | — | 859,357 | ||||||||||||
| France |
— | 190,813 | — | 190,813 | ||||||||||||
| Hungary |
— | 57,974 | — | 57,974 | ||||||||||||
| India |
387,419 | 2,765,453 | — | 3,152,872 | ||||||||||||
| Indonesia |
548,488 | 3,472,782 | — | 4,021,270 | ||||||||||||
| Malaysia |
— | 516,045 | — | 516,045 | ||||||||||||
| Mexico |
1,532,275 | — | — | 1,532,275 | ||||||||||||
| Morocco |
— | 153,836 | — | 153,836 | ||||||||||||
| Norway |
— | 30,375 | — | 30,375 | ||||||||||||
| Peru |
747,367 | — | — | 747,367 | ||||||||||||
| Philippines |
— | 827,619 | — | 827,619 | ||||||||||||
| Poland |
— | 1,805,107 | — | 1,805,107 | ||||||||||||
| Russia |
506,323 | 7,580,508 | — | 8,086,831 | ||||||||||||
| South Africa |
62,918 | 1,862,302 | — | 1,925,220 | ||||||||||||
| South Korea |
1,767,010 | 13,586,273 | — | 15,353,283 | ||||||||||||
| Taiwan |
435,528 | 4,743,337 | 0 | * | 5,178,865 | |||||||||||
| Thailand |
— | 2,778,879 | 229,206 | 3,008,085 | ||||||||||||
| Turkey |
7,896 | 968,820 | — | 976,716 | ||||||||||||
| United Kingdom |
20,637 | 288,689 | — | 309,326 | ||||||||||||
| United States |
271,724 | — | — | 271,724 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
13,310,881 | 53,074,574 | 229,206 | 66,614,661 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Brazil |
4,570,397 | — | — | 4,570,397 | ||||||||||||
| Russia |
— | 2,203,628 | — | 2,203,628 | ||||||||||||
| South Korea |
— | 476,728 | — | 476,728 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
4,570,397 | 2,680,356 | — | 7,250,753 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Investment Funds |
||||||||||||||||
| United States |
2,414,057 | — | — | 2,414,057 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL INVESTMENT FUNDS |
2,414,057 | — | — | 2,414,057 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
285,029 | — | — | 285,029 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
285,029 | — | — | 285,029 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
138,114 | — | — | 138,114 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
20,718,478 | 55,754,930 | 229,206 | 76,702,614 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 20,718,478 | $ | 55,754,930 | $ | 229,206 | $ | 76,702,614 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 36 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Emerging Domestic Opportunities Fund |
| |||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Brazil |
$ | 50,363,790 | $ | — | $ | — | $ | 50,363,790 | ||||||||
| China |
157,909,572 | 150,151,671 | — | 308,061,243 | ||||||||||||
| France |
— | 103,830,757 | — | 103,830,757 | ||||||||||||
| India |
— | 53,589,137 | — | 53,589,137 | ||||||||||||
| Indonesia |
— | 82,968,061 | — | 82,968,061 | ||||||||||||
| Malaysia |
— | 49,161,033 | — | 49,161,033 | ||||||||||||
| Mexico |
65,870,685 | — | — | 65,870,685 | ||||||||||||
| Nigeria |
— | 13,366,289 | — | 13,366,289 | ||||||||||||
| Norway |
— | 18,802,743 | — | 18,802,743 | ||||||||||||
| Panama |
73,223,722 | — | — | 73,223,722 | ||||||||||||
| Philippines |
4,773,422 | 111,799,190 | — | 116,572,612 | ||||||||||||
| Qatar |
— | 13,702,833 | — | 13,702,833 | ||||||||||||
| Russia |
70,741,668 | 65,342,860 | — | 136,084,528 | ||||||||||||
| South Africa |
— | 38,125,609 | — | 38,125,609 | ||||||||||||
| South Korea |
— | 50,248,845 | — | 50,248,845 | ||||||||||||
| Switzerland |
— | 38,257,260 | — | 38,257,260 | ||||||||||||
| Taiwan |
— | 19,311,128 | — | 19,311,128 | ||||||||||||
| Thailand |
— | 191,357,416 | 30,129,098 | 221,486,514 | ||||||||||||
| Turkey |
— | 66,829,441 | — | 66,829,441 | ||||||||||||
| United Kingdom |
12,113,195 | 205,303,943 | — | 217,417,138 | ||||||||||||
| United States |
243,514,783 | — | — | 243,514,783 | ||||||||||||
| Vietnam |
— | 9,036,170 | — | 9,036,170 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
678,510,837 | 1,281,184,386 | 30,129,098 | 1,989,824,321 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Brazil |
27,061,245 | — | — | 27,061,245 | ||||||||||||
| Russia |
— | 19,585,476 | — | 19,585,476 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
27,061,245 | 19,585,476 | — | 46,646,721 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Investment Funds |
||||||||||||||||
| China |
19,703,664 | — | — | 19,703,664 | ||||||||||||
| Thailand |
— | 4,191,361 | — | 4,191,361 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL INVESTMENT FUNDS |
19,703,664 | 4,191,361 | — | 23,895,025 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Debt Obligations |
||||||||||||||||
| India |
— | 6,255,482 | — | 6,255,482 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
— | 6,255,482 | — | 6,255,482 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
81,720,507 | — | — | 81,720,507 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
81,720,507 | — | — | 81,720,507 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
13,843,842 | — | — | 13,843,842 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
820,840,095 | 1,311,216,705 | 30,129,098 | 2,162,185,898 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives** |
||||||||||||||||
| Swap Contracts |
||||||||||||||||
| Equity risk |
— | 12,757,802 | — | 12,757,802 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 820,840,095 | $ | 1,323,974,507 | $ | 30,129,098 | $ | 2,174,943,700 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives** |
||||||||||||||||
| Swap Contracts |
||||||||||||||||
| Equity risk |
$ | — | $ | (1,997,493 | ) | $ | — | $ | (1,997,493 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | — | $ | (1,997,493 | ) | $ | — | $ | (1,997,493 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 37 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Emerging Markets Fund |
| |||||||||||||||
| Asset Valuation Inputs |
| |||||||||||||||
| Common Stocks |
||||||||||||||||
| Brazil |
$ | 553,603,334 | $ | — | $ | — | $ | 553,603,334 | ||||||||
| China |
113,117,553 | 1,512,996,955 | 0 | * | 1,626,114,508 | |||||||||||
| Czech Republic |
— | 122,535,619 | — | 122,535,619 | ||||||||||||
| Egypt |
— | 59,196,519 | — | 59,196,519 | ||||||||||||
| France |
— | 19,575,387 | — | 19,575,387 | ||||||||||||
| Hungary |
— | 7,749,927 | — | 7,749,927 | ||||||||||||
| India |
55,347,147 | 259,375,246 | 6,448,000 | 321,170,393 | ||||||||||||
| Indonesia |
29,640,588 | 342,746,404 | 241,070 | 372,628,062 | ||||||||||||
| Malaysia |
— | 50,246,282 | — | 50,246,282 | ||||||||||||
| Mexico |
195,640,005 | — | — | 195,640,005 | ||||||||||||
| Morocco |
— | 2,998,134 | — | 2,998,134 | ||||||||||||
| Nigeria |
— | 3,011,841 | — | 3,011,841 | ||||||||||||
| Norway |
— | 5,084,238 | — | 5,084,238 | ||||||||||||
| Panama |
37,463,500 | — | — | 37,463,500 | ||||||||||||
| Peru |
77,540,398 | — | — | 77,540,398 | ||||||||||||
| Philippines |
6,139,375 | 78,361,098 | — | 84,500,473 | ||||||||||||
| Poland |
— | 153,009,104 | — | 153,009,104 | ||||||||||||
| Qatar |
— | 3,081,007 | — | 3,081,007 | ||||||||||||
| Russia |
54,757,724 | 931,467,103 | — | 986,224,827 | ||||||||||||
| South Africa |
13,972,991 | 240,823,725 | — | 254,796,716 | ||||||||||||
| South Korea |
73,954,963 | 1,398,415,057 | — | 1,472,370,020 | ||||||||||||
| Sri Lanka |
2,843,103 | — | — | 2,843,103 | ||||||||||||
| Taiwan |
36,670,288 | 627,785,591 | — | 664,455,879 | ||||||||||||
| Thailand |
— | 329,662,406 | 14,105,860 | 343,768,266 | ||||||||||||
| Turkey |
811,972 | 136,216,799 | 0 | * | 137,028,771 | |||||||||||
| United Kingdom |
4,067,292 | 28,840,656 | — | 32,907,948 | ||||||||||||
| United States |
27,510,298 | — | — | 27,510,298 | ||||||||||||
| Vietnam |
— | 2,964,988 | — | 2,964,988 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
1,283,080,531 | 6,316,144,086 | 20,794,930 | 7,620,019,547 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Brazil |
459,394,860 | — | — | 459,394,860 | ||||||||||||
| Russia |
80,102 | 215,438,841 | — | 215,518,943 | ||||||||||||
| South Korea |
— | 75,404,468 | — | 75,404,468 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
459,474,962 | 290,843,309 | — | 750,318,271 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Investment Funds |
||||||||||||||||
| China |
— | — | 2,287,988 | 2,287,988 | ||||||||||||
| India |
— | — | 8,120,589 | 8,120,589 | ||||||||||||
| Poland |
— | — | 200,654 | 200,654 | ||||||||||||
| Russia |
— | — | 5,855,221 | 5,855,221 | ||||||||||||
| Thailand |
— | 1,268,535 | — | 1,268,535 | ||||||||||||
| Ukraine |
— | — | 4,000 | 4,000 | ||||||||||||
| United States |
39,635,740 | — | — | 39,635,740 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL INVESTMENT FUNDS |
39,635,740 | 1,268,535 | 16,468,452 | 57,372,727 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
405,204 | — | — | 405,204 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
405,204 | — | — | 405,204 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
5,149,555 | — | — | 5,149,555 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
$ | 1,787,745,992 | $ | 6,608,255,930 | $ | 37,263,382 | $ | 8,433,265,304 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 38 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Emerging Markets Fund (continued) |
| |||||||||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives** |
||||||||||||||||
| Swap Contracts |
||||||||||||||||
| Equity risk |
$ | — | $ | (3,446,028 | ) | $ | — | $ | (3,446,028 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | — | $ | (3,446,028 | ) | $ | — | $ | (3,446,028 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Taiwan Fund |
| |||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Taiwan |
$ | 8,406,252 | $ | 130,171,341 | $ | 0 | * | $ | 138,577,593 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
8,406,252 | 130,171,341 | 0 | * | 138,577,593 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Investment Funds |
||||||||||||||||
| United States |
3,075,907 | — | — | 3,075,907 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL INVESTMENT FUNDS |
3,075,907 | — | — | 3,075,907 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
677 | — | — | 677 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
677 | — | — | 677 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
306,699 | — | — | 306,699 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
11,789,535 | 130,171,341 | 0 | * | 141,960,876 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 11,789,535 | $ | 130,171,341 | $ | 0 | * | $ | 141,960,876 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
The risks referenced in the tables above are not intended to be inclusive of all risks. Please see the “Investment and other risks” and “Derivative financial instruments” sections below for a further discussion of risks.
| * | Represents an interest in securities that were determined to have a fair value of zero at August 31, 2013. |
| ** | The tables above are based on market values or unrealized appreciation/(depreciation) rather than the notional amounts of derivatives. The uncertainties surrounding the valuation inputs for a derivative are likely to be more significant to the Funds’ net asset values than the uncertainties surrounding inputs for a non-derivative security with the same market value. |
The underlying funds held at period end are classified above as Level 1. For the summary of valuation inputs of the underlying funds, please refer to the underlying funds’ Notes to Financial Statements.
For all Funds for the period ended August 31, 2013, there were no material transfers between Level 1 and Level 2.
The following is a reconciliation of securities and derivatives, if any, in which significant unobservable inputs (Level 3) were used in determining value:
| Balances as of February 28, 2013 |
Purchases | Sales | Accrued Discounts/ Premiums |
Total Realized Gain/ (Loss) |
Change in Unrealized Appreciation (Depreciation) |
Transfer into Level 3* |
Transfer out of Level 3* |
Balances as of August 31, 2013 |
Net Appreciation (Depreciation) from Still
Held August |
|||||||||||||||||||||||||||||||
| Emerging |
|
|||||||||||||||||||||||||||||||||||||||
| Common Stocks |
|
|||||||||||||||||||||||||||||||||||||||
| India |
$ | 250,834 | $ | 15,822 | $ | (234,358 | ) | $ | — | $ | (29,347 | ) | $ | (2,951 | ) | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||
| Taiwan |
0 | *** | — | — | — | — | — | — | — | 0 | *** | — | ||||||||||||||||||||||||||||
| Thailand |
1,035,503 | 54,645 | (712,000 | ) | — | 285,625 | (418,809 | ) | — | (15,758 | )** | 229,206 | (368,344 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total |
$ | 1,286,337 | $ | 70,467 | $ | (946,358 | ) | $ | — | $ | 256,278 | $ | (421,760 | ) | $ | — | $ | (15,758 | ) | $ | 229,206 | $ | (368,344 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| 39 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Balances as of February 28, 2013 |
Purchases | Sales | Accrued Discounts/ Premiums |
Total Realized Gain/ (Loss) |
Change in Unrealized Appreciation (Depreciation) |
Transfer into Level 3* |
Transfer out of Level 3* |
Balances as of August 31, 2013 |
Net Appreciation (Depreciation) from Still
Held August |
|||||||||||||||||||||||||||||||
| Emerging Domestic Opportunities Fund |
|
|||||||||||||||||||||||||||||||||||||||
| Common Stocks |
|
|||||||||||||||||||||||||||||||||||||||
| Thailand |
$ | 44,535,710 | $ | 13,843,075 | $ | (25,351,812 | ) | $ | — | $ | 7,406,907 | $ | (8,541,872 | ) | $ | — | $ | (1,762,910 | )** | $ | 30,129,098 | $ | 287,886 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total |
$ | 44,535,710 | $ | 13,843,075 | $ | (25,351,812 | ) | $ | — | $ | 7,406,907 | $ | (8,541,872 | ) | $ | — | $ | (1,762,910 | ) | $ | 30,129,098 | $ | 287,886 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Emerging |
|
|||||||||||||||||||||||||||||||||||||||
| Common Stocks |
|
|||||||||||||||||||||||||||||||||||||||
| India |
$ | 25,023,685 | $ | 5,246,505 | $ | (12,671,684 | ) | $ | — | $ | (1,302,631 | ) | $ | (8,218,564 | ) | $ | — | $ | (1,629,311 | )** | $ | 6,448,000 | $ | (5,947,165 | ) | |||||||||||||||
| Indonesia |
— | — | — | — | — | — | 241,070 | ** | — | 241,070 | — | |||||||||||||||||||||||||||||
| Russia |
1,350 | — | (224,617 | ) | — | (945,383 | ) | 1,168,650 | — | — | — | — | ||||||||||||||||||||||||||||
| South Korea |
3,724,493 | — | (2,892,541 | ) | — | (6,926,403 | ) | 6,094,451 | — | — | — | — | ||||||||||||||||||||||||||||
| Sri Lanka |
1,645,629 | — | (1,890,310 | ) | — | — | 244,681 | — | — | — | — | |||||||||||||||||||||||||||||
| Thailand |
56,616,814 | 750,301 | (35,705,945 | ) | — | 15,946,362 | (23,034,256 | ) | — | (467,416 | )** | 14,105,860 | (16,533,343 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total Common Stocks |
$ | 87,011,971 | $ | 5,996,806 | $ | (53,385,097 | ) | $ | — | $ | 6,771,945 | $ | (23,745,038 | ) | $ | 241,070 | $ | (2,096,727 | ) | $ | 20,794,930 | $ | (22,480,508 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Investment |
|
|||||||||||||||||||||||||||||||||||||||
| China |
$ | 2,254,617 | $ | — | $ | — | $ | — | $ | — | $ | 33,371 | $ | — | $ | — | $ | 2,287,988 | $ | 33,371 | ||||||||||||||||||||
| India |
11,315,764 | — | (512,228 | ) | — | (160,882 | ) | (2,522,065 | ) | — | — | 8,120,589 | (2,522,065 | ) | ||||||||||||||||||||||||||
| Poland |
208,208 | — | — | — | — | (7,554 | ) | — | — | 200,654 | (7,554 | ) | ||||||||||||||||||||||||||||
| Russia |
7,265,136 | — | (99,896 | ) | — | (11,372 | ) | (1,298,647 | ) | — | — | 5,855,221 | (1,298,647 | ) | ||||||||||||||||||||||||||
| Ukraine |
4,000 | — | — | — | — | — | — | — | 4,000 | — | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total Investment Funds |
21,047,725 | — | (612,124 | ) | — | (172,254 | ) | (3,794,895 | ) | — | — | 16,468,452 | (3,794,895 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total |
$ | 108,059,696 | $ | 5,996,806 | $ | (53,997,221 | ) | $ | — | $ | 6,599,691 | $ | (27,539,933 | ) | $ | 241,070 | $ | (2,096,727 | ) | $ | 37,263,382 | $ | (26,275,403 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| * | The Funds account for securities and derivatives, if any, transferred into and out of Level 3 at the value at the end of the period. |
| ** | Financial assets transferred between Level 2 and Level 3, if any, were due to a change in observable and/or unobservable inputs. |
| *** | Represents an interest in securities that were determined to have a fair value of zero at February 28, 2013 and August 31, 2013. |
The net aggregate direct and/or indirect exposure to investments in securities using Level 3 inputs (based on the Funds’ net assets) as of August 31, 2013 were as follows:
| Fund Name | Level 3 securities | |||
| Emerging Countries Fund |
< 1% | |||
| Emerging Domestic Opportunities Fund |
1% | |||
| Emerging Markets Fund |
< 1% | |||
| Taiwan Fund |
< 1% | * | ||
| * | Represents the interest in securities that were determined to have a fair value of zero at August 31, 2013. |
Cash
Cash and Foreign Currency, if any, on the Statements of Assets and Liabilities consists of cash balances held with the custodian.
| 40 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Due to/from broker
Due to/from broker in the Statements of Assets and Liabilities includes collateral on swap contracts, futures contracts, option contracts and forward currency contracts, if any, and may include mark to market amounts related to foreign currency.
Foreign currency translation
The market values of foreign securities, currency holdings and related assets and liabilities are typically translated into U.S. Dollars at the close of regular trading on the NYSE, generally at 4:00 pm Boston time. Income and expenses denominated in foreign currencies are typically translated into U.S. Dollars at the close of regular trading on the NYSE. Fluctuations in the value of currency holdings and other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains or losses. Realized gains or losses and unrealized appreciation or depreciation on investment securities and income and expenses are translated on the respective dates of such transactions. The effects of changes in foreign currency exchange rates on investments in securities are not separated on the Statements of Operations from the effects of changes in market prices of those securities, but are included with the net realized and unrealized gain or loss on investment securities.
Taxes and distributions
Each Fund intends to qualify each tax year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). Each Fund intends to distribute substantially all of its net investment income, if any, and all of its net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryforwards for U.S. federal income tax purposes. Therefore, each Fund makes no provision for U.S. federal income or excise taxes. Taxes on foreign interest and dividend income are generally withheld in accordance with the applicable country’s tax treaty with the United States. The foreign withholding rates applicable to a Fund’s investments in certain jurisdictions may be higher if a significant portion of the Fund is held by non-U.S. shareholders.
Each Fund’s policy is to declare and pay distributions of its net investment income, if any, semi-annually. Each Fund also intends to distribute net realized short-term and long-term capital gains, if any, at least annually. Typically, distributions are reinvested in additional shares of each Fund, at net asset value, unless the shareholder elects to receive cash distributions. Distributions to shareholders are recorded by each Fund on the ex-dividend date.
Foreign taxes paid by each Fund may be treated, to the extent permissible under the Code and if that Fund so elects, as if paid by U.S. shareholders of that Fund.
Each Fund may be subject to taxation on realized capital gains, repatriation proceeds and other transaction-based taxes imposed by certain countries in which it invests. Taxes related to capital gains realized during the period ended August 31, 2013, if any, are reflected as part of Net realized gain (loss) in the Statements of Operations. Changes in tax liabilities related to capital gain taxes on unrealized investment gains, if any, are reflected as part of Change in net unrealized appreciation (depreciation) in the Statements of Operations. Transaction-based charges are generally calculated as a percentage of the transaction amount.
Income and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will likely reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over-distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Distributions in excess of tax basis earnings and profits, if significant, are reported in the Funds’ financial statements as a return of capital.
As of February 28, 2013, the Funds listed below elected to defer to March 1, 2013 late-year ordinary losses as follows:
| Fund Name | Late-Year Ordinary Losses ($) |
|||
| Emerging Countries Fund |
(34,100) | |||
| Taiwan Fund |
(142,320) | |||
As of February 28, 2013, the Funds listed below had capital loss carryforwards available to offset future realized gains, if any, to the extent permitted by the Code. Net capital losses recognized in taxable years beginning on or after March 1, 2011 are carried forward without expiration and generally retain their short-term and/or long-term tax character, as applicable. In addition, such losses should be utilized prior to losses scheduled to expire on or before February 28, 2019. As a result of this ordering rule, losses that are subject to expiration may expire unused.
| 41 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Utilization of the capital loss carryforwards, post-October capital losses, late-year ordinary losses and losses realized subsequent to February 28, 2013, if any, could be subject to further limitations imposed by the Code related to share ownership activity. The Funds’ capital loss carryforwards are as follows:
| Short-Term ($) | Total Short- Term ($) |
Long- Term ($) |
||||||||||||||
| Fund Name | Expiration Date 2/28/2018 |
No Expiration Date |
No Expiration Date |
|||||||||||||
| Emerging Countries Fund |
(17,038,014) | (3,296,764) | (20,334,778) | — | ||||||||||||
| Emerging Markets Fund |
— | (275,866,167) | (275,866,167) | (68,905,064) | ||||||||||||
| Taiwan Fund |
— | (4,972,468) | (4,972,468) | — | ||||||||||||
As of August 31, 2013, the approximate cost for U.S. federal income tax purposes and the aggregate investment-level gross and net unrealized appreciation (depreciation) in the value of investments were as follows:
| Fund Name | Aggregate Cost ($) |
Gross Unrealized Appreciation ($) |
Gross Unrealized (Depreciation) ($) |
Net Unrealized Appreciation (Depreciation) ($) |
||||||||||||
| Emerging Countries Fund |
89,884,201 | 3,428,780 | (16,610,367) | (13,181,587) | ||||||||||||
| Emerging Domestic Opportunities Fund |
2,258,103,859 | 82,764,120 | (178,682,081) | (95,917,961) | ||||||||||||
| Emerging Markets Fund |
9,566,626,441 | 419,829,934 | (1,553,191,071) | (1,133,361,137) | ||||||||||||
| Taiwan Fund |
146,391,701 | 2,562,290 | (6,993,115) | (4,430,825) | ||||||||||||
The Funds are subject to authoritative guidance related to the accounting and disclosure of uncertain tax positions under U.S. GAAP. This guidance sets forth a minimum threshold for the financial statement recognition of tax positions taken based on the technical merits of such positions. United States and non-U.S. tax rules (including the interpretation and application of tax laws) are subject to change. The Funds file tax returns and/or adopt certain tax positions in various jurisdictions. Non-U.S. taxes are provided for based on the Funds’ understanding of the prevailing tax rules of the non-U.S. markets in which they invest. Recently enacted tax rules, including interpretations of tax laws (e.g., regulations pertaining to the U.S. Foreign Account Tax Compliance Act) and proposed legislation currently under consideration in various jurisdictions, including the U.S., might affect the way the Funds and their investors are taxed prospectively and/or retroactively. Prior to the expiration of the relevant statutes of limitations, if any, the Funds are subject to examination by U.S. federal, state, local and non-U.S. jurisdictions with respect to the tax returns they have filed and the tax positions they have adopted. The Funds’ U.S. federal income tax returns are generally subject to examination by the Internal Revenue Service for a period of three years after they are filed. State, local and/or non-U.S. tax returns and/or other filings may be subject to examination for different periods, depending upon the tax rules of each applicable jurisdiction.
Security transactions and related investment income
Security transactions are accounted for in the financial statements on trade date. For purposes of daily net asset value calculations, the Funds’ policy is that security transactions are generally accounted for on the following business day. The Manager may override that policy and a Fund may account for security transactions on trade date if it experiences significant purchases or redemptions or engages in significant portfolio transactions. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when a Fund is informed of the ex-dividend date. Income dividends and capital gain distributions from the underlying funds are recorded on the ex-dividend date. Interest income is recorded on the accrual basis and is adjusted for the amortization of premiums and accretion of discounts. Principal on inflation-indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or investment loss. Coupon income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Funds use the identified cost basis.
Expenses
Most of the expenses of the Trust are directly identifiable to an individual Fund. Common expenses are allocated among the Funds based on, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses, purchase premiums and redemption fees, if any, and realized and unrealized gains and losses are allocated among the classes of shares of the Funds, if applicable, based on the relative net assets of each class. Shareholder service fees, 12b-1 and administration fees, if any, which are directly attributable to a class of shares, are charged to that class’s operations. In addition, the Funds may incur fees and expenses indirectly as a shareholder in the underlying funds (See Note 5).
| 42 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Brown Brothers Harriman & Co. (“BBH”) serves as the Funds’ custodian and fund accounting agent. State Street Bank and Trust Company (“State Street”) serves as the Funds’ transfer agent. State Street’s transfer agent fees may be reduced by an earnings allowance calculated on the average daily cash balances each Fund maintains in a State Street transfer agent account. Earnings allowances are reported as a reduction of expenses in the Statement of Operations.
Purchases and redemptions of Fund shares
Purchase premiums and redemption fees (if applicable) are paid to and retained by a Fund to help offset estimated portfolio transaction costs and other related costs (e.g., bid to ask spreads, stamp duties and transfer fees) incurred by the Fund (directly or indirectly through investments in underlying funds) as a result of the purchase or redemption by allocating estimated transaction costs to the purchasing or redeeming shareholder. Such fees are recorded as a component of the Funds’ net share transactions. A Fund may impose a new purchase premium and/or redemption fee or modify an existing fee at any time.
Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of a Fund’s shares if the Fund will not incur transaction costs or will incur reduced transaction costs.
The Manager will waive or reduce the purchase premium when securities are used to purchase a Fund’s shares except to the extent that the Fund incurs transaction costs (e.g., stamp duties or transfer fees) in connection with its acquisition of those securities. The Funds may waive or reduce redemption fees when they use portfolio securities to redeem their shares. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may nonetheless charge a redemption fee equal to known or estimated costs.
Purchase premiums or redemption fees generally will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with the Trust to transmit orders for purchases and redemptions the day after those orders are received.
As of August 31, 2013, the premium on cash purchases and the fee on cash redemptions were as follows:
| Emerging Countries Fund | Emerging Domestic Opportunities Fund | Emerging Markets Fund | Taiwan Fund | |||||
| Purchase Premium | — | 0.80% | 0.80% | 0.15% | ||||
| Redemption Fee | — | 0.80% | 0.80% | 0.45% | ||||
Other matters
Emerging Markets Fund (“EMF”)
Indian regulators alleged in 2002 that EMF violated some conditions under which it was granted permission to operate in India and have restricted EMF’s locally held assets pending resolution of the dispute. Although these locally held assets remain the property of EMF, a portion of the assets are not permitted to be withdrawn from EMF’s local custodial account located in India. The amount of restricted assets is small relative to the size of EMF, representing approximately 0.09% of the Fund’s total net assets as of August 31, 2013. The effect of this claim on the value of the restricted assets, and all matters relating to EMF’s response to these allegations, are subject to the supervision and control of the Trust’s Board of Trustees. The costs in respect of this matter are being borne by EMF.
| 43 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| 3. | Investment and other risks |
The following chart identifies selected risks associated with each Fund. Risks not marked for a particular Fund may, however, still apply to some extent to that Fund at various times.
| Emerging Countries Fund | Emerging Domestic Opportunities Fund | Emerging Markets Fund | Taiwan Fund | |||||
| Market Risk – Equities | X | X | X | X | ||||
| Liquidity Risk | X | X | X | X | ||||
| Smaller Company Risk | X | X | X | X | ||||
| Derivatives Risk | X | X | X | X | ||||
| Non-U.S. Investment Risk | X | X | X | X | ||||
| Currency Risk | X | X | X | X | ||||
| Focused Investment Risk | X | X | X | X | ||||
| Leveraging Risk | X | X | X | X | ||||
| Counterparty Risk | X | X | X | X | ||||
| Market Disruption and Geopolitical Risk | X | X | X | X | ||||
| Large Shareholder Risk | X | X | X | X | ||||
| Management and Operational Risk | X | X | X | X | ||||
| Fund of Funds Risk | X | X | X | X | ||||
| Non-Diversified Funds | X | X | X | X | ||||
Investing in mutual funds involves many risks. The risks of investing in a particular Fund depend on the types of investments in its portfolio and the investment strategies the Manager employs on its behalf. This section does not describe every potential risk of investing in the Funds. Funds could be subject to additional risks because of the types of investments they make and market conditions, which may change over time.
Each Fund that invests in other GMO Funds and other investment companies is exposed to the risks to which the underlying funds in which it invests are exposed. Therefore, unless otherwise noted, the selected risks summarized below include both direct and indirect risks, and, references in this section to investments made by a Fund include those made both directly by the Fund and indirectly by the Fund through other GMO Funds and other investment companies.
An investment in a Fund is not a bank deposit and, therefore, is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
• MARKET RISK. All of the Funds are subject to market risk, which is the risk that the market value of their holdings will decline. Market risks include:
Equities. Funds that invest in equities run the risk that the market prices of those investments will decline. The market prices of equities may decline for reasons that directly relate to the issuing company, such as poor management performance or reduced demand for its goods or services. They also may decline due to factors that affect a particular industry, such as a decline in demand, labor or raw material shortages, or increased production costs. In addition, market prices may decline as a result of general market conditions 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
| 44 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
rates, or adverse investor sentiment generally. Equities generally have significant price volatility, and the market prices of equities can decline in a rapid or unpredictable manner.
The Funds invest a substantial portion of their assets in equities, and as a result, declines in stock market prices generally are likely to reduce the net asset values of the Funds’ shares.
If a Fund purchases equities 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 appreciate or will decline for a variety of reasons, one of which may be the Manager’s overestimation of the value of those investments.
The market prices of equities trading at high multiples of current earnings often are more sensitive to changes in future earnings expectations than the market prices of equities trading at lower multiples.
• LIQUIDITY RISK. Liquidity risk is the risk that low trading volume, lack of a market maker, large position size or legal restrictions (including daily price fluctuation limits or “circuit breakers”) limits or prevents a Fund from selling particular securities or unwinding derivative positions at desirable prices. In addition to these risks, a Fund is 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 a short position). All of the Funds are subject to liquidity risk, but those with the greatest risk have principal investment strategies that involve investment in asset-backed securities, emerging country debt securities, securities of companies with smaller market capitalizations or smaller total float-adjusted market capitalizations and emerging market securities. These types of investments can be difficult to value, exposing a Fund to the risk that the price at which it sells them will be less than the value placed on them when they were held by the Fund. In addition, TIPS have exhibited periods of greatly reduced liquidity when disruptions in fixed income markets have occurred, such as the events surrounding the bankruptcy of Lehman Brothers in 2008. Less liquid securities are more susceptible than other securities to price declines when market prices decline generally.
All of the Funds with benchmarks may buy securities that are less liquid than those in their benchmarks.
• SMALLER COMPANY RISK. Companies with smaller market capitalizations, including small- and mid-cap 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 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. In addition, market risk and liquidity risk are particularly pronounced for securities of these companies.
• DERIVATIVES RISK. All of the Funds 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 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. Derivatives include futures, non-U.S. 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 use of derivatives involves risks that are in addition to, and potentially greater than, the risks of investing directly in securities and other more traditional assets. In particular, a Fund’s use of OTC derivatives exposes it to the risk that the counterparties will be unable or unwilling to make timely settlement payments or otherwise honor their obligations. An OTC derivatives contract typically can be closed only with the consent of 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 it does, the Fund may decide not to pursue its claims against the counterparty to avoid incurring the cost and unpredictability of legal proceedings. The Fund, therefore, may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts, or those payments may be delayed or made only after the Fund has incurred the costs of litigation.
A Fund may invest in derivatives that (i) do not require the counterparty to post collateral (e.g., forward currency contracts), (ii) require collateral but that do not provide for the Fund’s security interest in it to be perfected, (iii) require a significant upfront deposit by the Fund unrelated to the derivative’s intrinsic value, or (iv) do not require that collateral be regularly marked-to-market. When a counterparty’s obligations are not fully secured by collateral, a Fund runs the risk of having limited recourse if the counterparty defaults. Even when obligations are required by contract to be collateralized, a Fund often will not receive the collateral the day the collateral is called for.
The Funds 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 Funds. Derivatives risk is particularly acute in environments (like those of 2008) in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. In addition, during those periods, a Fund may have a greater need for cash to provide collateral for large swings in its mark-to-market obligations under the derivatives in which it has invested.
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Derivatives also present other risks described in this section, including market risk, liquidity risk, currency risk, credit 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 may not produce valuations that are consistent with the values a Fund realizes when it closes or sells an OTC derivative. Valuation risk is more pronounced when a 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 a Fund’s net asset value.
A Fund’s 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 a Fund, the Funds will not be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund’s risk exposures, potentially resulting in losses for the Fund.
Swap contracts and other OTC derivatives are highly susceptible to liquidity risk (see “Liquidity Risk” above) 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.
A Fund’s use of derivatives may be subject to one or more special tax rules and could generate additional taxable income for shareholders.
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 (and many of the rules are not yet final), its ultimate impact remains unclear.
Under recently adopted rules and regulations, transactions in some types of swaps (including interest rate swaps and credit default swaps on North American and European indices) are required to be centrally cleared. In a transaction involving those swaps (“cleared derivatives”), a Fund’s counterparty is a clearing house, rather than a bank or broker. Since the Funds are not members of clearing houses and only members of a clearing house (“clearing members”) can participate directly in the clearing house, the Funds will hold cleared derivatives through accounts at clearing members. In cleared derivatives transactions, the Funds will make payments (including margin payments) to and receive payments from a clearing house through their accounts at clearing members. Clearing members guarantee performance of their clients’ obligations to the clearing house.
In many ways, cleared derivative arrangements are less favorable to mutual funds than bilateral arrangements. For example, the Funds may be required to provide more margin for cleared derivatives transactions than for bilateral derivatives transactions. Also, in contrast to a bilateral derivatives transaction, following a period of notice to a Fund, a clearing member generally can require termination of an existing cleared derivatives transaction at any time or an increase in margin requirements above the margin that the clearing member required at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions or to terminate those transactions at any time. Any increase in margin requirements or termination of existing cleared derivatives transactions by the clearing member or the clearing house could interfere with the ability of a Fund to pursue its investment strategy. Further, any increase in margin requirements by a clearing member could expose a Fund to greater credit risk to its clearing member, because (as described under “Counterparty Risk” below) margin for cleared derivatives transactions in excess of a clearing house’s margin requirements typically is held by the clearing member. Also, a Fund is subject to risk if it enters into a derivatives transaction that is required to be cleared (or that the Manager expects to be cleared), and no clearing member is willing or able to clear the transaction on the Fund’s behalf. While the documentation in place between the Funds and their clearing members generally provides that the clearing members will accept for clearing all cleared derivatives transactions that are within credit limits (specified in advance) for each Fund, the Funds are still subject to the risk that no clearing member will be willing or able to clear a transaction. In those cases, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of the transaction, including loss of an increase in the value of the transaction and/or loss of hedging protection. In addition, the documentation governing the relationship between the Funds and clearing members is drafted by the clearing members and generally is less favorable to the Funds than typical bilateral derivatives documentation. For example, documentation relating to cleared derivatives generally includes a one-way indemnity by the Funds in favor of the clearing member for losses the clearing member incurs as the Funds’ clearing member and typically does not provide the Funds any remedies if the clearing member defaults or becomes insolvent.
These and other new rules and regulations could, among other things, further restrict a Fund’s ability to engage in, or increase the cost to the Fund of, derivatives transactions, for example, by making some types of derivatives no longer available to the Fund, increasing margin or capital requirements, or otherwise limiting liquidity or increasing transaction costs. These regulations are new and evolving, so their potential impact on the Funds and the financial system are not yet known. While the new regulations and central clearing of some derivatives transactions are designed to reduce systemic risk (i.e., the risk that the interdependence of large derivatives dealers could cause them to suffer liquidity, solvency or other challenges simultaneously), there is no assurance that the new clearing mechanisms will achieve that result, and in the meantime, as noted above, central clearing exposes the Funds to new kinds of risks and costs.
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Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
• NON-U.S. INVESTMENT RISK. Funds that invest in non-U.S. securities are subject to additional and more varied risks than Funds whose investments are limited to U.S. securities. The securities markets of many non-U.S. countries include 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 non-U.S. securities often are not subject to the same degree of regulation as U.S. issuers. Reporting, accounting, custody and auditing standards of non-U.S. countries differ, in some cases significantly, from U.S. standards. Non-U.S. portfolio transactions generally involve higher commission rates, transfer taxes and custodial costs. In addition, some jurisdictions may limit a Fund’s ability to profit from short-term trading (as defined in the relevant jurisdiction).
A Fund may be subject to non-U.S. taxation, including potentially on a retroactive basis, on (i) capital gains it realizes or dividends or interest it receives on non-U.S. investments, (ii) transactions in those investments and (iii) the repatriation of proceeds generated from the sale of those investments. A Fund may seek to collect a refund on taxes paid to a non-U.S. country. In those cases, all or a portion of those taxes could ultimately be recovered by a Fund. However, the recovery process could take several years and the Fund will incur expenses in its efforts to collect the refund, which will reduce the benefit of any recovery. A Fund’s efforts to collect a refund may not be successful, in which case the Fund will have incurred additional expenses for no economic benefit. A Fund’s decision to pursue a refund is in its sole discretion, and it may decide not to pursue a refund, even if eligible.
Also, investing in non-U.S. securities exposes a Fund to the risk of nationalization, expropriation, or confiscatory taxation of assets of their issuers, 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.
In some non-U.S. markets, custody arrangements for securities provide significantly less protection 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 a Fund to credit and other risks it does not have in the U.S. with respect to participating brokers, custodians, clearing banks or other clearing agents, escrow agents, and issuers. Fluctuations in non-U.S. currency exchange rates also will affect the market value of a Fund’s non-U.S. investments (see “Currency Risk” below).
U.S. investors are required to maintain a license to invest directly in many non-U.S. markets. These licenses are often subject to limitations, including maximum investment amounts. Once a license is obtained, a Fund’s 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, to obtain exposure to the market the Fund will be required to purchase American Depositary Receipts, Global Depositary Receipts, shares of other funds that are licensed to invest directly, or derivative instruments. The receipt of a non-U.S. license by one of the Manager’s clients may preclude other clients, including a Fund, from obtaining a similar license, and this could limit the Fund’s investment opportunities. In addition, the activities of another of the Manager’s clients could cause the suspension or revocation of a license and thereby limit the Funds’ investment opportunities.
Funds that invest a significant portion of their assets in securities of issuers tied economically to emerging countries (or investments related to emerging markets) are subject to greater non-U.S. investment risk than Funds investing primarily in more developed non-U.S. countries (or markets). 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 of securities in a Fund’s portfolio; greater governmental involvement in the economy; less governmental supervision and regulation of the securities markets and participants in those markets; controls on non-U.S. investment, capital controls and limitations on repatriation of invested capital, dividends, interest and other income and on a Fund’s 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. Currency risk is the risk that fluctuations in exchange rates will adversely affect the market value of a Fund’s investments. Currency risk includes the risk that the non-U.S. currencies in which a Fund’s investments are traded, in which a Fund receives income, or in which a Fund has taken a position, will decline in value relative to the U.S. Dollar. Currency risk also includes the risk that the currency to which the Fund has obtained exposure through hedging declines in value relative to the currency being hedged, in which event the Fund may realize a loss both on the hedging instrument and 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 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.
Many of the Funds use derivatives to take overweighted or underweighted currency positions relative to the currency exposure of their portfolios. As a result, their currency exposure may differ (in some cases significantly) from the currency exposure of their benchmarks. If the exchange rates
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August 31, 2013 (Unaudited)
of the currencies involved do not move as expected, a Fund could lose money both on its holdings of a particular currency and on the derivative. See also “Non-U.S. Investment Risk” above.
Some currencies are illiquid (e.g., some emerging country currencies), and a Fund may not be able to convert them into U.S. Dollars, in which case the Manager may decide to purchase U.S. Dollars in a parallel market in which 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 non-U.S. 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).
• FOCUSED INVESTMENT RISK. Funds whose investments are focused in particular countries, regions, sectors, companies or industries with high positive correlations to one another (e.g., different industries within broad sectors, such as technology or financial services), or in securities from issuers with high positive correlations to one another (such as U.S. Treasury Fund’s investments in securities issued by the U.S. Treasury and other fixed income securities that are backed by the full faith and credit of the U.S. government), 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 price of a particular security held by the Fund is likely to affect the Fund’s performance more than if the Fund invested in the securities of a larger number of issuers.
A Fund that 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, 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.
Similarly, Funds having a significant portion of their assets in investments tied economically to (or related to) a particular geographic region, non-U.S. country (e.g., Taiwan or Japan) or particular market (e.g., emerging markets) have more exposure to regional and country economic risks than funds making non-U.S. investments throughout the world. The political and economic prospects of one country or group of countries within the same geographic region may affect other countries in that region, and a recession, debt crisis or decline in currency valuation in one country can spread to other countries. Furthermore, companies in a particular geographic region or country are vulnerable to events affecting other companies in that region or country because they often share common characteristics, are exposed to similar business risks and regulatory burdens, and react similarly to specific economic, market, political or other developments. See also “Non-U.S. Investment Risk” above.
• LEVERAGING RISK. The use of reverse repurchase agreements and other derivatives and securities lending creates leverage (i.e., a Fund’s investment exposures exceed its net asset value). Leverage increases a Fund’s losses when the value of its investments (including derivatives) declines. Because many derivatives have a leverage component (i.e., a notional value in excess of the assets needed to establish 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. A Fund’s use of reverse repurchase agreements also subjects it to interest costs based on the difference between the sale and repurchase price of the security involved. A Fund’s portfolio also will be leveraged if it borrows money to meet redemption requests or settle investment transactions or if it exercises its right to delay payment on a redemption.
A 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, a Fund may perform as if it were leveraged.
• COUNTERPARTY RISK. Funds that enter into contracts with counterparties, such as repurchase or reverse repurchase agreements or OTC derivatives contracts, or that lend their securities run the risk that the counterparty 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. The Funds are not subject to any limits on their exposure to any one counterparty nor to a requirement that counterparties maintain a specific rating by a nationally recognized rating organization to be considered for potential transactions. To the extent that GMO’s view with respect to a particular counterparty changes (whether due to external events or otherwise), existing transactions are not required to be terminated or modified. Additionally, new transactions may be entered into with a counterparty that is no longer considered eligible if the transaction is primarily designed to reduce the overall risk of potential exposure to that counterparty (for example, re-establishing the transaction with a lesser notional amount). Counterparty risk is pronounced during unusually adverse market conditions and is particularly acute in environments (like those of 2008) in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions.
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Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
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. A Fund is subject to the risk that a counterparty will not settle a derivative in accordance with its terms because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem. If a counterparty’s obligation to a Fund is not collateralized, then the Fund is essentially an unsecured creditor of the counterparty. If a counterparty defaults, the Fund will have contractual remedies, but the Fund may be unable to enforce them, thus causing the Fund to suffer a loss. Counterparty risk is greater for derivatives with longer maturities because of the longer time that events may occur that prevent settlement. Counterparty risk also is 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. Significant exposure to a single counterparty increases a Fund’s counterparty risk. Funds that use swap contracts are subject, in particular, to the creditworthiness of the counterparties because some types of swap contracts have durations longer than six months (and, in some cases, decades). The creditworthiness of a counterparty may be adversely affected by greater than average volatility in the markets, even if the counterparty’s net market exposure is small relative to its capital. Counterparty risk still exists even if a counterparty’s obligations are secured by collateral because the Fund’s interest in the collateral may not be perfected or additional collateral may not be promptly posted as required.
The Funds also are subject to counterparty risk because they execute their 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 Funds could miss investment opportunities or be unable to dispose of investments they would prefer to sell, resulting in losses for the Funds.
Counterparty risk with respect to derivatives will be affected by new rules and regulations affecting the derivatives market. As described under “Derivatives Risk” above, some derivatives transactions are required to be centrally cleared, and a party to a cleared derivatives transaction is subject to the credit risk of the clearing house and the clearing member through which it holds its cleared position, rather than the credit risk of its original counterparty to the derivatives transaction. Credit risk of market participants with respect to derivatives that are centrally cleared is concentrated in a few clearing houses, and it is not clear how an insolvency proceeding of a clearing house would be conducted and what impact an insolvency of a clearing house would have on the financial system. A clearing member is obligated by contract and by applicable regulation to segregate all funds received from customers with respect to cleared derivatives transactions from the clearing member’s proprietary assets. However, all funds and other property received by a clearing member from its customers with respect to cleared derivatives are generally held by the clearing member on a commingled basis in an omnibus account, and the clearing member may invest those funds in certain instruments permitted under the applicable regulations. Therefore, a Fund might not be fully protected in the event of the bankruptcy of a Fund’s clearing member because the Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the clearing member’s customers for a relevant account class. Also, the clearing member is required to transfer to the clearing house the amount of margin required by the clearing house for cleared derivatives, which amounts are generally held in an omnibus account at the clearing house for all customers of the clearing member. Regulations promulgated by the Commodities Futures Trading Commission require that the clearing member notify the clearing house of the initial margin provided by the clearing member to the clearing house that is attributable to each customer. However, if the clearing member does not accurately report the Funds’ initial margin, the Funds are subject to the risk that a clearing house will use a Fund’s assets held in an omnibus account at the clearing house to satisfy payment obligations of a defaulting customer of the clearing member to the clearing house. In addition, clearing members generally provide the clearing house the net amount of variation margin required for cleared swaps for all of its customers in the aggregate, rather than individually for each customer. The Funds are therefore subject to the risk that a clearing house will not make variation margin payments owed to a Fund if another customer of the clearing member has suffered a loss and is in default, and the risk that a Fund will be required to provide additional variation margin to the clearing house before the clearing house will move the Fund’s cleared derivatives transactions to another clearing member. In addition, if a clearing member does not comply with the applicable regulations or its agreement with the Funds, or in the event of fraud or misappropriation of customer assets by a clearing member, a Fund could have only an unsecured creditor claim in an insolvency of the clearing member with respect to the margin held by the clearing member.
• MARKET DISRUPTION AND GEOPOLITICAL RISK. The Funds are subject to the risk that geopolitical and other events will disrupt securities markets, adversely affect global economies and markets and thereby decrease the value of the Funds’ investments. 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. Securities markets may be susceptible to market manipulation (e.g., the potential manipulation of the London Interbank Offered Rate (LIBOR)) or other fraudulent trade practices, which could disrupt the orderly functioning of these markets or adversely affect the value of investments traded in these markets, including investments of the Funds. While the U.S. government has honored its credit obligations continuously for the last 200 years, it remains possible that the U.S. could default on its obligations. While it is impossible to predict the consequences of such an unprecedented event, it is likely that a default by the U.S. would be highly disruptive to the U.S. and global securities markets and could significantly impair the value of the Funds’ investments. Similarly, political events within the U.S. at times have resulted, and may in the future result, in a shutdown of government services, which could negatively affect the U.S. economy, decrease the value of many Fund investments, and increase uncertainty in or impair the operation of the U.S. or other securities markets. The uncertainty surrounding the sovereign debt of a significant number of European Union countries as well as the continued existence of the European Union itself, have disrupted and may continue to disrupt markets in the U.S. and around the world. If one or more countries leave the European Union or the European Union dissolves, the world’s securities markets likely will be significantly disrupted.
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Substantial government interventions (e.g., currency controls) also could negatively impact the Funds. War, terrorism, economic uncertainty, 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, adversely affecting individual companies and industries, 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 “Investment and other risks” section will likely increase. Market disruptions, including sudden government interventions, can also prevent the Funds from implementing their investment programs for a period of time and achieving their investment objectives. For example, a market disruption may adversely affect the orderly functioning of the securities markets and may cause the Funds’ derivatives counterparties to discontinue offering derivatives on some underlying commodities, securities, reference rates, or indices, or to offer them on a more limited basis. To the extent that a Fund has focused its investments in the stock index of a particular region, adverse geopolitical and other events could have a disproportionate impact on the Fund.
• LARGE SHAREHOLDER RISK. To the extent that a large number of shares of a Fund is held by a single shareholder (e.g., an institutional investor or another GMO Fund) or a group of shareholders with a common investment strategy (e.g., GMO asset allocation accounts), the Fund is subject to the risk that a redemption by those shareholders of all or a large portion of their Fund shares will adversely affect the Fund’s performance if it is forced to sell portfolio securities to raise the cash needed to satisfy the redemption request. In addition, GMO Funds and other accounts over which GMO has investment discretion that invest in the Funds are not subject to restrictions on the frequency of trading of Fund shares. Asset Allocation Funds and separate accounts managed by the Manager for its clients hold substantial percentages of the shares of many Funds, and asset allocation decisions by the Manager may result in substantial redemptions from (or investments in) those Funds. These transactions may adversely affect the Fund’s performance to the extent that the Fund is required to sell investments (or invest cash) at times when it would not otherwise do so. Redemptions of a large number of shares also may increase transaction costs or, by necessitating a sale of portfolio securities, accelerate the realization of taxable gains to shareholders. They also potentially limit the use of any capital loss carryforwards and certain other losses to offset future realized capital gains (if any). In addition, each Fund that invests in other GMO Funds subject to large shareholder risk is indirectly subject to this risk.
• MANAGEMENT AND OPERATIONAL RISK. Each Fund is subject to management risk because it relies on the Manager’s ability to achieve its investment objective. Each Fund runs the risk that the Manager’s investment techniques will fail to produce desired results and cause the Fund to incur significant losses. The Manager also may fail to use derivatives effectively, choosing to hedge or not to hedge positions at disadvantageous times.
For some Funds the Manager’s portfolio managers use quantitative analyses and models. Any imperfections, errors, or limitations in those analyses and models could affect the ability of the portfolio managers to implement a Fund’s strategies. By necessity, these analyses and models make simplifying assumptions that limit their effectiveness. Models that appear to explain prior market data can fail to predict future market events. Further, the data used in models may be inaccurate or may not include the most recent information about a company or a security. The Funds also run the risk that GMO’s assessment of an investment may be wrong. There can be no assurance that key personnel of the Manager will continue to be employed by the Manager. The loss of their services could have an adverse impact on the Manager’s ability to achieve the Funds’ investment objectives.
The Funds also are subject to the risk of loss as a result of other services provided by the Manager and other service providers, including pricing, administrative, accounting, tax, legal, custody, transfer agency, and other services. Operational risk includes the possibility of loss caused by 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 a Fund from benefiting from potential investment gains or avoiding losses on the security. The Manager is not contractually liable to the Funds for losses associated with operational risk absent the Manager’s willful misfeasance, bad faith, gross negligence, or reckless disregard of its contractual obligations to provide services to the Funds. Other Fund service providers also have limitations on their liability to the Funds for losses resulting from their errors.
• FUND OF FUNDS RISK AND RELATED CONSIDERATIONS. Funds that invest in shares of other investment companies, including other GMO Funds, money market funds, and ETFs (for purposes of this risk disclosure, “underlying Funds”), are exposed to the risk that the underlying Funds will not perform as expected.
Because a Fund bears the fees and expenses of the underlying Funds in which it invests (absent reimbursement of those expenses), the Fund will incur additional expenses when investing in underlying Funds. In addition, total Fund expenses will increase if a Fund makes a new or further investment in underlying Funds with higher fees or expenses than the average fees and expenses of the underlying Funds then in the Fund’s portfolio.
The Funds also are indirectly exposed to all of the risks of an investment in the underlying Funds. Many of the Funds that invest in shares of other GMO Funds are subject indirectly to Large Shareholder Risk because those other GMO Funds are more likely to have large shareholders (e.g., other GMO Funds). See “Large Shareholder Risk” above.
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Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Investments in ETFs involve the risk that the ETF’s performance may not track the performance of the index the ETF is designed to track. Unlike the index, an ETF incurs administrative expenses and transaction costs in trading securities. In addition, the timing and magnitude of cash inflows and outflows from and to investors buying and redeeming shares in the ETF could create cash balances that cause the ETF’s performance to deviate from the index (which remains “fully invested” at all times). Performance of an ETF and the index it is designed to track also may diverge because the composition of the index and the securities held by the ETF may occasionally differ. In addition, ETFs often use derivatives to track the performance of the relevant index, and, therefore, investments in those ETFs are subject to the same derivatives risks discussed above.
• NON-DIVERSIFIED FUNDS. Some of the Funds are not “diversified” investment companies within the meaning of the 1940 Act. This means they are allowed to invest in the securities of a relatively small number of issuers and/or non-U.S. currencies. As a result, they may be subject to greater credit, market and other risks, and poor performance by a single issuer may have a greater impact on their performance, than if they were “diversified.”
The following Funds are not diversified investment companies under the 1940 Act:
| • | Emerging Countries Fund |
| • | Emerging Domestic Opportunities Fund |
| • | Emerging Markets Fund |
| • | Taiwan Fund |
Temporary Defensive Positions. The Funds normally do not take temporary defensive positions. To the extent a Fund takes a temporary defensive position, or otherwise holds cash, cash equivalents, or high quality debt investments on a temporary basis, the Fund may not achieve its investment objective.
| 4. | Derivative financial instruments |
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 a Fund’s portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and related indices, and include foreign currency contracts, swap contracts, reverse repurchase agreements, and other exchange-traded and OTC contracts.
The Funds may 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 Fund’s portfolio) in combination with a long futures contract on another index (to synthetically “buy” exposure to that index). In adjusting their investment exposure, 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.
The Funds may have investment exposures in excess of their net assets (i.e., they may be leveraged). A Fund’s foreign currency exposure may differ significantly from the currency exposure represented by its investments.
Certain derivatives transactions used by the Funds, including certain interest rate swaps and certain credit default index swaps, are required to be transacted through a central clearing organization. The Funds hold cleared derivatives transactions through clearing members, who are members of derivatives clearing houses. In contrast to bilateral derivatives transactions, following a period of advance notice to the Fund, clearing members generally can require termination of existing cleared derivatives transactions at any time and increases in margin above the margin that it required at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions and to terminate transactions. Any such increase or termination could interfere with the ability of a Fund to pursue its investment strategy. Also, a Fund is subject
| 51 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
to execution risk if it enters into a derivatives transaction that is required to be cleared (or that the Manager expects to be cleared), and no clearing member is willing or able to clear the transaction on the Fund’s behalf. In that case, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of any increase in the value of the transaction after the time of the transaction.
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. See “Investment and other risks” above for further information.
For Funds that held derivatives during the period ended August 31, 2013, the following table shows how the Fund used these derivatives (marked with an X):
| Type of Derivative and Objective for Use | Emerging Countries Fund |
Emerging Domestic Opportunities Fund |
Emerging Markets Fund |
Taiwan Fund |
||||||||||||
| Swap contracts | ||||||||||||||||
| To achieve returns comparable to holding and lending a direct equity position |
X | X | ||||||||||||||
| As a substitute for direct investment in securities |
X | X | ||||||||||||||
| Rights and/or warrants | ||||||||||||||||
| Received as a result of corporate actions |
X | X | X | |||||||||||||
Forward currency contracts
The Funds may enter into forward currency contracts, including forward cross currency contracts. A forward currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date (or to pay or receive the amount of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund’s forward currency contracts is marked-to-market daily using rates supplied by a quotation service and changes in value are recorded by each Fund as unrealized gains or losses. Realized gains or losses on the contracts are equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose a Fund to the market risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. Most forward currency contracts are not collateralized. Forward currency contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Futures contracts
The Funds may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price at a specified time in the future. Some futures contracts are net (cash) settled. Upon entering into a futures contract, a Fund is required to deposit cash, U.S. government and agency obligations or other liquid assets with the futures clearing broker in accordance with the initial margin requirements of the broker or exchange. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded (and if the futures are traded outside the U.S. and the market for such futures is closed prior to the close of NYSE due to time zone differences, the values will be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees to reflect estimated valuation changes through the NYSE close). The value of each of the Fund’s futures contracts is marked-to-market daily and an appropriate payable or receivable for the change in value (“variation margin”) is recorded by each Fund. The payable or receivable is settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statements of Assets and Liabilities. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day’s settlement price, thereby effectively preventing liquidation of unfavorable positions. Futures contracts expose the Funds to the risk that they may not be able to enter into a closing transaction due to an illiquid market. Futures contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Options
The Funds may purchase call and put options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options a Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset at a set price to the writer of the option. A Fund pays a premium for a purchased option. That premium, is disclosed in the Schedule of Investments and is subsequently reflected in the marked-to-market value of the option. The potential loss associated with purchasing put and call options is limited to
| 52 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
the premium paid. Purchased option contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
The Funds may write (i.e., sell) call and put options on futures, swaps (“swaptions”), securities or currencies they own or in which they may invest. Writing options alters a Fund’s exposure to the underlying asset by, in the case of a call option, obligating that Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating that Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g., index options), settlement will be in cash, based on a formula price. When a Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, a Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that a Fund writes call options without an offsetting exposure (e.g., call options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. OTC options expose a Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. Written option contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
When an option contract is closed, that Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction in the cost of investments purchased. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statements of Operations.
Exchange-traded 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 (and if the underlying reference security closes or the official closing time of the underlying index occurs prior to the close of the NYSE due to time zone differences, the values will be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees to reflect estimated valuation changes through the NYSE close). The Funds value OTC options using inputs provided by primary pricing sources and industry models.
Swap contracts
The Funds may enter into various types of swap contracts, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap contract is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap contract and during the term of the transaction, a Fund and/or the swap counterparty may post or receive cash or securities as collateral.
Initial upfront payments received or made upon entering into a swap contract are included in the fair market value of the swap. The Funds do not amortize upfront payments. Net periodic payments made or received to compensate for differences between the stated terms of the swap contract and prevailing market conditions (credit spreads, currency exchange rates, interest rates, and other relevant factors) are recorded as realized gains or losses on the Statements of Operations. A liquidation payment received or made at the termination of the swap contract is recorded as realized gain or loss in the Statements of Operations.
Interest rate swap contracts involve an exchange by the parties of their respective commitments to pay or right to receive interest (e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal).
Total return swap contracts involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security, basket of securities, or futures contract), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.
In a credit default swap contract, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g., default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives periodic payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations so long as there is no early termination.
For credit default swap contracts on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer’s failure to pay interest or principal on a reference security, 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 contracts on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer’s bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.
| 53 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Variance swap contracts 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 payable 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 be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to make a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to 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.
Generally, the Funds price their OTC swap contracts daily using industry standard models that may incorporate quotations from market makers or pricing vendors and record the change in value, if any, as unrealized gain or loss in the Statements of Operations. Gains or losses are realized upon termination of the swap contracts or reset dates, as appropriate. Cleared swap contracts are valued using the quote (which may be based on a model) published by the relevant clearing house. If an updated quote for a cleared swap contract is not available by the time that a Fund calculates its net asset value on any business day, then that swap contract will generally be valued using an industry standard model, which may differ from the model used by the relevant clearing house.
The values assigned to swap contracts may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap contracts involves counterparty credit, legal, and documentation risk that is generally not reflected in the value assigned to the swap contract. Such risks include the possibility that the counterparty defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that a Fund has amounts on deposit in excess of amounts owed by that Fund, or that any collateral the other party posts is insufficient or not timely received by a Fund. Credit risk is particularly acute in economic environments 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. Swap contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Rights and warrants
The Funds 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 set price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in the section entitled “Options” above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. However, warrants and rights often do not have standardized terms, and may have longer maturities and may be less liquid than exchange-traded options. In addition, the terms of warrants or rights may limit a Fund’s ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. Rights and/or warrants outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
As provided by U.S. GAAP, the table below is based on market values or unrealized appreciation/(depreciation) rather than the notional amounts of derivatives. Changes to market values of reference asset(s) will tend to have a greater impact on the Funds (with correspondingly greater risk) the greater the notional amount. For further information on notional amounts, see the Schedule of Investments.
The following is a summary of the valuations of derivative instruments categorized by risk exposure:
The Effect of Derivative Instruments on the Statements of Assets and Liabilities as of August 31, 2013 and the Statements of Operations for the period ended August 31, 2013^:
| Credit Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate Contracts |
Other Contracts |
Total | |||||||||||||||||||
| Emerging Countries Fund |
||||||||||||||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | (1,704 | ) | $ | — | $ | — | $ | — | $ | (1,704 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (1,704 | ) | $ | — | $ | — | $ | — | $ | (1,704 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Emerging Domestic Opportunities Fund |
||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||
| Unrealized Appreciation on Swap Contracts |
$ | — | $ | 12,757,802 | $ | — | $ | — | $ | — | $ | 12,757,802 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 12,757,802 | $ | — | $ | — | $ | — | $ | 12,757,802 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total subject to Master Agreements |
$ | — | $ | 12,757,802 | $ | — | $ | — | $ | — | $ | 12,757,802 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 54 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Credit Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate Contracts |
Other Contracts |
Total | |||||||||||||||||||||
| Emerging Domestic Opportunities Fund (continued) |
|
|||||||||||||||||||||||||
| Liability: |
||||||||||||||||||||||||||
| Unrealized Depreciation on Swap Contracts |
$ | — | $ | (1,997,493 | ) | $ | — | $ | — | $ | — | $ | (1,997,493 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | (1,997,493 | ) | $ | — | $ | — | $ | — | $ | (1,997,493 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | (1,997,493 | ) | $ | — | $ | — | $ | — | $ | (1,997,493 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||||
| Swap Contracts |
$ | — | $ | 27,691,078 | $ | — | $ | — | $ | — | $ | 27,691,078 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | 27,691,078 | $ | — | $ | — | $ | — | $ | 27,691,078 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Change in Net Unrealized Appreciation (Depreciation) on: |
||||||||||||||||||||||||||
| Swap Contracts |
$ | — | $ | 10,760,309 | $ | — | $ | — | $ | — | $ | 10,760,309 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Emerging Markets Fund |
||||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||||
| Liability: |
||||||||||||||||||||||||||
| Unrealized Depreciation on Swap Contracts |
$ | — | $ | (3,446,028 | ) | $ | — | $ | — | $ | — | $ | (3,446,028 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | (3,446,028 | ) | $ | — | $ | — | $ | — | $ | (3,446,028 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | (3,446,028 | ) | $ | — | $ | — | $ | — | $ | (3,446,028 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | (87,166 | ) | $ | — | $ | — | $ | — | $ | (87,166 | ) | ||||||||||||
| Swap Contracts |
— | (11,382,040 | ) | — | — | — | (11,382,040 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | (11,469,206 | ) | $ | — | $ | — | $ | — | $ | (11,469,206 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Change in Net Unrealized Appreciation (Depreciation) on: |
||||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | 38 | $ | — | $ | — | $ | — | $ | 38 | ||||||||||||||
| Swap Contracts |
— | (4,636,141 | ) | — | — | — | (4,636,141 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | (4,636,103 | ) | $ | — | $ | — | $ | — | $ | (4,636,103 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Taiwan Fund |
||||||||||||||||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | 0 | * | $ | — | $ | — | $ | — | $ | 0 | * | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| * | Rounds to $0. |
The risks referenced in the tables above are not intended to be inclusive of all risks. Please see the “Investment and other risks” and “Portfolio valuation” sections for a further discussion of risks.
| ^ | Because the Funds recognize changes in value through the Statements of Operations, they do not qualify for hedge accounting under authoritative guidance for derivative instruments. The Funds’ investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables. |
The Funds are party to International Swaps and Derivatives Association, Inc. Master Agreements, Global Master Repurchase Agreements or other similar types of agreements (collectively, “Master Agreements”) that generally govern the terms of some over-the-counter derivative transactions, repurchase agreements and reverse repurchase agreements. The Master Agreements may include collateral posting terms and netting provisions that apply in the event of a default and/or termination event. Upon the occurrence of such an event, including the bankruptcy or insolvency of the counterparty, the Master Agreements may permit the non-defaulting party to calculate a single net payment to close out applicable transactions. However, there is no guarantee that the terms of a Master Agreement will be enforceable; for example, when bankruptcy or insolvency laws
| 55 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
impose restrictions on or prohibitions against the right of offset obligations. Additionally, the netting and close out provisions of a Master Agreement may not extend to the obligations of the counterparty’s affiliates or across varying types of transactions. Termination events may also include a decline in the net assets of a Fund below a certain level over a specified period of time and may entitle a counterparty to elect to terminate early with respect to some or all the transactions under the Master Agreement with that counterparty. Such an election by one or more of the counterparties could have a material adverse impact on a Fund’s operations. For more information about other uncertainties and risks, see the Investment and Other Risks note.
For financial reporting purposes, on the Statements of Assets and Liabilities any cash collateral that has been pledged to cover obligations of the Funds is reported as Due from Broker and any cash collateral received from the counterparty is reported as Due to Broker. Any non-cash collateral pledged by the Funds is noted in the Schedules of Investments. The tables below show the potential effect of netting arrangements made available by the Master Agreements on the financial position of the Funds. For financial reporting purposes, the Funds’ Statements of Assets and Liabilities generally show derivative assets and derivative liabilities (regardless of whether they are subject to netting arrangements) on a gross basis, which reflects the full risks and exposures of the Fund prior to netting. See Note 2 for information on repurchase agreements and reverse repurchase agreements held by the Funds at August 31, 2013, if any.
The tables above present the Funds’ derivative assets and liabilities by type of financial instrument. The following tables present the Funds’ OTC derivative assets and liabilities by counterparty net of amounts that may be available for offset under the Master Agreements and net of the related collateral received or pledged by the Funds as of August 31, 2013:
Emerging Domestic Opportunities Fund
| Counterparty | Gross Derivative Assets Subject to Master Agreements |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| BNP Paribas |
$ | 6,254,962 | $ | (6,254,962 | ) | $ | — | $ | — | * | ||||||
| Credit Suisse International |
913,023 | (913,023 | ) | — | — | * | ||||||||||
| Goldman Sachs International |
1,769,700 | (1,769,700 | ) | — | — | * | ||||||||||
| JPMorgan Chase Bank, N.A. |
3,047,150 | — | — | 3,047,150 | * | |||||||||||
| Societe Generale |
772,967 | (772,967 | ) | — | — | * | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 12,757,802 | $ | (9,710,652 | ) | $ | — | $ | 3,047,150 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| BNP Paribas |
$ | 1,997,493 | $ | — | $ | — | $ | 1,997,493 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 1,997,493 | $ | — | $ | — | $ | 1,997,493 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Emerging Markets Fund
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Credit Suisse International |
$ | 2,760,280 | $ | (2,760,280 | ) | $ | — | $ | — | * | ||||||
| Morgan Stanley & Co. International PLC |
685,748 | (685,748 | ) | — | — | * | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 3,446,028 | $ | (3,446,028 | ) | $ | — | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | In some instances, the actual collateral received and/or pledged may be more than the amount shown. |
| 56 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The average derivative activity, based on absolute values (rights and/or warrants) or notional amounts (swap contracts) outstanding at each month-end was as follows for the period ended August 31, 2013:
| Fund Name | Swap Contracts ($) |
Rights and/or Warrants ($) |
||||||
| Emerging Countries Fund |
— | 622 | ||||||
| Emerging Domestic Opportunities Fund |
175,094,118 | — | ||||||
| Emerging Markets Fund |
38,987,628 | 30,951 | ||||||
| Taiwan Fund |
— | 3,372 | ||||||
| 5. | Fees and other transactions with affiliates |
GMO receives a management fee for the services it provides to each Fund. That fee, if any, is paid monthly at the annual rate equal to the percentage of each Fund’s average daily net assets set forth in the table below:
| Emerging Countries Fund |
Emerging Domestic Opportunities Fund |
Emerging Markets Fund |
Taiwan Fund | |||||||||||||
| Management Fee |
0.65% | 0.75% | 0.75% | 0.81% | ||||||||||||
In addition, each class of shares of certain Funds (except Class M shares which are described below) 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. Class M shares of a Fund pay the Manager an administration fee, which is used by the Manager to defray its expenses (or the expenses of a third party) in providing administration and record keeping services to certain marketplaces where Class M shares of each Fund may be purchased. The Manager may pay part or all of the administration fee to third parties for providing administration and record keeping services. In some cases, these third parties also receive compensation from the Fund’s distributor pursuant to the Trust’s Distribution and Service (12b-1) Plan. Both shareholder service fees and administration fees are paid monthly equal to the percentage of each applicable Fund’s average daily net assets set forth in the table below:
| Fund Name | Class II | Class III | Class IV | Class V | Class VI | Class M Admin Fee |
Class M 12b-1 Fee |
|||||||||||||||||||||
| Emerging Countries Fund |
0.15% | 0.20% | 0.25% | |||||||||||||||||||||||||
| Emerging Domestic Opportunities Fund |
0.22% | 0.15% | 0.105% | 0.085% | * | 0.055% | ||||||||||||||||||||||
| Emerging Markets Fund |
0.22% | 0.15% | 0.105% | 0.085% | 0.055% | |||||||||||||||||||||||
| Taiwan Fund |
0.15% | |||||||||||||||||||||||||||
| * | Class is offered but has no shareholders as of August 31, 2013. |
For each Fund, other than Emerging Countries Fund and Taiwan Fund, the Manager has contractually agreed to reimburse the Fund for its “Specified Operating Expenses” (as defined below). Any such reimbursements are paid to a Fund concurrently with the Fund’s payment of management fees to the Manager. For Emerging Countries Fund, the Manager has contractually agreed to reimburse the Fund for the portion of its “Specified Operating Expenses” (as defined below) that exceeds 0.35% of the Fund’s average daily net assets.
Subject to the exclusions noted below, “Specified Operating Expenses” means only the following expenses to the extent that they are borne by a Fund: audit expenses, fund accounting expenses, pricing service expenses, expenses of non-investment related tax services, transfer agency expenses, expenses of non-investment related legal services provided to the Funds by or at the direction of the Manager, federal securities law filing expenses, printing expenses, state and federal registration fees and custody expenses; provided, however, that in the case of Emerging Markets Fund, “Specified Operating Expenses” does not include custody expenses, and in the case of Emerging Domestic Opportunities Fund, “Specified Operating Expenses” only includes custody expenses to the extent that they exceed 0.10% of the Fund’s average daily net assets.
For each Fund that charges a management fee, the Manager will waive and/or reduce the Fund’s management fee, but not below zero, to the extent necessary to offset the management fees directly or indirectly paid by the Fund to the Manager as a result of the Fund’s direct or indirect investments in other GMO Funds.
| 57 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
For each Fund that charges a shareholder service fee, the Manager will waive and/or reduce the shareholder service fee charged by each class of shares of the Fund, but not below zero, to the extent necessary to offset the shareholder service fees directly or indirectly paid by the class of shares of the Fund to the Manager as a result of the Fund’s direct or indirect investments in other GMO Funds.
In addition, for Emerging Markets Fund only, the Manager will waive the shareholder service fees charged to each class of the Fund to the extent necessary to prevent the shareholder service fees paid by each class from exceeding the percentage of the class’s average daily net assets as follows: 0.20% for Class II shares, 0.15% for Class III shares, 0.10% of Class IV shares, 0.05% for Class V shares, and 0.02% for Class VI shares.
These contractual waivers and reimbursements will continue through at least June 30, 2014 for each Fund unless the Funds’ Board of Trustees authorizes their modification or termination, or reduces the fee rates paid to the Manager under the Fund’s management contract or servicing and supplement support agreement.
The Funds’ portion of the gross fees paid by the Trust to the Trust’s independent Trustees and their legal counsel and any agents unaffiliated with the Manager during the period ended August 31, 2013 is shown in the table below and included in the Statements of Operations.
| Fund Name | Independent Trustees and their legal counsel ($) |
Agents unaffiliated with the Manager ($) |
||||||
| Emerging Countries Fund |
736 | 184 | ||||||
| Emerging Domestic Opportunities Fund |
11,269 | 1,472 | ||||||
| Emerging Markets Fund |
52,348 | 7,912 | ||||||
| Taiwan Fund |
278 | 5 | ||||||
Certain Funds incur fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2013, these indirect fees and expenses expressed as an annualized percentage of each Fund’s average daily net assets were as follows:
| Fund Name | Indirect Net Expenses (excluding shareholder service fees) |
Indirect Shareholder Service Fees |
Total Indirect Expenses | |||||||||
| Emerging Countries Fund |
< 0.001% | 0.000% | < 0.001% | |||||||||
| Emerging Domestic Opportunities Fund |
< 0.001% | 0.000% | < 0.001% | |||||||||
| Emerging Markets Fund* |
< 0.001% | 0.000% | < 0.001% | |||||||||
| Taiwan Fund |
< 0.001% | 0.000% | < 0.001% | |||||||||
| * | During the period, the Fund incurred non-recurring indirect legal expenses in connection with the final settlement of pending litigation. Subsequent to the receipt of the settlement proceeds, the underlying fund was liquidated. |
| 6. | Purchases and sales of securities |
Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2013 are noted in the table below:
| Purchases ($) | Purchases ($) | Sales ($) | Sales ($) | |||||||||||||
| Fund Name | U.S. Government Securities |
Investments (Non-U.S. Government Securities) |
U.S. Government Securities |
Investments (Non-U.S. Government Securities) |
||||||||||||
| Emerging Countries Fund |
— | 78,368,758 | — | 131,515,487 | ||||||||||||
| Emerging Domestic Opportunities Fund |
— | 3,660,838,707 | — | 2,854,919,598 | ||||||||||||
| Emerging Markets Fund |
— | 3,918,367,635 | — | 4,899,680,521 | ||||||||||||
| Taiwan Fund |
— | 229,606,585 | — | 144,970,813 | ||||||||||||
| 58 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Cost of purchases of securities for in-kind transactions, excluding short-term investments, in accordance with U.S. GAAP for the period ended August 31, 2013 are noted in the table below:
| Fund Name | Purchases ($) | |||
| Emerging Domestic Opportunities Fund |
47,649,904 | |||
| 7. | Guarantees |
In the normal course of business the Funds enter into contracts with third-party service providers that contain a variety of representations and warranties and that provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown, as it involves possible future claims that may or may not be made against the Funds. Based on experience, the Manager is of the view that the risk of loss to the Funds in connection with the Funds’ indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Funds.
| 8. | Principal shareholders and related parties as of August 31, 2013 |
| Fund Name | Number of shareholders that held more than 10% of the outstanding shares of the Fund |
Percentage of outstanding shares of the Fund held by those shareholders owning greater than 10% of the outstanding shares of the Fund |
Percentage of the shares of the Fund held by senior management of the Manager and GMO Trust officers |
Percentage of the Fund’s shares held by accounts for which the Manager has investment discretion |
||||||||||||
| Emerging Countries Fund |
3 | 51.86% | 0.24% | 5.22% | ||||||||||||
| Emerging Domestic Opportunities Fund |
2 | 20.81% | 0.87% | — | ||||||||||||
| Emerging Markets Fund |
— | — | 0.45% | 39.54% | ||||||||||||
| Taiwan Fund |
2 | 100.00% | — | 100.00% | ||||||||||||
| 9. | Share transactions |
The Declaration of Trust permits each Fund to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Funds’ shares were as follows:
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Emerging Countries Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
423,185 | $ | 4,263,918 | 3,060,429 | $ | 32,174,437 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
74,073 | 662,214 | 105,058 | 1,099,953 | ||||||||||||
| Shares repurchased |
(6,334,475 | ) | (59,643,231 | ) | (4,776,303 | ) | (51,193,409 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(5,837,217 | ) | $ | (54,717,099 | ) | (1,610,816 | ) | $ | (17,919,019 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class M: |
||||||||||||||||
| Shares sold |
160,857 | $ | 1,570,665 | 252,769 | $ | 2,586,870 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
16,731 | 147,400 | 45,271 | 467,194 | ||||||||||||
| Shares repurchased |
(137,695 | ) | (1,342,636 | ) | (1,791,002 | ) | (18,738,756 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
39,893 | $ | 375,429 | (1,492,962 | ) | $ | (15,684,692 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 59 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Emerging Domestic Opportunities Fund |
||||||||||||||||
| Class II: |
||||||||||||||||
| Shares sold |
8,980,774 | $ | 225,285,669 | 12,480,597 | $ | 283,660,535 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
298,887 | 6,976,034 | 147,068 | 3,460,494 | ||||||||||||
| Shares repurchased |
(2,329,901 | ) | (56,579,040 | ) | (3,538,146 | ) | (83,663,026 | ) | ||||||||
| Purchase premiums |
— | 1,724,065 | — | 2,287,380 | ||||||||||||
| Redemption fees |
— | — | — | 43,987 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
6,949,760 | $ | 177,406,728 | 9,089,519 | $ | 205,789,370 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class III: |
||||||||||||||||
| Shares sold |
12,701,932 | $ | 313,491,040 | 9,505,885 | $ | 217,960,797 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
197,862 | 4,618,107 | 100,539 | 2,364,668 | ||||||||||||
| Shares repurchased |
(1,266,702 | ) | (31,072,503 | ) | (5,346,700 | ) | (130,887,209 | ) | ||||||||
| Purchase premiums |
— | 2,088,000 | — | 1,340,406 | ||||||||||||
| Redemption fees |
— | 72,503 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
11,633,092 | $ | 289,197,147 | 4,259,724 | $ | 90,778,662 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV: |
||||||||||||||||
| Shares sold |
12,103,021 | $ | 299,731,352 | 20,891,685 | $ | 483,512,233 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
455,930 | 10,645,954 | 181,833 | 4,278,542 | ||||||||||||
| Shares repurchased |
(560,861 | ) | (12,748,941 | ) | — | — | ||||||||||
| Purchase premiums |
— | 2,293,297 | — | 2,631,471 | ||||||||||||
| Redemption fees |
— | 80,645 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
11,998,090 | $ | 300,002,307 | 21,073,518 | $ | 490,422,246 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class VI: |
||||||||||||||||
| Shares sold |
5,730 | $ | 143,338 | 7,724,773 | $ | 176,155,770 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
382,533 | 8,955,091 | 313,674 | 7,393,294 | ||||||||||||
| Shares repurchased |
(8,555 | ) | (218,006 | ) | (1,025,275 | ) | (24,388,193 | ) | ||||||||
| Purchase premium fees |
— | 1,156 | — | 1,378,129 | ||||||||||||
| Redemption fees |
— | 378 | — | 153,778 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
379,708 | $ | 8,881,957 | 7,013,172 | $ | 160,692,778 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Emerging Markets Fund |
||||||||||||||||
| Class II: |
||||||||||||||||
| Shares sold |
10,465,894 | $ | 112,894,288 | 36,949,429 | $ | 411,929,298 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
— | — | 2,467,130 | 28,487,404 | ||||||||||||
| Shares repurchased |
(43,977,830 | ) | (484,977,755 | ) | (42,310,247 | ) | (479,387,042 | ) | ||||||||
| Purchase premiums fees |
— | 479,932 | — | 1,484,712 | ||||||||||||
| Redemption fees |
— | 2,784,751 | — | 2,364,847 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(33,511,936 | ) | $ | (368,818,784 | ) | (2,893,688 | ) | $ | (35,120,781 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class III: |
||||||||||||||||
| Shares sold |
6,494,731 | $ | 75,216,093 | 11,320,635 | $ | 127,789,546 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
— | — | 1,491,291 | 17,264,759 | ||||||||||||
| Shares repurchased |
(34,943,592 | ) | (391,886,825 | ) | (40,472,349 | ) | (461,746,220 | ) | ||||||||
| Purchase premiums fees |
— | 51,246 | — | 354,014 | ||||||||||||
| Redemption fees |
— | 2,687,762 | — | 511,886 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(28,448,861 | ) | $ | (313,931,724 | ) | (27,660,423 | ) | $ | (315,826,015 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 60 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Emerging Markets Fund (continued) |
||||||||||||||||
| Class IV: |
||||||||||||||||
| Shares sold |
4,611,196 | $ | 50,253,454 | 27,760,743 | $ | 311,211,796 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
— | — | 1,763,402 | 20,260,499 | ||||||||||||
| Shares repurchased |
(41,521,938 | ) | (454,639,470 | ) | (53,607,780 | ) | (614,147,440 | ) | ||||||||
| Purchase premiums fees |
— | 126,321 | — | 776,654 | ||||||||||||
| Redemption fees |
— | 2,690,108 | — | 2,223,067 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(36,910,742 | ) | $ | (401,569,587 | ) | (24,083,635 | ) | $ | (279,675,424 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class V: |
||||||||||||||||
| Shares sold |
— | $ | — | 24,895,167 | $ | 281,404,142 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
— | — | 1,233,305 | 14,140,454 | ||||||||||||
| Shares repurchased |
(4,379,087 | ) | (47,707,594 | ) | (23,125,506 | ) | (260,177,266 | ) | ||||||||
| Purchase premiums fees |
— | — | — | 91,320 | ||||||||||||
| Redemption fees |
— | 119,708 | — | 175,876 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(4,379,087 | ) | $ | (47,587,886 | ) | 3,002,966 | $ | 35,634,526 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class VI: |
||||||||||||||||
| Shares sold |
33,028,060 | $ | 359,966,294 | 108,893,901 | $ | 1,171,166,643 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
— | — | 10,337,985 | 118,774,387 | ||||||||||||
| Shares repurchased |
(27,796,914 | ) | (311,620,071 | ) | (55,788,608 | ) | (620,770,625 | ) | ||||||||
| Purchase premium fees |
— | 1,206,122 | — | 6,237,285 | ||||||||||||
| Redemption fees |
— | 2,269,113 | — | 4,552,813 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
5,231,146 | $ | 51,821,458 | 63,443,278 | $ | 679,960,503 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Taiwan Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
4,288,608 | $ | 88,034,683 | 480,041 | $ | 9,693,623 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
14,056 | 292,653 | 102,164 | 1,969,604 | ||||||||||||
| Shares repurchased |
(137,202 | ) | (2,802,899 | ) | (1,298,694 | ) | (25,560,277 | ) | ||||||||
| Purchase premiums |
— | 132,250 | — | 14,115 | ||||||||||||
| Redemption fees |
— | 12,613 | — | 113,681 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
4,165,462 | $ | 85,669,300 | (716,489 | ) | $ | (13,769,254 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 10. | Investments in affiliated companies and other funds of the Trust |
An affiliated company is a company in which a Fund has or had ownership of at least 5% of the voting securities. A summary of the Fund’s transactions involving companies that are or were affiliates during the period ended August 31, 2013 is set forth below:
| Affiliate | Value, beginning of period |
Purchases | Sales Proceeds |
Dividend Income |
Value, end of period |
|||||||||||||||
| Emerging Markets Fund |
||||||||||||||||||||
| Kiri Industries Ltd* |
$ | 121,874 | $ | 30,303 | $ | 80,012 | $ | — | $ | 108,050 | ||||||||||
| Star Block Co Ltd (Foreign Registered) |
0 | ** | — | — | — | 0 | ** | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Totals |
$ | 121,874 | $ | 30,303 | $ | 80,012 | $ | — | $ | 108,050 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| * | No longer an affiliate as of August 31, 2013. |
| ** | Represents the interest in securities that were determined to have a fair value of zero at February 28, 2013 and August 31, 2013. |
| 61 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
A summary of the Funds’ transactions in the shares of other funds of the Trust during the period ended August 31, 2013 is set forth below:
| Affiliate | Value, beginning of period |
Purchases | Sales Proceeds |
Dividend Income* |
Distributions of Realized Gains* |
Return of Capital |
Value, end of period |
|||||||||||||||||||||
| Emerging Countries Fund |
||||||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 1,204,052 | $ | 27,052,969 | $ | 27,970,900 | $ | 496 | $ | 107 | $ | — | $ | 285,029 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Emerging Domestic Opportunities Fund |
||||||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 49,003,861 | $ | 954,956,152 | $ | 922,242,910 | $ | 40,785 | $ | 13,063 | $ | — | $ | 81,720,507 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Emerging Markets Fund |
||||||||||||||||||||||||||||
| GMO Special Purpose Holding Fund |
$ | 4,355 | $ | — | $ | 12,175 | $ | — | $ | — | $ | 342,509 | $ | — | ||||||||||||||
| GMO U.S. Treasury Fund |
37,905,924 | 773,410,362 | 810,922,063 | 26,276 | 11,145 | — | 405,204 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| $ | 37,910,279 | $ | 773,410,362 | $ | 810,934,238 | $ | 26,276 | $ | 11,145 | $ | 342,509 | $ | 405,204 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Taiwan Fund |
||||||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 735,075 | $ | 57,844,518 | $ | 58,577,638 | $ | 839 | $ | 41 | $ | — | $ | 677 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| * | The table above includes estimated sources of all distributions paid by the underlying funds during the period March 1, 2013 through August 31, 2013. The actual tax characterization of distributions paid by the underlying funds will be determined at the end of the fiscal year ending February 28, 2014. |
| 62 |
GMO Trust Funds
Board Review of Management Agreements
August 31, 2013 (Unaudited)
Emerging Countries Fund
Approval of renewal of management agreement for GMO Emerging Countries Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 63 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
Emerging Domestic Opportunities Fund
Approval of renewal of management agreement for GMO Emerging Domestic Opportunities Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 64 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
Emerging Markets Fund
Approval of renewal of management agreement for GMO Emerging Markets Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 65 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
Taiwan Fund
Approval of renewal of management agreement for GMO Taiwan Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 66 |
GMO Trust Funds
(A Series of GMO Trust)
August 31, 2013 (Unaudited)
Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2013.
As a shareholder of the Funds, you may incur two types of costs: (1) transactions costs, including purchase premium and redemption fees, if applicable; and (2) ongoing costs, including direct and /or indirect management fees, direct and/or indirect shareholder services fees, and distribution (12b-1) and/or administration fees for Funds with Class M shares, if applicable, and other Fund expenses. This example is intended to help you understand your ongoing costs (in Dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2013 through August 31, 2013.
Actual Expenses
This section of the table for each class below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
This section of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Funds’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premium and redemption fees. Therefore, this section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Actual | Hypothetical |
|
||||||||||||||||||||||||||
| Beginning Account Value March 1, 2013 |
Ending Account Value August 31, 2013 |
Expenses Paid* During the Period |
Beginning Account Value March 1, 2013 |
Ending Account Value August 31, 2013 |
Expenses Paid* During the Period |
Annualized Net Expense Ratio |
||||||||||||||||||||||
| Emerging Countries Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $874.80 | $5.62 | $1,000.00 | $1,019.21 | $6.06 | 1.19% | |||||||||||||||||||||
| Class M |
$1,000.00 | $874.10 | $7.04 | $1,000.00 | $1,017.69 | $7.58 | 1.49% | |||||||||||||||||||||
| Emerging Domestic Opportunities Fund |
|
|||||||||||||||||||||||||||
| Class II |
$1,000.00 | $935.20 | $5.12 | $1,000.00 | $1,019.91 | $5.35 | 1.05% | |||||||||||||||||||||
| Class III |
$1,000.00 | $935.20 | $4.78 | $1,000.00 | $1,020.27 | $4.99 | 0.98% | |||||||||||||||||||||
| Class IV |
$1,000.00 | $935.70 | $4.59 | $1,000.00 | $1,020.47 | $4.79 | 0.94% | |||||||||||||||||||||
| Class VI |
$1,000.00 | $935.80 | $4.34 | $1,000.00 | $1,020.72 | $4.53 | 0.89% | |||||||||||||||||||||
| Emerging Markets Fund |
|
|||||||||||||||||||||||||||
| Class II |
$1,000.00 | $885.00 | $5.13 | $1,000.00 | $1,019.76 | $5.50 | 1.08% | |||||||||||||||||||||
| Class III |
$1,000.00 | $884.50 | $4.89 | $1,000.00 | $1,020.01 | $5.24 | 1.03% | |||||||||||||||||||||
| Class IV |
$1,000.00 | $884.40 | $4.65 | $1,000.00 | $1,020.27 | $4.99 | 0.98% | |||||||||||||||||||||
| Class V |
$1,000.00 | $885.10 | $4.42 | $1,000.00 | $1,020.52 | $4.74 | 0.93% | |||||||||||||||||||||
| Class VI |
$1,000.00 | $885.30 | $4.28 | $1,000.00 | $1,020.67 | $4.58 | 0.90% | |||||||||||||||||||||
| Taiwan Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,021.70 | $6.98 | $1,000.00 | $1,018.30 | $6.97 | 1.37% | |||||||||||||||||||||
| * | Expenses are calculated using each Class’s annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31,2013, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year. |
| 67 |
GMO Trust
Semiannual Report
August 31, 2013
Alpha Only Fund
Alternative Asset Opportunity Fund
Benchmark-Free Allocation Fund
Benchmark-Free Fund
Global Asset Allocation Fund
Global Equity Allocation Fund
International Equity Allocation Fund
International Opportunities Equity Allocation Fund
Special Situations Fund
Strategic Opportunities Allocation Fund
U.S. Equity Allocation Fund
World Opportunities Equity Allocation Fund
For a free copy of the Funds’ proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) or visit the Securities and Exchange Commission’s website at www.sec.gov. Information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Trust’s website at www.gmo.com, or on the Securities and Exchange Commission’s website at www.sec.gov.
The Funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission’s website at www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Funds have a policy with respect to disclosure of portfolio holdings under which they may also make available on GMO’s website at www.gmo.com a complete schedule of portfolio holdings.
This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a prospectus or private placement memorandum, which contains a complete discussion of the risks associated with an investment in these Funds and other important information. The GMO Trust prospectus can be obtained at www.gmo.com and the private placement memorandum can be obtained by calling 1-617-346-7646 (collect).
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| 58 | ||||
| 70 | ||||
| 120 | ||||
| 132 |
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 1 |
GMO Alpha Only Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 2 | See accompanying notes to the financial statements. |
GMO Alpha Only Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
Swap Contracts
Total Return Swaps
| Notional Amount |
Expiration Date |
Counterparty |
Fund Pays |
Fund (Pays)/Receives |
Net Unrealized Appreciation/ (Depreciation) |
|||||||||||||
| 131,675,712 | USD | 9/30/2013 | CSI | MSCI Daily Total Return EAFE | 1 month USD LIBOR BBA minus 0.13% | $ | 1,462,898 | |||||||||||
| 52,670,113 | USD | 1/29/2014 | CITI | MSCI Daily Total Return EAFE | 1 month USD LIBOR BBA minus 0.05% | 494,875 | ||||||||||||
| 45,234,650 | USD | 2/10/2014 | CITI | MSCI Daily Total Return EAFE | 1 month USD LIBOR BBA minus 0.02% | 1,623,217 | ||||||||||||
| 79,201,894 | USD | 3/13/2014 | JPM | MSCI Daily Total Return EAFE | 1 month USD LIBOR BBA plus 0.04% | 2,973,473 | ||||||||||||
| 40,451,525 | USD | 3/14/2014 | BNP | MSCI Daily Total Return EAFE | 1 month USD LIBOR BBA plus 0.03% | 1,795,834 | ||||||||||||
| 78,760,184 | USD | 3/24/2014 | JPM | MSCI Daily Total Return EAFE | 1 month USD LIBOR BBA plus 0.04% | 1,648,218 | ||||||||||||
| 46,420,545 | USD | 4/3/2014 | CITI | MSCI Daily Total Return EAFE | 1 month USD LIBOR BBA plus 0.06% | 1,519,873 | ||||||||||||
| 134,816,079 | USD | 5/12/2014 | BNP | MSCI Daily Total Return EAFE | 1 month USD LIBOR BBA plus 0.12% | 4,845,374 | ||||||||||||
| 217,283,153 | USD | 5/15/2014 | JPM | MSCI Daily Total Return EAFE | 1 month USD LIBOR BBA plus 0.11% | 9,651,536 | ||||||||||||
|
|
|
|||||||||||||||||
| $ | 26,015,298 | |||||||||||||||||
|
|
|
|||||||||||||||||
| Premiums to (Pay) Receive | $ | — | ||||||||||||||||
|
|
|
|||||||||||||||||
As of August 31, 2013, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.
| See accompanying notes to the financial statements. | 3 |
GMO Alternative Asset Opportunity Fund
(A Series of GMO Trust)
Consolidated Investment Concentration Summary (a)
August 31, 2013 (Unaudited)
| 4 |
GMO Alternative Asset Opportunity Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 5 |
GMO Alternative Asset Opportunity Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
As of August 31, 2013, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.
| 6 | See accompanying notes to the financial statements. |
GMO Benchmark-Free Allocation Fund
(A Series of GMO Trust)
Consolidated Investment Concentration Summary (a)
August 31, 2013 (Unaudited)
| 7 |
GMO Benchmark-Free Allocation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 8 | See accompanying notes to the financial statements. |
GMO Benchmark-Free Allocation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 9 |
GMO Benchmark-Free Allocation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 10 | See accompanying notes to the financial statements. |
GMO Benchmark-Free Allocation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 11 |
GMO Benchmark-Free Allocation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 12 | See accompanying notes to the financial statements. |
GMO Benchmark-Free Allocation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 13 |
GMO Benchmark-Free Allocation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 14 | See accompanying notes to the financial statements. |
GMO Benchmark-Free Allocation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 15 |
GMO Benchmark-Free Allocation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 16 | See accompanying notes to the financial statements. |
GMO Benchmark-Free Allocation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 17 |
GMO Benchmark-Free Allocation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 18 | See accompanying notes to the financial statements. |
GMO Benchmark-Free Allocation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
Written Options (a)
Index Options
| Contract |
Expiration Date |
Description |
Premiums | Market Value |
||||||||||||||
| Put |
383 | EUR | 9/20/2013 | Euro STOXX 50, Strike 2,750 | $ | 249,681 | $ | (328,001 | ) | |||||||||
| Put |
402 | EUR | 9/20/2013 | Euro STOXX 50, Strike 2,800 | 282,858 | (495,716 | ) | |||||||||||
| Put |
2,452 | EUR | 9/20/2013 | Euro STOXX 50, Strike 2,825 | 1,287,641 | (3,632,341 | ) | |||||||||||
| Put |
25 | GBP | 9/20/2013 | FTSE 100, Strike 6,625 | 57,519 | (84,217 | ) | |||||||||||
| Put |
341 | GBP | 9/20/2013 | FTSE 100, Strike 6,475 | 513,603 | (682,672 | ) | |||||||||||
| Put |
18 | GBP | 9/20/2013 | FTSE 100, Strike 6,500 | 29,640 | (39,679 | ) | |||||||||||
| Put |
172 | HKD | 9/27/2013 | Hang Seng, Strike 21,600 | 532,748 | (499,291 | ) | |||||||||||
| Put |
466 | JPY | 9/13/2013 | Nikkei 225, Strike 13,625 | 1,919,884 | (2,425,861 | ) | |||||||||||
| Put |
50 | JPY | 9/13/2013 | Nikkei 225, Strike 14,000 | 249,139 | (399,074 | ) | |||||||||||
| Put |
818 | USD | 9/21/2013 | S&P 500, Strike 1,660 | 2,155,010 | (3,390,610 | ) | |||||||||||
| Put |
6 | USD | 9/21/2013 | S&P 500, Strike 1,635 | 12,822 | (15,000 | ) | |||||||||||
| Put |
3 | USD | 9/21/2013 | S&P 500, Strike 1,685 | 12,231 | (17,100 | ) | |||||||||||
| Put |
48 | USD | 9/21/2013 | S&P 500, Strike 1,690 | 136,654 | (311,520 | ) | |||||||||||
| Put |
37 | USD | 9/21/2013 | S&P 500, Strike 1,705 | 99,788 | (288,970 | ) | |||||||||||
| Put |
31 | AUD | 9/19/2013 | S&P ASX 200, Strike 5,000 | 27,183 | (9,177 | ) | |||||||||||
| Put |
64 | AUD | 9/19/2013 | S&P ASX 200, Strike 5,100 | 63,089 | (38,052 | ) | |||||||||||
| Put |
204 | CAD | 9/20/2013 | S&P TSX 60, Strike 710 | 24,114 | (5,132 | ) | |||||||||||
| Put |
6 | CAD | 9/20/2013 | S&P TSX 60, Strike 720 | 768 | (453 | ) | |||||||||||
| Put |
237 | CAD | 9/20/2013 | S&P TSX 60, Strike 725 | 36,025 | (22,051 | ) | |||||||||||
| Put |
2,320 | CAD | 9/20/2013 | S&P TSX 60, Strike 730 | 237,184 | (267,616) | ||||||||||||
| Put |
287 | AUD | 9/19/2013 | SPI 200, Strike 5,150 | 255,430 | (237,832 | ) | |||||||||||
| Put |
224 | AUD | 9/19/2013 | SPI 200, Strike 5,125 | 186,208 | (164,721 | ) | |||||||||||
| Put |
22 | AUD | 9/19/2013 | SPI 200, Strike 5,075 | 25,494 | (10,976 | ) | |||||||||||
|
|
|
|
|
|||||||||||||||
| $ | 8,394,713 | $ | (13,366,062) | |||||||||||||||
|
|
|
|
|
|||||||||||||||
As of August 31, 2013, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.
| See accompanying notes to the financial statements. | 19 |
GMO Benchmark-Free Allocation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
| 20 | See accompanying notes to the financial statements. |
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 21 |
GMO Benchmark-Free Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 22 | See accompanying notes to the financial statements. |
GMO Global Asset Allocation Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 23 |
GMO Global Asset Allocation Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 24 | See accompanying notes to the financial statements. |
GMO Global Asset Allocation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 25 |
GMO Global Asset Allocation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 26 | See accompanying notes to the financial statements. |
GMO Global Asset Allocation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 27 |
GMO Global Asset Allocation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 28 | See accompanying notes to the financial statements. |
GMO Global Equity Allocation Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 29 |
GMO Global Equity Allocation Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 30 | See accompanying notes to the financial statements. |
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 31 |
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 32 | See accompanying notes to the financial statements. |
GMO International Opportunities Equity Allocation Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 33 |
GMO International Opportunities Equity Allocation Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 34 | See accompanying notes to the financial statements. |
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 35 |
GMO Special Situations Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 36 | See accompanying notes to the financial statements. |
GMO Strategic Opportunities Allocation Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 37 |
GMO Strategic Opportunities Allocation Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 38 | See accompanying notes to the financial statements. |
GMO Strategic Opportunities Allocation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 39 |
GMO U.S. Equity Allocation Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 40 |
GMO U.S. Equity Allocation Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 41 |
GMO World Opportunities Equity Allocation Fund
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 42 |
GMO World Opportunities Equity Allocation Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 43 |
GMO Trust Funds
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
| 44 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Assets and Liabilities — August 31, 2013 (Unaudited)
| Alpha Only Fund |
Consolidated Alternative Asset Opportunity Fund |
Consolidated Benchmark- Free Allocation Fund |
Benchmark- Free Fund |
Global Asset Allocation Fund |
||||||||||||||||
| Assets: |
|
|||||||||||||||||||
| Investments in affiliated issuers, at value (Notes 2 |
$ | 2,370,256,912 | $ | 1,219,470,853 | $ | 3,298,024,293 | $ | 4,071,123,124 | $ | 4,874,090,849 | ||||||||||
| Investments in unaffiliated issuers, at value (Note 2)(b) |
253,918,567 | 542,638,425 | 5,885,980,608 | 60,321 | 17,937,030 | |||||||||||||||
| Foreign currency, at value (Note 2)(c) |
— | — | 18,040,361 | — | — | |||||||||||||||
| Receivable for investments sold |
369,372,259 | — | 2,071,096 | — | 320,571 | |||||||||||||||
| Cash |
— | — | 51,551 | — | — | |||||||||||||||
| Receivable for Fund shares sold |
7,100,000 | — | 59,822,554 | 9,920,156 | 76,771 | |||||||||||||||
| Dividends and interest receivable |
— | 149,616 | 13,007,829 | — | 7,474 | |||||||||||||||
| Foreign taxes receivable |
— | — | 2,026,493 | — | — | |||||||||||||||
| Unrealized appreciation on open forward currency contracts (Note 4) |
19,362,332 | 8,423,453 | 34,344,493 | — | — | |||||||||||||||
| Receivable for variation margin on open futures contracts (Note 4) |
7,240,933 | 1,648,995 | — | — | — | |||||||||||||||
| Due from broker (Note 2) |
76,462,732 | 29,488,810 | 4,422,126 | — | — | |||||||||||||||
| Receivable for open OTC swap contracts (Note 4) |
26,015,298 | — | — | — | — | |||||||||||||||
| Receivable for expenses reimbursed and/or waived by Manager (Note 5) |
1,031,872 | 182,798 | 1,954,866 | 13,950 | 21,762 | |||||||||||||||
| Miscellaneous receivable |
— | — | 38,259 | 13,637 | 617 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total assets |
3,130,760,905 | 1,802,002,950 | 9,319,784,529 | 4,081,131,188 | 4,892,455,074 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Liabilities: |
||||||||||||||||||||
| Payable for investments purchased |
368,678,305 | — | 152,697,748 | 9,740,704 | — | |||||||||||||||
| Payable for Fund shares repurchased |
3,434,938 | 320,571 | — | 193,088 | 637,986 | |||||||||||||||
| Accrued capital gain taxes payable (Note 2) |
— | — | 43,063 | — | — | |||||||||||||||
| Payable to affiliate for (Note 5): |
||||||||||||||||||||
| Management fee |
1,166,046 | 1,049,933 | 4,879,099 | — | — | |||||||||||||||
| Supplemental support fee – Class MF |
— | 465,067 | — | — | ||||||||||||||||
| Shareholder service fee |
234,715 | 224,984 | 375,553 | — | — | |||||||||||||||
| Payable for variation margin on open futures contracts (Note 4) |
— | — | 750,791 | — | — | |||||||||||||||
| Unrealized depreciation on open forward currency contracts (Note 4) |
764,704 | 2,835,300 | 6,052,645 | — | — | |||||||||||||||
| Due to broker (Note 2) |
— | — | — | — | — | |||||||||||||||
| Written options outstanding, at value (Note 4)(d) |
— | — | 13,366,062 | — | — | |||||||||||||||
| Payable to agents unaffiliated with the Manager |
496 | 186 | 1,116 | 496 | 620 | |||||||||||||||
| Payable to Trustees and related expenses |
2,912 | 8,664 | 6,696 | 4,078 | 4,974 | |||||||||||||||
| Accrued expenses |
216,473 | 117,003 | 879,728 | 98,816 | 140,113 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total liabilities |
374,498,589 | 4,556,641 | 179,517,568 | 10,037,182 | 783,693 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net assets |
$ | 2,756,262,316 | $ | 1,797,446,309 | $ | 9,140,266,961 | $ | 4,071,094,006 | $ | 4,891,671,381 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| (a) Cost of investments – affiliated issuers: |
$ | 2,196,964,315 | $ | 1,220,032,070 | $ | 3,295,730,163 | $ | 3,954,399,955 | $ | 4,789,654,563 | ||||||||||
| (b) Cost of investments – unaffiliated issuers: |
$ | 259,429,495 | $ | 542,619,739 | $ | 5,859,839,636 | $ | 60,321 | $ | 17,178,999 | ||||||||||
| (c) Cost of foreign currency: |
$ | — | $ | — | $ | 17,996,666 | $ | — | $ | — | ||||||||||
| (d) Premiums on written options: |
$ | — | $ | — | $ | 8,394,713 | $ | — | $ | — | ||||||||||
| See accompanying notes to the financial statements. | 45 |
GMO Trust Funds
Statements of Assets and Liabilities — August 31, 2013 (Unaudited) — (Continued)
| Alpha Only Fund |
Consolidated Alternative Asset Opportunity Fund |
Consolidated Benchmark- Free Allocation Fund |
Benchmark- Free Fund |
Global Asset Allocation Fund |
||||||||||||||||
| Net assets consist of: |
||||||||||||||||||||
| Paid-in capital |
$ | 3,840,139,461 | $ | 9,027,038,386 | $ | 3,832,703,290 | $ | 4,847,606,500 | ||||||||||||
| Accumulated undistributed net investment income |
4,975,428 | 55,331,852 | 60,372,423 | 44,146,755 | ||||||||||||||||
| Accumulated net realized gain (loss) |
(1,308,757,139 | ) | 6,938,032 | 61,295,124 | (85,276,191 | ) | ||||||||||||||
| Net unrealized appreciation |
219,904,566 | 50,958,691 | 116,723,169 | 85,194,317 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 2,756,262,316 | $ | 9,140,266,961 | $ | 4,071,094,006 | $ | 4,891,671,381 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net assets attributable to: |
||||||||||||||||||||
| Class III shares |
$ | 35,210,672 | $ | 1,797,446,309 | $ | 2,151,419,803 | $ | 4,071,094,006 | $ | 4,891,671,381 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class IV shares |
$ | 2,721,051,644 | $ | — | $ | 1,324,572,393 | $ | — | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class MF shares |
$ | — | $ | — | $ | 5,664,274,765 | $ | — | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Shares outstanding: |
||||||||||||||||||||
| Class III |
1,461,785 | 58,009,439 | 82,898,818 | 190,095,155 | 440,508,247 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class IV |
112,911,396 | — | 51,053,662 | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class MF |
— | — | 218,252,137 | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value per share: |
||||||||||||||||||||
| Class III |
$ | 24.09 | $ | 30.99 | $ | 25.95 | $ | 21.42 | $ | 11.10 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class IV |
$ | 24.10 | $ | — | $ | 25.94 | $ | — | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class MF |
$ | — | $ | — | $ | 25.95 | $ | — | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| 46 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Assets and Liabilities — August 31, 2013 (Unaudited) — (Continued)
| Global Equity Allocation Fund |
International Equity Allocation Fund |
International Opportunities Equity Allocation Fund |
Special Situations Fund |
Strategic Opportunities Allocation Fund |
||||||||||||||||
| Assets: |
|
|||||||||||||||||||
| Investments in affiliated issuers, at value (Notes 2 and 10)(a) |
$ | 2,585,646,657 | $ | 1,636,111,625 | $ | 1,023,701,232 | $ | 8,009,449 | $ | 2,187,768,582 | ||||||||||
| Investments in unaffiliated issuers, at value (Note 2)(b) |
44,445 | 28,912 | 36,747 | 81,723,772 | 6,684,141 | |||||||||||||||
| Receivable for investments sold |
— | — | 13,985 | — | 12,143,655 | |||||||||||||||
| Receivable for Fund shares sold |
— | — | 831 | — | — | |||||||||||||||
| Dividends and interest receivable |
— | — | — | 24,701 | 2,356 | |||||||||||||||
| Unrealized appreciation on open forward currency contracts (Note 4) |
— | — | — | 9,426,790 | — | |||||||||||||||
| Due from broker (Note 2) |
— | — | — | 18 | — | |||||||||||||||
| Receivable for expenses reimbursed and/or waived by Manager (Note 5) |
13,020 | 8,897 | 9,269 | 23,808 | 15,345 | |||||||||||||||
| Miscellaneous receivable |
— | — | — | — | 7,345 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total assets |
2,585,704,122 | 1,636,149,434 | 1,023,762,064 | 99,208,538 | 2,206,621,424 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Liabilities: |
||||||||||||||||||||
| Payable for investments purchased |
— | — | — | 490 | — | |||||||||||||||
| Payable for Fund shares repurchased |
— | — | 14,460 | — | 12,241,000 | |||||||||||||||
| Payable to affiliate for (Note 5): |
||||||||||||||||||||
| Management fee |
— | — | — | 30,736 | — | |||||||||||||||
| Shareholder service fee |
— | — | — | 4,814 | — | |||||||||||||||
| Unrealized depreciation on open forward currency contracts (Note 4) |
— | — | — | 4,961,930 | — | |||||||||||||||
| Payable to agents unaffiliated with the Manager |
341 | 186 | 124 | 93 | 279 | |||||||||||||||
| Payable to Trustees and related expenses |
2,471 | 1,454 | 1,082 | 857 | 2,271 | |||||||||||||||
| Accrued expenses |
68,371 | 61,403 | 49,344 | 119,235 | 104,373 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total liabilities |
71,183 | 63,043 | 65,010 | 5,118,155 | 12,347,923 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net assets |
$ | 2,585,632,939 | $ | 1,636,086,391 | $ | 1,023,697,054 | $ | 94,090,383 | $ | 2,194,273,501 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net assets consist of: |
||||||||||||||||||||
| Paid-in capital |
$ | 2,429,037,110 | $ | 1,609,463,090 | $ | 1,182,869,712 | $ | 1,993,968,366 | ||||||||||||
| Accumulated undistributed net investment income |
27,563,982 | 11,901,525 | 11,527,487 | 30,062,298 | ||||||||||||||||
| Accumulated net realized gain (loss) |
43,266,969 | (101,300,978 | ) | (279,441,450 | ) | 12,203,691 | ||||||||||||||
| Net unrealized appreciation (depreciation) |
85,764,878 | 116,022,754 | 108,741,305 | 158,039,146 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 2,585,632,939 | $ | 1,636,086,391 | $ | 1,023,697,054 | $ | 2,194,273,501 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net assets attributable to: |
||||||||||||||||||||
| Class III shares |
$ | 2,585,632,939 | $ | 1,636,086,391 | $ | 1,023,697,054 | $ | 3,023,644 | $ | 2,194,273,501 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class VI shares |
$ | — | $ | — | $ | — | $ | 91,066,739 | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Shares outstanding: |
||||||||||||||||||||
| Class III |
294,042,366 | 154,785,870 | 65,052,597 | 117,032 | 99,188,922 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class VI |
— | — | — | 3,507,984 | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net asset value per share: |
||||||||||||||||||||
| Class III |
$ | 8.79 | $ | 10.57 | $ | 15.74 | $ | 25.84 | $ | 22.12 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Class VI |
$ | — | $ | — | $ | — | $ | 25.96 | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| (a) Cost of investments – affiliated issuers: |
$ | 2,499,881,779 | $ | 1,520,088,871 | $ | 914,959,927 | $ | 8,012,651 | $ | 2,030,094,286 | ||||||||||
| (b) Cost of investments – unaffiliated issuers: |
$ | 44,445 | $ | 28,912 | $ | 36,747 | $ | 81,852,125 | $ | 6,319,291 | ||||||||||
| See accompanying notes to the financial statements. | 47 |
GMO Trust Funds
Statements of Assets and Liabilities — August 31, 2013 (Unaudited) — (Continued)
| U.S. Equity Allocation Fund |
World Opportunities Equity Allocation Fund |
|||||||
| Assets: |
|
|||||||
| Investments in affiliated issuers, at value (Notes 2 and 10)(a) |
$ | 39,125,822 | $ | 1,454,208,573 | ||||
| Investments in unaffiliated issuers, at value (Note 2)(a) |
23,504 | 37,146 | ||||||
| Receivable for expenses reimbursed and/or waived by Manager (Note 5) |
3,472 | 10,013 | ||||||
|
|
|
|
|
|||||
| Total assets |
39,152,798 | 1,454,255,732 | ||||||
|
|
|
|
|
|||||
| Liabilities: |
||||||||
| Payable to agents unaffiliated with the Manager |
5 | 186 | ||||||
| Payable to Trustees and related expenses |
64 | 1,570 | ||||||
| Accrued expenses |
24,494 | 53,338 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
24,563 | 55,094 | ||||||
|
|
|
|
|
|||||
| Net assets |
$ | 39,128,235 | $ | 1,454,200,638 | ||||
|
|
|
|
|
|||||
| Net assets consist of: |
||||||||
| Paid-in capital |
$ | 31,097,501 | $ | 1,354,781,665 | ||||
| Accumulated undistributed net investment income |
109,338 | 13,867,766 | ||||||
| Accumulated net realized gain |
1,000,302 | (73,686,765 | ) | |||||
| Net unrealized appreciation |
6,921,094 | 159,237,972 | ||||||
|
|
|
|
|
|||||
| $ | 39,128,235 | $ | 1,454,200,638 | |||||
|
|
|
|
|
|||||
| Net assets attributable to: |
||||||||
| Class III shares |
$ | 39,128,235 | $ | 1,454,200,638 | ||||
|
|
|
|
|
|||||
| Shares outstanding: |
||||||||
| Class III |
1,301,443 | 64,944,756 | ||||||
|
|
|
|
|
|||||
| Net asset value per share: |
||||||||
| Class III |
$ | 30.07 | $ | 22.39 | ||||
|
|
|
|
|
|||||
| (a) Cost of investments – affiliated issuers: |
$ | 32,204,728 | $ | 1,294,970,601 | ||||
| (b) Cost of investments – unaffiliated issuers: |
$ | 23,504 | $ | 37,146 | ||||
| 48 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Operations — Six Months Ended August 31, 2013 (Unaudited)
| Alpha Only Fund |
Consolidated Alternative Asset Opportunity Fund |
Consolidated Benchmark- Free Allocation Fund |
Benchmark- Free Fund |
Global Asset Allocation Fund |
||||||||||||||||
| Investment Income: |
|
|||||||||||||||||||
| Dividends from affiliated issuers (Note 10) |
$ | 18,583,199 | $ | 397,946 | $ | 31,615,026 | $ | 65,197,894 | $ | 49,540,316 | ||||||||||
| Dividends from unaffiliated issuers (Net of withholding tax)(a) |
1,164,831 | 3,860 | 53,045,209 | — | — | |||||||||||||||
| Interest |
56,022 | 251,067 | 2,533,757 | 2 | 965,231 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total investment income |
19,804,052 | 652,873 | 87,193,992 | 65,197,896 | 50,505,547 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Expenses: |
|
|||||||||||||||||||
| Management fee (Note 5) |
9,129,171 | 5,138,814 | 21,896,285 | — | — | |||||||||||||||
| Shareholder service fee – Class III (Note 5) |
33,918 | 1,101,175 | 1,175,446 | — | — | |||||||||||||||
| Shareholder service fee – Class IV (Note 5) |
1,803,223 | — | 441,448 | — | — | |||||||||||||||
| Supplemental support fee – Class MF (Note 5) |
— | — | 2,143,581 | — | — | |||||||||||||||
| Audit and tax fees |
34,132 | 47,012 | 90,436 | 13,892 | 39,100 | |||||||||||||||
| Custodian and fund accounting agent fees |
157,964 | 94,944 | 1,734,016 | 27,324 | 31,280 | |||||||||||||||
| Legal fees |
42,044 | 20,385 | 84,900 | 39,284 | 47,380 | |||||||||||||||
| Registration fees |
3,036 | — | 6,451 | — | 3,167 | |||||||||||||||
| Transfer agent fees |
21,252 | — | — | — | — | |||||||||||||||
| Trustees fees and related expenses (Note 5) |
19,716 | 15,069 | 50,253 | 20,569 | 24,972 | |||||||||||||||
| Miscellaneous |
14,720 | 12,788 | 38,229 | 10,856 | 18,492 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total expenses |
11,259,176 | 6,430,187 | 27,661,045 | 111,925 | 164,391 | |||||||||||||||
| Fees and expenses reimbursed by Manager (Note 5) |
(263,028 | ) | (914,522 | ) | (1,927,687 | ) | (88,320 | ) | (135,739 | ) | ||||||||||
| Expense reductions (Note 2) |
(2 | ) | — | (1,313 | ) | (169 | ) | (788 | ) | |||||||||||
| Indirectly incurred fees waived or borne by Manager (Note 5) |
(6,652,926 | ) | — | (7,130,879 | ) | — | — | |||||||||||||
| Supplemental support fee waived – Class MF (Note 5) |
— | — | (994,328 | ) | — | — | ||||||||||||||
| Shareholder service fee waived (Note 5) |
(1,173,122 | ) | — | (566,949 | ) | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net expenses |
3,170,098 | 5,515,665 | 17,039,889 | 23,436 | 27,864 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net investment income (loss) |
16,633,954 | (4,862,792 | ) | 70,154,103 | 65,174,460 | 50,477,683 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Realized and unrealized gain (loss): |
|
|||||||||||||||||||
| Net realized gain (loss) on: |
||||||||||||||||||||
| Investments in unaffiliated issuers |
(63,485,110 | ) | (20,762 | ) | 52,356,548 | — | 65,656 | |||||||||||||
| Investments in affiliated issuers |
212,563,583 | — | (18,057,891 | ) | 12,079,463 | 113,570,091 | ||||||||||||||
| Realized gain distributions from affiliated issuers (Note 10) |
14,317,433 | 89,024 | 16,323,960 | 52,712,399 | 29,806,531 | |||||||||||||||
| Futures contracts |
(374,742,055 | ) | 41,881,892 | (2,642,380 | ) | — | — | |||||||||||||
| Written options |
— | — | (168,887 | ) | — | — | ||||||||||||||
| Swap contracts |
— | — | 2,399,249 | — | — | |||||||||||||||
| Foreign currency, forward contracts and foreign currency related transactions |
6,284,471 | 5,472,921 | 15,727,344 | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net realized gain (loss) |
(205,061,678 | ) | 47,423,075 | 65,937,943 | 64,791,862 | 143,442,278 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Change in net unrealized appreciation (depreciation) on: |
||||||||||||||||||||
| Investments in unaffiliated issuers (Net of foreign capital gains tax) (Note 2)(b) |
(7,012,020 | ) | 25,902 | (86,200,644 | ) | — | (70,234 | ) | ||||||||||||
| Investments in affiliated issuers |
(15,357,259 | ) | (22,125 | ) | (21,418,855 | ) | (66,417,985 | ) | (102,349,835 | ) | ||||||||||
| Futures contracts |
151,784,084 | (15,783,709 | ) | 1,019,570 | — | — | ||||||||||||||
| Written options |
— | — | (6,041,429 | ) | — | — | ||||||||||||||
| Swap contracts |
24,293,008 | — | (1,052,432 | ) | — | — | ||||||||||||||
| Foreign currency, forward contracts and foreign currency related transactions |
10,991,252 | 1,680,919 | 17,819,714 | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net unrealized gain (loss) |
164,699,065 | (14,099,013 | ) | (95,874,076 | ) | (66,417,985 | ) | (102,420,069 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net realized and unrealized gain (loss) |
(40,362,613 | ) | 33,324,062 | (29,936,133 | ) | (1,626,123 | ) | 41,022,209 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net increase (decrease) in net assets resulting from operations |
$ | (23,728,659 | ) | $ | 28,461,270 | $ | 40,217,970 | $ | 63,548,337 | $ | 91,499,892 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| (a) Withholding tax: |
$ | — | $ | — | $ | 4,234,503 | $ | — | $ | — | ||||||||||
| (b) Foreign capital gains tax: |
$ | — | $ | — | $ | 43,063 | $ | — | $ | — | ||||||||||
| See accompanying notes to the financial statements. | 49 |
GMO Trust Funds
Statements of Operations — Six Months Ended August 31, 2013 (Unaudited) — (Continued)
| Global Equity Allocation Fund |
International Equity Allocation Fund |
International Opportunities Equity Allocation Fund |
Special Situations Fund |
Strategic Opportunities Allocation Fund |
||||||||||||||||
| Investment Income: |
|
|||||||||||||||||||
| Dividends from affiliated issuers (Note 10) |
$ | 28,895,455 | $ | 12,513,100 | $ | 11,867,522 | $ | 198,126 | $ | 31,320,565 | ||||||||||
| Dividends from unaffiliated issuers |
— | — | — | 2 | — | |||||||||||||||
| Interest |
6 | 3 | 1 | 562,751 | 428,176 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total investment income |
28,895,461 | 12,513,103 | 11,867,523 | 760,879 | 31,748,741 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Expenses: |
|
|||||||||||||||||||
| Management fee (Note 5) |
— | — | — | 981,218 | — | |||||||||||||||
| Shareholder service fee – Class III (Note 5) |
— | — | — | 16,069 | — | |||||||||||||||
| Shareholder service fee – Class VI (Note 5) |
— | — | — | 139,965 | — | |||||||||||||||
| Audit and tax fees |
11,316 | 11,316 | 11,316 | 43,101 | 38,456 | |||||||||||||||
| Custodian, fund accounting agent and transfer agent fees |
29,164 | 26,220 | 28,888 | 87,400 | 25,116 | |||||||||||||||
| Legal fees |
25,668 | 13,708 | 10,028 | 12,512 | 21,068 | |||||||||||||||
| Registration fees |
1,472 | 2,392 | 368 | — | 1,288 | |||||||||||||||
| Trustees fees and related expenses (Note 5) |
12,897 | 7,176 | 5,253 | 3,680 | 11,459 | |||||||||||||||
| Miscellaneous |
10,856 | 5,336 | 6,256 | 4,324 | 10,396 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total expenses |
91,373 | 66,148 | 62,109 | 1,288,269 | 107,783 | |||||||||||||||
| Fees and expenses reimbursed by Manager (Note 5) |
(76,544 | ) | (57,868 | ) | (56,120 | ) | (142,692 | ) | (94,668 | ) | ||||||||||
| Expense reductions (Note 2) |
(179 | ) | (106 | ) | (112 | ) | — | (47 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net expenses |
14,650 | 8,174 | 5,877 | 1,145,577 | 13,068 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net investment income (loss) |
28,880,811 | 12,504,929 | 11,861,646 | (384,698 | ) | 31,735,673 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Realized and unrealized gain (loss): |
|
|||||||||||||||||||
| Net realized gain (loss) on: |
||||||||||||||||||||
| Investments in unaffiliated issuers |
— | — | — | 1,347 | 40,640 | |||||||||||||||
| Investments in affiliated issuers |
66,640,966 | 34,379,073 | 3,592,267 | 235,828 | 25,703,693 | |||||||||||||||
| Realized gain distributions from affiliated issuers (Note 10) |
19,228,470 | 1,122,129 | 2,800,058 | 1,936 | 24,186,401 | |||||||||||||||
| Swap contracts |
— | — | — | 13,019,597 | — | |||||||||||||||
| Foreign currency, forward contracts and foreign currency related transactions |
— | — | — | 4,393,145 | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net realized gain (loss) |
85,869,436 | 35,501,202 | 6,392,325 | 17,651,853 | 49,930,734 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Change in net unrealized appreciation (depreciation) on: |
||||||||||||||||||||
| Investments in unaffiliated issuers |
— | — | — | (478,609 | ) | (144,353 | ) | |||||||||||||
| Investments in affiliated issuers |
(31,618,622 | ) | (22,750,836 | ) | 39,444,412 | 20,867 | 12,030,104 | |||||||||||||
| Swap contracts |
— | — | — | (6,323,444 | ) | — | ||||||||||||||
| Foreign currency, forward contracts and foreign currency related transactions |
— | — | — | 1,616,501 | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net unrealized gain (loss) |
(31,618,622 | ) | (22,750,836 | ) | 39,444,412 | (5,164,685 | ) | 11,885,751 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net realized and unrealized gain (loss) |
54,250,814 | 12,750,366 | 45,836,737 | 12,487,168 | 61,816,485 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net increase (decrease) in net assets resulting from operations |
$ | 83,131,625 | $ | 25,255,295 | $ | 57,698,383 | $ | 12,102,470 | $ | 93,552,158 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| 50 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Operations — Six Months Ended August 31, 2013 (Unaudited) — (Continued)
| U.S. Equity Allocation Fund |
World Opportunities Equity Allocation Fund |
|||||||
| Investment Income: |
|
|||||||
| Dividends from affiliated issuers (Note 10) |
$ | 111,405 | $ | 14,237,276 | ||||
| Interest |
1,165 | 2 | ||||||
|
|
|
|
|
|||||
| Total investment income |
112,570 | 14,237,278 | ||||||
|
|
|
|
|
|||||
| Expenses: |
|
|||||||
| Audit and tax fees |
9,936 | 11,316 | ||||||
| Custodian, fund accounting agent and transfer agent fees |
6,808 | 25,852 | ||||||
| Legal fees |
460 | 15,548 | ||||||
| Registration fees |
1,587 | 1,177 | ||||||
| Trustees fees and related expenses (Note 5) |
184 | 8,106 | ||||||
| Miscellaneous |
3,225 | 8,004 | ||||||
|
|
|
|
|
|||||
| Total expenses |
22,200 | 70,003 | ||||||
| Fees and expenses reimbursed by Manager (Note 5) |
(22,011 | ) | (60,793 | ) | ||||
| Expense reductions (Note 2) |
— | (24 | ) | |||||
|
|
|
|
|
|||||
| Net expenses |
189 | 9,186 | ||||||
|
|
|
|
|
|||||
| Net investment income (loss) |
112,381 | 14,228,092 | ||||||
|
|
|
|
|
|||||
| Realized and unrealized gain (loss): |
|
|||||||
| Net realized gain (loss) on: |
||||||||
| Investments in affiliated issuers |
12,258,314 | 40,664,006 | ||||||
| Realized gain distributions from affiliated issuers (Note 10) |
243,613 | 12,748,122 | ||||||
|
|
|
|
|
|||||
| Net realized gain (loss) |
12,501,927 | 53,412,128 | ||||||
|
|
|
|
|
|||||
| Change in net unrealized appreciation (depreciation) on: |
||||||||
| Investments in affiliated issuers |
(8,422,480 | ) | 26,856,475 | |||||
|
|
|
|
|
|||||
| Net realized and unrealized gain (loss) |
4,079,447 | 80,268,603 | ||||||
|
|
|
|
|
|||||
| Net increase (decrease) in net assets resulting from operations |
$ | 4,191,828 | $ | 94,496,695 | ||||
|
|
|
|
|
|||||
| See accompanying notes to the financial statements. | 51 |
GMO Trust Funds
Statements of Changes in Net Assets
| Alpha Only Fund | Consolidated Alternative Asset Opportunity Fund |
|||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 16,633,954 | $ | 69,349,200 | $ | (4,862,792 | ) | $ | (2,724,546 | ) | ||||||
| Net realized gain (loss) |
(205,061,678 | ) | (74,428,353 | ) | 47,423,075 | (3,534,914 | ) | |||||||||
| Change in net unrealized appreciation (depreciation) |
164,699,065 | 12,982,393 | (14,099,013 | ) | 16,869,225 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
(23,728,659 | ) | 7,903,240 | 28,461,270 | 10,609,765 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income |
||||||||||||||||
| Class III |
(22,413 | ) | (99,177 | ) | ||||||||||||
| Class IV |
(4,341,555 | ) | (7,431,374 | ) | ||||||||||||
|
|
|
|
|
|||||||||||||
| Total distributions from net investment income |
(4,363,968 | ) | (7,530,551 | ) | ||||||||||||
|
|
|
|
|
|||||||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Class III |
(16,437,158 | ) | 14,001,426 | 809,233,440 | 904,821,692 | |||||||||||
| Class IV |
(640,224,872 | ) | 1,302,890,322 | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase (decrease) in net assets resulting from net share transactions |
(656,662,030 | ) | 1,316,891,748 | 809,233,440 | 904,821,692 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
(684,754,657 | ) | 1,317,264,437 | 837,694,710 | 915,431,457 | |||||||||||
| Net assets: |
|
|||||||||||||||
| Beginning of period |
3,441,016,973 | 2,123,752,536 | 959,751,599 | 44,320,142 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 2,756,262,316 | $ | 3,441,016,973 | $ | 1,797,446,309 | $ | 959,751,599 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated undistributed net investment income |
$ | 4,975,428 | $ | — | ||||||||||||
|
|
|
|
|
|||||||||||||
| Distributions in excess of net investment income |
$ | — | $ | (7,294,558 | ) | |||||||||||
|
|
|
|
|
|||||||||||||
| 52 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| Consolidated Benchmark-Free Allocation Fund |
Benchmark-Free Fund | |||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 70,154,103 | $ | 23,812,645 | $ | 65,174,460 | $ | 91,235,961 | ||||||||
| Net realized gain (loss) |
65,937,943 | 39,911,304 | 64,791,862 | 156,263,140 | ||||||||||||
| Change in net unrealized appreciation (depreciation) |
(95,874,076 | ) | 153,903,759 | (66,417,985 | ) | 84,516,540 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
40,217,970 | 217,627,708 | 63,548,337 | 332,015,641 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income |
||||||||||||||||
| Class III |
(11,666,009 | ) | (4,975,607 | ) | (748,183 | ) | (118,122,072 | ) | ||||||||
| Class IV |
(5,338,876 | ) | (1,783,556 | ) | — | — | ||||||||||
| Class MF |
(30,928,809 | ) | (13,753,375 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net investment income |
(47,933,694 | ) | (20,512,538 | ) | (748,183 | ) | (118,122,072 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized gains |
||||||||||||||||
| Class III |
(5,672,719 | ) | — | (46,836,304 | ) | (106,701,774 | ) | |||||||||
| Class IV |
(2,582,201 | ) | — | — | — | |||||||||||
| Class MF |
(14,932,415 | ) | — | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net realized gains |
(23,187,335 | ) | — | (46,836,304 | ) | (106,701,774 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Class III |
1,188,350,951 | 809,208,628 | 113,431,380 | 318,883,654 | ||||||||||||
| Class IV |
623,644,074 | 692,385,968 | — | — | ||||||||||||
| Class MF |
2,729,384,271 | 2,806,583,034 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase (decrease) in net assets resulting from net share transactions |
4,541,379,296 | 4,308,177,630 | 113,431,380 | 318,883,654 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Purchase premiums and redemption fees (Notes 2 and 9): |
||||||||||||||||
| Class III |
1,204,660 | 1,299,189 | 116,337 | 185,609 | ||||||||||||
| Class IV |
680,417 | 222,986 | — | — | ||||||||||||
| Class MF |
3,289,116 | 3,349,867 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase in net assets resulting from purchase premiums and redemption fees |
5,174,193 | 4,872,042 | 116,337 | 185,609 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets resulting from net share transactions, purchase premiums and redemption fees |
4,546,553,489 | 4,313,049,672 | 113,547,717 | 319,069,263 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
4,515,650,430 | 4,510,164,842 | 129,511,567 | 426,261,058 | ||||||||||||
| Net assets: |
|
|||||||||||||||
| Beginning of period |
4,624,616,531 | 114,451,689 | 3,941,582,439 | 3,515,321,381 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 9,140,266,961 | $ | 4,624,616,531 | $ | 4,071,094,006 | $ | 3,941,582,439 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated undistributed net investment income |
$ | 55,331,852 | $ | 33,111,443 | $ | 60,372,423 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions in excess of net investment income |
$ | — | $ | — | $ | — | $ | (4,053,854 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| See accompanying notes to the financial statements. | 53 |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| Global Asset Allocation Fund |
Global Equity Allocation Fund |
|||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 50,477,683 | $ | 110,843,376 | $ | 28,880,811 | $ | 54,656,916 | ||||||||
| Net realized gain (loss) |
143,442,278 | 301,938,422 | 85,869,436 | 173,105,374 | ||||||||||||
| Change in net unrealized appreciation (depreciation) |
(102,420,069 | ) | (95,628,095 | ) | (31,618,622 | ) | (28,108,089 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
91,499,892 | 317,153,703 | 83,131,625 | 199,654,201 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income |
||||||||||||||||
| Class III |
(2,223,505 | ) | (121,313,693 | ) | (1,312,405 | ) | (63,353,574 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net investment income |
(2,223,505 | ) | (121,313,693 | ) | (1,312,405 | ) | (63,353,574 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net realized gains |
||||||||||||||||
| Class III |
— | — | (36,543,198 | ) | (107,780,977 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total distributions from net realized gains |
— | — | (36,543,198 | ) | (107,780,977 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Class III |
37,484,232 | 953,849,723 | 319,165,455 | 554,602,409 | ||||||||||||
| Purchase premiums and redemption fees (Notes 2 and 9): |
||||||||||||||||
| Class III |
777,934 | 1,703,193 | 517,514 | 676,894 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets resulting from net share transactions, purchase premiums and redemption fees |
38,262,166 | 955,552,916 | 319,682,969 | 555,279,303 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
127,538,553 | 1,151,392,926 | 364,958,991 | 583,798,953 | ||||||||||||
| Net assets: |
|
|||||||||||||||
| Beginning of period |
4,764,132,828 | 3,612,739,902 | 2,220,673,948 | 1,636,874,995 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 4,891,671,381 | $ | 4,764,132,828 | $ | 2,585,632,939 | $ | 2,220,673,948 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated undistributed net investment income |
$ | 44,146,755 | $ | (4,107,423 | ) | $ | 27,563,982 | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions in excess of net investment income |
$ | — | $ | — | $ | — | $ | (4,424 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 54 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| International Equity Allocation Fund |
International Opportunities Equity Allocation Fund |
|||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 12,504,929 | $ | 42,426,853 | $ | 11,861,646 | $ | 30,443,365 | ||||||||
| Net realized gain (loss) |
35,501,202 | 28,059,063 | 6,392,325 | (10,541,303 | ) | |||||||||||
| Change in net unrealized appreciation (depreciation) |
(22,750,836 | ) | 30,405,617 | 39,444,412 | 74,594,628 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
25,255,295 | 100,891,533 | 57,698,383 | 94,496,690 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income |
||||||||||||||||
| Class III |
(2,852,917 | ) | (41,622,218 | ) | (332,360 | ) | (30,450,064 | ) | ||||||||
| Net realized gains |
||||||||||||||||
| Class III |
(748,306 | ) | — | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Class III |
228,849,342 | 157,905,673 | (463,036 | ) | 92,409,525 | |||||||||||
| Purchase premiums and redemption fees (Notes 2 and 9): |
||||||||||||||||
| Class III |
432,836 | 982,374 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets resulting from net share transactions, purchase premiums and redemption fees |
229,282,178 | 158,888,047 | (463,036 | ) | 92,409,525 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
250,936,250 | 218,157,362 | 56,902,987 | 156,456,151 | ||||||||||||
| Net assets: | ||||||||||||||||
| Beginning of period |
1,385,150,141 | 1,166,992,779 | 966,794,067 | 810,337,916 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 1,636,086,391 | $ | 1,385,150,141 | $ | 1,023,697,054 | $ | 966,794,067 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated undistributed net investment income |
$ | 11,901,525 | $ | 2,249,513 | $ | 11,527,487 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions in excess of net investment income |
$ | — | $ | — | $ | — | $ | (1,799 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| See accompanying notes to the financial statements. | 55 |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| Special Situations Fund | Strategic Opportunities Allocation Fund |
|||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | (384,698 | ) | $ | (2,029,319 | ) | $ | 31,735,673 | $ | 62,082,262 | ||||||
| Net realized gain (loss) |
17,651,853 | (35,835,401 | ) | 49,930,734 | 238,704,025 | |||||||||||
| Change in net unrealized appreciation (depreciation) |
(5,164,685 | ) | 4,954,225 | 11,885,751 | (86,230,336 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
12,102,470 | (32,910,495 | ) | 93,552,158 | 214,555,951 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income |
||||||||||||||||
| Class III |
(511,506 | ) | (68,801,103 | ) | ||||||||||||
|
|
|
|
|
|||||||||||||
| Net realized gains |
||||||||||||||||
| Class III |
(28,339,423 | ) | (116,101,861 | ) | ||||||||||||
|
|
|
|
|
|||||||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Class III |
(28,877,247 | ) | (5,615,036 | ) | (39,457,615 | ) | 116,701,855 | |||||||||
| Class VI |
(628,435,954 | ) | 30,937,898 | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Increase (decrease) in net assets resulting from net share transactions |
(657,313,201 | ) | 25,322,862 | (39,457,615 | ) | 116,701,855 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Purchase premiums and redemption fees (Notes 2 and 9): |
||||||||||||||||
| Class III |
— | — | 102,375 | 17,686 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets resulting from net share transactions, purchase premiums and redemption fees |
(657,313,201 | ) | 25,322,862 | (39,355,240 | ) | 116,719,541 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
(645,210,731 | ) | (7,587,633 | ) | 25,345,989 | 146,372,528 | ||||||||||
| Net assets: | ||||||||||||||||
| Beginning of period |
739,301,114 | 746,888,747 | 2,168,927,512 | 2,022,554,984 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 94,090,383 | $ | 739,301,114 | $ | 2,194,273,501 | $ | 2,168,927,512 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated undistributed net investment income |
$ | 30,062,298 | $ | — | ||||||||||||
|
|
|
|
|
|||||||||||||
| Distributions in excess of net investment income |
$ | — | $ | (1,161,869 | ) | |||||||||||
|
|
|
|
|
|||||||||||||
| 56 | See accompanying notes to the financial statements. |
GMO Trust Funds
Statements of Changes in Net Assets — (Continued)
| U.S. Equity Allocation Fund |
World Opportunities Equity Allocation Fund |
|||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 112,381 | $ | 1,648,380 | $ | 14,228,092 | $ | 39,570,464 | ||||||||
| Net realized gain (loss) |
12,501,927 | 10,211,878 | 53,412,128 | 162,946,038 | ||||||||||||
| Change in net unrealized appreciation (depreciation) |
(8,422,480 | ) | (2,597,115 | ) | 26,856,475 | (32,075,776 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets from operations |
4,191,828 | 9,263,143 | 94,496,695 | 170,440,726 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions to shareholders from: |
||||||||||||||||
| Net investment income |
||||||||||||||||
| Class III |
(360,174 | ) | (1,901,866 | ) | (357,654 | ) | (46,343,171 | ) | ||||||||
| Net realized gains |
||||||||||||||||
| Class III |
(7,300,246 | ) | — | — | — | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net share transactions (Note 9): |
||||||||||||||||
| Class III |
(37,887,171 | ) | 7,909,991 | (171,710,416 | ) | 172,531,846 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
(41,355,763 | ) | 15,271,268 | (77,571,375 | ) | 296,629,401 | ||||||||||
| Net assets: | ||||||||||||||||
| Beginning of period |
80,483,998 | 65,212,730 | 1,531,772,013 | 1,235,142,612 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| End of period |
$ | 39,128,235 | $ | 80,483,998 | $ | 1,454,200,638 | $ | 1,531,772,013 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated undistributed net investment income |
$ | 109,338 | $ | 357,131 | $ | 13,867,766 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Distributions in excess of net investment income |
$ | — | $ | — | $ | — | $ | (2,672 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| See accompanying notes to the financial statements. | 57 |
GMO Trust Funds
(For a share outstanding throughout each period)
ALPHA ONLY FUND
| Class III Shares | Class IV Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011(a) | 2010(a) | 2009(a) | 2013 | 2012 | 2011(a) | 2010(a) | 2009(a) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 24.22 | $ | 24.13 | $ | 23.49 | $ | 24.55 | $ | 28.85 | $ | 55.55 | $ | 24.24 | $ | 24.14 | $ | 23.50 | $ | 24.55 | $ | 28.85 | $ | 55.55 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Income (loss) from investment operations: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment income (loss)(b)† |
0.09 | 0.51 | 0.46 | 0.30 | 0.55 | 1.15 | 0.11 | 0.60 | 0.47 | 0.31 | 0.55 | 1.20 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
(0.21 | ) | (0.35 | ) | 0.52 | (1.36 | ) | (3.35 | ) | 4.65 | (0.22 | ) | (0.42 | ) | 0.52 | (1.36 | ) | (3.35 | ) | 4.60 | ||||||||||||||||||||||||||||||||||||||||
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| Total from investment operations |
(0.12 | ) | 0.16 | 0.98 | (1.06 | ) | (2.80 | ) | 5.80 | (0.11 | ) | 0.18 | 0.99 | (1.05 | ) | (2.80 | ) | 5.80 | ||||||||||||||||||||||||||||||||||||||||||
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| Less distributions to shareholders: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| From net investment income |
(0.01 | ) | (0.07 | ) | (0.34 | ) | — | (1.50 | ) | (22.05 | ) | (0.03 | ) | (0.08 | ) | (0.35 | ) | — | (1.50 | ) | (22.05 | ) | ||||||||||||||||||||||||||||||||||||||
| From net realized gains |
— | — | — | — | — | (10.45 | ) | — | — | — | — | — | (10.45 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
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| Total distributions |
(0.01 | ) | (0.07 | ) | (0.34 | ) | — | (1.50 | ) | (32.50 | ) | (0.03 | ) | (0.08 | ) | (0.35 | ) | — | (1.50 | ) | (32.50 | ) | ||||||||||||||||||||||||||||||||||||||
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| Net asset value, end of period |
$ | 24.09 | $ | 24.22 | $ | 24.13 | $ | 23.49 | $ | 24.55 | $ | 28.85 | $ | 24.10 | $ | 24.24 | $ | 24.14 | $ | 23.50 | $ | 24.55 | $ | 28.85 | ||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Total Return(c) |
(0.49 | )%** | 0.67 | % | 4.13 | % | (4.32 | )% | (10.30 | )% | 11.92 | % | (0.47 | )%** | 0.73 | % | 4.19 | % | (4.28 | )% | (10.30 | )% | 12.00 | % | ||||||||||||||||||||||||||||||||||||
| Ratios/Supplemental Data: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 35,211 | $ | 51,886 | $ | 37,752 | $ | 59,746 | $ | 71,481 | $ | 121,711 | $ | 2,721,052 | $ | 3,389,131 | $ | 2,086,001 | $ | 1,930,347 | $ | 1,648,282 | $ | 1,854,153 | ||||||||||||||||||||||||||||||||||||
| Net expenses to average daily net assets(d)(e) |
0.22 | %* | 0.23 | % | 0.24 | % | 0.23 | % | 0.24 | % | 0.23 | % | 0.17 | %* | 0.18 | % | 0.19 | % | 0.18 | % | 0.18 | % | 0.18 | % | ||||||||||||||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets(b) |
0.73 | %* | 2.10 | % | 1.89 | % | 1.26 | % | 2.16 | % | 2.37 | % | 0.91 | %* | 2.47 | % | 1.91 | % | 1.27 | % | 2.11 | % | 2.52 | % | ||||||||||||||||||||||||||||||||||||
| Portfolio turnover rate |
37 | %** | 104 | % | 125 | % | 89 | % | 114 | % | 87 | % | 37 | %** | 104 | % | 125 | % | 89 | % | 114 | % | 87 | % | ||||||||||||||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets:(f) |
0.44 | %* | 0.44 | % | 0.44 | % | 0.46 | % | 0.45 | % | 0.44 | % | 0.44 | %* | 0.44 | % | 0.43 | % | 0.46 | % | 0.46 | % | 0.44 | % | ||||||||||||||||||||||||||||||||||||
| Redemption fees consisted of the following per share amounts:† |
— | — | — | — | — | $ | 0.00 | (g) | — | — | — | — | — | $ | 0.00 | (g) | ||||||||||||||||||||||||||||||||||||||||||||
| (a) | Per share amounts were adjusted to reflect a 1:5 reverse stock split effective November 15, 2010. |
| (b) | Net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the Fund invests. |
| (c) | The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown, if applicable, and assumes the effect of reinvested distributions, if any. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder purchasing or redeeming Fund shares, if any. |
| (d) | Net expenses exclude expenses incurred indirectly through investment in the underlying funds (Note 5). |
| (e) | The net expense ratio does not include the effect of expense reductions (Note 2). |
| (f) | Ratios include reimbursement of direct operating expenses and waiver of expenses indirectly incurred through investment in the underlying funds (Note 5). |
| (g) | Purchase premiums and redemption fees were less than $0.01 per share. |
| † | Calculated using average shares outstanding throughout the period. |
| * | Annualized. |
| ** | Not annualized. |
| 58 | See accompanying notes to the financial statements. |
GMO Trust Funds
Consolidated Financial Highlights
(For a share outstanding throughout each period)
ALTERNATIVE ASSET OPPORTUNITY FUND
| See accompanying notes to the financial statements. | 59 |
GMO Trust Funds
Consolidated Financial Highlights
(For a share outstanding throughout each period)
BENCHMARK-FREE ALLOCATION FUND
| Class III Shares |
Class IV Shares | |||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, |
Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013(i) | |||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 25.77 | $ | 24.03 | $ | 22.72 | $ | 21.49 | $ | 17.51 | $ | 25.30 | $ | 25.75 | $ | 24.91 | ||||||||||||||||||||||||
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| Income (loss) from investment operations: |
||||||||||||||||||||||||||||||||||||||||
| Net investment income (loss)(a)† |
0.28 | 0.30 | 0.21 | 0.36 | 0.64 | 3.21 | 0.25 | 0.03 | ||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
0.15 | 1.62 | 1.44 | (b) | 1.28 | 4.11 | (6.72 | ) | 0.19 | 0.96 | ||||||||||||||||||||||||||||||
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| Total from investment operations |
0.43 | 1.92 | 1.65 | 1.64 | 4.75 | (3.51 | ) | 0.44 | 0.99 | |||||||||||||||||||||||||||||||
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| Less distributions to shareholders: |
||||||||||||||||||||||||||||||||||||||||
| From net investment income |
(0.17 | ) | (0.18 | ) | (0.34 | ) | (0.41 | ) | (0.75 | ) | (3.71 | ) | (0.17 | ) | (0.15 | ) | ||||||||||||||||||||||||
| From net realized gains |
(0.08 | ) | — | — | — | (0.02 | ) | (0.57 | ) | (0.08 | ) | — | ||||||||||||||||||||||||||||
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| Total distributions |
(0.25 | ) | (0.18 | ) | (0.34 | ) | (0.41 | ) | (0.77 | ) | (4.28 | ) | (0.25 | ) | (0.15 | ) | ||||||||||||||||||||||||
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| Net asset value, end of period |
$ | 25.95 | $ | 25.77 | $ | 24.03 | $ | 22.72 | $ | 21.49 | $ | 17.51 | $ | 25.94 | $ | 25.75 | ||||||||||||||||||||||||
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| Total Return(c) |
1.66 | %** | 8.03 | % | 7.36 | % | 7.69 | % | 27.18 | % | (15.11 | )% | 1.70 | %** | 3.99 | %** | ||||||||||||||||||||||||
| Ratios/Supplemental Data: |
||||||||||||||||||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 2,151,420 | $ | 970,749 | $ | 114,452 | $ | 3,170,573 | $ | 1,733,173 | $ | 1,436,951 | $ | 1,324,572 | $ | 705,982 | ||||||||||||||||||||||||
| Net expenses to average daily net assets(d)(f)(g) |
0.54 | %* | 0.54 | % | 0.01 | % | 0.00 | %(e) | 0.00 | %(e) | 0.00 | %(e) | 0.49 | %* | 0.48 | %* | ||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets(a) |
2.13 | %* | 1.23 | % | 0.93 | % | 1.63 | % | 3.14 | % | 14.05 | % | 1.85 | %* | 0.60 | %* | ||||||||||||||||||||||||
| Portfolio turnover rate |
33 | %** | 42 | % | 33 | % | 19 | % | 24 | % | 40 | % | 33 | %** | 42 | %** | ||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.31 | %* | 0.41 | % | 0.05 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.32 | %* | 0.40 | %* | ||||||||||||||||||||||||
| Purchase premiums and redemption fees consisted of the following per share amounts (Note 2):† |
$ | 0.02 | $ | 0.07 | $ | 0.00 | (h) | $ | 0.01 | $ | 0.01 | $ | 0.00 | (h) | $ | 0.02 | $ | 0.01 | ||||||||||||||||||||||
| 60 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
BENCHMARK-FREE FUND
| See accompanying notes to the financial statements. | 61 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
GLOBAL ASSET ALLOCATION FUND
| 62 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
GLOBAL EQUITY ALLOCATION FUND
| See accompanying notes to the financial statements. | 63 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
INTERNATIONAL EQUITY ALLOCATION FUND
| 64 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
INTERNATIONAL OPPORTUNITIES EQUITY ALLOCATION FUND
| See accompanying notes to the financial statements. | 65 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
SPECIAL SITUATIONS FUND
| Class III Shares | Class VI Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28/29, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net asset value, beginning of period |
$ | 25.26 | $ | 26.46 | $ | 27.53 | $ | 27.47 | $ | 25.47 | $ | 21.32 | $ | 25.40 | $ | 26.59 | $ | 27.63 | $ | 27.55 | $ | 25.51 | $ | 21.33 | ||||||||||||||||||||||||||||||||||||
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| Income (loss) from investment operations: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment income (loss)† |
(0.03 | ) | (0.09 | ) | (0.10 | ) | 0.04 | 0.33 | 0.26 | (0.02 | ) | (0.07 | ) | (0.07 | ) | 0.05 | 0.36 | 0.23 | ||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain (loss) |
0.61 | (1.11 | ) | (0.97 | ) | 0.02 | (a) | 1.67 | 3.89 | 0.58 | (1.12 | ) | (0.97 | ) | 0.03 | (a) | 1.68 | 3.95 | ||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Total from investment operations |
0.58 | (1.20 | ) | (1.07 | ) | 0.06 | 2.00 | 4.15 | 0.56 | (1.19 | ) | (1.04 | ) | 0.08 | 2.04 | 4.18 | ||||||||||||||||||||||||||||||||||||||||||||
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| Net asset value, end of period |
$ | 25.84 | $ | 25.26 | $ | 26.46 | $ | 27.53 | $ | 27.47 | $ | 25.47 | $ | 25.96 | $ | 25.40 | $ | 26.59 | $ | 27.63 | $ | 27.55 | $ | 25.51 | ||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
| Total Return(b) |
2.30 | %** | (4.54 | )% | (3.89 | )% | 0.22 | % | 7.85 | % | 19.47 | % | 2.20 | %** | (4.48 | )% | (3.76 | )% | 0.29 | % | 8.00 | % | 19.60 | % | ||||||||||||||||||||||||||||||||||||
| Ratios/Supplemental Data: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$ | 3,024 | $ | 31,414 | $ | 39,010 | $ | 23,299 | $ | 17,332 | $ | 20,366 | $ | 91,067 | $ | 707,887 | $ | 707,879 | $ | 715,684 | $ | 347,957 | $ | 326,148 | ||||||||||||||||||||||||||||||||||||
| Net operating expenses to average daily net assets |
0.52 | %(c)* | 0.52 | %(c)(d) | 0.52 | %(c)(d) | 0.53 | %(c)(d) | 0.53 | % | 0.52 | % | 0.43 | %(c)* | 0.43 | %(c)(d) | 0.43 | %(c)(d) | 0.43 | %(c)(d) | 0.44 | % | 0.43 | % | ||||||||||||||||||||||||||||||||||||
| Interest expense to average daily net assets |
— | — | — | 0.01 | % | 0.03 | % | — | — | — | — | 0.01 | % | 0.03 | % | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total net expenses to average daily net assets |
0.52 | %* | 0.52 | % | 0.52 | % | 0.54 | % | 0.56 | % | 0.52 | % | 0.43 | %* | 0.43 | % | 0.43 | % | 0.44 | % | 0.47 | % | 0.43 | % | ||||||||||||||||||||||||||||||||||||
| Net investment income (loss) to average daily net assets |
(0.24 | )%* | (0.36 | )% | (0.37 | )% | 0.15 | % | 1.24 | % | 1.20 | % | (0.14 | )%* | (0.25 | )% | (0.26 | )% | 0.19 | % | 1.35 | % | 1.03 | % | ||||||||||||||||||||||||||||||||||||
| Portfolio turnover rate |
9 | %** | 35 | % | 11 | % | 60 | % | 15 | % | 62 | % | 9 | %** | 35 | % | 11 | % | 60 | % | 15 | % | 62 | % | ||||||||||||||||||||||||||||||||||||
| Fees and expenses reimbursed and/or waived by the Manager to average daily net assets: |
0.05 | %* | 0.03 | % | 0.03 | % | 0.04 | % | 0.04 | % | 0.03 | % | 0.05 | %* | 0.04 | % | 0.03 | % | 0.04 | % | 0.05 | % | 0.03 | % | ||||||||||||||||||||||||||||||||||||
| (a) | The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain (loss) on investments due to the timing of purchases and redemptions of the Fund shares in relation to fluctuating market values of the investments of the Fund. |
| (b) | The total returns would have been lower had certain expenses not been reimbursed and/or waived during the periods shown, if applicable, and assumes the effect of reinvested distributions, if any. Calculation excludes purchase premiums and redemption fees which are borne by the shareholder purchasing or redeeming Fund shares, if any. |
| (c) | Net expenses exclude expenses incurred indirectly through investment in the underlying funds (Note 5). |
| (d) | The net expense ratio does not include the effect of expense reductions (Note 2). |
| † | Calculated using average shares outstanding throughout the period. |
| * | Annualized. |
| ** | Not annualized. |
| 66 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
STRATEGIC OPPORTUNITIES ALLOCATION FUND
| See accompanying notes to the financial statements. | 67 |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
U.S. EQUITY ALLOCATION FUND
| 68 | See accompanying notes to the financial statements. |
GMO Trust Funds
Financial Highlights
(For a share outstanding throughout each period)
WORLD OPPORTUNITIES EQUITY ALLOCATION FUND
| See accompanying notes to the financial statements. | 69 |
GMO Trust Funds
August 31, 2013 (Unaudited)
| 1. | Organization |
Each of Alpha Only Fund, Alternative Asset Opportunity Fund, Benchmark-Free Allocation Fund, Benchmark-Free Fund, Global Asset Allocation Fund, Global Equity Allocation Fund, International Equity Allocation Fund, International Opportunities Equity Allocation Fund, Special Situations Fund, Strategic Opportunities Allocation Fund, U.S. Equity Allocation Fund, and World Opportunities Equity Allocation Fund (each a “Fund” and collectively the “Funds”) is a series of GMO Trust (the “Trust”). The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust was established as a Massachusetts business trust under the laws of The Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees of the Trust (“Trustees”) to create an unlimited number of series of shares (Funds) and to subdivide Funds into classes. The Funds are advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager” or “GMO”).
The Funds may invest in U.S. Treasury Fund and unaffiliated money market funds.
Many of the Funds invest primarily in other GMO Funds (“underlying funds”) and in the case of Alternative Asset Opportunity Fund in Alternative Asset SPC Ltd. As a result, the Funds are exposed to all of the risks of the underlying funds in which they invest. Several of the underlying funds themselves invest a substantial portion of their assets in other GMO Funds. The financial statements of the underlying funds should be read in conjunction with the Funds’ financial statements. These financial statements are available, without charge, upon request, by calling (617) 346-7646 (collect). As of August 31, 2013, shares of Alternative Asset Opportunity Fund, Benchmark-Free Fund, Implementation Fund and Special Situations Fund were not publicly offered for sale.
The following table provides information about the Funds’ principal investment objectives and benchmarks (if any):
| Fund Name | Benchmark | Principal Investment Objective | ||
| Alpha Only Fund | Citigroup 3-Month Treasury Bill Index | Total return greater than benchmark | ||
| Alternative Asset Opportunity Fund | Citigroup 3-Month Treasury Bill Index | Long-term total return | ||
| Benchmark-Free Allocation Fund | Not Applicable | Positive total return, not “relative” return | ||
| Benchmark-Free Fund | Not Applicable | Positive total return | ||
| Global Asset Allocation Fund | GMO Global Asset Allocation Index (65% MSCI ACWI, 35% Barclays U.S. Aggregate Index) | Total return greater than benchmark | ||
| Global Equity Allocation Fund | MSCI ACWI | Total return greater than benchmark | ||
| International Equity Allocation Fund | MSCI ACWI ex USA | Total return greater than benchmark | ||
| International Opportunities Equity Allocation Fund | MSCI EAFE Index | Total return greater than benchmark | ||
| Special Situations Fund | Not Applicable | Capital appreciation and capital preservation | ||
| Strategic Opportunities Allocation Fund | GMO Strategic Opportunities Allocation Index (75% MSCI World Index, 25% Barclays U.S. Aggregate Index) | Total return greater than benchmark | ||
| U.S. Equity Allocation Fund | Russell 3000 Index | Total return greater than benchmark | ||
| World Opportunities Equity Allocation Fund | MSCI World Index | Total return greater than benchmark | ||
| 2. | Significant accounting policies |
The following is a summary of significant accounting policies followed by each Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently followed by the Funds in preparing these financial statements. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The accounting records of the Funds are maintained in U.S. Dollars.
| 70 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Basis of presentation and principles of consolidation: Alternative Asset Opportunity Fund and Benchmark-Free Allocation Fund
Alternative Asset Opportunity Fund and Benchmark-Free Allocation Fund include the accounts of their wholly owned investments in Alternative Asset SPC Ltd. and Implementation Fund (each a “wholly owned subsidiary”), respectively, and the accompanying financial statements have been consolidated for those accounts. The consolidated financial statements include 100% of the assets and liabilities of each wholly owned subsidiary. All interfund accounts and transactions have been eliminated in consolidation.
Portfolio valuation
Shares of the underlying funds and other open-end registered investment companies are valued at their most recent net asset value. Investments held by the Funds and underlying funds are valued as follows: Exchange-traded securities (other than exchange-traded options) for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price or (iii) most recent quoted price published by the exchange (if no reported last sale or official closing price) or (iv) the quoted price provided by a pricing source (in the event the Manager deems the private market to be a more reliable indicator of market value than the exchange). Exchange-traded 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. Cleared derivatives are valued using the quote (which may be based on a model) published by the relevant clearing house. If an updated quote for a cleared derivative is not available by the time that a Fund calculates its net asset value on any business day, then that derivative will generally be valued using an industry standard model, which may differ from the model used by the relevant clearing house. Unlisted securities (including debt instruments) for which market quotations are readily available are generally valued at the most recent quoted price. If quotations are not readily available or circumstances make an existing valuation methodology or procedure unreliable, derivatives and other securities are valued at fair value as determined in good faith by the Trustees or persons acting at their direction pursuant to procedures approved by the Trustees. Because of the uncertainty inherent in pricing, and in particular fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. See the table below for information about securities and derivatives, if any, that were fair valued using methods determined in good faith by or at the direction of the Trustees. The Funds and/or the underlying funds classify such securities as Level 3 (levels defined below). For the period ended August 31, 2013, the Funds did not reduce the value of any of their over-the-counter (“OTC”) derivatives contracts, if any, based on the creditworthiness of their counterparties. See Note 4 “Derivative financial instruments” for a further discussion on valuation of derivatives.
The foregoing valuation methodologies are modified for equity securities listed on foreign exchanges and that trade in securities markets that close prior to the close of the New York Stock Exchange (“NYSE”) due to time zone differences, including the value of equity securities that underlie futures, options and other derivatives (to the extent the market for those derivatives closes prior to the close of the NYSE). In those cases, the value will generally be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees to reflect estimated valuation changes through the NYSE close. The table below shows the percentage of the net assets of the Funds, held either directly or through investments in the underlying funds, that were valued using fair value inputs obtained from that independent pricing service as of August 31, 2013. These securities listed on foreign exchanges (including the value of equity securities that underlie futures, options and other derivatives (to the extent the market for such instruments closes prior to the close of the NYSE)) are classified as Level 2 (levels defined below) in the table below and as described in the disclosures of the underlying funds.
Typically, the Funds and the underlying funds value debt instruments based on the most recent quoted price supplied by a single pricing source chosen by the Manager. Although the Manager normally does not evaluate pricing sources on a day-to-day basis, it does evaluate pricing sources on an ongoing basis and may change a pricing source at any time. 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. Although alternative prices may be available for securities held by the Funds and the underlying funds, 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 and the underlying funds. See the table below for information about securities for which no alternative pricing source was available. In the case of non-emerging market debt instruments with a remaining maturity of sixty days or less, the instrument may be valued at amortized cost, which approximates market value, if the issuer is deemed to present minimal credit risk.
“Quotation” or “quoted price” typically means the bid price for securities held long and the ask price for securities sold short. If the pricing convention for a security does not involve a bid or an ask, “quotation” or “quoted price” may be a market quotation provided by a market participant or other third party pricing source in accordance with the convention for that security. If an updated quote for a security is not available by the time that the Funds calculate their net asset value on any business day, the Funds will generally use a quoted price from a prior day to value that security.
As discussed above, certain of the Funds and underlying funds invest in securities and/or derivatives which may have been fair valued using methods determined in good faith by or at the direction of the Trustees, fair valued using inputs obtained from an independent pricing service and presented in the table below on a net basis or valued using prices for which no alternative pricing source was available. The net aggregate direct and/or indirect exposure to these valuation methodologies (based on each Fund’s net assets) as of August 31, 2013 is as follows:
| 71 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Securities and Derivatives
| Fund Name | Fair valued using direction of the Trustees |
Fair valued using prices obtained from an independent pricing service |
Single source; No alternative pricing source was available |
|||||||||
| Alpha Only Fund |
— | 44% | — | |||||||||
| Consolidated Alternative Asset Opportunity Fund |
< 1% | < 1% | < 1% | |||||||||
| Consolidated Benchmark-Free Allocation Fund |
< 1% | 33% | < 1% | |||||||||
| Benchmark-Free Fund |
< 1% | 36% | < 1% | |||||||||
| Global Asset Allocation Fund |
< 1% | 38% | < 1% | |||||||||
| Global Equity Allocation Fund |
< 1% | 54% | — | |||||||||
| International Equity Allocation Fund |
< 1% | 92% | — | |||||||||
| International Opportunities Equity Allocation Fund |
< 1% | 96% | — | |||||||||
| Special Situations Fund |
— | — | — | |||||||||
| Strategic Opportunities Allocation Fund |
< 1% | 43% | < 1% | |||||||||
| U.S. Equity Allocation Fund |
— | 2% | — | |||||||||
| World Opportunities Equity Allocation Fund |
< 1% | 51% | — | |||||||||
U.S. GAAP requires the Funds to disclose the fair value of their investments in a three-level hierarchy (Levels 1, 2 and 3). The valuation hierarchy is based upon the relative observability of inputs to the valuation of the Funds’ investments. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Changes in valuation techniques may result in transfers into or out of an investment’s assigned level within the fair value hierarchy. In addition, in periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition, as well as changes related to the liquidity of investments, could cause a security to be reclassified between levels.
U.S. GAAP requires additional disclosures about fair value measurements for material Level 3 securities and derivatives, if any (determined by each category of asset or liability as compared to a Fund’s total net assets separately identified in the “Valuation Inputs” table below). At August 31, 2013, Special Situations Fund held material Level 3 investments in asset-backed securities and loans. The Fund values these investments using unadjusted prices supplied by a third party pricing source (e.g., broker quotes) as described in the Portfolio Valuation note. Other than as described in this paragraph, there were no other Funds with classes of investments or derivatives with direct material Level 3 holdings.
The three levels are defined as follows:
Level 1 – Valuations based on quoted prices for identical securities in active markets.
The types of assets and liabilities categorized in Level 1 generally include actively traded domestic and certain foreign equity securities, certain U.S. government obligations with a remaining maturity of greater than 60 days, derivatives actively traded on a national securities exchange (such as some futures and options), and shares of open-end mutual funds (even if their investments are valued using Level 2 or Level 3 inputs).
Level 2 – Valuations determined using other significant direct or indirect observable inputs.
The types of assets and liabilities categorized in Level 2 generally include debt securities such as U.S. government securities with a remaining maturity of 60 days or less valued at amortized cost; certain U.S. government agency securities, mortgage-backed securities, asset-backed securities, certain sovereign debt obligations, and corporate bonds valued using broker quotes; cleared derivatives and certain OTC derivatives such as swaps, options, swaptions, and forward currency contracts valued using industry standard models; certain restricted securities valued at the most recent available market or quoted price; and certain foreign equity securities that are adjusted based on inputs from an independent pricing service approved by the Trustees, including the value of equity securities that underlie futures, options and other derivatives (to the extent the market for such instruments closes prior to the close of the NYSE) to reflect estimated valuation changes through the NYSE close.
| 72 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Level 3 – Valuations based primarily on inputs that are unobservable and significant.
The types of assets and liabilities categorized in Level 3 generally include, but are not limited to, certain debt securities (such as asset-backed, mortgage-backed, loans and sovereign debt) even though they are valued using broker quotes; certain debt securities and derivatives adjusted by a specified discount for liquidity or other considerations; securities whose trading has been suspended or that have been de-listed from their current primary trading exchange valued at the most recent available market or quoted price; securities in default or bankruptcy proceedings for which there is no current market quotation valued at the most recent available market or quoted price; potential litigation recoveries and interests related to bankruptcy proceedings; third-party investment funds where valuations are provided by fund sponsors and which are adjusted for liquidity considerations as well as the timing of the receipt of information; certain equity securities valued based on the last traded exchange price adjusted for the movement in a securities index; and certain securities that are valued using a price from a comparable security related to the same issuer.
The following is a summary of the respective levels assigned to the Funds’ direct securities and derivatives, if any, as of August 31, 2013:
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Alpha Only Fund |
| |||||||||||||||
| Asset Valuation Inputs |
| |||||||||||||||
| Mutual Funds |
||||||||||||||||
| United States |
$ | 2,370,256,912 | $ | — | $ | — | $ | 2,370,256,912 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
2,370,256,912 | — | — | 2,370,256,912 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Investment Funds |
||||||||||||||||
| United States |
52,609,630 | — | — | 52,609,630 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL INVESTMENT FUNDS |
52,609,630 | — | — | 52,609,630 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
201,308,937 | — | — | 201,308,937 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
2,624,175,479 | — | — | 2,624,175,479 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | 19,362,332 | — | 19,362,332 | ||||||||||||
| Futures Contracts |
||||||||||||||||
| Equity Risk |
2,887,980 | 5,794,317 | — | 8,682,297 | ||||||||||||
| Swap Contracts |
||||||||||||||||
| Equity Risk |
— | 26,015,298 | — | 26,015,298 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 2,627,063,459 | $ | 51,171,947 | $ | — | $ | 2,678,235,406 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
$ | — | $ | (764,704 | ) | $ | — | $ | (764,704 | ) | ||||||
| Futures Contracts |
||||||||||||||||
| Equity Risk |
— | (1,164,400 | ) | — | (1,164,400 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | — | $ | (1,929,104 | ) | $ | — | $ | (1,929,104 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Consolidated Alternative Asset Opportunity Fund |
| |||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Mutual Funds |
$ | 1,219,470,853 | $ | — | $ | — | $ | 1,219,470,853 | ||||||||
| Short-Term Investments |
328,649,690 | 213,988,735 | — | 542,638,425 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
1,548,120,543 | 213,988,735 | — | 1,762,109,278 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 73 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Consolidated Alternative Asset Opportunity Fund (continued) |
| |||||||||||||||
| Asset Valuation Inputs (continued) |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
$ | — | $ | 8,423,453 | $ | — | $ | 8,423,453 | ||||||||
| Futures Contracts |
— | |||||||||||||||
| Physical Commodity Contract Risk |
9,090,606 | — | — | 9,090,606 | ||||||||||||
| Equity Risk |
— | 7,394,946 | — | 7,394,946 | ||||||||||||
| Interest Rate Risk |
261,062 | — | — | 261,062 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 1,557,472,211 | $ | 229,807,134 | $ | — | $ | 1,787,279,345 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
$ | — | $ | (2,835,300 | ) | $ | — | $ | (2,835,300 | ) | ||||||
| Futures Contracts |
||||||||||||||||
| Physical Commodity Contract Risk |
(13,366,692 | ) | — | — | (13,366,692 | ) | ||||||||||
| Equity Risk |
(4,156,976 | ) | (312,080 | ) | — | (4,469,056 | ) | |||||||||
| Interest Rate Risk |
(2,415,838 | ) | — | — | (2,415,838 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (19,939,506 | ) | $ | (3,147,380 | ) | $ | — | $ | (23,086,886 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| Consolidated Benchmark-Free Allocation Fund |
| |||||||||||||||
| Asset Valuation Inputs |
| |||||||||||||||
| Mutual Funds |
||||||||||||||||
| United States |
$ | 3,298,024,293 | $ | — | $ | — | $ | 3,298,024,293 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Investment Funds |
||||||||||||||||
| United States |
8,944,307 | — | — | 8,944,307 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Debt Obligations |
||||||||||||||||
| Canada |
— | — | 4,098,541 | 4,098,541 | ||||||||||||
| United States |
— | 896,937,536 | 2,596,814 | 899,534,350 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
— | 896,937,536 | 6,695,355 | 903,632,891 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Common Stocks |
||||||||||||||||
| Australia |
— | 64,662,876 | — | 64,662,876 | ||||||||||||
| Austria |
— | 6,862,719 | — | 6,862,719 | ||||||||||||
| Belgium |
— | 11,349,484 | — | 11,349,484 | ||||||||||||
| Brazil |
74,750,658 | — | — | 74,750,658 | ||||||||||||
| Canada |
20,812,036 | — | — | 20,812,036 | ||||||||||||
| Czech Republic |
— | 8,861,539 | — | 8,861,539 | ||||||||||||
| Denmark |
— | 2,802,408 | — | 2,802,408 | ||||||||||||
| Egypt |
— | 8,474,890 | — | 8,474,890 | ||||||||||||
| Finland |
— | 11,909,135 | — | 11,909,135 | ||||||||||||
| France |
— | 252,311,494 | — | 252,311,494 | ||||||||||||
| Germany |
— | 94,495,735 | — | 94,495,735 | ||||||||||||
| Greece |
— | 4,241,121 | — | 4,241,121 | ||||||||||||
| Hong Kong |
— | 26,322,876 | — | 26,322,876 | ||||||||||||
| Hungary |
— | 744,188 | — | 744,188 | ||||||||||||
| India |
9,651,674 | 34,538,085 | 1,042,379 | 45,232,138 | ||||||||||||
| Indonesia |
1,308,218 | 36,500,013 | — | 37,808,231 | ||||||||||||
| Ireland |
— | 2,885,437 | — | 2,885,437 | ||||||||||||
| Israel |
— | 4,453,731 | — | 4,453,731 | ||||||||||||
| Italy |
— | 110,829,475 | — | 110,829,475 | ||||||||||||
| Japan |
— | 382,957,951 | — | 382,957,951 | ||||||||||||
| 74 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Consolidated Benchmark-Free Allocation Fund (continued) |
| |||||||||||||||
| Asset Valuation Inputs (continued) |
| |||||||||||||||
| Malaysia |
$ | — | $ | 4,631,026 | $ | — | $ | 4,631,026 | ||||||||
| Mexico |
14,113,119 | — | — | 14,113,119 | ||||||||||||
| Netherlands |
2,012,948 | 32,144,379 | 0 | ** | 34,157,327 | |||||||||||
| New Zealand |
— | 5,122,650 | — | 5,122,650 | ||||||||||||
| Norway |
— | 10,624,262 | — | 10,624,262 | ||||||||||||
| Peru |
5,878,697 | — | — | 5,878,697 | ||||||||||||
| Philippines |
361,095 | 6,390,500 | — | 6,751,595 | ||||||||||||
| Poland |
— | 14,594,712 | — | 14,594,712 | ||||||||||||
| Portugal |
— | 5,531,192 | — | 5,531,192 | ||||||||||||
| Russia |
4,327,220 | 111,455,734 | — | 115,782,954 | ||||||||||||
| Singapore |
— | 17,223,718 | — | 17,223,718 | ||||||||||||
| South Africa |
1,636,810 | 37,070,511 | — | 38,707,321 | ||||||||||||
| South Korea |
5,933,349 | 223,846,268 | — | 229,779,617 | ||||||||||||
| Spain |
— | 136,313,584 | — | 136,313,584 | ||||||||||||
| Sri Lanka |
— | 68,955 | — | 68,955 | ||||||||||||
| Sweden |
— | 18,862,041 | — | 18,862,041 | ||||||||||||
| Switzerland |
— | 80,294,913 | — | 80,294,913 | ||||||||||||
| Taiwan |
12,748,886 | 96,669,978 | — | 109,418,864 | ||||||||||||
| Thailand |
— | 31,880,002 | 715,464 | 32,595,466 | ||||||||||||
| Turkey |
148,708 | 21,651,947 | — | 21,800,655 | ||||||||||||
| United Kingdom |
— | 494,176,017 | — | 494,176,017 | ||||||||||||
| United States |
1,562,040,947 | — | — | 1,562,040,947 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
1,715,724,365 | 2,413,755,546 | 1,757,843 | 4,131,237,754 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Brazil |
75,209,173 | — | — | 75,209,173 | ||||||||||||
| Germany |
— | 6,100,849 | — | 6,100,849 | ||||||||||||
| Russia |
— | 6,326,427 | — | 6,326,427 | ||||||||||||
| South Korea |
— | 5,800,661 | — | 5,800,661 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
75,209,173 | 18,227,937 | — | 93,437,110 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
748,728,546 | — | — | 748,728,546 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
5,846,630,684 | 3,328,921,019 | 8,453,198 | 9,184,004,901 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | 34,344,493 | — | 34,344,493 | ||||||||||||
| Futures Contracts |
||||||||||||||||
| Equity Risk |
74,250 | 29,606 | — | 103,856 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 5,846,704,934 | $ | 3,363,295,118 | $ | 8,453,198 | $ | 9,218,453,250 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
$ | — | $ | (6,052,645 | ) | $ | — | $ | (6,052,645 | ) | ||||||
| Futures Contracts |
||||||||||||||||
| Equity Risk |
(302,299 | ) | (553,825 | ) | — | (856,124 | ) | |||||||||
| Written Options |
||||||||||||||||
| Equity Risk |
(4,318,452 | ) | (9,047,610 | ) | — | (13,366,062 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (4,620,751 | ) | $ | (15,654,080 | ) | $ | — | $ | (20,274,831 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| 75 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Benchmark-Free Fund |
| |||||||||||||||
| Asset Valuation Inputs |
| |||||||||||||||
| Mutual Funds |
$ | 4,071,123,124 | $ | — | $ | — | $ | 4,071,123,124 | ||||||||
| Short-Term Investments |
60,321 | — | — | 60,321 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
4,071,183,445 | — | — | 4,071,183,445 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 4,071,183,445 | $ | — | $ | — | $ | 4,071,183,445 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Global Asset Allocation Fund |
| |||||||||||||||
| Asset Valuation Inputs |
| |||||||||||||||
| Debt Obligations |
||||||||||||||||
| Asset-Backed Securities |
$ | — | $ | 278,735 | $ | 17,353,939 | $ | 17,632,674 | ||||||||
| U.S. Government Agency |
— | — | 14,907 | 14,907 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Debt Obligations |
— | 278,735 | 17,368,846 | 17,647,581 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
4,874,090,849 | — | — | 4,874,090,849 | ||||||||||||
| Short-Term Investments |
289,449 | — | — | 289,449 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
4,874,380,298 | 278,735 | 17,368,846 | 4,892,027,879 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 4,874,380,298 | $ | 278,735 | $ | 17,368,846 | $ | 4,892,027,879 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Global Equity Allocation Fund |
| |||||||||||||||
| Asset Valuation Inputs |
| |||||||||||||||
| Mutual Funds |
$ | 2,585,646,657 | $ | — | $ | — | $ | 2,585,646,657 | ||||||||
| Short-Term Investments |
44,445 | — | — | 44,445 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
2,585,691,102 | — | — | 2,585,691,102 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 2,585,691,102 | $ | — | $ | — | $ | 2,585,691,102 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| International Equity Allocation Fund |
| |||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Mutual Funds |
$ | 1,636,111,625 | $ | — | $ | — | $ | 1,636,111,625 | ||||||||
| Short-Term Investments |
28,912 | — | — | 28,912 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
1,636,140,537 | — | — | 1,636,140,537 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 1,636,140,537 | $ | — | $ | — | $ | 1,636,140,537 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| International Opportunities Equity Allocation Fund |
| |||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Mutual Funds |
$ | 1,023,701,232 | $ | — | $ | — | $ | 1,023,701,232 | ||||||||
| Short-Term Investments |
36,747 | — | — | 36,747 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
1,023,737,979 | — | — | 1,023,737,979 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 1,023,737,979 | $ | — | $ | — | $ | 1,023,737,979 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Special Situations Fund |
| |||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Debt Obligations |
||||||||||||||||
| Asset-Backed Securities |
$ | — | $ | — | $ | 16,394,166 | $ | 16,394,166 | ||||||||
| Bank Loans |
— | — | 8,424,356 | 8,424,356 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
— | — | 24,818,522 | 24,818,522 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
8,009,449 | — | — | 8,009,449 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
56,905,250 | — | — | 56,905,250 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
64,914,699 | — | 24,818,522 | 89,733,221 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 76 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Special Situations Fund (continued) |
| |||||||||||||||
| Asset Valuation Inputs (continued) |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
$ | — | $ | 9,426,790 | $ | — | $ | 9,426,790 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 64,914,699 | $ | 9,426,790 | $ | 24,818,522 | $ | 99,160,011 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives* |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
$ | — | $ | (4,961,930 | ) | $ | — | $ | (4,961,930 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | — | $ | (4,961,930 | ) | $ | — | $ | (4,961,930 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Strategic Opportunities Allocation Fund |
| |||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Mutual Funds |
$ | 2,187,768,582 | $ | — | $ | — | $ | 2,187,768,582 | ||||||||
| Debt Obligations |
||||||||||||||||
| Asset-Backed Securities |
— | — | 6,555,750 | 6,555,750 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
— | — | 6,555,750 | 6,555,750 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
128,391 | — | — | 128,391 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
2,187,896,973 | — | 6,555,750 | 2,194,452,723 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 2,187,896,973 | $ | — | $ | 6,555,750 | $ | 2,194,452,723 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| U.S. Equity Allocation Fund |
| |||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Mutual Funds |
$ | 39,125,822 | $ | — | $ | — | $ | 39,125,822 | ||||||||
| Short-Term Investments |
23,504 | — | — | 23,504 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
39,149,326 | — | — | 39,149,326 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 39,149,326 | $ | — | $ | — | $ | 39,149,326 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| World Opportunities Equity Allocation Fund |
| |||||||||||||||
| Asset Valuation Input |
||||||||||||||||
| Mutual Funds |
$ | 1,454,208,573 | $ | — | $ | — | $ | 1,454,208,573 | ||||||||
| Short-Term Investments |
37,146 | — | — | 37,146 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
1,454,245,719 | — | — | 1,454,245,719 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 1,454,245,719 | $ | — | $ | — | $ | 1,454,245,719 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The risks referenced in the tables above are not intended to be inclusive of all risks. Please see the “Investment and other risks” and “Derivative financial instruments” sections below for a further discussion of risks.
| * | The tables above are based on market values or unrealized appreciation/(depreciation) rather than the notional amounts of derivatives. The uncertainties surrounding the valuation inputs for a derivative are likely to be more significant to the Funds’ net asset values than the uncertainties surrounding inputs for a non-derivative security with the same market value. |
| ** | Represents the interest in securities that were determined to have a fair value of zero at August 31, 2013. |
The underlying funds held at period end are classified above as Level 1. For the summary of valuation inputs of the underlying funds, please refer to the underlying funds’ Notes to Financial Statements.
For all Funds for the period ended August 31, 2013, there were no material transfers between Level 1 and Level 2.
| 77 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The following is a reconciliation of securities and derivatives, if any, in which significant unobservable inputs (Level 3) were used in determining value:
| Balances as of February 28, 2013 |
Purchases | Sales | Accrued Discounts/ Premiums |
Total Realized Gain/ (Loss) |
Change in Unrealized Appreciation (Depreciation) |
Transfer into Level 3* |
Transfer out of Level 3* |
Balances as of August 31, 2013 |
Net Change in Unrealized Appreciation (Depreciation) from Investments Still Held as of August 31, 2013 |
|||||||||||||||||||||||||||||||
| Consolidated Benchmark-Free Allocation Fund |
||||||||||||||||||||||||||||||||||||||||
| Common Stock |
||||||||||||||||||||||||||||||||||||||||
| India |
$ | 1,107,369 | $ | 1,085,232 | $ | (590,397 | ) | $ | — | $ | (124,571 | ) | $ | (435,254 | ) | $ | — | $ | — | 1,042,379 | $ | (455,813 | ) | |||||||||||||||||
| Netherlands |
93,629 | — | — | — | — | (93,629 | ) | — | — | 0 | ** | (93,629 | ) | |||||||||||||||||||||||||||
| Thailand |
1,300,860 | 1,216,673 | (1,831,817 | ) | — | 312,026 | (282,278 | ) | — | — | 715,464 | (178,187 | ) | |||||||||||||||||||||||||||
| Debt Obligations |
||||||||||||||||||||||||||||||||||||||||
| Asset-Backed Securities |
||||||||||||||||||||||||||||||||||||||||
| Canada |
4,156,599 | — | (106 | ) | 8,155 | 9 | (66,116 | ) | — | — | 4,098,541 | (66,116 | ) | |||||||||||||||||||||||||||
| United States |
397,099 | — | — | 17,718 | — | 75,908 | — | — | 490,725 | 75,908 | ||||||||||||||||||||||||||||||
| Bank Loans |
||||||||||||||||||||||||||||||||||||||||
| United States |
4,983,209 | — | (2,838,875 | ) | 5,489 | 6,215 | (49,949 | ) | — | — | 2,106,089 | (51,238 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total |
$ | 12,038,765 | $ | 2,301,905 | $ | (5,261,195 | ) | $ | 31,362 | $ | 193,679 | $ | (851,318 | ) | $ | — | $ | — | $ | 8,453,198 | $ | (769,075 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Global Asset Allocation Fund |
||||||||||||||||||||||||||||||||||||||||
| Debt Obligations |
||||||||||||||||||||||||||||||||||||||||
| Asset-Backed Securities |
$ | 21,136,349 | $ | — | $ | (4,676,409 | ) | $ | 867,052 | $ | 65,655 | $ | (38,708 | ) | $ | — | $ | — | $ | 17,353,939 | $ | 121,322 | ||||||||||||||||||
| U.S. Government Agency |
||||||||||||||||||||||||||||||||||||||||
| Agency |
22,304 | — | (7,488 | ) | 157 | — | (66 | ) | — | — | 14,907 | (66 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total |
$ | 21,158,653 | $ | — | $ | (4,683,897 | )# | $ | 867,209 | $ | 65,655 | $ | (38,774 | ) | $ | — | $ | — | $ | 17,368,846 | $ | 121,256 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Special Situations Fund |
||||||||||||||||||||||||||||||||||||||||
| Debt Obligations |
||||||||||||||||||||||||||||||||||||||||
| Asset-Backed Securities |
$ | 17,233,071 | $ | — | $ | (612,363 | ) | $ | 51,940 | $ | — | $ | (278,482 | ) | $ | — | $ | — | $ | 16,394,166 | $ | (264,462 | ) | |||||||||||||||||
| Bank Loans |
19,932,835 | — | (11,355,501 | ) | 45,470 | 1,346 | (199,794 | ) | — | — | 8,424,356 | (204,951 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total |
$ | 37,165,906 | $ | — | $ | (11,967,864 | )## | $ | 97,410 | $ | 1,346 | $ | (478,276 | ) | $ | — | $ | — | $ | 24,818,522 | $ | (469,413 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Strategic Opportunities Allocation Fund |
||||||||||||||||||||||||||||||||||||||||
| Debt Obligations |
||||||||||||||||||||||||||||||||||||||||
| Asset-Backed Securities |
$ | 8,853,321 | $ | — | $ | (2,590,380 | ) | $ | 182,097 | $ | 254,850 | $ | (144,138 | ) | $ | — | $ | — | $ | 6,555,750 | $ | (7,083 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total |
$ | 8,853,321 | $ | — | $ | (2,590,380 | )### | $ | 182,097 | $ | 254,850 | $ | (144,138 | ) | $ | — | $ | — | $ | 6,555,750 | $ | (7,083 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| * | The Funds account for securities and derivatives, if any, transferred into and out of Level 3 at the value at the end of the period. |
| ** | Represents the interest in securities that were determined to have a value of zero at August 31, 2013. |
| # | Includes $2,880,692 of proceeds received from paydowns. |
| ## | Includes $612,363 of proceeds received from paydowns. |
| ### | Includes $1,361,970 of proceeds received from paydowns. |
| 78 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The net aggregate direct and/or indirect exposure to investments in securities and derivative financial instruments using Level 3 inputs (based on the Funds’ net assets) as of August 31, 2013 were as follows:
| Fund Name | Level 3 securities | Level 3 derivatives | ||||||
| Alpha Only Fund |
— | — | ||||||
| Consolidated Alternative Asset Opportunity Fund |
< 1% | — | ||||||
| Consolidated Benchmark-Free Allocation Fund |
6% | (1)% | ||||||
| Benchmark-Free Fund |
6% | (1)% | ||||||
| Global Asset Allocation Fund |
6% | (1)% | ||||||
| Global Equity Allocation Fund |
< 1% | — | ||||||
| International Equity Allocation Fund |
< 1% | — | ||||||
| International Opportunities Equity Allocation Fund |
< 1% | — | ||||||
| Special Situations Fund |
26% | — | ||||||
| Strategic Opportunities Allocation Fund |
5% | (1)% | ||||||
| U.S. Equity Allocation Fund |
— | — | ||||||
| World Opportunities Equity Allocation Fund |
< 1% | — | ||||||
Cash
Cash and Foreign Currency, if any, on the Statements of Assets and Liabilities consists of cash balances held with the custodian.
Due to/from broker
Due to/from broker in the Statements of Assets and Liabilities includes collateral on swap contracts, futures contracts, option contracts and forward currency contracts, if any, and may include mark-to-market amounts related to foreign currency.
Foreign currency translation
The market values of foreign securities, currency holdings and related assets and liabilities are typically translated into U.S. Dollars at the close of regular trading on the NYSE, generally at 4:00 pm Boston time. Income and expenses denominated in foreign currencies are typically translated into U.S. Dollars at the close of regular trading on the NYSE. Fluctuations in the value of currency holdings and other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains or losses. Realized gains or losses and unrealized appreciation or depreciation on investment securities and income and expenses are translated on the respective dates of such transactions. The effects of changes in foreign currency exchange rates on investments in securities are not separated on the Statements of Operations from the effects of changes in market prices of those securities, but are included with the net realized and unrealized gain or loss on investment securities.
Loan agreements and participations
The Funds may invest in loans to corporate, governmental or other borrowers. A Fund’s investments in loans may be in the form of participations in loans or assignments of all or a portion of loans. 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. When investing in a loan participation, (i) a Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the party from whom the Fund has purchased the participation and only upon receipt by that party of payments from the borrower and (ii) a Fund generally has no right to enforce compliance by the borrower with the terms of the loan agreement or to vote on matters arising under the loan agreement. Thus, a Fund may be subject to credit risk both of the party from whom it purchased the loan participation and the borrower and that Fund may have minimal control over the terms of any loan modification. When a Fund purchases assignments of loans, it generally acquires direct rights against the borrower. Loan agreements outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Repurchase agreements
The Funds may enter into repurchase agreements. Under a repurchase agreement a Fund acquires a security for a relatively short period for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. That Fund, through its custodian, takes possession of securities it acquired under the repurchase agreement. The value of the securities acquired may be less than the amount owed to that Fund by the seller. If the seller in a repurchase agreement transaction defaults or enters into insolvency proceedings and/or the value of the securities subject to the repurchase agreement is insufficient, that Fund’s recovery of cash from the seller may be delayed and, even if that Fund is able to dispose of the securities, the Fund may incur a loss equal to the difference between the cash it paid and the value of the securities. Repurchase agreements outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
| 79 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Reverse repurchase agreements
The Funds may enter into reverse repurchase agreements. Under a reverse repurchase agreement a Fund sells portfolio assets subject to an agreement by that Fund to repurchase the same assets at an agreed upon price and date. A Fund can use the proceeds received from entering into a reverse repurchase agreement to make additional investments, which generally causes that Fund’s portfolio to behave as if it were leveraged. If the buyer in a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund may be unable to recover the securities it sold and as a result may realize a loss on the transaction if the securities it sold are worth more than the purchase price it originally received from the buyer. Reverse repurchase agreements outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Inflation-indexed bonds
The Funds may invest in inflation-indexed bonds. 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 reflects inflation in the principal value of the bond. Most other issuers pay out any inflation related accruals as part of a semiannual coupon.
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. 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, even though principal is not paid until maturity. Inflation-indexed bonds outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Taxes and distributions
Each Fund, except Alternative Asset Opportunity Fund and Special Situations Fund (see below), intends to qualify each tax year as a regulated investment company (each a “RIC Fund”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). Each RIC Fund intends to distribute substantially all of its net investment income, if any, and all of its net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryforwards for U.S. federal income tax purposes. Therefore, each RIC Fund makes no provision for U.S. federal income or excise taxes. Taxes on foreign interest and dividend income are generally withheld in accordance with the applicable country’s tax treaty with the United States. The foreign withholding rates applicable to each RIC Fund’s investments in certain jurisdictions may be higher if a significant portion of each RIC Fund is held by non-U.S. shareholders.
Alternative Asset Opportunity Fund and Special Situations Fund (each a “Partnership Fund”) have each elected to be treated as a partnership for U.S. federal income tax purposes and each shareholder is responsible for their tax liabilities, if any, related to their allocable share of Partnership Fund taxable income, gains, losses, deductions, credits and items of tax preference. The Partnership Funds’ activities do not generally constitute those of a U.S. trade or business. Accordingly, the Partnership Funds are generally not subject to U.S. federal, state and/or other income-based U.S. taxes (other than certain withholding taxes). Dividends and other income may be subject to withholding or similar taxes imposed by the country in which such dividends or other income originate.
Implementation Fund is disregarded as an entity separate from its sole shareholder, Benchmark-Free Allocation Fund (“BFAF”) for U.S. federal income tax purposes. BFAF will be treated as owning Implementation Fund’s assets directly for U.S. federal income tax purposes. As such, any income, gain, loss, deduction or other tax items arising in respect of Implementation Fund’s assets will be treated as if they are realized or incurred, as applicable, directly by BFAF. Alternative Asset SPC, Ltd is a wholly owned subsidiary of Alternative Asset Opportunity Fund and has elected to be treated as a (non-U.S.) corporation for U.S. federal income tax purposes.
Foreign taxes paid by each RIC Fund may be treated, to the extent permissible under the Code and if that RIC Fund so elects, as if paid by U.S. shareholders of that RIC Fund.
Each RIC Fund’s policy is to declare and pay distributions of its net investment income, if any, semi-annually. Each RIC Fund also intends to distribute net realized short-term and long-term capital gains, if any, at least annually. Typically all distributions are reinvested in additional shares of each RIC Fund, at net asset value, unless the shareholder elects to receive cash distributions. Distributions to shareholders are recorded by each RIC Fund on the ex-dividend date.
Because each Partnership Fund has elected to be treated as a partnership for U.S. federal income tax purposes, it is not required to make distributions to its shareholders. It is the policy of each Partnership Fund to declare and pay non-redeeming distributions in the sole discretion of the Trustees (or their delegates). Distributions made by each Partnership Fund, if any, other than distributions made in partial or complete
| 80 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
redemption of shareholders’ interests in the Partnership Fund, are reported in each Partnership Fund’s Statements of Changes in Net Assets as Partnership Fund distributions to shareholders.
Each Fund may be subject to taxation on realized capital gains, repatriation proceeds and other transaction-based taxes imposed by certain countries in which it invests. Taxes related to capital gains realized during the period ended August 31, 2013, if any, are reflected as part of Net realized gain (loss) in the Statements of Operations. Changes in tax liabilities related to capital gain taxes on unrealized investment gains, if any, are reflected as part of Change in net unrealized appreciation (depreciation) in the Statements of Operations. Transaction-based charges are generally calculated as a percentage of the transaction amount.
Income and capital gain distributions for each RIC Fund are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will likely reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary over-distributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Distributions in excess of a RIC Fund’s tax basis earnings and profits, if significant, are reported in the Funds’ financial statements as a return of capital.
As of February 28, 2013, the RIC Funds listed below elected to defer to March 1, 2013 late-year ordinary losses and post-October capital losses as follows:
| Fund Name | Late-Year Ordinary Losses ($) |
Post- October Capital Losses ($) |
||||||
| Alpha Only Fund |
(2,528,939) | (140,730,688) | ||||||
| Benchmark-Free Fund |
(4,053,854) | (2,394,335) | ||||||
| Global Asset Allocation Fund |
(4,115,924) | — | ||||||
| Global Equity Allocation Fund |
(4,424) | — | ||||||
| International Equity Allocation Fund |
(2,478) | — | ||||||
| International Opportunities Equity Allocation Fund |
(1,799) | — | ||||||
| Strategic Opportunities Allocation Fund |
(1,159,543) | — | ||||||
| U.S. Equity Allocation Fund |
(121) | — | ||||||
| World Opportunities Equity Allocation Fund |
(2,672) | — | ||||||
As of February 28, 2013, the RIC Funds listed below had capital loss carryforwards available to offset future realized gains, if any, to the extent permitted by the Code. Net capital losses recognized in taxable years beginning on or after March 1, 2011 are carried forward without expiration and generally retain their short-term and/or long-term tax character, as applicable. In addition, such losses should be utilized prior to losses scheduled to expire on or before February 28, 2019. As a result of this ordering rule, losses that are subject to expiration may expire unused.
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Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Utilization of the capital loss carryforwards, post-October capital losses, late-year ordinary losses and losses realized subsequent to February 28, 2013, if any, could be subject to further limitations imposed by the Code related to share ownership activity. The RIC Funds’ capital loss carryforwards are as follows:
| Short-Term ($) |
Total |
Long- Term ($) |
||||||||||||||||||||||
| Fund Name |
Expiration 2/28/2017 |
Expiration 2/28/2018 |
Expiration 2/28/2019 |
No Expiration Date |
No Expiration Date |
|||||||||||||||||||
| Alpha Only Fund |
— | (652,138,061) | (309,022,361) | (3,613,992) | (964,774,414) | — | ||||||||||||||||||
| Benchmark-Free Allocation Fund |
— | (37,205,535) | (7,441,107) | — | (44,646,642) | — | ||||||||||||||||||
| Global Asset Allocation Fund |
— | — | (28,892,170) | — | (28,892,170) | — | ||||||||||||||||||
| International Opportunities Equity Allocation Fund |
— | (39,084,586) | (22,515,333) | (1,072,169) | (62,672,088) | (56,909,375) | ||||||||||||||||||
| U.S. Equity Allocation Fund |
(1,592,763) | (176,824) | (1,290,769) | — | (3,060,356) | — | ||||||||||||||||||
| World Opportunities Equity Allocation Fund |
— | (15,834,733) | (33,655,279) | — | (49,490,012) | — | ||||||||||||||||||
As of August 31, 2013, the approximate cost for U.S. federal income tax purposes and the aggregate investment-level gross and net unrealized appreciation (depreciation) in the value of investments were as follows:
| Fund Name | Aggregate Cost ($) |
Gross Unrealized Appreciation ($) |
Gross Unrealized (Depreciation) ($) |
Net Unrealized Appreciation (Depreciation) ($) |
||||||||||||
| Alpha Only Fund |
2,527,688,702 | 102,004,230 | (5,517,453) | 96,486,777 | ||||||||||||
| Consolidated Alternative Asset Opportunity Fund |
1,753,313,209 | 16,587,666 | (7,791,597) | 8,796,069 | ||||||||||||
| Consolidated Benchmark-Free Allocation Fund |
9,190,263,617 | 177,985,533 | (184,244,249) | (6,258,716) | ||||||||||||
| Benchmark-Free Fund |
3,955,540,355 | 226,689,823 | (111,046,733) | 115,643,090 | ||||||||||||
| Global Asset Allocation Fund |
4,890,922,769 | 88,772,765 | (87,667,655) | 1,105,110 | ||||||||||||
| Global Equity Allocation Fund |
2,525,083,108 | 114,688,673 | (54,080,679) | 60,607,994 | ||||||||||||
| International Equity Allocation Fund |
1,641,569,137 | 24,608,261 | (30,036,861) | (5,428,600) | ||||||||||||
| International Opportunities Equity Allocation Fund |
1,081,074,467 | — | (57,336,488) | (57,336,488) | ||||||||||||
| Special Situations Fund |
89,864,776 | 142,166 | (273,721) | (131,555) | ||||||||||||
| Strategic Opportunities Allocation Fund |
2,065,902,318 | 140,283,165 | (11,732,760) | 128,550,405 | ||||||||||||
| U.S. Equity Allocation Fund |
33,290,431 | 5,858,895 | — | 5,858,895 | ||||||||||||
| World Opportunities Equity Allocation Fund |
1,356,200,625 | 98,186,148 | (141,054) | 98,045,094 | ||||||||||||
The Funds are subject to authoritative guidance related to the accounting and disclosure of uncertain tax positions under U.S. GAAP. This guidance sets forth a minimum threshold for the financial statement recognition of tax positions taken based on the technical merits of such positions. United States and non-U.S. tax rules (including the interpretation and application of tax laws) are subject to change. The Funds file tax returns and/or adopt certain tax positions in various jurisdictions. Non-U.S. taxes are provided for based on the Funds’ understanding of the prevailing tax rules of the non-U.S. markets in which they invest. Recently enacted tax rules, including interpretations of tax laws (e.g., regulations pertaining to the U.S. Foreign Account Tax Compliance Act) and proposed legislation currently under consideration in various jurisdictions, including the U.S., might affect the way the Funds and their investors are taxed prospectively and/or retroactively. Prior to the expiration of the relevant statutes of limitations, if any, the Funds are subject to examination by U.S. federal, state, local and non-U.S. jurisdictions with respect to the tax returns they have filed and the tax positions they have adopted. The Funds’ U.S. federal income tax returns are generally subject to examination by the Internal Revenue Service for a period of three years after they are filed. State, local and/or non-U.S. tax returns and/or other filings may be subject to examination for different periods, depending upon the tax rules of each applicable jurisdiction.
Security transactions and related investment income
Security transactions are accounted for in the financial statements on trade date. For purposes of daily net asset value calculations, the Funds’ policy is that security transactions are generally accounted for on the following business day. The Manager may override that policy and a Fund
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August 31, 2013 (Unaudited)
may account for security transactions on trade date if it experiences significant purchases or redemptions or engages in significant portfolio transactions. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when a Fund is informed of the ex-dividend date. Income dividends and capital gain distributions from the underlying funds are recorded on the ex-dividend date. Interest income is recorded on the accrual basis and is adjusted for the amortization of premiums and accretion of discounts. Principal on inflation-indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or investment loss. Coupon income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Funds use the identified cost basis.
Expenses
Most of the expenses of the Trust are directly identifiable to an individual Fund. Common expenses are allocated among the Funds based on, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses, purchase premiums and redemption fees, if any, and realized and unrealized gains and losses are allocated among the classes of shares of the Funds, if applicable, based on the relative net assets of each class. Shareholder service fees and supplemental support fees, if any, which are directly attributable to a class of shares, are charged to that class’s operations. In addition, the Funds may incur fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have different expense and fee levels and the Funds may own different proportions of the underlying funds at different times, the amount of fees and expenses indirectly incurred by a Fund will vary (See Note 5).
State Street Bank and Trust Company (“State Street”) serves as the Funds’ custodian, fund accounting agent and transfer agent for all Funds except Alpha Only Fund. For Alpha Only Fund, Brown Brothers Harriman & Co. (“BBH”) serves as the custodian and fund accounting agent and State Street serves as the transfer agent. State Street’s transfer agent fees may be reduced by an earnings allowance calculated on the average daily cash balances each Fund maintains in a State Street transfer agent account. Earnings allowances are reported as a reduction of expenses in the Statement of Operations. Prior to December 31, 2012, State Street’s custodian fees may have been reduced by an earnings allowance calculated on the average daily cash balance each Fund maintained in a State Street custodial account. Earnings allowances were reported as a reduction of expenses in the Statements of Operations. Effective January 1, 2013, any cash balances maintained at the custodian are held in a Demand Deposit Account and interest income earned, if any, is shown as interest income in the Statements of Operations.
Purchases and redemptions of Fund shares
Purchase premiums and redemption fees (if applicable) are paid to and retained by a Fund to help offset estimated portfolio transaction costs and other related costs (e.g., bid to ask spreads, stamp duties, and transfer fees) incurred by the Fund (directly or indirectly through investments in underlying funds) as a result of the purchase or redemption by allocating estimated transaction costs to the purchasing or redeeming shareholder. Such fees are recorded as a component of the Funds’ net share transactions. A Fund may impose a new purchase premium and/or redemption fee or modify an existing fee at any time.
Each of the Funds may charge purchase premiums and redemption fees. Purchase premiums and redemption fees for the Funds are typically reassessed annually based on the weighted average of (i) the estimated transaction costs for directly held assets and (ii) the purchase premiums and/or redemption fees, if any, imposed by the underlying funds in which the Funds invest, provided that, if that weighted average is less than 0.05%, the Funds usually will not charge a purchase premium or redemption fee.
Purchase premiums are not charged on reinvestments of distributions. Redemption fees apply to all shares of a Fund regardless of how the shares were acquired (e.g., by direct purchase or by reinvestment of dividends or other distributions). If the Manager determines that any portion of a cash purchase or redemption, as applicable, is offset by a corresponding cash redemption or purchase occurring on the same day, it ordinarily will waive or reduce the purchase premium or redemption fee with respect to that portion. The Manager also may waive or reduce the purchase premium or redemption fee relating to a cash purchase or redemption of a Fund’s shares if the Fund will not incur transaction costs or will incur reduced transaction costs.
The Manager will waive or reduce the purchase premium when securities are used to purchase a Fund’s shares except to the extent that the Fund incurs transaction costs (e.g., stamp duties or transfer fees) in connection with its acquisition of those securities. The Funds may waive or reduce redemption fees when they use portfolio securities to redeem their shares. However, when a substantial portion of a Fund is being redeemed in-kind, the Fund may nonetheless charge a redemption fee equal to known or estimated costs.
Purchase premiums or redemption fees generally will not be waived for purchases and redemptions of Fund shares executed through brokers or agents, including, without limitation, intermediary platforms that are allowed pursuant to agreements with the Trust to transmit orders for purchases and redemptions the day after those orders are received.
The Manager may consider known cash flows out of or into underlying funds when placing orders for the cash purchase or redemption of underlying fund shares by accounts over which the Manager has investment discretion, including the Funds and other pooled investment vehicles. Consequently, those accounts will tend to benefit more from waivers of the underlying funds’ purchase premiums and redemption fees than other underlying fund shareholders.
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Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
As of August 31, 2013, the premium on cash purchases and the fee on cash redemptions were as follows:
| Alpha Only | Alternative Asset Opportunity Fund | Benchmark-Free Allocation Fund(1) | Benchmark-Free Fund(2) | Global Asset Allocation Fund(3) | Global Equity Allocation Fund(4) | International Equity Allocation Fund(5) | International Opportunities Equity Allocation Fund | Special Situations Fund | Strategic Opportunities Allocation Fund(6) | U.S. Equity Allocation Fund | World Opportunities Equity Allocation Fund | |||||||||||||
| Purchase Premium | — | — | 0.11% | 0.14% | 0.11% | 0.11% | 0.20% | — | — | 0.06% | — | — | ||||||||||||
| Redemption Fee | — | — | 0.11% | 0.14% | 0.11% | 0.11% | 0.20% | — | — | 0.06% | — | — | ||||||||||||
| (1) | Prior to June 30, 2013, the premium on cash purchases and the fee on cash redemptions were each 0.12% of the amount invested or redeemed. |
| (2) | Prior to June 30, 2013, the premium on cash purchases and the fee on cash redemptions were each 0.13% of the amount invested or redeemed. |
| (3) | Prior to June 30, 2013, the premium on cash purchases and the fee on cash redemptions were each 0.10% of the amount invested or redeemed. |
| (4) | Prior to June 30, 2013, the premium on cash purchases and the fee on cash redemptions were each 0.12% of the amount invested or redeemed. |
| (5) | Prior to June 30, 2013, the premium on cash purchases and the fee on cash redemptions were each 0.21% of the amount invested or redeemed. |
| (6) | Prior to June 30, 2013, the premium on cash purchases and the fee on cash redemptions were each 0.07% of the amount invested or redeemed. |
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August 31, 2013 (Unaudited)
| 3. | Investment and other risks |
The following chart identifies selected risks associated with each Fund. Risks not marked for a particular Fund may, however, still apply to some extent to that Fund at various times:
| Alpha Only Fund | Alternative Asset Opportunity Fund |
Benchmark- Free Allocation Fund |
Benchmark- Free Fund |
Global Asset Allocation Fund |
Global Equity Allocation Fund |
International Equity Allocation Fund |
International Opportunities Equity Allocation Fund |
Special Situations Fund |
Strategic Opportunities Allocation Fund |
U.S. Equity Allocation Fund |
World Opportunities Equity Allocation Fund | |||||||||||||
| Market Risk – Equities | X | X | X | X | X | X | X | X | X | X | X | X | ||||||||||||
| Market Risk – Fixed Income Investments | X | X | X | X | X | X | X | X | X | X | X | |||||||||||||
| Market Risk – Asset-Backed Securities | X | X | X | X | X | X | X | X | X | X | X | |||||||||||||
| Credit Risk | X | X | X | X | X | X | X | X | X | X | X | |||||||||||||
| Liquidity Risk | X | X | X | X | X | X | X | X | X | X | X | X | ||||||||||||
| Smaller Company Risk | X | X | X | X | X | X | X | X | X | X | ||||||||||||||
| Derivatives Risk | X | X | X | X | X | X | X | X | X | X | X | X | ||||||||||||
| Non-U.S. Investment Risk | X | X | X | X | X | X | X | X | X | X | X | X | ||||||||||||
| Currency Risk | X | X | X | X | X | X | X | X | X | X | X | X | ||||||||||||
| Focused Investment Risk | X | X | X | X | X | X | X | X | X | X | X | |||||||||||||
| Real Estate Risk | X | X | X | X | X | X | X | X | ||||||||||||||||
| Leveraging Risk | X | X | X | X | X | X | X | X | X | X | X | X | ||||||||||||
| Counterparty Risk | X | X | X | X | X | X | X | X | X | X | X | X | ||||||||||||
| Short Sales Risk | X | X | X | X | X | X | X | X | X | X | X | |||||||||||||
| Natural Resources Risk | X | X | X | X | X | X | X | X | X | |||||||||||||||
| Commodities Risk | X | X | X | X | X | X | X | X | X | |||||||||||||||
| Market Disruption and Geopolitical Risk | X | X | X | X | X | X | X | X | X | X | X | X | ||||||||||||
| Large Shareholder Risk | X | X | X | X | X | X | X | X | X | X | X | X | ||||||||||||
| Management and Operational Risk | X | X | X | X | X | X | X | X | X | X | X | X | ||||||||||||
| Options Risk | X | X | X | X | X | X | X | X | X | |||||||||||||||
| Fund of Funds Risk | X | X | X | X | X | X | X | X | X | X | X | X | ||||||||||||
| Non-Diversified Funds | X | X | X | X | X | X | X | X | X | X | X | X | ||||||||||||
Investing in mutual funds involves many risks. The risks of investing in a particular Fund depend on the types of investments in its portfolio and the investment strategies the Manager employs on its behalf. This section does not describe every potential risk of investing in the Funds. Funds could be subject to additional risks because of the types of investments they make and market conditions, which may change over time.
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GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Each Fund that invests in other GMO Funds and other investment companies is exposed to the risks to which the underlying funds in which it invests are exposed. Therefore, unless otherwise noted, the selected risks summarized below include both direct and indirect risks, and, references in this section to investments made by a Fund include those made both directly by the Fund and indirectly by the Fund through other GMO Funds and other investment companies.
An investment in a Fund is not a bank deposit and, therefore, is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
• MARKET RISK. All of the Funds are subject to market risk, which is the risk that the market value of their holdings will decline. Market risks include:
Equities — Funds that invest in equities run the risk that the market prices of those investments will decline. The market prices of equities may decline for reasons that directly relate to the issuing company, such as poor management performance or reduced demand for its goods or services. They also may decline due to factors that affect a particular industry, such as a decline in demand, labor or raw material shortages, or increased production costs. In addition, market prices may decline as a result of general market conditions 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. Equities generally have significant price volatility, and the market prices of equities can decline in a rapid or unpredictable manner.
Some of the Funds invest a substantial portion of their assets in equities and, as a result, declines in stock market prices generally are likely to reduce the net asset values of those Funds’ shares.
If a Fund purchases equities 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 appreciate or will decline for a variety of reasons, one of which may be the Manager’s overestimation of the value of those investments.
The market prices of equities trading at high multiples of current earnings often are more sensitive to changes in future earnings expectations than the market prices of equities trading at lower multiples.
Because of Risk Premium Fund’s emphasis on selling put options on stock indices, its shares are expected to decline in value when those indices decline in value. Also, Risk Premium Fund’s investment strategy of writing put options on stock indices can be expected to cause the Fund to underperform the equity markets on which its puts were written when those markets rise rapidly because the Fund does not have exposure to the upside of the equity markets.
Fixed Income Investments — Funds that invest in fixed income securities (including bonds, notes, bills, synthetic debt instruments and asset-backed securities) are subject to various market risks. The market price of a fixed income investment can decline due to a number of market-related factors, including rising interest rates and widening credit spreads, or decreased liquidity stemming from the market’s uncertainty about the value of a fixed income investment (or class of fixed income investments). In addition, the market price of fixed income investments with complex structures, such as asset-backed securities and sovereign and quasi-sovereign debt instruments, can decline due to market uncertainty about their credit quality and the reliability of their payment streams. Some fixed income securities also are subject to unscheduled prepayment, and a Fund may be unable to invest prepayments at as high a yield as was provided by the fixed income security. When interest rates rise, these securities also may be repaid more slowly than anticipated, which could cause the market price of the Fund’s investment to decrease. During periods of economic uncertainty and change, the market price of a Fund’s investments in below investment grade securities (commonly referred to as “junk bonds”) may be particularly volatile. Often junk bonds are subject to greater sensitivity to interest rate and economic changes than higher rated bonds and can be more difficult to value, exposing a Fund to the risk that the price of which it sells them will be less than the value placed on them when they were held by the Fund. See “Credit Risk” and “Liquidity Risk” below for more information about these risks.
A risk run by each Fund with a significant investment in fixed income securities is that an increase in prevailing interest rates will cause the market price of those securities to decline. The risk associated with increases in interest rates (also called “interest rate risk”) is generally greater for Funds investing in fixed income securities with longer durations and in some cases duration can increase.
The extent to which a fixed income security’s price changes with changes in interest rates is referred to as interest rate duration, which can be measured mathematically or empirically. A longer-maturity investment generally has longer interest rate duration because the investment’s fixed rate is locked in for a longer period of time. Floating-rate or adjustable-rate securities, however, generally have shorter interest rate durations because their interest rates are not fixed but rather float up and down as interest rates change. Conversely, inverse floating-rate securities have durations that move in the opposite direction from short-term interest rates and thus tend to underperform fixed rate securities when interest rates rise but outperform them when interest rates decline. Fixed income securities paying no interest, such as zero coupon and principal-only securities, create additional interest rate risk.
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August 31, 2013 (Unaudited)
The market price of inflation-indexed bonds (including Inflation-Protected Securities issued by the U.S. Treasury (“TIPS”)) normally changes when real interest rates change. Their value typically will decline during periods of rising real interest rates (i.e., nominal interest rate minus inflation) and increase during periods of declining real interest rates. Real interest rates may not fluctuate in the same manner as nominal interest rates. In some interest rate environments, such as when real interest rates are rising faster than nominal interest rates, the market price of inflation-indexed bonds may decline more than the price of non-inflation-indexed (or nominal) fixed income bonds with similar maturities. The market price of a Fund’s inflation-indexed bonds, however, will not necessarily change in the same proportion as changes in nominal interest rates, and short term increases in inflation may lead to a decline in their price. Moreover, if the index measuring inflation falls, the principal value of inflation-indexed bond investments will be adjusted downward, and, consequently, the interest they pay (calculated with respect to a smaller principal amount) will be reduced. In the case of TIPS, the U.S. government guarantees the repayment of the original bond principal upon maturity (as adjusted for inflation). 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.
Market risk for fixed income securities denominated in non-U.S. currencies is also affected by currency risk. See “Currency Risk” below.
Asset-Backed Securities — Investments in asset-backed securities not only are subject to all of the market risks described above for fixed income securities but to other market risks as well.
Funds investing in asset-backed securities are exposed to the risk that these securities experience severe credit downgrades, illiquidity, defaults, and declines in market value. These risks are particularly acute during periods of adverse market conditions, such as those that occurred in 2008. Asset-backed securities may be backed by many types of assets, including pools of residential and commercial mortgages, automobile loans, educational loans, home equity loans, and credit-card receivables. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as “collateralized debt obligations” or “collateralized loan obligations”) and by the fees earned by service providers.
As described under “Market Risk — Fixed Income Investments” above, the market price of fixed income investments with complex structures, such as asset-backed securities, can decline due to a number of factors, including market uncertainty about their credit quality and the reliability of their payment streams. Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flow generated by the assets backing the securities, as well as the deal structure (e.g., 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 and the credit quality of the credit-support provider, if any, and the reliability of various other service providers with access to the payment stream. A problem in any one of these areas can lead to a reduction in the payment stream the Manager expected a Fund to receive at the time the Fund purchased the asset-backed security. Asset-backed securities involve risk of loss of principal if obligors of the underlying obligations default and the value of the defaulted obligations exceeds whatever credit support the securities may have. Asset-backed securities backed by sub-prime mortgage loans, in particular, may cause a Fund to suffer significantly greater declines in value due to defaults, as sub-prime mortgage loans are typically made to less creditworthy borrowers and thus have a higher risk of default than conventional mortgage loans. The obligations of issuers (and obligors of asset-backed securities) also are subject to bankruptcy, insolvency and other laws affecting the rights and remedies of creditors. As of the date of this report, many asset-backed securities owned by the Funds that were once rated investment grade are now rated below investment grade. See “Credit Risk” below for more information about credit risk.
With the deterioration of worldwide economic and liquidity conditions that occurred and became acute in 2008, the markets for asset-backed securities became fractured, and uncertainty about the creditworthiness of those securities (and underlying assets) caused credit spreads (the difference between yields on asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of financial institutions to make markets in many fixed income securities. These events reduced liquidity and contributed to substantial declines in the market prices of asset-backed and other fixed income securities. 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., sub-prime mortgages) have had, and may continue to have, adverse valuation and liquidity effects on asset-backed securities.
The market price of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying assets. The insolvency of an entity that generated the assets underlying an asset-backed security is likely to result in a decline in the market price of that security, as well as costs and delays. The obligations underlying asset-backed securities, in particular securities backed by pools of residential and commercial mortgages, also are subject to unscheduled prepayment, and a Fund may be unable to invest prepayments at as high a yield as was provided by the asset-backed security. When interest rates rise, these obligations also may be repaid more slowly than anticipated, which could cause the market price of the Fund’s investment to decrease.
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August 31, 2013 (Unaudited)
In addition, the existence of insurance on an asset-based security does not guarantee that the 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 risk of investing in asset-backed securities has increased since the deterioration in worldwide economic and liquidity conditions referred to above 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 correlated. See “Focused Investment Risk” below for more information about risks of investing in correlated sectors. A single financial institution may serve as a trustee for many asset-backed securities. As a result, a disruption in that institution’s business may have a material impact on many investments.
• CREDIT RISK. This is the risk that the issuer or guarantor of a fixed income investment or the obligor of an obligation underlying an asset-backed security will be unable or unwilling to satisfy its obligation to pay principal and interest or otherwise to honor its obligations in a timely manner. The market price of a fixed income investment will normally decline as a result of the issuer’s, guarantor’s, or obligor’s failure to meet its payment obligations or the downgrading of its credit rating. This risk is particularly acute in environments (like those of 2008) in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions.
All fixed income securities are subject to credit risk. Financial strength and solvency of an issuer are the primary factors influencing credit risk. The risk varies depending upon whether the issuer is a corporation or U.S. or non-U.S. government (or sub-division or instrumentality) and whether the particular security has a priority over other obligations of the issuer in payment of principal and interest and whether it has any collateral backing or credit enhancement. Credit risk may change over the life of a fixed income security. U.S. government securities are subject to varying degrees of credit risk depending upon whether the securities are supported by the full faith and credit of the United States, supported by the ability to borrow from the U.S. Treasury, supported only by the credit of the issuing U.S. government agency, instrumentality, or corporation, or otherwise supported by the United States. For example, issuers of many types of U.S. government securities (e.g., the Federal Home Loan Mortgage Corporation (“Freddie Mac”), Federal National Mortgage Association (“Fannie Mae”), and Federal Home Loan Banks), although chartered or sponsored by Congress, are not funded by Congressional appropriations and their fixed income securities, including mortgage-backed and other asset-backed securities, are neither guaranteed nor insured by the U.S. government. These securities are subject to more credit risk than U.S. government securities that are supported by the full faith and credit of the United States (e.g., U.S. Treasury bonds). Investments in sovereign debt involve the risk that the governmental entities responsible for repayment may be unable or unwilling to pay interest and repay principal when due. A governmental entity’s willingness or ability to pay interest and repay principal in a timely manner may be affected by a variety of factors, including its cash flow, the size of its reserves, its access to foreign exchange, the relative size of its debt service burden to its economy as a whole, and political constraints. In addition, payment of principal of fixed income securities guaranteed by the U.S. government can be delayed because the guarantee generally only requires payment upon maturity of the securities. Investments in quasi-sovereign issuers are subject to the additional risk that the issuer may default independently of its sovereign. Sovereign debt risk is greater for fixed income securities issued or guaranteed by emerging countries.
In some cases, the credit risk of a fixed income security is reflected in its credit ratings, and a Fund holding such a security is subject to the risk that its rating will be downgraded.
Securities issued by the U.S. Treasury historically have presented minimal credit risk. However, recent events have led to a downgrade in the long-term U.S. credit rating by at least one major rating agency and have introduced greater uncertainty about the ability of the U.S. to repay its obligations. A further credit rating downgrade or a U.S. credit default could decrease the value and increase the volatility of a Fund’s investments.
As described under “Market Risk — Asset-Backed Securities” above, asset-backed securities may be backed by many types of assets and their payment of interest and repayment of principal largely depend on the cash flows generated by the assets backing them. The credit risk of a particular asset-backed security depends on many factors, as described in “Market Risk — Asset Backed Securities” above.
The obligations of issuers also are subject to bankruptcy, insolvency and other laws affecting the rights and remedies of creditors. A Fund also is exposed to credit risk on a reference security to the extent it writes protection under credit default swaps. See “Derivatives Risk” below for more information regarding risks associated with the use of credit default swaps.
The extent to which the market price of a fixed income security changes in response to a credit event depends on a number of factors and can be difficult to predict. For example, floating rate securities may have final maturities of ten or more years, but their effective durations will tend to be very short. If the issuer of floating rate securities experiences an adverse credit event, or a change occurs in its perceived creditworthiness, the market price of its securities could decline much more than would be predicted by a change in their yield relative to their effective duration.
Credit risk is particularly pronounced for below investment grade securities (commonly referred to as “junk bonds”). The sovereign debt of many non-U.S. governments, including their sub-divisions and instrumentalities, is below investment grade. Many asset-backed securities also are below investment grade. Below investment grade securities have speculative characteristics, often are less liquid than higher quality securities, present a greater risk of default and are more susceptible to real or perceived adverse industry conditions. In the event of default of sovereign debt, the Funds may be unable to pursue legal action against the sovereign issuer.
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• LIQUIDITY RISK. Liquidity risk is the risk that low trading volume, lack of a market maker, large position size or legal restrictions (including daily price fluctuation limits or “circuit breakers”) limits or prevents a Fund from selling particular securities or unwinding derivative positions at desirable prices. In addition to these risks, a Fund is 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 a short position). All of the Funds are subject to liquidity risk, but those with the greatest risk have principal investment strategies that involve investment in asset-backed securities, emerging country debt securities, securities of companies with smaller market capitalizations or smaller total float-adjusted market capitalizations and emerging market securities. These types of investments can be difficult to value, exposing a Fund to the risk that the price at which it sells them will be less than the value placed on them when they were held by the Fund. In addition, TIPS have exhibited periods of greatly reduced liquidity when disruptions in fixed income markets have occurred, such as the events surrounding the bankruptcy of Lehman Brothers in 2008. Less liquid securities are more susceptible than other securities to price declines when market prices decline generally.
All of the Funds with benchmarks may buy securities that are less liquid than those in their benchmarks.
• SMALLER COMPANY RISK. Companies with smaller market capitalizations, including small- and mid-cap 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 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. In addition, market risk and liquidity risk are particularly pronounced for securities of these companies.
• DERIVATIVES RISK. All of the Funds 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 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. Derivatives include futures, non-U.S. 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 use of derivatives involves risks that are in addition to, and potentially greater than, the risks of investing directly in securities and other more traditional assets. In particular, a Fund’s use of OTC derivatives exposes it to the risk that the counterparties will be unable or unwilling to make timely settlement payments or otherwise honor their obligations. An OTC derivatives contract typically can be closed only with the consent of 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 it does, the Fund may decide not to pursue its claims against the counterparty to avoid incurring the cost and unpredictability of legal proceedings. The Fund, therefore, may be unable to obtain payments the Manager believes are owed to it under OTC derivatives contracts, or those payments may be delayed or made only after the Fund has incurred the costs of litigation.
A Fund may invest in derivatives that (i) do not require the counterparty to post collateral (e.g., non-U.S. currency forwards), (ii) require collateral but that do not provide for the Fund’s security interest in it to be perfected, (iii) require a significant upfront deposit by the Fund unrelated to the derivative’s intrinsic value, or (iv) do not require that collateral be regularly marked-to-market. When a counterparty’s obligations are not fully secured by collateral, a Fund runs the risk of having limited recourse if the counterparty defaults. Even when obligations are required by contract to be collateralized, a Fund often will not receive the collateral the day the collateral is called for.
The Funds 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 Funds. Derivatives risk is particularly acute in environments (like those of 2008) in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. In addition, during those periods, a Fund may have a greater need for cash to provide collateral for large swings in its mark-to-market obligations under the derivatives in which it has invested.
Derivatives also present other risks described in this section, including market risk, liquidity risk, currency risk, credit 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 may not produce valuations that are consistent with the values a Fund realizes when it closes or sells an OTC derivative. Valuation risk is more pronounced when a 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 a Fund’s net asset value.
A Fund’s 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 a Fund, the Funds will not be permitted to trade with that counterparty. In addition, the Manager may decide not to use derivatives to hedge or otherwise reduce a Fund’s risk exposures, potentially resulting in losses for the Fund.
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Swap contracts and other OTC derivatives are highly susceptible to liquidity risk (see “Liquidity Risk” above) 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.
A Fund’s use of derivatives may be subject to one or more special tax rules and could generate additional taxable income for shareholders.
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 (and many of the rules are not yet final), its ultimate impact remains unclear.
Under recently adopted rules and regulations, transactions in some types of swaps (including interest rate swaps and credit default swaps on North American and European indices) are required to be centrally cleared. In a transaction involving those swaps (“cleared derivatives”), a Fund’s counterparty is a clearing house, rather than a bank or broker. Since the Funds are not members of clearing houses and only members of a clearing house (“clearing members”) can participate directly in the clearing house, the Funds will hold cleared derivatives through accounts at clearing members. In cleared derivatives transactions, the Funds will make payments (including margin payments) to and receive payments from a clearing house through their accounts at clearing members. Clearing members guarantee performance of their clients’ obligations to the clearing house.
In many ways, cleared derivative arrangements are less favorable to mutual funds than bilateral arrangements. For example, the Funds may be required to provide more margin for cleared derivatives transactions than for bilateral derivatives transactions. Also, in contrast to a bilateral derivatives transaction, following a period of notice to a Fund, a clearing member generally can require termination of an existing cleared derivatives transaction at any time or an increase in margin requirements above the margin that the clearing member required at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions or to terminate those transactions at any time. Any increase in margin requirements or termination of existing cleared derivatives transactions by the clearing member or the clearing house could interfere with the ability of a Fund to pursue its investment strategy. Further, any increase in margin requirements by a clearing member could expose a Fund to greater credit risk to its clearing member, because (as described under “Counterparty Risk” below) margin for cleared derivatives transactions in excess of a clearing house’s margin requirements typically is held by the clearing member. Also, a Fund is subject to risk if it enters into a derivatives transaction that is required to be cleared (or that the Manager expects to be cleared), and no clearing member is willing or able to clear the transaction on the Fund’s behalf. While the documentation in place between the Funds and their clearing members generally provides that the clearing members will accept for clearing all cleared derivatives transactions that are within credit limits (specified in advance) for each Fund, the Funds are still subject to the risk that no clearing member will be willing or able to clear a transaction. In those cases, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of the transaction, including loss of an increase in the value of the transaction and/or loss of hedging protection. In addition, the documentation governing the relationship between the Funds and clearing members is drafted by the clearing members and generally is less favorable to the Funds than typical bilateral derivatives documentation. For example, documentation relating to cleared derivatives generally includes a one-way indemnity by the Funds in favor of the clearing member for losses the clearing member incurs as the Funds’ clearing member and typically does not provide the Funds any remedies if the clearing member defaults or becomes insolvent.
These and other new rules and regulations could, among other things, further restrict a Fund’s ability to engage in, or increase the cost to the Fund of, derivatives transactions, for example, by making some types of derivatives no longer available to the Fund, increasing margin or capital requirements, or otherwise limiting liquidity or increasing transaction costs. These regulations are new and evolving, so their potential impact on the Funds and the financial system are not yet known. While the new regulations and central clearing of some derivatives transactions are designed to reduce systemic risk (i.e., the risk that the interdependence of large derivatives dealers could cause them to suffer liquidity, solvency or other challenges simultaneously), there is no assurance that the new clearing mechanisms will achieve that result, and in the meantime, as noted above, central clearing exposes the Funds to new kinds of risks and costs.
• NON-U.S. INVESTMENT RISK. Funds that invest in non-U.S. securities are subject to additional and more varied risks than Funds whose investments are limited to U.S. securities. The securities markets of many non-U.S. countries include 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 non-U.S. securities often are not subject to the same degree of regulation as U.S. issuers. Reporting, accounting, custody and auditing standards of non-U.S. countries differ, in some cases significantly, from U.S. standards. Non-U.S. portfolio transactions generally involve higher commission rates, transfer taxes and custodial costs. In addition, some jurisdictions may limit a Fund’s ability to profit from short-term trading (as defined in the relevant jurisdiction).
A Fund may be subject to non-U.S. taxation, including potentially on a retroactive basis, on (i) capital gains it realizes or dividends or interest it receives on non-U.S. investments, (ii) transactions in those investments and (iii) the repatriation of proceeds generated from the sale of those investments. A Fund may seek to collect a refund on taxes paid to a non-U.S. country. In those cases, all or a portion of those taxes could ultimately be recovered by a Fund. However, the recovery process could take several years and the Fund will incur expenses in its efforts to
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collect the refund, which will reduce the benefit of any recovery. A Fund’s efforts to collect a refund may not be successful, in which case the Fund will have incurred additional expenses for no economic benefit. A Fund’s decision to pursue a refund is in its sole discretion, and it may decide not to pursue a refund, even if eligible.
Also, investing in non-U.S. securities exposes a Fund to the risk of nationalization, expropriation or confiscatory taxation of assets of their issuers, 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.
In some non-U.S. markets, custody arrangements for securities provide significantly less protection 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 a Fund to credit and other risks it does not have in the U.S. with respect to participating brokers, custodians, clearing banks or other clearing agents, escrow agents, and issuers. Fluctuations in non-U.S. currency exchange rates also will affect the market value of a Fund’s non-U.S. investments (see “Currency Risk” below).
U.S. investors are required to maintain a license to invest directly in many non-U.S. markets. These licenses are often subject to limitations, including maximum investment amounts. Once a license is obtained, a Fund’s 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, to obtain exposure to the market the Fund will be required to purchase American Depositary Receipts, Global Depositary Receipts, shares of other funds that are licensed to invest directly, or derivative instruments. The receipt of a non-U.S. license by one of the Manager’s clients may preclude other clients, including a Fund, from obtaining a similar license, and this could limit the Fund’s investment opportunities. In addition, the activities of another of the Manager’s clients could cause the suspension or revocation of a license and thereby limit the Funds’ investment opportunities.
Funds that invest a significant portion of their assets in securities of issuers tied economically to emerging countries (or investments related to emerging markets) are subject to greater non-U.S. investment risk than Funds investing primarily in more developed non-U.S. countries (or markets). 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 of securities in a Fund’s portfolio; greater governmental involvement in the economy; less governmental supervision and regulation of the securities markets and participants in those markets; controls on non-U.S. investment, capital controls and limitations on repatriation of invested capital, dividends, interest and other income and on a Fund’s 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. Currency risk is the risk that fluctuations in exchange rates will adversely affect the market value of a Fund’s investments. Currency risk includes the risk that the non-U.S. currencies in which a Fund’s investments are traded, in which a Fund receives income, or in which a Fund has taken a position, will decline in value relative to the U.S. dollar. Currency risk also includes the risk that the currency to which the Fund has obtained exposure through hedging declines in value relative to the currency being hedged, in which event the Fund may realize a loss both on the hedging instrument and 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 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.
Many of the Funds use derivatives to take overweighted or underweighted currency positions relative to the currency exposure of their portfolios. As a result, their currency exposure may differ (in some cases significantly) from the currency exposure of their benchmarks. If the exchange rates of the currencies involved do not move as expected, a Fund could lose money both on its holdings of a particular currency and on the derivative. See also “Non-U.S. Investment Risk” above.
Some currencies are illiquid (e.g., some emerging country currencies), and a Fund may not be able to convert them into U.S. dollars, in which case the Manager may decide to purchase U.S. dollars in a parallel market in which 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 non-U.S. 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).
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• FOCUSED INVESTMENT RISK. Funds whose investments are focused in particular countries, regions, sectors, companies or industries with high positive correlations to one another (e.g., different industries within broad sectors, such as technology or financial services), or in securities from issuers with high positive correlations to one another (such as U.S. Treasury Fund’s investments in securities issued by the U.S. Treasury and other fixed income securities that are backed by the full faith and credit of the U.S. government), 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 price of a particular security held by the Fund is likely to affect the Fund’s performance more than if the Fund invested in the securities of a larger number of issuers.
A Fund that 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, 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. See also “Real Estate Risk” below.
Similarly, Funds having a significant portion of their assets in investments tied economically to (or related to) a particular geographic region, non-U.S. country (e.g., Taiwan or Japan) or particular market (e.g., emerging markets) have more exposure to regional and country economic risks than funds making non-U.S. investments throughout the world. The political and economic prospects of one country or group of countries within the same geographic region may affect other countries in that region, and a recession, debt crisis or decline in currency valuation in one country can spread to other countries. Furthermore, companies in a particular geographic region or country are vulnerable to events affecting other companies in that region or country because they often share common characteristics, are exposed to similar business risks and regulatory burdens, and react similarly to specific economic, market, political or other developments. See also “Non-U.S. Investment Risk” above.
• REAL ESTATE RISK. Because Real Estate Fund concentrates its assets in real estate-related investments, the value of its portfolio is subject to factors affecting the real estate industry and may fluctuate more than the value of a portfolio that consists of securities of companies in a broader range of industries. 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 operating costs and property taxes, levels of occupancy, adequacy of rent to cover operating costs, 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, some mortgage Real Estate Investment Trusts (“REITs”) may hold mortgages that the mortgagors elect to prepay, which prepayment may reduce 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 subject to the risk of fluctuations in income from underlying real estate assets, their inability to manage effectively the cash flows generated by those assets, prepayments and defaults by borrowers, and their failure to qualify for the special tax treatment granted to REITs under the Internal Revenue Code of 1986, as amended, or to maintain their exemption from investment company status under the 1940 Act.
• LEVERAGING RISK. The use of reverse repurchase agreements and other derivatives and securities lending creates leverage (i.e., a Fund’s investment exposures exceed its net asset value). Leverage increases a Fund’s losses when the value of its investments (including derivatives) declines. Because many derivatives have a leverage component (i.e., a notional value in excess of the assets needed to establish 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. A Fund’s use of reverse repurchase agreements also subjects it to interest costs based on the difference between the sale and repurchase price of the security involved. A Fund’s portfolio also will be leveraged if it borrows money to meet redemption requests or settle investment transactions or if it exercises its right to delay payment on a redemption.
A 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, a Fund may perform as if it were leveraged.
• COUNTERPARTY RISK. Funds that enter into contracts with counterparties, such as repurchase or reverse repurchase agreements or OTC derivatives contracts, or that lend their securities run the risk that the counterparty 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. The Funds are not subject to any limits on their exposure to any one counterparty nor to a requirement that counterparties maintain a specific rating by a nationally recognized rating organization to be considered for potential transactions. To the extent that GMO’s view with respect to a particular counterparty changes (whether due to external events or otherwise), existing transactions are not required to be terminated or modified. Additionally, new transactions may be entered into with a counterparty that is no longer considered eligible if the transaction is primarily designed to reduce the overall risk of potential exposure to that counterparty (for example, re-establishing the transaction with a lesser notional amount). Counterparty risk is pronounced during unusually adverse market conditions and is particularly acute in environments (like those of 2008) in
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which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers 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 a Fund to greater counterparty risk than exchange-traded derivatives. A Fund is subject to the risk that a counterparty will not settle a derivative in accordance with its terms because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem. If a counterparty’s obligation to a Fund is not collateralized, then the Fund is essentially an unsecured creditor of the counterparty. If a counterparty defaults, the Fund will have contractual remedies, but the Fund may be unable to enforce them, thus causing the Fund to suffer a loss. Counterparty risk is greater for derivatives with longer maturities because of the longer time that events may occur that prevent settlement. Counterparty risk also is 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. Significant exposure to a single counterparty increases a Fund’s counterparty risk. Funds that use swap contracts are subject, in particular, to the creditworthiness of the counterparties because some types of swap contracts have durations longer than six months (and, in some cases, decades). The creditworthiness of a counterparty may be adversely affected by greater than average volatility in the markets, even if the counterparty’s net market exposure is small relative to its capital. Counterparty risk still exists even if a counterparty’s obligations are secured by collateral because the Fund’s interest in the collateral may not be perfected or additional collateral may not be promptly posted as required.
The Funds also are subject to counterparty risk because they execute their 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 Funds could miss investment opportunities or be unable to dispose of investments they would prefer to sell, resulting in losses for the Funds.
Counterparty risk with respect to derivatives will be affected by new rules and regulations affecting the derivatives market. As described under “Derivatives Risk” above, some derivatives transactions are required to be centrally cleared, and a party to a cleared derivatives transaction is subject to the credit risk of the clearing house and the clearing member through which it holds its cleared position, rather than the credit risk of its original counterparty to the derivatives transaction. Credit risk of market participants with respect to derivatives that are centrally cleared is concentrated in a few clearing houses, and it is not clear how an insolvency proceeding of a clearing house would be conducted and what impact an insolvency of a clearing house would have on the financial system. A clearing member is obligated by contract and by applicable regulation to segregate all funds received from customers with respect to cleared derivatives transactions from the clearing member’s proprietary assets. However, all funds and other property received by a clearing member from its customers with respect to cleared derivatives are generally held by the clearing member on a commingled basis in an omnibus account, and the clearing member may invest those funds in certain instruments permitted under the applicable regulations. Therefore, a Fund might not be fully protected in the event of the bankruptcy of a Fund’s clearing member because the Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the clearing member’s customers for a relevant account class. Also, the clearing member is required to transfer to the clearing house the amount of margin required by the clearing house for cleared derivatives, which amounts are generally held in an omnibus account at the clearing house for all customers of the clearing member. Regulations promulgated by the Commodities Futures Trading Commission require that the clearing member notify the clearing house of the initial margin provided by the clearing member to the clearing house that is attributable to each customer. However, if the clearing member does not accurately report the Funds’ initial margin, the Funds are subject to the risk that a clearing house will use a Fund’s assets held in an omnibus account at the clearing house to satisfy payment obligations of a defaulting customer of the clearing member to the clearing house. In addition, clearing members generally provide the clearing house the net amount of variation margin required for cleared swaps for all of its customers in the aggregate, rather than individually for each customer. The Funds are therefore subject to the risk that a clearing house will not make variation margin payments owed to a Fund if another customer of the clearing member has suffered a loss and is in default, and the risk that a Fund will be required to provide additional variation margin to the clearing house before the clearing house will move the Fund’s cleared derivatives transactions to another clearing member. In addition, if a clearing member does not comply with the applicable regulations or its agreement with the Funds, or in the event of fraud or misappropriation of customer assets by a clearing member, a Fund could have only an unsecured creditor claim in an insolvency of the clearing member with respect to the margin held by the clearing member.
• SHORT SALES RISK. Some Funds may use short sales in their investment programs in an attempt to increase their returns or for hedging purposes.
In implementing its principal investment strategy, Alpha Only Fund is permitted to engage in short sales of securities or currencies that it does not own. To do so, the Fund borrows a security (e.g., shares of an exchange-traded fund (“ETF”)) or currency from a broker and sells it to a third party. This type of short sale exposes the Fund to the risk that it will be required to acquire, convert, or exchange securities or currencies to replace the borrowed securities at a time when the securities or currencies sold short have appreciated in value, thus resulting in a loss to the Fund. If a Fund engages in short sales of securities or currencies it does not own, it may have to pay a premium to borrow the securities or currencies and must pay to the lender any dividends or interest it receives on the securities or currencies while they are borrowed. In addition, purchasing securities or currencies to close out a short position can itself cause the price of the securities or currencies to rise further, thereby exacerbating any losses.
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Short sales of securities or currencies the Fund does not own involve a form of investment leverage, and the amount of a Fund’s potential loss is theoretically unlimited. Alpha Only Fund is subject to increased leveraging risk and other investment risks described in this “Investment and other risks” section to the extent it sells short securities or currencies it does not own.
• NATURAL RESOURCES RISK. The Funds (except Alternative Asset Opportunity Fund, Implementation Fund, Special Situations Fund and U.S. Equity Allocation Fund) may invest in Resources Fund. Resources Fund concentrates its investments in the natural resources sector, and so is particularly exposed to adverse developments, including adverse price movements, affecting issuers in the natural resources sector and is subject to greater risks than a fund that invests in a wider range of industries. In addition, the market prices of securities of companies in the natural resources sector may be more volatile than those of securities of companies in other industries. Some of the commodities used as raw materials or produced by these companies are subject to broad price fluctuations as a result of industry wide supply and demand factors. Companies in the natural resources sector often have limited pricing power over supplies or for the products they sell, which can affect their profitability. Companies in the natural resources sector also may be subject to special risks associated with natural or man-made disasters. In addition, the natural resources sector can be especially affected by political and economic developments, government regulations including changes in tax law or interpretations of law, energy conservation, and the success of exploration projects. Specifically, the natural resource sector can be significantly affected by import controls, worldwide competition, changes in consumer sentiment and spending, and can be subject to liability for, among other things, environmental damage, depletion of resources, and mandated expenditures for safety and pollution control.
Resources Fund’s concentration in the securities of natural resource companies exposes it to the price movements of natural resources to a greater extent than if it were more broadly diversified. Because Resources Fund invests primarily in the natural resources sector, it runs the risk of performing poorly during an economic downturn or a decline in demand for natural resources.
The Funds (except Alternative Asset Opportunity Fund, Implementation Fund, Special Situations Fund and U.S. Equity Allocation Fund) are exposed to the risks of investments in the natural resources sector to the extent they invest in Resources Fund.
• COMMODITIES RISK. The Funds (except Alpha Only Fund, Implementation Fund, Special Situations Fund and U.S. Equity Allocation Fund) may invest in Alternative Asset Opportunity Fund, which has exposure to commodity markets. Therefore, the net asset value of its shares is affected by factors particular to those markets and may decline and fluctuate in a rapid and unpredictable manner. Commodity prices can be extremely volatile and are 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, nationalization, expropriation, or other confiscation, international regulatory, political and economic developments (e.g., regime changes and changes in economic activity levels), and developments 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, and tariffs. Alternative Asset Opportunity Fund invests in commodity-related derivatives. The value of these derivatives may fluctuate more than the commodity or commodities or commodity index to which they relate. The Funds (except Alpha Only Fund, Implementation Fund, Special Situations Fund and U.S. Equity Allocation Fund) are exposed to the risks of investments in commodities to the extent they invest in Alternative Asset Opportunity Fund.
• MARKET DISRUPTION AND GEOPOLITICAL RISK. The Funds are subject to the risk that geopolitical and other events will disrupt securities markets, adversely affect global economies and markets and thereby decrease the value of the Funds’ investments. 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. Securities markets may be susceptible to market manipulation (e.g., the potential manipulation of the London Interbank Offered Rate (LIBOR)) or other fraudulent trade practices, which could disrupt the orderly functioning of these markets or adversely affect the value of investments traded in these markets, including investments of the Funds. While the U.S. government has honored its credit obligations continuously for the last 200 years, it remains possible that the U.S. could default on its obligations. While it is impossible to predict the consequences of such an unprecedented event, it is likely that a default by the U.S. would be highly disruptive to the U.S. and global securities markets and could significantly impair the value of the Funds’ investments. Similarly, political events within the U.S. at times have resulted, and may in the future result, in a shutdown of government services, which could negatively affect the U.S. economy, decrease the value of many Fund investments, and increase uncertainty in or impair the operation of the U.S. or other securities markets. The uncertainty surrounding the sovereign debt of a significant number of European Union countries as well as the continued existence of the European Union itself, have disrupted and may continue to disrupt markets in the U.S. and around the world. If one or more countries leave the European Union or the European Union dissolves, the world’s securities markets likely will be significantly disrupted. Substantial government interventions (e.g., currency controls) also could negatively impact the Funds. War, terrorism, economic uncertainty, 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, adversely affecting individual companies and industries, 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
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to the risks described elsewhere in this “Investment and other risks” section will likely increase. Market disruptions, including sudden government interventions, can also prevent the Funds from implementing their investment programs for a period of time and achieving their investment objectives. For example, a market disruption may adversely affect the orderly functioning of the securities markets and may cause the Funds’ derivatives counterparties to discontinue offering derivatives on some underlying commodities, securities, reference rates, or indices, or to offer them on a more limited basis. To the extent that a Fund has focused its investments in the stock index of a particular region, adverse geopolitical and other events could have a disproportionate impact on the Fund.
• LARGE SHAREHOLDER RISK. To the extent that a large number of shares of a Fund is held by a single shareholder (e.g., an institutional investor or another GMO Fund) or a group of shareholders with a common investment strategy (e.g., GMO asset allocation accounts), the Fund is subject to the risk that a redemption by those shareholders of all or a large portion of their Fund shares will adversely affect the Fund’s performance if it is forced to sell portfolio securities to raise the cash needed to satisfy the redemption request. In addition, GMO Funds and other accounts over which GMO has investment discretion that invest in the Funds are not subject to restrictions on the frequency of trading of Fund shares. Asset Allocation Funds and separate accounts managed by the Manager for its clients hold substantial percentages of the shares of many Funds, and asset allocation decisions by the Manager may result in substantial redemptions from (or investments in) those Funds. These transactions may adversely affect the Fund’s performance to the extent that the Fund is required to sell investments (or invest cash) at times when it would not otherwise do so. Redemptions of a large number of shares also may increase transaction costs or, by necessitating a sale of portfolio securities, accelerate the realization of taxable gains to shareholders. They also potentially limit the RIC Funds’ use of any capital loss carryforwards and certain other losses to offset future realized capital gains (if any). In addition, each Fund that invests in other GMO Funds subject to large shareholder risk is indirectly subject to this risk.
• MANAGEMENT AND OPERATIONAL RISK. Each Fund is subject to management risk because it relies on the Manager’s ability to achieve its investment objective. Each Fund runs the risk that the Manager’s investment techniques will fail to produce desired results and cause the Fund to incur significant losses. The Manager also may fail to use derivatives effectively, choosing to hedge or not to hedge positions at disadvantageous times.
For some Funds the Manager’s portfolio managers use quantitative analyses and models. Any imperfections, errors, or limitations in those analyses and models could affect the ability of the portfolio managers to implement a Fund’s strategies. By necessity, these analyses and models make simplifying assumptions that limit their effectiveness. Models that appear to explain prior market data can fail to predict future market events. Further, the data used in models may be inaccurate or may not include the most recent information about a company or a security. The Funds also run the risk that GMO’s assessment of an investment may be wrong. There can be no assurance that key personnel of the Manager will continue to be employed by the Manager. The loss of their services could have an adverse impact on the Manager’s ability to achieve the Funds’ investment objectives.
The Funds also are subject to the risk of loss as a result of other services provided by the Manager and other service providers, including pricing, administrative, accounting, tax, legal, custody, transfer agency, and other services. Operational risk includes the possibility of loss caused by 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 a Fund from benefiting from potential investment gains or avoiding losses on the security. The Manager is not contractually liable to the Funds for losses associated with operational risk absent the Manager’s willful misfeasance, bad faith, gross negligence, or reckless disregard of its contractual obligations to provide services to the Funds. Other Fund service providers also have limitations on their liability to the Funds for losses resulting from their errors.
• OPTIONS RISK. The market price of options written by a Fund will be affected by many factors, including changes in the market price or dividend rates of underlying securities (or in the case of indices, the securities comprising such indices); changes in interest rates or exchange rates; changes in the actual or perceived volatility of the relevant stock market and underlying securities; and the time remaining before an option’s expiration. The market price of an option also may be adversely affected if the market for the option 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 because the holder may only exercise the option on its expiration date.) If a Fund writes a call option and does not hold the underlying security or instrument, the amount of the Fund’s potential loss is theoretically unlimited.
National securities exchanges generally have established limits on the maximum number of options an investor or group of investors acting in concert may write. A Fund, the Manager, and other funds advised by the Manager may constitute such a group. These limits could restrict a Fund’s ability to purchase or write options on a particular security.
Unlike exchange-traded options, which are standardized with respect to the underlying instrument, expiration date, contract size, and strike price, the terms of OTC options (i.e., options not traded on exchanges) generally are established through negotiation with the other party to the option contract. While a Fund has greater flexibility to tailor an OTC option, OTC options generally expose a Fund to greater credit risk than exchange-
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traded options, which are guaranteed by the clearing organization of the exchanges where they are traded. Purchasing and writing put and call options are highly specialized activities and entail greater than ordinary market risks.
• FUND OF FUNDS RISK AND RELATED CONSIDERATIONS. Funds that invest in shares of other investment companies, including other GMO Funds, money market funds, and ETFs (for purposes of this risk disclosure, “underlying Funds”), are exposed to the risk that the underlying Funds will not perform as expected.
Because a Fund bears the fees and expenses of the underlying Funds in which it invests (absent reimbursement of those expenses), the Fund will incur additional expenses when investing in underlying Funds. In addition, total Fund expenses will increase if a Fund makes a new or further investment in underlying Funds with higher fees or expenses than the average fees and expenses of the underlying Funds then in the Fund’s portfolio.
The Funds also are indirectly exposed to all of the risks of an investment in the underlying Funds. Because some of their underlying Funds invest a substantial portion of their assets in other GMO Funds (pursuant to an exemptive order obtained from the SEC), the Asset Allocation Funds have more tiers of investments than funds in many other groups of investment companies. Many of the Funds that invest in shares of other GMO Funds are subject indirectly to Large Shareholder Risk because those other GMO Funds are more likely to have large shareholders (e.g., other GMO Funds). See “Large Shareholder Risk” above.
Investments in ETFs involve the risk that the ETF’s performance may not track the performance of the index the ETF is designed to track. Unlike the index, an ETF incurs administrative expenses and transaction costs in trading securities. In addition, the timing and magnitude of cash inflows and outflows from and to investors buying and redeeming shares in the ETF could create cash balances that cause the ETF’s performance to deviate from the index (which remains “fully invested” at all times). Performance of an ETF and the index it is designed to track also may diverge because the composition of the index and the securities held by the ETF may occasionally differ. In addition, ETFs often use derivatives to track the performance of the relevant index, and, therefore, investments in those ETFs are subject to the same derivatives risks discussed above.
• NON-DIVERSIFIED FUNDS. Some of the Funds are not “diversified” investment companies within the meaning of the 1940 Act. This means they are allowed to invest in the securities of a relatively small number of issuers and/or non-U.S. currencies. As a result, they may be subject to greater credit, market and other risks, and poor performance by a single issuer may have a greater impact on their performance, than if they were “diversified.”
In addition, each of the Funds may invest a portion of its assets in shares of one or more other GMO Funds that are not diversified investment companies under the 1940 Act. Each of the Funds may invest without limitation in other GMO Funds that are not diversified.
The following Funds are not diversified investment companies under the 1940 Act:
| • | Alpha Only Fund |
| • | Alternative Asset Opportunity Fund |
| • | Implementation Fund |
| • | Special Situations Fund |
| • | U.S. Equity Allocation Fund |
Temporary Defensive Positions — The Funds (other than Alternative Asset Opportunity Fund and Benchmark-Free Allocation Fund) normally do not take temporary defensive positions. Alternative Asset Opportunity Fund and Benchmark-Free Allocation Fund may, from time to time, take temporary defensive positions if deemed prudent by the Manager. To the extent a Fund takes a temporary defensive position, or otherwise holds cash, cash equivalents, or high quality debt investments on a temporary basis, the Fund may not achieve its investment objective.
| 4. | Derivative financial instruments |
At August 31, 2013, only Alpha Only Fund, Alternative Asset Opportunity Fund, Implementation Fund and Special Situations Fund held derivative financial instruments directly. For a listing of derivative financial instruments held by the underlying funds, if any, please refer to the underlying funds’ Schedule of Investments. The derivative information provided below only pertains to direct investments made by Alpha Only Fund, Alternative Asset Opportunity Fund, Implementation Fund and Special Situations Fund.
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 a Fund’s portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and related indices, and include foreign currency contracts, swap contracts, reverse repurchase agreements, and other exchange-traded and OTC contracts.
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Use of Derivatives by Alpha Only Fund
The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the 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 Fund also may use currency derivatives (including forward currency contracts, futures contracts, swap contracts, and options) to gain exposure to a given currency.
The Fund may use derivatives in an attempt to reduce its 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 Fund may use derivatives in an attempt to adjust elements of its 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 the 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 Fund’s portfolio) in combination with a long futures contract on another index (to synthetically “buy” exposure to that index). In adjusting its investment exposures, the 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 their portfolio or the portfolio investments.
The Fund may use derivatives to effect transactions intended as substitutes for securities lending.
The Fund is not limited in its use of derivatives or in the absolute face value of its derivative positions. As a result of its derivative positions, the Fund will typically have gross investment exposures in excess of its net assets (i.e., the Fund will be leveraged) and therefore is subject to heightened risk of loss. The Fund’s performance can depend substantially, if not primarily, on the performance of assets or indices underlying its derivatives even though it does not own those assets or indices.
The Fund’s foreign currency exposure may differ significantly from the currency exposure represented by its investments.
Use of Derivatives by Alternative Asset Opportunity Fund
The Fund may use derivatives as a substitute for direct investment in global equities, bonds, currencies, commodities, or other assets. In particular, the Fund may use exchange traded futures and forward foreign exchange contracts to gain exposure to a range of global equity, bond, currency, and commodity markets. The Fund also may use currency derivatives (including forward currency contracts, futures contracts, swap contracts and options) to gain exposure to a given currency.
The Fund may use derivatives in an attempt to reduce its investment exposures (which may result in a reduction below zero). For example, the Fund may use credit default swaps to take a short position with respect to the likelihood of default by an issuer. The 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 Fund may use derivatives, such as futures, related options, and swap contracts, in an attempt to adjust elements of its investment exposures to individual commodities, various securities, sectors, markets, indices and currencies without actually having to sell existing investments or make new direct investments. For example, if the Fund holds a large proportion of a certain type of security or commodity and the Manager believes that another security or commodity will outperform such security or commodity, the Fund might use a short futures contract on an appropriate index (to synthetically “sell” a portion of the Fund’s portfolio) in combination with a long futures contract on another index (to synthetically “buy” exposure to that index). Long and short swap contracts and contracts for differences also may be used for these purposes. Derivatives used to effect synthetic sales and purchases will generally be unwound as actual portfolio securities are sold and purchased. In addition, the Manager may alter the interest rate exposure of debt instruments by employing interest rate swaps. Such a strategy is designed to maintain the Fund’s exposure to the credit of an issuer through the debt instrument but adjust the Fund’s 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 its investment exposure, the 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 Fund may also use derivatives to effect transactions intended as substitutes for securities lending.
The Fund is not limited in its use of derivatives or in the absolute face value of its derivative positions. As a result of its derivative positions, the Fund will typically have gross investment exposures in excess of its net assets (i.e., the Fund will be leveraged) and therefore is subject to heightened risk of loss. The Fund’s performance can depend substantially, if not primarily, on the performance of assets or indices underlying its derivatives even though it does not own those assets or indices.
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Use of Derivatives by Implementation Fund
The Fund may use derivatives as a substitute for direct investment in securities or other assets. For example, the 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 Fund also may use currency derivatives (including forward currency contracts, futures contracts, swap contracts and options) to gain exposure to a given currency.
The Fund may use derivatives in an attempt to reduce its investment exposures (which may result in a reduction below zero) or the investment exposures of BFAF. The 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 or BFAF’s 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 Fund may use derivatives in an attempt to adjust elements of its or BFAF’s 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 the Fund or BFAF 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 those stocks) in combination with a long futures contract on another index (to synthetically “buy” exposure to that index). In adjusting investment exposures, the Fund also may use currency derivatives, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its or BFAF’s portfolio. The Fund’s foreign currency exposure may differ significantly from the currency exposure represented by its investments.
The Fund may use derivatives to effect transactions intended as substitutes for securities lending.
The Fund is not limited in its use of derivatives or in the absolute face value of its derivative positions. As a result of its derivative positions, the Fund may have gross investment exposures in excess of its net assets (i.e., the Fund may be leveraged) and therefore is subject to heightened risk of loss. The Fund’s performance can depend substantially, if not primarily, on the performance of assets or indices underlying its derivatives even though it does not own those assets or indices.
Use of Derivatives by Special Situations Fund
The Fund may use derivatives as substitutes for direct investment in securities or other assets. In particular, the Fund 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 Fund also may use currency derivatives (including forward currency contracts, futures contracts, swap contracts and options) to gain exposure to a given currency.
The Fund may use derivatives in an attempt to reduce its investment exposures (which may result in a reduction below zero) or the investment exposures of another fund or account that invests in the Fund. For example, the Fund may use credit default swaps to take a short position with respect to the likelihood of default by an issuer. The 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 or the portfolio of another fund or account that invests in the Fund. 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 Fund may use derivatives in an attempt to adjust elements of its investment exposures or the investment exposures of another fund or account that invests in the Fund to various securities, sectors, markets, indices and currencies without actually having to sell existing investments or make new direct investments. For example, if the Fund or another fund or account that invests in the 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 those stocks) in combination with a long futures contract on another index (to synthetically “buy” exposure to that index). In addition, the Manager may alter the interest rate exposure of debt instruments by employing interest rate swaps. Such a strategy is designed to maintain exposure to the credit of an issuer through the debt instrument but adjust the 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 investment exposures, the Fund also may use currency derivatives, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its portfolio or the portfolio of another fund or account that invests in the Fund.
The Fund may also use derivatives to effect transactions intended as substitutes for securities lending.
The Fund is not limited in its use of derivatives or in the absolute face value of its derivative positions. As a result of its derivative positions, the Fund will typically have gross investment exposures in excess of its net assets (i.e., the Fund will be leveraged) and therefore is subject to heightened risk of loss. The Fund’s performance can depend substantially, if not primarily, on the performance of assets or indices underlying its derivatives even though it does not own those assets or indices.
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Certain derivatives transactions used by the Funds, including certain interest rate swaps and certain credit default index swaps, are required to be transacted through a central clearing organization. The Funds hold cleared derivatives transactions through clearing members, who are members of derivatives clearing houses. In contrast to bilateral derivatives transactions, following a period of advance notice to the Fund, clearing members generally can require termination of existing cleared derivatives transactions at any time and increases in margin above the margin that it required at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions and to terminate transactions. Any such increase or termination could interfere with the ability of a Fund to pursue its investment strategy. Also, a Fund is subject to execution risk if it enters into a derivatives transaction that is required to be cleared (or that the Manager expects to be cleared), and no clearing member is willing or able to clear the transaction on the Fund’s behalf. In that case, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of any increase in the value of the transaction after the time of the transaction.
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. See “Investment and other risks” above for further information.
For Funds that held derivatives during the period ended August 31, 2013, the following table shows how the Fund used these derivatives (marked with an X):
| Type of Derivative and Objective for Use | Alpha Only Fund | Consolidated Alternative Asset Opportunity Fund* | Consolidated Benchmark-Free Allocation Fund** | Special Situations Fund | ||||
| Forward currency contracts | ||||||||
| Adjust currency exchange rate risk |
X | |||||||
| Adjust exposure to foreign currencies |
X | X | X | X | ||||
| To hedge some or all of the currency exposure of the underlying funds and assets in which the Fund invests |
X | |||||||
| To manage against anticipated currency exchange rate changes |
X | X | X | |||||
| Futures contracts | ||||||||
| Adjust exposure to certain securities markets |
X | X | ||||||
| Maintain the diversity and liquidity of the portfolio |
X | X | ||||||
| To hedge some or all of the broad market exposure of the underlying funds and assets in which the Fund invests |
X | |||||||
| Options (Written) | ||||||||
| Used written put option contracts as a substitute for direct equity investment |
X | |||||||
| Swap contracts | ||||||||
| Adjust exposure to certain securities markets |
X | X | ||||||
| Adjust interest rate exposure |
X | |||||||
| Adjust exposure to certain companies and industries |
X | X | ||||||
| Manage the duration of the portfolio |
X | |||||||
| To hedge some or all of the broad market exposure of the assets in which the Fund invests |
X | X | ||||||
| To hedge some or all of the broad market exposure of the underlying funds and assets in which the Fund invests |
X | |||||||
| Rights and/or warrants | ||||||||
| Received as a result of corporate actions |
X | |||||||
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| * | Certain derivatives are held by Alternative Asset Opportunity Fund’s wholly owned subsidiary. |
| ** | Derivatives are held by Benchmark-Free Allocation Fund’s wholly owned subsidiary. |
Forward currency contracts
The Funds may enter into forward currency contracts, including forward cross currency contracts. A forward currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date (or to pay or receive the amount of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund’s forward currency contracts is marked-to-market daily using rates supplied by a quotation service and changes in value are recorded by each Fund as unrealized gains or losses. Realized gains or losses on the contracts are equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose a Fund to the market risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. Most forward currency contracts are not collateralized. Forward currency contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Futures contracts
The Funds may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price at a specified time in the future. Some futures contracts are net (cash) settled. Upon entering into a futures contract, a Fund is required to deposit cash, U.S. government and agency obligations or other liquid assets with the futures clearing broker in accordance with the initial margin requirements of the broker or exchange. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded (and if the futures are traded outside the U.S. and the market for such futures is closed prior to the close of NYSE due to time zone differences, the values will be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees to reflect estimated valuation changes through the NYSE close). The value of each of the Fund’s futures contracts is marked-to-market daily and an appropriate payable or receivable for the change in value (“variation margin”) is recorded by each Fund. The payable or receivable is settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statements of Assets and Liabilities. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day’s settlement price, thereby effectively preventing liquidation of unfavorable positions. Futures contracts expose the Funds to the risk that they may not be able to enter into a closing transaction due to an illiquid market. Futures contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Options
The Funds may purchase call and put options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options a Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset at a set price to the writer of the option. A Fund pays a premium for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently reflected in the marked-to-market value of the option. The potential loss associated with purchasing put and call options is limited to the premium paid. Purchased option contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
The Funds may write (i.e., sell) call and put options on futures, swaps (“swaptions”), securities or currencies they own or in which they may invest. Writing options alters a Fund’s exposure to the underlying asset by, in the case of a call option, obligating that Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating that Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g., index options), settlement will be in cash, based on a formula price. When a Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, a Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that a Fund writes call options without an offsetting exposure (e.g., call options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. OTC options expose a Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. Written option contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
When an option contract is closed, that Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction in the cost of investments purchased. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statements of Operations.
| 100 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
For the period ended August 31, 2013, investment activity in options contracts written by the Funds were as follows:
|
|
Puts | Calls | ||||||||||||||||||||||
| Principal Amount of Contracts |
Number of Contracts |
Premiums | Principal Amount of Contracts |
Number of Contracts |
Premiums | |||||||||||||||||||
| Consolidated Benchmark-Free Allocation Fund |
||||||||||||||||||||||||
| Outstanding, beginning of period |
— | 4,383 | $ | 3,763,138 | — | — | $ | — | ||||||||||||||||
| Options written |
— | 41,135 | 42,574,258 | — | — | — | ||||||||||||||||||
| Options bought back |
— | (13,389 | ) | (15,327,882 | ) | — | — | — | ||||||||||||||||
| Options expired |
— | (23,484 | ) | (22,474,299 | ) | — | — | — | ||||||||||||||||
| Options exercised |
— | (29 | ) | (140,502 | ) | — | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Outstanding, end of period |
— | 8,616 | $ | 8,394,713 | — | — | $ | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Exchange-traded 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 (and if the underlying reference security closes or the official closing time of the underlying index occurs prior to the close of the NYSE due to time zone differences, the values will be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees to reflect estimated valuation changes through the NYSE close). The Funds value OTC options using inputs provided by primary pricing sources and industry models.
Swap contracts
The Funds may enter into various types of swap contracts, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap contract is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap contract and during the term of the transaction, a Fund and/or the swap counterparty may post or receive cash or securities as collateral.
Initial upfront payments received or made upon entering into a swap contract are included in the fair market value of the swap. The Funds do not amortize upfront payments. Net periodic payments made or received to compensate for differences between the stated terms of the swap contract and prevailing market conditions (credit spreads, currency exchange rates, interest rates, and other relevant factors) are recorded as realized gains or losses on the Statements of Operations. A liquidation payment received or made at the termination of the swap contract is recorded as realized gain or loss in the Statements of Operations.
Interest rate swap contracts involve an exchange by the parties of their respective commitments to pay or right to receive interest (e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal).
Total return swap contracts involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security, basket of securities, or futures contract), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.
In a credit default swap contract, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g., default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives periodic payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations so long as there is no early termination.
For credit default swap contracts on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer’s failure to pay interest or principal on a reference security, 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 contracts on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer’s bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.
Variance swap contracts 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
| 101 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
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 payable 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 be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to make a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to 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.
Forward starting dividend swap contracts involve an exchange by the parties of their respective commitments to pay or rights to receive the changes in a dividend index point. The Fund gains exposure by either paying or receiving an amount in respect of an increase or decrease in the change of the relevant dividend index point based on a notional amount. For example, if the Fund took a long position on a dividend index swap, the Fund would receive payments if the relevant index point increased in value and would be obligated to pay if that index point decreased in value.
Future swap contracts involve an exchange by the parties of their respective commitments to pay or rights to receive the changes in an index. A Fund gains exposure by either paying or receiving an amount in respect of an increase or decrease in the change of the index based on a notional amount. For example, if a Fund took a long position on a future swap, the Fund would receive payments if the relevant index increased in value and would be obligated to pay if that index decreased in value.
Generally, the Funds price their OTC swap contracts daily using industry standard models that may incorporate quotations from market makers or pricing vendors and record the change in value, if any, as unrealized gain or loss in the Statements of Operations. Gains or losses are realized upon termination of the swap contracts or reset dates, as appropriate. Cleared swap contracts are valued using the quote (which may be based on a model) published by the relevant clearing house. If an updated quote for a cleared swap contract is not available by the time that a Fund calculates its net asset value on any business day, then that swap contract will generally be valued using an industry standard model, which may differ from the model used by the relevant clearing house.
The values assigned to swap contracts may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap contracts involves counterparty credit, legal, and documentation risk that is generally not reflected in the value assigned to the swap contract. Such risks include the possibility that the counterparty defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that a Fund has amounts on deposit in excess of amounts owed by that Fund, or that any collateral the other party posts is insufficient or not timely received by a Fund. Credit risk is particularly acute in economic environments 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. Swap contracts outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Rights and warrants
The Funds 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 set price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in the section entitled “Options” above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. However, warrants and rights often do not have standardized terms, and may have longer maturities and may be less liquid than exchange-traded options. In addition, the terms of warrants or rights may limit a Fund’s ability to exercise the warrants or rights at such times and in such quantities as the Fund would otherwise wish. Rights and/or warrants outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
As provided by U.S. GAAP, the table below is based on market values or unrealized appreciation/(depreciation) rather than the notional amounts of derivatives. Changes to market values of reference asset(s) will tend to have a greater impact on the Funds (with correspondingly greater risk) the greater the notional amount. For further information on notional amounts, see the Schedule of Investments.
| 102 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The following is a summary of the valuations of derivative instruments categorized by risk exposure:
The Effect of Derivative Instruments on the Statements of Assets and Liabilities as of August 31, 2013 and the Statements of Operations for the period ended August 31, 2013^:
| Credit Contracts |
Commodity Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate Contracts |
Other Contracts |
Total | ||||||||||||||||||||||
| Alpha Only Fund |
||||||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | 19,362,332 | $ | — | $ | — | $ | 19,362,332 | ||||||||||||||
| Unrealized Appreciation on Futures Contracts* |
— | — | 8,682,297 | — | — | 8,682,297 | ||||||||||||||||||||||
| Unrealized Appreciation on Swap Contracts |
— | — | 26,015,298 | — | — | 26,015,298 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | 34,697,595 | $ | 19,362,332 | $ | — | $ | — | $ | 54,059,927 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | 34,697,595 | $ | 19,362,332 | $ | — | $ | — | $ | 54,059,927 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Liability: |
||||||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | (764,704 | ) | $ | — | $ | — | $ | (764,704 | ) | ||||||||||||
| Unrealized Depreciation on Futures Contracts* |
— | — | (1,164,400 | ) | — | — | (1,164,400 | ) | ||||||||||||||||||||
| Unrealized Depreciation on Swap Contracts |
— | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | (1,164,400 | ) | $ | (764,704 | ) | $ | — | $ | — | $ | (1,929,104 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | (1,164,400 | ) | $ | (764,704 | ) | $ | — | $ | — | $ | (1,929,104 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||||||
| Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | 5,489,777 | $ | — | $ | — | $ | 5,489,777 | ||||||||||||||
| Futures Contracts |
— | — | (374,742,055 | ) | — | — | — | (374,742,055 | ) | |||||||||||||||||||
| Swap Contracts |
— | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | (374,742,055 | ) | $ | 5,489,777 | $ | — | $ | — | $ | (369,252,278 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Change in Net Unrealized Appreciation (Depreciation) on: |
||||||||||||||||||||||||||||
| Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | 11,000,298 | $ | — | $ | — | $ | 11,000,298 | ||||||||||||||
| Futures Contracts |
— | — | 151,784,084 | — | — | — | 151,784,084 | |||||||||||||||||||||
| Swap Contracts |
— | — | 24,293,008 | — | — | — | 24,293,008 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | 176,077,092 | $ | 11,000,298 | $ | — | $ | — | $ | 187,077,390 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Consolidated Alternative Asset Opportunity Fund |
| |||||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | 8,423,453 | $ | — | $ | — | $ | 8,423,453 | ||||||||||||||
| Unrealized Appreciation on Futures Contracts* |
— | 9,090,606 | 7,394,946 | — | 261,062 | — | 16,746,614 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | 9,090,606 | $ | 7,394,946 | $ | 8,423,453 | $ | 261,062 | $ | — | $ | 25,170,067 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | 9,090,606 | $ | 7,394,946 | $ | 8,423,453 | $ | 261,062 | $ | — | $ | 25,170,067 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Liability: |
||||||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | (2,835,300 | ) | $ | — | $ | — | $ | (2,835,300 | ) | ||||||||||||
| Unrealized Depreciation on Futures Contracts* |
— | (13,366,692 | ) | (4,469,056 | ) | — | (2,415,838 | ) | — | (20,251,586 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | (13,366,692 | ) | $ | (4,469,056 | ) | $ | (2,835,300 | ) | $ | (2,415,838 | ) | $ | — | $ | (23,086,886 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | (13,366,692 | ) | $ | (4,469,056 | ) | $ | (2,835,300 | ) | $ | (2,415,838 | ) | $ | — | $ | (23,086,886 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| 103 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Credit Contracts |
Commodity Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate Contracts |
Other Contracts |
Total | ||||||||||||||||||||||
| Consolidated Alternative Asset Opportunity Fund (continued) |
| |||||||||||||||||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||||||
| Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | 3,782,850 | $ | — | $ | — | $ | 3,782,850 | ||||||||||||||
| Futures Contracts |
— | 24,804,007 | 13,947,835 | — | 3,130,050 | — | 41,881,892 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | 24,804,007 | $ | 13,947,835 | $ | 3,782,850 | $ | 3,130,050 | $ | — | $ | 45,664,742 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Change in Net Unrealized Appreciation (Depreciation) on: |
||||||||||||||||||||||||||||
| Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | 1,686,484 | $ | — | $ | — | $ | 1,686,484 | ||||||||||||||
| Futures Contracts |
— | (8,476,229 | ) | (5,327,592 | ) | — | (1,979,888 | ) | — | (15,783,709 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | (8,476,229 | ) | $ | (5,327,592 | ) | $ | 1,686,484 | $ | (1,979,888 | ) | $ | — | $ | (14,097,225 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Consolidated Benchmark-Free Allocation Fund |
||||||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | 34,344,493 | $ | — | $ | — | $ | 34,344,493 | ||||||||||||||
| Unrealized Appreciation on Futures Contracts* |
— | — | 103,856 | — | — | — | 103,856 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | 103,856 | $ | 34,344,493 | $ | — | $ | — | $ | 34,448,349 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | 103,856 | $ | 34,344,493 | $ | — | $ | — | $ | 34,448,349 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Liability: |
||||||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | (6,052,645 | ) | $ | — | $ | — | $ | (6,052,645 | ) | ||||||||||||
| Unrealized Depreciation on Futures Contracts* |
— | — | (856,124 | ) | — | — | — | (856,124 | ) | |||||||||||||||||||
| Written Options, at value |
— | — | (13,366,062 | ) | — | — | — | (13,366,062 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | (14,222,186 | ) | $ | (6,052,645 | ) | $ | — | $ | — | $ | (20,274,831 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | (14,222,186 | ) | $ | (6,052,645 | ) | $ | — | $ | — | $ | (20,274,831 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Realized Gain (Loss) on: |
||||||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | — | $ | 56,459 | $ | — | $ | — | $ | — | $ | 56,459 | ||||||||||||||
| Forward Currency Contracts |
— | — | — | 17,067,601 | — | — | 17,067,601 | |||||||||||||||||||||
| Futures Contracts |
— | — | (2,642,380 | ) | — | — | — | (2,642,380 | ) | |||||||||||||||||||
| Swap Contracts |
— | — | 2,399,249 | — | — | — | 2,399,249 | |||||||||||||||||||||
| Written Options |
— | — | (168,887 | ) | — | — | — | (168,887 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | (355,559 | ) | $ | 17,067,601 | $ | — | $ | — | $ | 16,712,042 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Change in Appreciation (Depreciation) on: |
||||||||||||||||||||||||||||
| Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | 17,751,783 | $ | — | $ | — | $ | 17,751,783 | ||||||||||||||
| Futures Contracts |
— | — | 1,019,570 | — | — | — | 1,019,570 | |||||||||||||||||||||
| Swap Contracts |
— | — | (1,052,432 | ) | — | — | — | (1,052,432 | ) | |||||||||||||||||||
| Written Options |
— | — | (6,041,429 | ) | — | — | — | (6,041,429 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | (6,074,291 | ) | $ | 17,751,783 | $ | — | $ | — | $ | 11,677,492 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Special Situations Fund |
||||||||||||||||||||||||||||
| Asset: |
||||||||||||||||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | 9,426,790 | $ | — | $ | — | $ | 9,426,790 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | — | $ | 9,426,790 | $ | — | $ | — | $ | 9,426,790 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | — | $ | 9,426,790 | $ | — | $ | — | $ | 9,426,790 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| 104 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Credit Contracts |
Commodity Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate Contracts |
Other Contracts |
Total | ||||||||||||||||||||||
| Special Situations Fund (continued) |
||||||||||||||||||||||||||||
| Liability: |
||||||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | (4,961,930 | ) | $ | — | $ | — | $ | (4,961,930 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | — | $ | (4,961,930 | ) | $ | — | $ | — | $ | (4,961,930 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | — | $ | (4,961,930 | ) | $ | — | $ | — | $ | (4,961,930 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Net Realized Gain (Loss) on: |
||||||||||||||||||||||||||||
| Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | 4,399,278 | $ | — | $ | — | $ | 4,399,278 | ||||||||||||||
| Swap Contracts |
— | — | 14,410,549 | — | (1,390,952 | ) | — | 13,019,597 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | 14,410,549 | $ | 4,399,278 | $ | (1,390,952 | ) | $ | — | $ | 17,418,875 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Change in Net Unrealized Appreciation (Depreciation) on: |
||||||||||||||||||||||||||||
| Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | 1,613,910 | $ | — | $ | — | $ | 1,613,910 | ||||||||||||||
| Swap Contracts |
— | — | (8,572,908 | ) | — | 2,249,464 | — | (6,323,444 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | (8,572,908 | ) | $ | 1,613,910 | $ | 2,249,464 | $ | — | $ | (4,709,534 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
The risks referenced in the tables above are not intended to be inclusive of all risks. Please see the “Investment and other risks” and “Portfolio valuation” sections for a further discussion of risks.
| ^ | Because the Funds recognize changes in value through the Statements of Operations, they do not qualify for hedge accounting under authoritative guidance for derivative instruments. The Funds’ investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables. |
| * | The table includes cumulative appreciation/depreciation of futures and cleared swap contracts as reported in the Schedule of Investments. Period end variation margin on open futures and cleared swap contracts is reported within the Statements of Assets and Liabilities. |
The Funds are party to International Swaps and Derivatives Association, Inc. Master Agreements, Global Master Repurchase Agreements or other similar types of agreements (collectively, “Master Agreements”) that generally govern the terms of some over-the-counter derivative transactions, repurchase agreements and reverse repurchase agreements between the parties. The Master Agreements may include collateral posting terms and netting provisions that apply in the event of a default and/or termination event. Upon the occurrence of such an event, including the bankruptcy or insolvency of the counterparty, the Master Agreements may permit the non-defaulting party to calculate a single net payment to close out applicable transactions. However, there is no guarantee that the terms of a Master Agreement will be enforceable; for example, when bankruptcy or insolvency laws impose restrictions on or prohibitions against the right of offset obligations. Additionally, the netting and close out provisions of a Master Agreement may not extend to the obligations of the counterparty’s affiliates or across varying types of transactions. Termination events may also include a decline in the net assets of a Fund below a certain level over a specified period of time and may entitle a counterparty to elect to terminate early with respect to some or all the transactions under the Master Agreement with that counterparty. Such an election by one or more of the counterparties could have a material adverse impact on a Fund’s operations. For more information about other uncertainties and risks, see the Investment and Other Risks note.
For financial reporting purposes, on the Statements of Assets and Liabilities any cash collateral that has been pledged to cover obligations of the Funds is reported as Due from Broker and any cash collateral received from the counterparty is reported as Due to Broker. Any non-cash collateral pledged by the Funds is noted in the Schedules of Investments. The tables below show the potential effect of netting arrangements made available by the Master Agreements on the financial position of the Funds. For financial reporting purposes, the Funds’ Statements of Assets and Liabilities generally show derivative assets and derivative liabilities (regardless of whether they are subject to netting arrangements) on a gross basis, which reflects the full risks and exposures of the Fund prior to netting. See Note 2 for information on repurchase agreements held by the Funds at August 31, 2013, if any.
The tables above present the Funds’ derivative assets and liabilities by type of financial instrument. The following tables present the Funds’ OTC derivative assets and liabilities by counterparty net of amounts that may be available for offset under the Master Agreements and net of the related collateral received or pledged by the Funds as of August 31, 2013:
| 105 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Alpha Only Fund
| Counterparty | Gross Derivative Assets Subject to Master Agreements |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Bank of America, N.A. |
$ | 10,410 | $ | — | $ | — | $ | 10,410 | ||||||||
| Barclays Bank PLC |
6,769,968 | — | — | 6,769,968 | ||||||||||||
| BNP Paribas |
6,641,208 | (4,750,000 | ) | — | 1,891,208 | |||||||||||
| Brown Brothers Harriman & Co. |
1,208,269 | — | (503,888 | ) | 704,381 | |||||||||||
| Citibank N.A. |
3,637,965 | (2,335,277 | ) | — | 1,302,688 | |||||||||||
| Credit Suisse International |
1,462,898 | (416,750 | ) | — | 1,046,148 | |||||||||||
| Deutsche Bank AG |
2,616,444 | — | — | 2,616,444 | ||||||||||||
| Goldman Sachs International |
961,543 | — | (123,824 | ) | 837,719 | |||||||||||
| JPMorgan Chase Bank, N.A. |
17,256,488 | (10,176,000 | ) | (136,658 | ) | 6,943,830 | ||||||||||
| Morgan Stanley & Co. International PLC |
4,629,136 | — | — | 4,629,136 | ||||||||||||
| Royal Bank of Scotland PLC |
183,301 | — | (334 | ) | 182,967 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 45,377,630 | $ | (17,678,027 | ) | $ | (764,704 | ) | $ | 26,934,899 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Brown Brothers Harriman & Co. |
$ | 503,888 | $ | — | $ | 503,888 | $ | — | ||||||||
| Goldman Sachs International |
123,824 | — | 123,824 | — | ||||||||||||
| JPMorgan Chase Bank, N.A. |
136,658 | — | 136,658 | — | ||||||||||||
| Royal Bank of Scotland PLC |
334 | — | 334 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 764,704 | $ | — | $ | 764,704 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Consolidated Alternative Asset Opportunity Fund
| Counterparty | Gross Derivative Assets Subject to Master Agreements |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Barclays Bank PLC |
$ | 2,664,261 | $ | (1,650,815 | ) | $ | (545,626 | ) | $ | 467,820 | ||||||
| Citibank N.A. |
1,637,059 | — | — | 1,637,059 | ||||||||||||
| JPMorgan Chase Bank, N.A. |
1,621,874 | (611,605 | ) | (438,449 | ) | 571,820 | ||||||||||
| Morgan Stanley & Co. International PLC |
2,500,259 | — | (102,916 | ) | 2,397,343 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 8,423,453 | $ | (2,262,420 | ) | $ | (1,086,991 | ) | $ | 5,074,042 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Barclays Bank PLC |
$ | 545,626 | $ | — | $ | 545,626 | $ | — | ||||||||
| Credit Suisse International |
1,748,309 | (563,960 | ) | — | 1,184,349 | |||||||||||
| JPMorgan Chase Bank, N.A. |
438,449 | — | 438,449 | — | ||||||||||||
| Morgan Stanley & Co. International PLC |
102,916 | — | 102,916 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 2,835,300 | $ | (563,960 | ) | $ | 1,086,991 | $ | 1,184,349 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 106 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Consolidated Benchmark-Free Allocation Fund
| Counterparty | Gross Derivative Assets Subject to Master Agreements |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Bank of America, N.A. |
$ | 3,290,642 | $ | — | $ | — | $ | 3,290,642 | ||||||||
| Barclays Bank PLC |
17,252,868 | — | (1,660,479 | ) | 15,592,389 | |||||||||||
| Brown Brothers Harriman & Co. |
1,321,464 | — | — | 1,321,464 | ||||||||||||
| Deutsche Bank AG |
1,850,051 | — | (376,710 | ) | 1,473,341 | |||||||||||
| Goldman Sachs International |
70,648 | — | 70,648 | — | ||||||||||||
| JPMorgan Chase Bank, N.A. |
3,576,721 | — | (2,261,375 | ) | 1,315,346 | |||||||||||
| Morgan Stanley & Co. International PLC |
6,982,099 | — | — | 6,982,099 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 34,344,493 | $ | — | $ | (4,227,916 | ) | $ | 29,975,281 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Barclays Bank PLC |
$ | 1,660,479 | $ | — | $ | 1,660,479 | $ | — | ||||||||
| Deutsche Bank AG |
376,710 | — | 376,710 | — | ||||||||||||
| Goldman Sachs International |
1,754,081 | — | (70,648 | ) | 1,683,433 | |||||||||||
| JPMorgan Chase Bank, N.A. |
2,261,375 | — | 2,261,375 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 6,052,645 | $ | — | $ | 4,227,916 | $ | 1,683,433 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Special Situations Fund
| Counterparty | Gross Derivative Assets Subject to Master Agreements |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Bank of America, N.A. |
$ | 19,740 | $ | — | $ | 19,740 | $ | — | ||||||||
| Barclays Bank PLC |
4,113,723 | — | (262,747 | ) | 3,850,976 | |||||||||||
| Deutsche Bank AG |
3,744,668 | — | 3,744,668 | — | ||||||||||||
| JPMorgan Chase Bank, N.A. |
268,926 | — | (265,622 | ) | 3,304 | |||||||||||
| Morgan Stanley & Co. International PLC |
1,279,733 | — | — | 1,279,733 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 9,426,790 | $ | — | $ | 3,236,039 | $ | 5,134,013 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Bank of America, N.A. |
$ | 673,790 | $ | — | $ | (19,740 | ) | $ | 654,050 | |||||||
| Barclays Bank PLC |
262,747 | — | 262,747 | — | ||||||||||||
| Deutsche Bank AG |
3,759,771 | — | (3,744,668 | ) | 15,103 | |||||||||||
| JPMorgan Chase Bank, N.A. |
265,622 | — | 265,622 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 4,961,930 | $ | — | $ | (3,236,039 | ) | $ | 669,153 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 107 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The following tables present the Funds’ exchange-traded or cleared derivative assets and liabilities by counterparty net of amounts that may be available for offset under the Master Agreements and net of the related collateral received or pledged by the Funds as of August 31, 2013:
Alpha Only Fund
| Counterparty | Gross Derivative Assets in the Statement of Assets and Liabilities |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Goldman Sachs & Co. |
$ | 7,240,933 | $ | — | $ | — | $ | 7,240,933 | * | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 7,240,933 | $ | — | $ | — | $ | 7,240,933 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Consolidated Alternative Asset Opportunity Fund
| Counterparty | Gross Derivative Assets in the Statement of Assets and Liabilities |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Credit Suisse Securities (USA) LLC |
$ | 847,110 | $ | — | $ | — | $ | 847,110 | * | |||||||
| UBS Securities LLC |
801,885 | — | — | 801,885 | * | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 1,648,995 | $ | — | $ | — | $ | 1,648,995 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Consolidated Benchmark-Free Allocation Fund
| Counterparty | Gross Derivative Liabilities in the Statement of Assets and Liabilities |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Goldman Sachs & Co. |
$ | 750,791 | $ | (750,791 | ) | $ | — | $ | — | * | ||||||
| Morgan Stanley & Co. LLC |
13,366,062 | (13,366,062 | ) | — | — | * | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 14,116,853 | $ | (14,116,853 | ) | $ | — | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | In some instances, the actual collateral received and/or pledged may be more than the amount shown. |
The average derivative activity, based on absolute values (forward currency contracts, futures contracts, rights and/or warrants) or notional amounts (swap contracts) or principal amounts (options) outstanding at each month-end was as follows for the period ended August 31, 2013:
| Fund Name | Forward Currency Contracts ($) |
Futures Contracts ($) |
Swap Contracts ($) |
Options ($) | Rights and/or Warrants ($) |
|||||||||||||||
| Alpha Only Fund |
1,135,837,319 | 2,272,711,843 | 868,080,842 | — | — | |||||||||||||||
| Consolidated Alternative Asset Opportunity Fund |
542,974,072 | 1,209,227,639 | — | — | — | |||||||||||||||
| Consolidated Benchmark-Free Allocation Fund |
2,428,285,473 | 103,316,135 | 5,581,576 | 137,254 | 353,721 | |||||||||||||||
| Special Situations Fund |
782,380,984 | — | 131,860,175 | — | — | |||||||||||||||
| 108 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| 5. | Fees and other transactions with affiliates |
GMO receives a management fee for the services it provides to each Fund. That fee, if any, is paid monthly at the annual rate equal to the percentage of each Fund’s average daily net assets set forth in the table below:
| Alpha Only | Alternative Asset Opportunity Fund | Benchmark-Free Allocation Fund | Benchmark-Free Fund | Global Asset Allocation Fund | Global Equity Allocation Fund | International Equity Allocation Fund | International Opportunities Equity Allocation Fund | Special Situations Fund | Strategic Opportunities Allocation Fund | U.S. Equity Allocation Fund | World Opportunities Equity Allocation Fund | |||||||||||||
| Management Fee | 0.50% | 0.70% (Currently, 0.10% waived) |
0.65% | — | — | — | — | — | 0.37% | — | — | — | ||||||||||||
The Manager decides how to allocate the assets of the Fund among underlying funds. For certain Funds above, the Manager does not charge the Fund a management fee or shareholder service fee, but it receives management and shareholder service fees from the underlying funds in which the Fund invests. Because those fees vary from fund to fund, the levels of indirect net expenses set forth below are affected by the Manager’s asset allocation decisions.
In addition, each class of shares of certain Funds pays the Manager a shareholder service and/or supplemental support 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. Shareholder service and/or supplemental support fees are paid monthly equal to the percentage of each applicable Fund’s average daily net assets set forth in the table below:
| Fund Name | Class III | Class IV | Class VI | Class MF | ||||||||||||
| Alpha Only Fund |
0.15% | 0.10% | ||||||||||||||
| Alternative Asset Opportunity Fund |
0.15% | |||||||||||||||
| Benchmark-Free Allocation Fund |
0.15% | 0.10% | 0.10% | |||||||||||||
| Benchmark-Free Fund |
0.00% | |||||||||||||||
| Global Asset Allocation Fund |
0.00% | |||||||||||||||
| Global Equity Allocation Fund |
0.00% | |||||||||||||||
| International Equity Allocation Fund |
0.00% | |||||||||||||||
| International Opportunities Equity Allocation Fund |
0.00% | |||||||||||||||
| Special Situations Fund |
0.15% | 0.055% | ||||||||||||||
| Strategic Opportunities Allocation Fund |
0.00% | |||||||||||||||
| U.S. Equity Allocation Fund |
0.00% | |||||||||||||||
| World Opportunities Equity Allocation Fund |
0.00% | |||||||||||||||
For each Fund, the Manager has contractually agreed to reimburse the Fund for its “Specified Operating Expenses” (as defined below). Any such reimbursements are paid to a Fund concurrently with the Fund’s payment of management fees to the Manager.
| 109 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
“Specified Operating Expenses” means only the following expenses to the extent that they are borne by a Fund: audit expenses, fund accounting expenses, pricing service expenses, expenses of non-investment related tax services, transfer agency expenses, expenses of non-investment related legal services provided to the Funds by or at the direction of the Manager, federal securities law filing expenses, printing expenses, state and federal registration fees and custody expenses.
For each Fund that charges a management fee other than Benchmark-Free Allocation Fund, the Manager will waive and/or reduce the Fund’s management fee, but not below zero, to the extent necessary to offset the management fees directly or indirectly paid by the Fund to the Manager as a result of the Fund’s direct or indirect investments in other GMO Funds.
In addition to the contractual waivers and reimbursements described above, the Manager has contractually agreed to waive Alternative Asset Opportunity Fund’s management fee to 0.60% of the Fund’s average daily net assets.
For each Fund that charges a shareholder service fee other than Benchmark-Free Allocation Fund, the Manager will waive and/or reduce the shareholder service fee charged by each class of shares of the Fund, but not below zero, to the extent necessary to offset the shareholder service fees directly or indirectly paid by the class of shares of the Fund to the Manager as a result of the Fund’s direct or indirect investments in other GMO Funds.
These contractual waivers and reimbursements will continue through at least June 30, 2014 for each Fund unless the Funds’ Board of Trustees authorizes their modification or termination, or reduces the fee rates paid to the Manager under the Fund’s management contract or servicing and supplement support agreement.
For Benchmark-Free Allocation Fund only, pursuant to the terms of the Fund’s management contract and servicing and supplemental support agreement, the fees payable to the Manager under those agreements are reduced by amounts equal to the management fees and shareholder service fees, respectively, that the Manager receives as a result of the Fund’s investment in underlying GMO Funds.
The Funds’ portion of the gross fees paid by the Trust to the Trust’s independent Trustees and their legal counsel and any agents unaffiliated with the Manager during the period ended August 31, 2013 is shown in the table below and included in the Statements of Operations.
| Fund Name | Independent Trustees and their legal counsel ($) |
Agents unaffiliated with the Manager ($) |
||||||
| Alpha Only Fund |
19,716 | 2,760 | ||||||
| Consolidated Alternative Asset Opportunity Fund |
15,069 | 920 | ||||||
| Consolidated Benchmark-Free Allocation Fund |
50,253 | 5,888 | ||||||
| Benchmark-Free Fund |
20,569 | 3,036 | ||||||
| Global Asset Allocation Fund |
24,972 | 3,680 | ||||||
| Global Equity Allocation Fund |
12,897 | 1,932 | ||||||
| International Equity Allocation Fund |
7,176 | 1,104 | ||||||
| International Opportunities Equity Allocation Fund |
5,253 | 736 | ||||||
| Special Situations Fund |
3,680 | 552 | ||||||
| Strategic Opportunities Allocation Fund |
11,459 | 1,656 | ||||||
| U.S. Equity Allocation Fund |
184 | 5 | ||||||
| World Opportunities Equity Allocation Fund |
8,106 | 1,104 | ||||||
| 110 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Certain Funds incur fees and expenses indirectly as a shareholder in the underlying funds. For the period ended August 31, 2013, these indirect fees and expenses expressed as an annualized percentage of each Fund’s average daily net assets were as follows:
| Fund Name | Indirect Net Expenses (excluding shareholder service fees) |
Indirect Shareholder Service Fees |
Indirect Interest Expense |
Total Indirect Expenses | ||||||||||||
| Alpha Only Fund |
0.365% | 0.064% | 0.000% | 0.429% | ||||||||||||
| Consolidated Alternative Asset Opportunity Fund |
0.001% | 0.000% | 0.000% | 0.001% | ||||||||||||
| Consolidated Benchmark-Free Allocation Fund |
0.216% | 0.046% | < 0.001% | 0.262% | ||||||||||||
| Benchmark-Free Fund |
0.481% | 0.089% | < 0.001% | 0.570% | ||||||||||||
| Global Asset Allocation Fund* |
0.456% | 0.079% | 0.001% | 0.536% | ||||||||||||
| Global Equity Allocation Fund* |
0.467% | 0.071% | 0.000% | 0.538% | ||||||||||||
| International Equity Allocation Fund |
0.584% | 0.081% | 0.000% | 0.665% | ||||||||||||
| International Opportunities Equity Allocation Fund |
0.509% | 0.089% | 0.000% | 0.598% | ||||||||||||
| Special Situations Fund |
0.001% | 0.000% | 0.000% | 0.001% | ||||||||||||
| Strategic Opportunities Allocation Fund |
0.419% | 0.075% | 0.001% | 0.495% | ||||||||||||
| U.S. Equity Allocation Fund |
0.325% | 0.057% | 0.000% | 0.382% | ||||||||||||
| World Opportunities Equity Allocation Fund |
0.427% | 0.076% | 0.000% | 0.503% | ||||||||||||
| * | During the period, the Fund incurred non-recurring indirect legal expenses in connection with the final settlement of pending litigation. Subsequent to the receipt of the settlement proceeds, the underlying fund was liquidated. |
| 6. | Purchases and sales of securities |
Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2013 are noted in the table below:
| Purchases ($) | Purchases ($) | Sales ($) | Sales ($) | |||||||||||||
| Fund Name | U.S. Government Securities |
Investments (Non-U.S. Government Securities) |
U.S. Government Securities |
Investments (Non-U.S. Government Securities) |
||||||||||||
| Alpha Only Fund |
— | 1,194,092,506 | — | 2,206,166,236 | ||||||||||||
| Consolidated Alternative Asset Opportunity Fund |
— | 600,474,371 | 7,874,280 | — | ||||||||||||
| Consolidated Benchmark-Free Allocation Fund |
917,399,602 | 5,280,153,194 | — | 2,059,479,366 | ||||||||||||
| Benchmark-Free Fund |
— | 1,030,356,868 | — | 846,418,074 | ||||||||||||
| Global Asset Allocation Fund |
— | 1,704,502,081 | — | 1,580,575,311 | ||||||||||||
| Global Equity Allocation Fund |
— | 991,677,305 | — | 661,734,204 | ||||||||||||
| International Equity Allocation Fund |
— | 402,405,006 | — | 163,095,970 | ||||||||||||
| International Opportunities Equity Allocation Fund |
— | 74,452,278 | — | 60,579,047 | ||||||||||||
| Special Situations Fund |
— | 44,200,062 | — | 691,101,864 | ||||||||||||
| Strategic Opportunities Allocation Fund |
— | 543,967,879 | — | 554,497,000 | ||||||||||||
| U.S. Equity Allocation Fund |
— | 1,318,603 | — | 46,511,996 | ||||||||||||
| World Opportunities Equity Allocation Fund |
— | 73,556,630 | — | 218,658,281 | ||||||||||||
| 111 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| 7. | Guarantees |
In the normal course of business the Funds enter into contracts with third-party service providers that contain a variety of representations and warranties and that provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown, as it involves possible future claims that may or may not be made against the Funds. Based on experience, the Manager is of the view that the risk of loss to the Funds in connection with the Funds’ indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Funds.
| 8. | Principal shareholders and related parties as of August 31, 2013 |
| Fund Name | Number of shareholders that held more than 10% of the outstanding shares of the Fund |
Percentage of outstanding shares of the Fund held by those shareholders owning greater than 10% of the outstanding shares of the Fund |
Percentage of the shares of the Fund held by senior management of the Manager and GMO Trust officers |
Percentage of the Fund’s shares held by accounts for which the Manager has investment discretion |
||||||||||||
| Alpha Only Fund |
3 | * | 88.31% | 0.06% | 99.79% | |||||||||||
| Alternative Asset Opportunity Fund |
3 | ** | 99.17% | — | 100.00% | |||||||||||
| Benchmark-Free Allocation Fund |
1 | 61.97% | 0.77% | 1.73% | ||||||||||||
| Benchmark-Free Fund |
— | — | — | 100.00% | ||||||||||||
| Global Asset Allocation Fund |
1 | *** | 13.59% | 0.14% | 13.59% | |||||||||||
| Global Equity Allocation Fund |
— | — | — | 0.14% | ||||||||||||
| International Equity Allocation Fund |
2 | **** | 35.92% | 1.44% | 17.87% | |||||||||||
| International Opportunities Equity Allocation Fund |
3 | 38.10% | — | — | ||||||||||||
| Special Situations Fund |
3 | * | 86.91% | — | 100.00% | |||||||||||
| Strategic Opportunities Allocation Fund |
1 | 27.49% | 0.02% | 99.96% | ||||||||||||
| U.S. Equity Allocation Fund |
4 | 82.48% | 0.02% | — | ||||||||||||
| World Opportunities Equity Allocation Fund |
3 | 38.26% | — | — | ||||||||||||
| * | Two of the shareholders are other funds of the Trust. |
| ** | Three of the shareholders are other funds of the Trust. |
| *** | This shareholder is another fund managed by GMO. |
| **** | One of the shareholders is another fund managed by GMO. |
| 112 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| 9. | Share transactions |
The Declaration of Trust permits each Fund to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Funds’ shares were as follows:
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Alpha Only Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
44,485 | $ | 1,077,938 | 1,183,182 | $ | 28,765,077 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
323 | 7,809 | 1,935 | 47,550 | ||||||||||||
| Shares repurchased |
(725,530 | ) | (17,522,905 | ) | (607,109 | ) | (14,811,201 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(680,722 | ) | $ | (16,437,158 | ) | 578,008 | $ | 14,001,426 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV: |
||||||||||||||||
| Shares sold |
40,711,923 | $ | 987,503,855 | 84,662,488 | $ | 2,065,839,670 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
179,603 | 4,340,992 | 302,200 | 7,431,105 | ||||||||||||
| Shares repurchased |
(67,796,332 | ) | (1,632,069,719 | ) | (31,550,019 | ) | (770,380,453 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(26,904,806 | ) | $ | (640,224,872 | ) | 53,414,669 | $ | 1,302,890,322 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Alternative Asset Opportunity Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
28,842,914 | $ | 881,549,427 | 30,023,131 | $ | 904,821,692 | ||||||||||
| Shares repurchased |
(2,331,633 | ) | (72,315,987 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
26,511,281 | $ | 809,233,440 | 30,023,131 | $ | 904,821,692 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Benchmark-Free Allocation Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
45,059,635 | $ | 1,184,354,685 | 42,604,188 | $ | 1,057,446,020 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
611,749 | 15,936,068 | 186,580 | 4,641,672 | ||||||||||||
| Shares repurchased |
(447,172 | ) | (11,939,802 | ) | (9,878,308 | ) | (252,879,064 | ) | ||||||||
| Purchase premiums |
— | 1,204,660 | — | 1,298,448 | ||||||||||||
| Redemption fees |
— | — | — | 741 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
45,224,212 | $ | 1,189,555,611 | 32,912,460 | $ | 810,507,817 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class IV*: |
||||||||||||||||
| Shares sold |
23,397,196 | $ | 617,273,301 | 27,340,869 | $ | 690,612,412 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
302,458 | 7,876,007 | 71,428 | 1,783,556 | ||||||||||||
| Shares repurchased |
(57,901 | ) | (1,505,234 | ) | (388 | ) | (10,000 | ) | ||||||||
| Purchase premiums |
— | 680,417 | — | 222,986 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
23,641,753 | $ | 624,324,491 | 27,411,909 | $ | 692,608,954 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class MF**: |
||||||||||||||||
| Shares sold |
102,062,806 | $ | 2,683,523,048 | 113,938,649 | $ | 2,794,339,449 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
1,760,508 | 45,861,223 | 553,925 | 13,753,375 | ||||||||||||
| Shares repurchased |
— | — | (63,751 | ) | (1,509,790 | ) | ||||||||||
| Purchase premiums |
— | 3,289,116 | — | 3,348,672 | ||||||||||||
| Redemption fees |
— | — | — | 1,195 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
103,823,314 | $ | 2,732,673,387 | 114,428,823 | $ | 2,809,932,901 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 113 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Benchmark-Free Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
5,523,903 | $ | 119,750,288 | 8,342,306 | $ | 172,037,177 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
2,171,133 | 46,614,227 | 10,629,226 | 218,779,932 | ||||||||||||
| Shares repurchased |
(2,417,325 | ) | (52,933,135 | ) | (3,465,062 | ) | (71,933,455 | ) | ||||||||
| Purchase premiums |
— | 103,010 | — | 139,242 | ||||||||||||
| Redemption fees |
— | 13,327 | — | 46,367 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
5,277,711 | $ | 113,547,717 | 15,506,470 | $ | 319,069,263 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Global Asset Allocation Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
42,216,182 | $ | 469,671,899 | 125,182,359 | $ | 1,328,700,300 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
181,408 | 2,008,186 | 10,190,943 | 108,125,903 | ||||||||||||
| Shares repurchased |
(38,827,876 | ) | (434,195,853 | ) | (45,844,718 | ) | (482,976,480 | ) | ||||||||
| Purchase premiums |
— | 405,900 | — | 1,275,100 | ||||||||||||
| Redemption fees |
— | 372,034 | — | 428,093 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
3,569,714 | $ | 38,262,166 | 89,528,584 | $ | 955,552,916 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Global Equity Allocation Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
52,483,216 | $ | 467,917,770 | 66,734,770 | $ | 570,867,176 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
4,132,052 | 36,072,806 | 18,696,692 | 154,244,521 | ||||||||||||
| Shares repurchased |
(20,698,699 | ) | (184,825,121 | ) | (20,100,329 | ) | (170,509,288 | ) | ||||||||
| Purchase premiums |
— | 361,550 | — | 489,107 | ||||||||||||
| Redemption fees |
— | 155,964 | — | 187,787 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
35,916,569 | $ | 319,682,969 | 65,331,133 | $ | 555,279,303 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| International Equity Allocation Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
34,580,682 | $ | 364,549,741 | 32,118,209 | $ | 312,628,321 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
346,609 | 3,563,142 | 4,032,122 | 41,081,828 | ||||||||||||
| Shares repurchased |
(13,007,102 | ) | (139,263,541 | ) | (20,247,711 | ) | (195,804,476 | ) | ||||||||
| Purchase premiums |
— | 146,237 | — | 614,603 | ||||||||||||
| Redemption fees |
— | 286,599 | — | 367,771 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
21,920,189 | $ | 229,282,178 | 15,902,620 | $ | 158,888,047 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| International Opportunities Equity Allocation Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
1,727,016 | $ | 26,667,547 | 9,059,323 | $ | 126,443,969 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
19,098 | 293,342 | 1,841,320 | 26,735,963 | ||||||||||||
| Shares repurchased |
(1,761,749 | ) | (27,423,925 | ) | (4,252,988 | ) | (60,770,407 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(15,635 | ) | $ | (463,036 | ) | 6,647,655 | $ | 92,409,525 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 114 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Six Months Ended August 31, 2013 (Unaudited) |
Year Ended February 28, 2013 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Special Situations Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
19,904 | $ | 504,786 | 1,090,189 | $ | 28,393,064 | ||||||||||
| Shares repurchased |
(1,146,720 | ) | (29,382,033 | ) | (1,320,555 | ) | (34,008,100 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(1,126,816 | ) | $ | (28,877,247 | ) | (230,366 | ) | $ | (5,615,036 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Class VI: |
||||||||||||||||
| Shares sold |
1,035,176 | $ | 26,547,047 | 8,504,266 | $ | 223,395,607 | ||||||||||
| Shares repurchased |
(25,399,453 | ) | (654,983,001 | ) | (7,256,801 | ) | (192,457,709 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(24,364,277 | ) | $ | (628,435,954 | ) | 1,247,465 | $ | 30,937,898 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Strategic Opportunities Allocation Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
2,812,049 | $ | 63,108,245 | 4,226,212 | $ | 90,910,743 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
1,296,794 | 28,633,203 | 8,815,218 | 182,034,234 | ||||||||||||
| Shares repurchased |
(5,941,368 | ) | (131,199,063 | ) | (7,158,276 | ) | (156,243,122 | ) | ||||||||
| Purchase premiums |
— | 27,897 | — | 9,941 | ||||||||||||
| Redemption fees |
— | 74,478 | — | 7,745 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(1,832,525 | ) | $ | (39,355,240 | ) | 5,883,154 | $ | 116,719,541 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| U.S. Equity Allocation Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
412 | $ | 12,859 | 273,231 | $ | 7,807,789 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
264,426 | 7,660,420 | 66,247 | 1,901,866 | ||||||||||||
| Shares repurchased |
(1,571,965 | ) | (45,560,450 | ) | (60,337 | ) | (1,799,664 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(1,307,127 | ) | $ | (37,887,171 | ) | 279,141 | $ | 7,909,991 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| World Opportunities Equity Allocation Fund |
||||||||||||||||
| Class III: |
||||||||||||||||
| Shares sold |
411,805 | $ | 9,388,579 | 15,977,360 | $ | 313,330,034 | ||||||||||
| Shares issued to shareholders in reinvestment of distributions |
16,016 | 357,654 | 2,296,490 | 46,343,171 | ||||||||||||
| Shares repurchased |
(7,992,358 | ) | (181,456,649 | ) | (9,148,660 | ) | (187,141,359 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
(7,564,537 | ) | $ | (171,710,416 | ) | 9,125,190 | $ | 172,531,846 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | The period under the heading “Year Ended February 28, 2013” represents the period from December 11, 2012 (commencement of operations) through February 28, 2013. |
| ** | The period under the heading “Year Ended February 28, 2013” represents the period from March 1, 2012 (commencement of operations) through February 28, 2013. |
| 115 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| 10. | Investments in affiliated issuers |
A summary of the Funds’ transactions in the shares of other funds of the Trust during the period ended August 31, 2013 is set forth below:
| Affiliate | Value, beginning of period |
Purchases | Sales Proceeds |
Dividend Income* |
Distributions of Realized Gains* |
Return of Capital* |
Value, end of period |
|||||||||||||||||||||
| Alpha Only Fund |
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| GMO International Growth Equity Fund, Class IV |
$ | 472,693,875 | $ | 111,825,724 | $ | 245,541,450 | $ | 4,422,824 | $ | — | $ | — | $ | 362,304,651 | ||||||||||||||
| GMO International Intrinsic Value Fund, Class IV |
1,100,163,857 | 246,214,304 | 570,616,600 | 9,370,205 | — | — | 845,021,408 | |||||||||||||||||||||
| GMO U.S. Core Equity Fund, Class VI |
523,090,853 | 108,460,403 | 272,671,150 | 2,099,603 | — | — | 408,919,938 | |||||||||||||||||||||
| GMO U.S. Flexible Equities Fund, Class VI |
965,757,640 | 225,915,902 | 492,210,800 | 2,636,312 | 14,312,890 | — | 754,010,915 | |||||||||||||||||||||
| GMO U.S. Treasury Fund |
116,540,642 | 475,057,802 | 591,630,416 | 54,255 | 4,543 | — | — | |||||||||||||||||||||
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| Totals |
$ | 3,178,246,867 | $ | 1,167,474,135 | $ | 2,172,670,416 | $ | 18,583,199 | $ | 14,317,433 | $ | — | $ | 2,370,256,912 | ||||||||||||||
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| Consolidated Alternative Asset Opportunity Fund |
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| GMO Short-Duration Collateral Fund |
$ | 3,084,979 | $ | — | $ | — | $ | 12,599 | $ | — | $ | 565,320 | $ | 2,618,277 | ||||||||||||||
| GMO U.S. Treasury Fund |
616,498,947 | 600,474,371 | — | 385,347 | 89,024 | — | 1,216,852,576 | |||||||||||||||||||||
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| Totals |
$ | 619,583,926 | $ | 600,474,371 | $ | — | $ | 397,946 | $ | 89,024 | $ | 565,320 | $ | 1,219,470,853 | ||||||||||||||
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| Consolidated Benchmark-Free Allocation Fund |
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| GMO Alpha Only Fund, Class IV |
$ | 1,129,748,983 | $ | 768,898,053 | $ | 597,138,071 | $ | 1,798,053 | $ | — | $ | — | $ | 1,289,567,059 | ||||||||||||||
| GMO Alternative Asset Opportunity Fund |
489,287,387 | 680,068,020 | — | — | — | — | 1,184,592,815 | |||||||||||||||||||||
| GMO Debt Opportunities Fund, Class VI |
267,402,815 | 235,971,180 | — | 1,138,143 | 1,933,037 | — | 503,478,667 | |||||||||||||||||||||
| GMO Emerging Country Debt Fund, Class IV |
127,099,623 | 210,667,476 | — | 2,317,477 | — | — | 320,385,752 | |||||||||||||||||||||
| GMO Flexible Equities Fund, Class VI |
141,469,403 | 40,752,276 | 156,726,110 | 26,361,353 | 14,390,923 | — | — | |||||||||||||||||||||
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| Totals |
$ | 2,155,008,211 | $ | 1,936,357,005 | $ | 753,864,181 | $ | 31,615,026 | $ | 16,323,960 | $ | — | $ | 3,298,024,293 | ||||||||||||||
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| Benchmark-Free Fund |
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| GMO Alpha Only Fund, Class IV |
$ | 457,131,993 | $ | 14,004,968 | $ | 258,286,365 | $ | 490,199 | $ | — | $ | — | $ | 209,799,521 | ||||||||||||||
| GMO Alternative Asset Opportunity Fund |
188,187,832 | 120,491,864 | 68,843,043 | — | — | — | 246,679,084 | |||||||||||||||||||||
| GMO Asset Allocation Bond Fund, Class VI |
— | 508,133,161 | — | — | — | — | 497,338,803 | |||||||||||||||||||||
| GMO Currency Hedged International Equity Fund, Class III |
927,521,659 | 142,944,501 | 148,097,094 | 33,725,683 | 19,533,311 | — | 935,732,106 | |||||||||||||||||||||
| GMO Debt Opportunities Fund, Class VI |
162,220,146 | 2,297,718 | — | 455,999 | 774,475 | — | 165,363,584 | |||||||||||||||||||||
| GMO Emerging Country Debt Fund, Class IV |
102,994,675 | 83,425,974 | — | 1,226,822 | — | — | 177,091,175 | |||||||||||||||||||||
| GMO Emerging Markets Fund, Class VI |
490,803,797 | 63,487,288 | — | — | — | — | 496,791,516 | |||||||||||||||||||||
| GMO Flexible Equities Fund, Class VI |
128,814,066 | 37,441,517 | 142,809,211 | 24,077,440 | 13,364,077 | — | — | |||||||||||||||||||||
| GMO Quality Fund, Class VI |
918,524,954 | 45,618,745 | 12,228,208 | 2,725,804 | 13,530,827 | — | 990,387,986 | |||||||||||||||||||||
| GMO Risk Premium Fund, Class VI |
243,009,116 | 8,042,737 | — | — | 5,509,709 | — | 242,113,979 | |||||||||||||||||||||
| GMO Special Situations Fund, Class VI |
175,541,690 | 1,068,495 | 155,325,193 | — | — | — | 24,159,220 | |||||||||||||||||||||
| GMO Strategic Fixed Income Fund, Class VI |
146,772,924 | 3,399,900 | 60,828,960 | 2,495,947 | — | — | 85,666,150 | |||||||||||||||||||||
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| Totals |
$ | 3,941,522,852 | $ | 1,030,356,868 | $ | 846,418,074 | $ | 65,197,894 | $ | 52,712,399 | $ | — | $ | 4,071,123,124 | ||||||||||||||
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| Global Asset Allocation Fund |
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| GMO Alpha Only Fund, Class IV |
$ | 729,162,436 | $ | 59,601,087 | $ | 315,208,231 | $ | 805,234 | $ | — | $ | — | $ | 468,611,748 | ||||||||||||||
| GMO Alternative Asset Opportunity Fund |
269,060,669 | 76,458,157 | 320,571 | — | — | — | 351,603,286 | |||||||||||||||||||||
| GMO Asset Allocation Bond Fund, Class VI |
— | 502,636,784 | — | — | 492,075,713 | |||||||||||||||||||||||
| 116 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Affiliate | Value, beginning of period |
Purchases | Sales Proceeds |
Dividend Income* |
Distributions of Realized Gains* |
Return of Capital* |
Value, end of period |
|||||||||||||||||||||
| Global Asset Allocation Fund (continued) |
||||||||||||||||||||||||||||
| GMO Currency Hedged International Equity Fund, Class III |
$ | 248,043,903 | $ | 60,279,608 | $ | 41,109,592 | $ | 9,743,426 | $ | 5,643,218 | $ | — | $ | 270,965,989 | ||||||||||||||
| GMO Debt Opportunities Fund, Class VI |
119,450,615 | 6,037,233 | 1,149,341 | 344,560 | 585,203 | — | 124,950,803 | |||||||||||||||||||||
| GMO Domestic Bond Fund, Class VI |
45,628,493 | — | 393,235 | 106,537 | — | 8,216,704 | 38,206,460 | |||||||||||||||||||||
| GMO Emerging Country Debt Fund, Class IV |
121,041,373 | 61,107,784 | 1,174,961 | 1,480,235 | — | — | 170,507,814 | |||||||||||||||||||||
| GMO Emerging Markets Fund, Class VI |
455,385,222 | 45,801,641 | 14,831,535 | — | — | — | 431,990,393 | |||||||||||||||||||||
| GMO Flexible Equities Fund, Class VI |
100,158,243 | 20,730,509 | 110,295,463 | 14,009,502 | 6,721,007 | — | — | |||||||||||||||||||||
| GMO International Core Equity Fund, Class VI |
622,763,298 | 8,011,823 | 664,351,334 | 8,011,825 | — | — | — | |||||||||||||||||||||
| GMO International Growth Equity Fund, Class IV |
28,498,947 | 93,050,868 | 45,649,979 | 692,907 | — | — | 73,956,514 | |||||||||||||||||||||
| GMO International Intrinsic Value Fund, Class IV |
358,974,608 | 626,861,968 | 36,604,156 | 6,672,631 | — | — | 968,380,195 | |||||||||||||||||||||
| GMO Risk Premium Fund, Class VI |
117,555,180 | 7,806,663 | — | — | 2,750,351 | — | 120,859,078 | |||||||||||||||||||||
| GMO Special Purpose Holding Fund |
3,289 | — | 9,196 | — | — | 258,692 | — | |||||||||||||||||||||
| GMO Special Situations Fund, Class VI |
165,745,642 | 7,013,559 | 151,232,708 | — | — | — | 24,324,893 | |||||||||||||||||||||
| GMO Strategic Fixed Income Fund, Class VI |
296,449,409 | 17,756,487 | 60,563,098 | 5,075,116 | — | — | 246,048,193 | |||||||||||||||||||||
| GMO U.S. Flexible Equities Fund, Class VI |
1,064,789,143 | 111,347,910 | 132,973,164 | 2,598,343 | 14,106,752 | — | 1,091,609,770 | |||||||||||||||||||||
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| Totals |
$ | 4,742,710,470 | $ | 1,704,502,081 | $ | 1,575,866,564 | $ | 49,540,316 | $ | 29,806,531 | $ | 8,475,396 | $ | 4,874,090,849 | ||||||||||||||
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| Global Equity Allocation Fund |
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| GMO Currency Hedged International Equity Fund, Class III |
$ | 155,882,479 | $ | 63,743,659 | $ | 11,779,992 | $ | 7,285,304 | $ | 4,219,518 | $ | — | $ | 208,703,617 | ||||||||||||||
| GMO Emerging Markets Fund, Class VI |
325,125,624 | 70,742,207 | 9,343,938 | — | — | — | 344,315,512 | |||||||||||||||||||||
| GMO Flexible Equities Fund, Class VI |
35,579,121 | 8,117,238 | 39,543,454 | 5,740,617 | 2,376,621 | — | — | |||||||||||||||||||||
| GMO International Core Equity Fund, Class VI |
469,254,168 | 6,685,414 | 503,036,148 | 6,672,155 | — | — | — | |||||||||||||||||||||
| GMO International Growth Equity Fund, Class IV |
30,002,710 | 193,037,921 | 11,953,663 | 1,610,375 | — | — | 207,296,325 | |||||||||||||||||||||
| GMO International Intrinsic Value Fund, Class IV |
278,726,153 | 447,251,609 | 26,096,442 | 4,960,280 | — | — | 713,624,240 | |||||||||||||||||||||
| GMO Special Purpose Holding Fund |
154 | 429 | — | 12,079 | — | |||||||||||||||||||||||
| GMO SPV I, LLC |
30 | 120 | — | 3,953 | — | |||||||||||||||||||||||
| GMO U.S. Core Equity Fund, Class VI |
77,632,724 | 10,477,867 | 5,146,925 | 299,957 | — | — | 89,599,239 | |||||||||||||||||||||
| GMO U.S. Flexible Equities Fund, Class VI |
848,494,082 | 191,621,390 | 54,833,093 | 2,326,767 | 12,632,331 | — | 1,022,107,724 | |||||||||||||||||||||
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| Totals |
$ | 2,220,697,245 | $ | 991,677,305 | $ | 661,734,204 | $ | 28,895,455 | $ | 19,228,470 | $ | 16,032 | $ | 2,585,646,657 | ||||||||||||||
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| International Equity Allocation Fund |
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| GMO Emerging Markets Fund, Class VI |
$ | 357,138,077 | $ | 93,318,085 | $ | 22,887,934 | $ | — | $ | — | $ | — | $ | 383,915,491 | ||||||||||||||
| GMO Flexible Equities Fund, Class VI |
45,162,963 | 4,760,850 | 49,780,452 | 3,638,721 | 1,122,129 | — | — | |||||||||||||||||||||
| GMO International Growth Equity Fund, Class IV |
285,931,562 | 77,284,719 | 25,959,380 | 2,692,376 | — | — | 349,657,347 | |||||||||||||||||||||
| GMO International Intrinsic Value Fund, Class IV |
696,941,748 | 227,041,352 | 64,468,204 | 6,182,003 | — | — | 902,538,787 | |||||||||||||||||||||
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| Totals |
$ | 1,385,174,350 | $ | 402,405,006 | $ | 163,095,970 | $ | 12,513,100 | $ | 1,122,129 | $ | — | $ | 1,636,111,625 | ||||||||||||||
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| 117 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Affiliate | Value, beginning of period |
Purchases | Sales Proceeds |
Dividend Income* |
Distributions of Realized Gains* |
Return of Capital* |
Value, end of period |
|||||||||||||||||||||
| International Opportunities Equity Allocation Fund |
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| GMO Emerging Markets Fund, Class VI |
$ | 19,089,766 | $ | 2,646,025 | $ | — | $ | — | $ | — | $ | — | $ | 19,286,134 | ||||||||||||||
| GMO Flexible Equities Fund, Class VI |
43,798,347 | 7,601,111 | 48,890,511 | 4,801,053 | 2,800,058 | — | — | |||||||||||||||||||||
| GMO International Growth Equity Fund, Class IV |
278,348,071 | 15,969,075 | 5,810,791 | 2,300,366 | — | — | 299,048,685 | |||||||||||||||||||||
| GMO International Intrinsic Value Fund, Class IV |
625,555,137 | 48,236,067 | 5,877,745 | 4,766,103 | — | — | 705,366,413 | |||||||||||||||||||||
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| Totals |
$ | 966,791,321 | $ | 74,452,278 | $ | 60,579,047 | $ | 11,867,522 | $ | 2,800,058 | $ | — | $ | 1,023,701,232 | ||||||||||||||
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| Special Situations Fund |
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| GMO U.S. Treasury Fund |
$ | 642,686,692 | $ | 44,200,062 | $ | 679,134,000 | $ | 198,126 | $ | 1,936 | $ | — | $ | 8,009,449 | ||||||||||||||
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| Totals |
$ | 642,686,692 | $ | 44,200,062 | $ | 679,134,000 | $ | 198,126 | $ | 1,936 | $ | — | $ | 8,009,449 | ||||||||||||||
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| Strategic Opportunities Allocation Fund |
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| GMO Alpha Only Fund, Class IV |
$ | 62,597,522 | $ | 42,122,448 | $ | 103,922,161 | $ | 104,151 | $ | — | $ | — | $ | — | ||||||||||||||
| GMO Asset Allocation Bond Fund, Class VI |
— | 193,353,433 | — | — | — | — | 188,643,850 | |||||||||||||||||||||
| GMO Currency Hedged International Equity Fund, Class III |
142,477,873 | 32,062,513 | 3,596,416 | 6,089,610 | 3,526,993 | — | 172,047,453 | |||||||||||||||||||||
| GMO Debt Opportunities Fund, Class VI |
78,618,929 | 584,347 | 1,079,642 | 216,552 | 367,795 | — | 78,530,441 | |||||||||||||||||||||
| GMO Domestic Bond Fund, Class VI |
11,861,988 | — | — | 27,854 | — | 2,148,238 | 10,024,409 | |||||||||||||||||||||
| GMO Emerging Country Debt Fund, Class IV |
62,062,358 | 40,360,198 | — | 734,775 | — | — | 97,046,403 | |||||||||||||||||||||
| GMO Emerging Markets Fund, Class VI |
45,375,997 | 1,177,590 | — | — | — | — | 41,288,304 | |||||||||||||||||||||
| GMO Flexible Equities Fund, Class VI |
84,933,948 | 24,424,761 | 94,747,650 | 15,384,398 | 9,040,363 | — | — | |||||||||||||||||||||
| GMO International Growth Equity Fund, Class IV |
174,154,916 | 617,303 | 115,938,959 | 617,303 | — | — | 68,705,296 | |||||||||||||||||||||
| GMO International Intrinsic Value Fund, Class IV |
508,373,819 | 156,250,500 | 14,673,204 | 4,464,189 | — | — | 679,037,833 | |||||||||||||||||||||
| GMO Risk Premium Fund, Class VI |
75,746,033 | 1,699,789 | — | — | 1,699,790 | — | 74,694,124 | |||||||||||||||||||||
| GMO Special Situations Fund, Class VI |
63,120,913 | 18,464,993 | 82,654,044 | — | — | — | — | |||||||||||||||||||||
| GMO Strategic Fixed Income Fund, Class VI |
114,412,850 | 1,922,436 | 90,066,016 | 1,922,436 | — | — | 23,469,158 | |||||||||||||||||||||
| GMO U.S. Flexible Equities Fund, Class VI |
736,384,617 | 30,927,568 | 45,228,528 | 1,759,297 | 9,551,460 | — | 754,281,311 | |||||||||||||||||||||
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| Totals |
$ | 2,160,121,763 | $ | 543,967,879 | $ | 551,906,620 | $ | 31,320,565 | $ | 24,186,401 | $ | 2,148,238 | $ | 2,187,768,582 | ||||||||||||||
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| U.S. Equity Allocation Fund |
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| GMO U.S. Core Equity Fund, Class VI |
$ | 38,283,951 | $ | 491,391 | $ | 22,373,251 | $ | 62,915 | $ | — | $ | — | $ | 18,588,770 | ||||||||||||||
| GMO U.S. Flexible Equities Fund, Class VI |
40,220,813 | 801,018 | 23,002,429 | 44,871 | 243,613 | — | 19,515,057 | |||||||||||||||||||||
| GMO U.S. Small/Mid Cap Fund, Class III |
1,979,369 | 26,194 | 1,136,316 | 3,619 | — | — | 1,021,995 | |||||||||||||||||||||
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| Totals |
$ | 80,484,133 | $ | 1,318,603 | $ | 46,511,996 | $ | 111,405 | $ | 243,613 | $ | — | $ | 39,125,822 | ||||||||||||||
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| 118 |
GMO Trust Funds
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Affiliate | Value, beginning of period |
Purchases | Sales Proceeds |
Dividend Income* |
Distributions of Realized Gains* |
Return of Capital* |
Value, end of period |
|||||||||||||||||||||
| World Opportunities Equity Allocation Fund |
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| GMO Currency Hedged International Equity Fund, Class III |
$ | 105,584,819 | $ | 30,035,781 | $ | 21,690,488 | $ | 4,370,438 | $ | 2,531,279 | $ | — | $ | 114,628,783 | ||||||||||||||
| GMO Emerging Markets Fund, Class VI |
30,728,573 | 383,189 | — | — | — | — | 27,589,074 | |||||||||||||||||||||
| GMO Flexible Equities Fund, Class VI |
30,425,117 | 5,115,792 | 34,133,287 | 3,480,608 | 1,635,184 | — | — | |||||||||||||||||||||
| GMO International Growth Equity Fund, Class IV |
153,982,276 | 970,518 | 52,144,785 | 970,519 | — | — | 109,317,115 | |||||||||||||||||||||
| GMO International Intrinsic Value Fund, Class IV |
474,047,552 | 19,985,623 | 40,089,966 | 3,571,642 | — | — | 482,832,986 | |||||||||||||||||||||
| GMO U.S. Core Equity Fund, Class VI |
74,987,226 | 263,400 | 8,410,205 | 263,400 | — | — | 73,164,986 | |||||||||||||||||||||
| GMO U.S. Flexible Equities Fund, Class VI |
662,034,180 | 16,802,327 | 62,189,550 | 1,580,669 | 8,581,659 | — | 646,675,629 | |||||||||||||||||||||
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| Totals |
$ | 1,531,789,743 | $ | 73,556,630 | $ | 218,658,281 | $ | 14,237,276 | $ | 12,748,122 | $ | — | $ | 1,454,208,573 | ||||||||||||||
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| * | The table above includes estimated sources of all distributions paid by the underlying funds during the period March 1, 2013 through August 31, 2013. The actual tax characterization of distributions paid by the underlying funds will be determined at the end of the fiscal year ending February 28, 2014. |
| 119 |
GMO Trust Funds
Board Review of Management Agreements
August 31, 2013 (Unaudited)
Alpha Only Fund
Approval of renewal of management agreement for GMO Alpha Only Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees noted in particular that some GMO funds in which the Fund invests (“underlying GMO funds”) do not charge any advisory fees and that with respect to all other underlying GMO funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager in effect reimburses the Fund for management fees, shareholder servicing fees and most other expenses of the underlying GMO funds, all of which the Fund would otherwise bear as a result of its investments in them. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 120 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
Alternative Asset Opportunity Fund
Approval of renewal of management agreement for GMO Alternative Asset Opportunity Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees noted in particular that some GMO funds in which the Fund invests (“underlying GMO funds”) do not charge any advisory fees and that with respect to all other underlying GMO funds, pursuant to a contractual expense reimbursement arrangement in place with the Fund, the Manager in effect reimburses the Fund for management fees, shareholder servicing fees and most other expenses of the underlying GMO funds, all of which the Fund would otherwise bear as a result of its investments in them. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 121 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
Benchmark-Free Allocation Fund
Approval of renewal of management agreement for GMO Benchmark-Free Allocation Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees took account of the service and supplemental support fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing and supplemental support function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees noted in particular that some GMO funds in which the Fund invests (“underlying GMO funds”) do not charge any advisory fees and that with respect to all other underlying GMO funds, pursuant to the Fund’s management agreement, the Manager in effect reimburses the Fund for management fees, shareholder servicing fees and most other expenses of the underlying GMO funds, all of which the Fund would otherwise bear as a result of its investments in them. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 122 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
Benchmark-Free Fund
Approval of renewal of management agreement for GMO Benchmark-Free Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fact that the Fund does not pay a fee to the Manager under the Fund’s management or shareholder servicing and supplemental support agreement, but that the Fund indirectly bears management and shareholder servicing fees paid to the Manager by the other GMO funds in which the Fund invests. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees noted that they had approved renewal of the Manager’s management agreements with the other GMO funds in which the Fund may invest and had concluded that the advisory fees to be paid by those funds to the Manager were within the range of fees that would be established through arm’s-length bargaining, after considering, among other things: possible economies of scale to the Manager in connection with its management of those funds; the expenses of the Manager for the services it provided to those funds, the Manager’s overall profitability, and its profitability by division and with respect to those funds; and a comparison of the management fees of those funds to the management fees of funds determined by a third-party data service to have similar objectives.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 123 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
Global Asset Allocation Fund
Approval of renewal of management agreement for GMO Global Asset Allocation Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fact that the Fund does not pay a fee to the Manager under the Fund’s management or shareholder servicing and supplemental support agreement, but that the Fund indirectly bears management and shareholder servicing fees paid to the Manager by the other GMO funds in which the Fund invests. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees noted that they had approved renewal of the Manager’s management agreements with the other GMO funds in which the Fund may invest and had concluded that the advisory fees to be paid by those funds to the Manager were within the range of fees that would be established through arm’s-length bargaining, after considering, among other things: possible economies of scale to the Manager in connection with its management of those funds; the expenses of the Manager for the services it provided to those funds, the Manager’s overall profitability, and its profitability by division and with respect to those funds; and a comparison of the management fees of those funds to the management fees of funds determined by a third-party data service to have similar objectives.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 124 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
Global Equity Allocation Fund
Approval of renewal of management agreement for GMO Global Equity Allocation Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fact that the Fund does not pay a fee to the Manager under the Fund’s management or shareholder servicing and supplemental support agreement, but that the Fund indirectly bears management and shareholder servicing fees paid to the Manager by the other GMO funds in which the Fund invests. The Trustees also compared the management fees paid by the Fund with the Manager’s fee schedule for its separately managed accounts. The Trustees considered differences in the services that the Manager provides to the Fund, on the one hand, and to the Manager’s separately managed accounts, on the other. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees noted that they had approved renewal of the Manager’s management agreements with the other GMO funds in which the Fund may invest and had concluded that the advisory fees to be paid by those funds to the Manager were within the range of fees that would be established through arm’s-length bargaining, after considering, among other things: possible economies of scale to the Manager in connection with its management of those funds; the expenses of the Manager for the services it provided to those funds, the Manager’s overall profitability, and its profitability by division and with respect to those funds; and a comparison of the management fees of those funds to the management fees of funds determined by a third-party data service to have similar objectives.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 125 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
International Equity Allocation Fund
Approval of renewal of management agreement for GMO International Equity Allocation Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fact that the Fund does not pay a fee to the Manager under the Fund’s management or shareholder servicing and supplemental support agreement, but that the Fund indirectly bears management and shareholder servicing fees paid to the Manager by the other GMO funds in which the Fund invests. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees noted that they had approved renewal of the Manager’s management agreements with the other GMO funds in which the Fund may invest and had concluded that the advisory fees to be paid by those funds to the Manager were within the range of fees that would be established through arm’s-length bargaining, after considering, among other things: possible economies of scale to the Manager in connection with its management of those funds; the expenses of the Manager for the services it provided to those funds, the Manager’s overall profitability, and its profitability by division and with respect to those funds; and a comparison of the management fees of those funds to the management fees of funds determined by a third-party data service to have similar objectives.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 126 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
International Opportunities Equity Allocation Fund
Approval of renewal of management agreement for GMO International Opportunities Equity Allocation Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fact that the Fund does not pay a fee to the Manager under the Fund’s management or shareholder servicing and supplemental support agreement, but that the Fund indirectly bears management and shareholder servicing fees paid to the Manager by the other GMO funds in which the Fund invests. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees noted that they had approved renewal of the Manager’s management agreements with the other GMO funds in which the Fund may invest and had concluded that the advisory fees to be paid by those funds to the Manager were within the range of fees that would be established through arm’s-length bargaining, after considering, among other things: possible economies of scale to the Manager in connection with its management of those funds; the expenses of the Manager for the services it provided to those funds, the Manager’s overall profitability, and its profitability by division and with respect to those funds; and a comparison of the management fees of those funds to the management fees of funds determined by a third-party data service to have similar objectives.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 127 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
Special Situations Fund
Approval of renewal of management agreement for GMO Special Situations Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. In addition, the Trustees took into account their discussion with representatives of the Manager regarding ways to evaluate the performance of the Fund, given that the Fund is not a standalone investment and the investment strategies the Manager pursues for the Fund are intended to complement the strategies being pursued by the Manager in other GMO funds or accounts. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fees payable to the Manager under the Fund’s management and shareholder servicing and supplemental support agreements. The Trustees compared the management fees of the Fund to the management fees of funds determined by a third-party data service to have similar objectives. The Trustees took account of the service fees charged with respect to the different share classes of the Fund and considered the extensive shareholder servicing function performed by the Manager. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees also reviewed information provided by the Manager with respect to the expenses of the Manager for the services it provided to the Fund, the Manager’s overall profitability, and its profitability by division and with respect to the Fund. The Trustees reviewed the methodology employed by the Manager in preparing that information, including the allocation of expenses among the GMO funds, and considered the effect of other approaches to calculating profitability. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees considered possible economies of scale to the Manager at recent asset levels and whether fee levels reflected these economies of scale.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 128 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
Strategic Opportunities Allocation Fund
Approval of renewal of management agreement for GMO Strategic Opportunities Allocation Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fact that the Fund does not pay a fee to the Manager under the Fund’s management or shareholder servicing and supplemental support agreement, but that the Fund indirectly bears management and shareholder servicing fees paid to the Manager by the other GMO funds in which the Fund invests. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees noted that they had approved renewal of the Manager’s management agreements with the other GMO funds in which the Fund may invest and had concluded that the advisory fees to be paid by those funds to the Manager were within the range of fees that would be established through arm’s-length bargaining, after considering, among other things: possible economies of scale to the Manager in connection with its management of those funds; the expenses of the Manager for the services it provided to those funds, the Manager’s overall profitability, and its profitability by division and with respect to those funds; and a comparison of the management fees of those funds to the management fees of funds determined by a third-party data service to have similar objectives.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 129 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
U.S. Equity Allocation Fund
Approval of renewal of management agreement for GMO U.S. Equity Allocation Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fact that the Fund does not pay a fee to the Manager under the Fund’s management or shareholder servicing and supplemental support agreement, but that the Fund indirectly bears management and shareholder servicing fees paid to the Manager by the other GMO funds in which the Fund invests. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees noted that they had approved renewal of the Manager’s management agreements with the other GMO funds in which the Fund may invest and had concluded that the advisory fees to be paid by those funds to the Manager were within the range of fees that would be established through arm’s-length bargaining, after considering, among other things: possible economies of scale to the Manager in connection with its management of those funds; the expenses of the Manager for the services it provided to those funds, the Manager’s overall profitability, and its profitability by division and with respect to those funds; and a comparison of the management fees of those funds to the management fees of funds determined by a third-party data service to have similar objectives.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 130 |
GMO Trust Funds
Board Review of Management Agreements — (Continued)
August 31, 2013 (Unaudited)
World Opportunities Equity Allocation Fund
Approval of renewal of management agreement for GMO World Opportunities Equity Allocation Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, comparisons against the performance of a composite of accounts with similar objectives managed by the Manager, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees also gave substantial consideration to the fact that the Fund does not pay a fee to the Manager under the Fund’s management or shareholder servicing and supplemental support agreement, but that the Fund indirectly bears management and shareholder servicing fees paid to the Manager by the other GMO funds in which the Fund invests. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees noted that they had approved renewal of the Manager’s management agreements with the other GMO funds in which the Fund may invest and had concluded that the advisory fees to be paid by those funds to the Manager were within the range of fees that would be established through arm’s-length bargaining, after considering, among other things: possible economies of scale to the Manager in connection with its management of those funds; the expenses of the Manager for the services it provided to those funds, the Manager’s overall profitability, and its profitability by division and with respect to those funds; and a comparison of the management fees of those funds to the management fees of funds determined by a third-party data service to have similar objectives.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 131 |
GMO Trust Funds
(A Series of GMO Trust)
August 31, 2013 (Unaudited)
Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2013.
As a shareholder of the Funds, you may incur two types of costs: (1) transactions costs, including purchase premium and redemption fees, if applicable; and (2) ongoing costs, including direct and /or indirect management fees, direct and/or indirect shareholder services fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2013 through August 31, 2013.
Actual Expenses
This section of the table for each class below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
This section of the table for each class below provides information about hypothetical account values and hypothetical expenses based on the Funds’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premium and redemption fees. Therefore, this section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Actual | Hypothetical |
|
||||||||||||||||||||||||||
| Beginning Account Value March 1, 2013 |
Ending Account Value August 31, 2013 |
Expenses Paid During the Period* |
Beginning Account Value March 1, 2013 |
Ending Account Value August 31, 2013 |
Expenses Paid During the Period* |
Annualized Net Expense Ratio |
||||||||||||||||||||||
| Alpha Only Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $995.10 | $3.27 | $1,000.00 | $1,021.93 | $3.31 | 0.65% | |||||||||||||||||||||
| Class IV |
$1,000.00 | $995.30 | $3.02 | $1,000.00 | $1,022.18 | $3.06 | 0.60% | |||||||||||||||||||||
| Alternative Asset opportunity Fund |
|
|||||||||||||||||||||||||||
| Core Class |
$1,000.00 | $1,017.10 | $3.81 | $1,000.00 | $1,021.42 | $3.82 | 0.75% | |||||||||||||||||||||
| Benchmark-Free Allocation Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,016.60 | $4.07 | $1,000.00 | $1,021.17 | $4.08 | 0.80% | |||||||||||||||||||||
| Class IV |
$1,000.00 | $1,017.00 | $3.81 | $1,000.00 | $1,021.43 | $3.82 | 0.75% | |||||||||||||||||||||
| Class MF |
$1,000.00 | $1,017.00 | $3.81 | $1,000.00 | $1,021.43 | $3.82 | 0.75% | |||||||||||||||||||||
| Benchmark-Free Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,016.10 | $2.90 | $1,000.00 | $1,022.33 | $2.91 | 0.57% | |||||||||||||||||||||
| Global Asset Allocation Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,018.80 | $2.75 | $1,000.00 | $1,022.48 | $2.75 | 0.54% | |||||||||||||||||||||
| Global Equity Allocation Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,037.30 | $2.77 | $1,000.00 | $1,022.48 | $2.75 | 0.54% | |||||||||||||||||||||
| International Equity Allocation Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,015.70 | $3.40 | $1,000.00 | $1,021.83 | $3.41 | 0.67% | |||||||||||||||||||||
| International Opportunities Equity Allocation Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,059.60 | $3.11 | $1,000.00 | $1,022.18 | $3.06 | 0.60% | |||||||||||||||||||||
| Special Situations Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,023.00 | $2.65 | $1,000.00 | $1,022.58 | $2.65 | 0.52% | |||||||||||||||||||||
| Class VI |
$1,000.00 | $1,022.00 | $2.19 | $1,000.00 | $1,023.04 | $2.19 | 0.43% | |||||||||||||||||||||
| Strategic Opportunities Allocation Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,044.00 | $2.58 | $1,000.00 | $1,022.68 | $2.55 | 0.50% | |||||||||||||||||||||
| 132 |
GMO Trust Funds
(A Series of GMO Trust)
Fund Expenses — (Continued)
August 31, 2013 (Unaudited)
| Actual | Hypothetical |
|
||||||||||||||||||||||||||
| Beginning Account Value March 1, 2013 |
Ending Account Value August 31, 2013 |
Expenses Paid During the Period* |
Beginning Account Value March 1, 2013 |
Ending Account Value August 31, 2013 |
Expenses Paid During the Period* |
Annualized Net Expense Ratio |
||||||||||||||||||||||
| U.S. Equity Allocation Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,073.50 | $1.99 | $1,000.00 | $1,023.29 | $1.94 | 0.38% | |||||||||||||||||||||
| World Opportunities Equity Allocation Fund |
|
|||||||||||||||||||||||||||
| Class III |
$1,000.00 | $1,059.90 | $2.60 | $1,000.00 | $1,022.68 | $2.55 | 0.50% | |||||||||||||||||||||
| * | Expenses are calculated using each Class’s annualized net expense ratio (including indirect expenses incurred) for the six months ended August 31, 2013, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year. |
| 133 |
GMO Implementation Fund
Semiannual Report
August 31, 2013
For a free copy of the Fund’s proxy voting guidelines, shareholders may call 1-617-346-7646 (collect) or visit the Securities and Exchange Commission’s website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 will be available on GMO’s website at www.gmo.com, or on the Securities and Exchange Commission’s website at www.sec.gov.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which is available on the Commission’s website at www.sec.gov. The Fund’s Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
This report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a private placement memorandum, which contains a complete discussion of the risks associated with an investment in this Fund and other important information. The private placement memorandum can be obtained by calling 1-617-346-7646 (collect).
(A Series of GMO Trust)
Investment Concentration Summary
August 31, 2013 (Unaudited)
| 1 |
GMO Implementation Fund
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 2 | See accompanying notes to the financial statements. |
GMO Implementation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 3 |
GMO Implementation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 4 | See accompanying notes to the financial statements. |
GMO Implementation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 5 |
GMO Implementation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 6 | See accompanying notes to the financial statements. |
GMO Implementation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 7 |
GMO Implementation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 8 | See accompanying notes to the financial statements. |
GMO Implementation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 9 |
GMO Implementation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| 10 | See accompanying notes to the financial statements. |
GMO Implementation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| See accompanying notes to the financial statements. | 11 |
GMO Implementation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
August 31, 2013 (Unaudited)
| Par Value $/ Shares |
Description | Value ($) | ||||||||
| U.S. Government — continued | ||||||||||
| 125,972,739 | U.S. Treasury Inflation Indexed Bond, 2.38%, due 01/15/25 (b) | 147,112,476 | ||||||||
| 33,097,800 | U.S. Treasury Inflation Indexed Note, 1.25%, due 04/15/14 (b) | 33,477,895 | ||||||||
| 425,920,368 | U.S. Treasury Inflation Indexed Note, 0.13%, due 01/15/22 (b) | 410,946,712 | ||||||||
| 258,618,905 | U.S. Treasury Inflation Indexed Note, 1.13%, due 01/15/21 (b) | 272,681,308 | ||||||||
|
|
|
|||||||||
| Total U.S. Government | 896,937,536 | |||||||||
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS (COST $926,027,380) |
903,632,891 | |||||||||
|
|
|
|||||||||
| SHORT-TERM INVESTMENTS — 12.8% | ||||||||||
| Money Market Funds — 6.1% | ||||||||||
| 355,837,554 | State Street Institutional Treasury Money Market Fund - Institutional Class, 0.00% (c) | 355,837,554 | ||||||||
|
|
|
|||||||||
| U.S. Government — 6.7% | ||||||||||
| 86,000,000 | U.S. Treasury Bill, 0.04%, due 02/06/14 (d) (e) | 85,985,122 | ||||||||
| 50,000,000 | U.S. Treasury Bill, 0.02%, due 11/14/13 (d) (e) | 49,998,250 | ||||||||
| 150,000,000 | U.S. Treasury Bill, 0.07%, due 04/03/14 (d) (e) | 149,940,300 | ||||||||
| 107,000,000 | U.S. Treasury Bill, 0.08%, due 05/29/14 (e) | 106,936,228 | ||||||||
|
|
|
|||||||||
| Total U.S. Government | 392,859,900 | |||||||||
|
|
|
|||||||||
| TOTAL SHORT-TERM INVESTMENTS (COST $748,590,558) |
748,697,454 | |||||||||
|
|
|
|||||||||
| TOTAL INVESTMENTS — 100.7% (Cost $5,859,808,544) |
5,885,949,516 | |||||||||
| Other Assets and Liabilities (net) — (0.7%) | (39,489,172 | ) | ||||||||
|
|
|
|||||||||
| TOTAL NET ASSETS — 100.0% | $5,846,460,344 | |||||||||
|
|
|
|||||||||
| 12 | See accompanying notes to the financial statements. |
GMO Implementation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
Written Options
Index Options
| Contract Number |
Expiration Date |
Description |
Premiums | Market Value |
||||||||||||||
| Put | 383 | EUR | 9/20/2013 | Euro STOXX 50, Strike 2,750 | $ | 249,681 | $ | (328,001 | ) | |||||||||
| Put | 402 | EUR | 9/20/2013 | Euro STOXX 50, Strike 2,800 | 282,858 | (495,716 | ) | |||||||||||
| Put | 2,452 | EUR | 9/20/2013 | Euro STOXX 50, Strike 2,825 | 1,287,641 | (3,632,341 | ) | |||||||||||
| Put | 25 | GBP | 9/20/2013 | FTSE 100, Strike 6,625 | 57,519 | (84,217 | ) | |||||||||||
| Put | 341 | GBP | 9/20/2013 | FTSE 100, Strike 6,475 | 513,603 | (682,672 | ) | |||||||||||
| Put | 18 | GBP | 9/20/2013 | FTSE 100, Strike 6,500 | 29,640 | (39,679 | ) | |||||||||||
| Put | 172 | HKD | 9/27/2013 | Hang Seng, Strike 21,600 | 532,748 | (499,291 | ) | |||||||||||
| Put | 466 | JPY | 9/13/2013 | Nikkei 225, Strike 13,625 | 1,919,884 | (2,425,861 | ) | |||||||||||
| Put | 50 | JPY | 9/13/2013 | Nikkei 225, Strike 14,000 | 249,139 | (399,074 | ) | |||||||||||
| Put | 818 | USD | 9/21/2013 | S&P 500, Strike 1,660 | 2,155,010 | (3,390,610 | ) | |||||||||||
| Put | 6 | USD | 9/21/2013 | S&P 500, Strike 1,635 | 12,822 | (15,000 | ) | |||||||||||
| See accompanying notes to the financial statements. | 13 |
GMO Implementation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
August 31, 2013 (Unaudited)
Index Options (continued)
| Contracts Number |
Expiration Date |
Description |
Premiums | Market Value |
||||||||||||||
| Put | 3 | USD | 9/21/2013 | S&P 500, Strike 1,685 | $ | 12,231 | $ | (17,100 | ) | |||||||||
| Put | 48 | USD | 9/21/2013 | S&P 500, Strike 1,690 | 136,654 | (311,520 | ) | |||||||||||
| Put | 37 | USD | 9/21/2013 | S&P 500, Strike 1,705 | 99,788 | (288,970 | ) | |||||||||||
| Put | 31 | AUD | 09/19/2013 | S&P ASX 200, Strike 5,000 | 27,183 | (9,177 | ) | |||||||||||
| Put | 64 | AUD | 09/19/2013 | S&P ASX 200, Strike 5,100 | 63,089 | (38,052 | ) | |||||||||||
| Put | 204 | CAD | 09/20/2013 | S&P TSX 60, Strike 710 | 24,114 | (5,132 | ) | |||||||||||
| Put | 6 | CAD | 09/20/2013 | S&P TSX 60, Strike 720 | 768 | (453 | ) | |||||||||||
| Put | 237 | CAD | 09/20/2013 | S&P TSX 60, Strike 725 | 36,025 | (22,051 | ) | |||||||||||
| Put | 2,320 | CAD | 09/20/2013 | S&P TSX 60, Strike 730 | 237,184 | (267,616 | ) | |||||||||||
| Put | 287 | AUD | 09/19/2013 | SPI 200, Strike 5,150 | 255,430 | (237,832 | ) | |||||||||||
| Put | 224 | AUD | 09/19/2013 | SPI 200, Strike 5,125 | 186,208 | (164,721 | ) | |||||||||||
| Put | 22 | AUD | 09/19/2013 | SPI 200, Strike 5,075 | 25,494 | (10,976 | ) | |||||||||||
|
|
|
|
|
|||||||||||||||
| $ | 8,394,713 | $ | (13,366,062 | ) | ||||||||||||||
|
|
|
|
|
|||||||||||||||
As of August 31, 2013, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover any commitments or collateral requirements of the relevant broker or exchange.
| 14 | See accompanying notes to the financial statements. |
(A Series of GMO Trust)
Statement of Assets and Liabilities — August 31, 2013 (Unaudited)
| Assets: |
||||
| Investments, at value (Note 2)(a) |
$ | 5,885,949,516 | ||
| Foreign currency, at value (Note 2)(b) |
18,040,361 | |||
| Receivable for investments sold |
2,071,096 | |||
| Cash |
51,551 | |||
| Receivable for Fund shares sold |
25,080,406 | |||
| Dividends and interest receivable |
13,007,829 | |||
| Foreign taxes receivable |
2,026,493 | |||
| Unrealized appreciation on open forward currency contracts (Note 4) |
34,344,493 | |||
| Due from broker (Note 2) |
4,422,126 | |||
| Receivable for expenses reimbursed and/or waived by Manager (Note 5) |
329,468 | |||
|
|
|
|||
| Total assets |
5,985,323,339 | |||
|
|
|
|||
| Liabilities: |
||||
| Payable for investments purchased |
117,917,342 | |||
| Accrued capital gain taxes payable (Note 2) |
43,063 | |||
| Payable for variation margin on open futures contracts (Note 4) |
750,791 | |||
| Unrealized depreciation on open forward currency contracts (Note 4) |
6,052,645 | |||
| Written options outstanding, at value (Note 4)(c) |
13,366,062 | |||
| Payable to agents unaffiliated with the Manager |
372 | |||
| Payable to Trustees and related expenses |
2,294 | |||
| Accrued expenses |
730,426 | |||
|
|
|
|||
| Total liabilities |
138,862,995 | |||
|
|
|
|||
| Net assets |
$ | 5,846,460,344 | ||
|
|
|
|||
| Net assets attributable to: |
||||
| Core shares |
$ | 5,846,460,344 | ||
|
|
|
|||
| Shares outstanding: |
||||
| Core shares |
501,663,495 | |||
|
|
|
|||
| Net asset value per share: |
||||
| Core shares |
$ | 11.65 | ||
|
|
|
|||
| (a) Cost of investments – unaffiliated issuers: |
$ | 5,859,808,544 | ||
| (b) Cost of foreign currency: |
$ | 17,996,666 | ||
| (c) Premiums on written options: |
$ | 8,394,713 |
| See accompanying notes to the financial statements. | 15 |
GMO Implementation Fund
(A Series of GMO Trust)
Statement of Operations — Six Months Ended August 31, 2013 (Unaudited)
| Investment Income: |
||||
| Dividends (Net of withholding tax)(a) |
$ | 53,045,209 | ||
| Interest |
2,533,757 | |||
|
|
|
|||
| Total investment income |
55,578,966 | |||
|
|
|
|||
| Expenses: |
||||
| Audit and tax fees |
53,084 | |||
| Custodian, fund accounting agent and transfer agent fees |
1,694,272 | |||
| Legal fees |
30,620 | |||
| Trustees fees and related expenses (Note 5) |
17,287 | |||
| Miscellaneous |
17,623 | |||
|
|
|
|||
| Total expenses |
1,812,886 | |||
| Fees and expenses reimbursed by Manager (Note 5) |
(1,773,116 | ) | ||
| Expense reductions (Note 2) |
(2 | ) | ||
|
|
|
|||
| Net expenses |
39,768 | |||
|
|
|
|||
| Net investment income (loss) |
55,539,198 | |||
|
|
|
|||
| Realized and unrealized gain (loss): |
||||
| Net realized gain (loss) on: |
||||
| Investments |
52,356,548 | |||
| Futures contracts |
(2,642,380 | ) | ||
| Written options |
(168,887 | ) | ||
| Swap contracts |
2,399,249 | |||
| Foreign currency, forward contracts and foreign currency related transactions |
15,727,344 | |||
|
|
|
|||
| Net realized gain (loss) |
67,671,874 | |||
|
|
|
|||
| Change in net unrealized appreciation (depreciation) on: |
||||
| Investments (Net of foreign capital gains tax) (Note 2)(b) |
(86,200,644 | ) | ||
| Futures contracts |
1,019,570 | |||
| Written options |
(6,041,429 | ) | ||
| Swap contracts |
(1,052,432 | ) | ||
| Foreign currency, forward contracts and foreign currency related transactions |
17,819,714 | |||
|
|
|
|||
| Net unrealized gain (loss) |
(74,455,221 | ) | ||
|
|
|
|||
| Net realized and unrealized gain (loss) |
(6,783,347 | ) | ||
|
|
|
|||
| Net increase (decrease) in net assets resulting from operations |
$ | 48,755,851 | ||
|
|
|
|||
| (a) Withholding tax: |
$ | 4,234,503 | ||
| (b) Foreign capital gains tax: |
$ | 43,063 |
| 16 | See accompanying notes to the financial statements. |
GMO Implementation Fund
(A Series of GMO Trust)
Statements of Changes in Net Assets
| Six Months Ended August 31, 2013 (Unaudited) |
Period from March 1, 2012 (commencement of operations) through February 28, 2013 |
|||||||
| Increase (decrease) in net assets: |
||||||||
| Operations: |
||||||||
| Net investment income (loss) |
$ | 55,539,198 | $ | 22,484,583 | ||||
| Net realized gain (loss) |
67,671,874 | 40,725,273 | ||||||
| Change in net unrealized appreciation (depreciation) |
(74,455,221 | ) | 123,119,782 | |||||
|
|
|
|
|
|||||
| Net increase (decrease) in net assets from operations |
48,755,851 | 186,329,638 | ||||||
|
|
|
|
|
|||||
| Net share transactions (Note 9): |
||||||||
| Core Class |
3,326,376,915 | 2,284,997,940 | ||||||
|
|
|
|
|
|||||
| Total increase (decrease) in net assets |
3,375,132,766 | 2,471,327,578 | ||||||
| Net assets: | ||||||||
| Beginning of period |
2,471,327,578 | — | ||||||
|
|
|
|
|
|||||
| End of period |
$ | 5,846,460,344 | $ | 2,471,327,578 | ||||
|
|
|
|
|
|||||
| See accompanying notes to the financial statements. | 17 |
GMO Implementation Fund
(A Series of GMO Trust)
(For a share outstanding throughout each period)
| 18 | See accompanying notes to the financial statements. |
GMO Implementation Fund
(A Series of GMO Trust)
August 31, 2013 (Unaudited)
| 1. | Organization |
Implementation Fund (the “Fund”) is a series of GMO Trust (the “Trust”). The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust was established as a Massachusetts business trust under the laws of The Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees of the Trust (“Trustees”) to create an unlimited number of series of shares (Funds) and to subdivide Funds into classes. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager” or “GMO”).
The Fund may invest in U.S. Treasury Fund and unaffiliated money market funds.
The following table provides information about the Fund’s principal investment objectives and benchmarks (if any):
| Benchmark | Principal Investment Objective | |
| Not Applicable | Positive total return, not “relative” return | |
The Fund currently limits subscriptions.
| 2. | Significant accounting policies |
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently followed by the Fund in preparing its financial statements. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The accounting records of the Fund are maintained in U.S. dollars.
Portfolio valuation
Exchange-traded securities (other than exchange-traded options) for which market quotations are readily available are valued at (i) the last sale price or (ii) official closing price or (iii) most recent quoted price published by the exchange (if no reported last sale or official closing price) or (iv) the quoted price provided by a pricing source (in the event the Manager deems the private market to be a more reliable indicator of market value than the exchange). Exchange-traded 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. Cleared derivatives are valued using the quote (which may be based on a model) published by the relevant clearing house. If an updated quote for a cleared derivative is not available by the time that a Fund calculates its net asset value on any business day, then that derivative will generally be valued using an industry standard model, which may differ from the model used by the relevant clearing house. Unlisted securities (including debt instruments) for which market quotations are readily available are generally valued at the most recent quoted price. Shares of open-end registered investment companies are valued at their most recent net asset value. If quotations are not readily available or circumstances make an existing valuation methodology or procedure unreliable, derivatives and other securities are valued at fair value as determined in good faith by the Trustees or persons acting at their direction pursuant to procedures approved by the Trustees. Because of the uncertainty inherent in pricing, and in particular fair value pricing, the value determined for a particular security may be materially different from the value realized upon its sale. See the table below for information about securities and derivatives, if any, that were fair valued using methods determined in good faith by or at the direction of the Trustees. The Fund classifies such securities as Level 3 (levels defined below). For the period ended August 31, 2013, the Fund did not reduce the value of any of its over-the-counter (“OTC”) derivatives contracts, if any, based on the creditworthiness of its counterparties. See Note 4 “Derivative financial instruments” for a further discussion on valuation of derivatives.
The foregoing valuation methodologies are modified for equity securities listed on foreign exchanges and that trade in securities markets that close prior to the close of the New York Stock Exchange (“NYSE”) due to time zone differences, including the value of equity securities that underlie futures, options and other derivatives (to the extent the market for those derivatives closes prior to the close of the NYSE). In those cases, the value will generally be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees to reflect estimated valuation changes through the NYSE close. The table below shows the percentage of the net assets of the Fund, that was valued using fair value inputs obtained from that independent pricing service as of August 31, 2013. These securities listed on foreign exchanges (including the value of equity securities that underlie futures, options and other derivatives (to the extent the market for such instruments closes prior to the close of the NYSE)) are classified as Level 2 (levels defined below) in the table below.
Typically, the Fund values debt instruments based on the most recent quoted price supplied by a single pricing source chosen by the Manager. Although the Manager normally does not evaluate pricing sources on a day-to-day basis, it does evaluate pricing sources on an ongoing basis and may change a pricing source at any time. 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
| 19 |
GMO Implementation Fund
(A Series of GMO Trust)
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
the price supplied is not reliable. 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. See the table below for information about securities for which no alternative pricing source was available. In the case of non-emerging market debt instruments with a remaining maturity of sixty days or less, the instrument may be valued at amortized cost, which approximates market value, if the issuer is deemed to present minimal credit risk.
“Quotation” or “quoted price” typically means the bid price for securities held long and the ask price for securities sold short. If the pricing convention for a security does not involve a bid or an ask, “quotation” or “quoted price” may be a market quotation provided by a market participant or other third party pricing source in accordance with the convention for that security. If an updated quote for a security is not available by the time that the Fund calculates its net asset value on any business day, the Fund will generally use a quoted price from a prior day to value that security.
As discussed above, the Fund invests in securities and/or derivatives which may have been fair valued using methods determined in good faith by or at the direction of the Trustees, fair valued using inputs obtained from an independent pricing service and presented in the table below on a net basis, or valued using prices for which no alternative pricing source was available. The net aggregate direct exposure to these valuation methodologies (based on the Fund’s net assets) as of August 31, 2013 is as follows:
Securities and Derivatives
| Fair valued using methods determined in good faith by or at the direction of the Trustees |
Fair valued using inputs obtained from an independent pricing service |
Single source; no alternative |
||||||
| <1% | 42% | <1% | ||||||
U.S. GAAP requires the Fund to disclose the fair value of its investments in a three-level hierarchy (Levels 1, 2 and 3). The valuation hierarchy is based upon the relative observability of inputs to the valuation of the Fund’s investments. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Changes in valuation techniques may result in transfers into or out of an investment’s assigned level within the fair value hierarchy. In addition, in periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition, as well as changes related to the liquidity of investments, could cause a security to be reclassified between levels.
U.S. GAAP requires additional disclosures about fair value measurements for material Level 3 securities and derivatives, if any (determined by each category of asset or liability as compared to the Fund’s total net assets separately identified in the “Valuation Inputs” table below). At August 31, 2013, there were no direct material Level 3 classes of investments or derivatives with significant unobservable inputs subject to this additional disclosure.
The three levels are defined as follows:
Level 1 – Valuations based on quoted prices for identical securities in active markets.
The types of assets and liabilities categorized in Level 1 generally include actively traded domestic and certain foreign equity securities, certain U.S. government obligations with a remaining maturity of greater than 60 days, derivatives actively traded on a national securities exchange (such as some futures and options), and shares of open-end mutual funds (even if their investments are valued using Level 2 or Level 3 inputs).
Level 2 – Valuations determined using other significant direct or indirect observable inputs.
The types of assets and liabilities categorized in Level 2 generally include debt securities such as U.S. government securities with a remaining maturity of 60 days or less valued at amortized cost; certain U.S. government agency securities, mortgage-backed securities, asset-backed securities, certain sovereign debt obligations, and corporate bonds valued using broker quotes; cleared derivatives and certain OTC derivatives such as swaps, options, swaptions, and forward currency contracts valued using industry standard models; certain restricted securities valued at the most recent available market or quoted price; and certain foreign equity securities that are adjusted based on inputs from an independent pricing service approved by the Trustees, including the value of equity securities that underlie futures, options and other derivatives (to the extent the market for such instruments closes prior to the close of the NYSE) to reflect estimated valuation changes through the NYSE close.
| 20 |
GMO Implementation Fund
(A Series of GMO Trust)
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Level 3 – Valuations based primarily on inputs that are unobservable and significant.
The types of assets and liabilities categorized in Level 3 generally include, but are not limited to, securities whose trading has been suspended or that have been de-listed from their current primary trading exchange valued at the most recent available market or quoted price; securities in default or bankruptcy proceedings for which there is no current market quotation valued at the most recent available market or quoted price; third-party investment funds where valuations are provided by fund sponsors and which are adjusted for liquidity considerations as well as the timing of the receipt of information; certain securities that are valued at the local price and adjusted by applying a premium or discount when the holdings exceed foreign ownership limitations; certain equity securities valued based on the last traded exchange price adjusted for the movement in a securities index; certain securities that are valued using a price from a comparable security related to the same issuer; and potential litigation recoveries and interests related to bankruptcy proceedings valued at zero.
The following is a summary of the respective levels assigned to the Fund’s direct securities and derivatives, if any, as of August 31, 2013:
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 64,662,876 | $ | — | $ | 64,662,876 | ||||||||
| Austria |
— | 6,862,719 | — | 6,862,719 | ||||||||||||
| Belgium |
— | 11,349,484 | — | 11,349,484 | ||||||||||||
| Brazil |
74,750,658 | — | — | 74,750,658 | ||||||||||||
| Canada |
20,812,036 | — | — | 20,812,036 | ||||||||||||
| Czech Republic |
— | 8,861,539 | — | 8,861,539 | ||||||||||||
| Denmark |
— | 2,802,408 | — | 2,802,408 | ||||||||||||
| Egypt |
— | 8,474,890 | — | 8,474,890 | ||||||||||||
| Finland |
— | 11,909,135 | — | 11,909,135 | ||||||||||||
| France |
— | 252,311,494 | — | 252,311,494 | ||||||||||||
| Germany |
— | 94,495,735 | — | 94,495,735 | ||||||||||||
| Greece |
— | 4,241,121 | — | 4,241,121 | ||||||||||||
| Hong Kong |
— | 26,322,876 | — | 26,322,876 | ||||||||||||
| Hungary |
— | 744,188 | — | 744,188 | ||||||||||||
| India |
9,651,674 | 34,538,085 | 1,042,379 | 45,232,138 | ||||||||||||
| Indonesia |
1,308,218 | 36,500,013 | — | 37,808,231 | ||||||||||||
| Ireland |
— | 2,885,437 | — | 2,885,437 | ||||||||||||
| Israel |
— | 4,453,731 | — | 4,453,731 | ||||||||||||
| Italy |
— | 110,829,475 | — | 110,829,475 | ||||||||||||
| Japan |
— | 382,957,951 | — | 382,957,951 | ||||||||||||
| Malaysia |
— | 4,631,026 | — | 4,631,026 | ||||||||||||
| Mexico |
14,113,119 | — | — | 14,113,119 | ||||||||||||
| Netherlands |
2,012,948 | 32,144,379 | 0 | * | 34,157,327 | |||||||||||
| New Zealand |
— | 5,122,650 | — | 5,122,650 | ||||||||||||
| Norway |
— | 10,624,262 | — | 10,624,262 | ||||||||||||
| Peru |
5,878,697 | — | — | 5,878,697 | ||||||||||||
| Philippines |
361,095 | 6,390,500 | — | 6,751,595 | ||||||||||||
| Poland |
— | 14,594,712 | — | 14,594,712 | ||||||||||||
| Portugal |
— | 5,531,192 | — | 5,531,192 | ||||||||||||
| Russia |
4,327,220 | 111,455,734 | — | 115,782,954 | ||||||||||||
| Singapore |
— | 17,223,718 | — | 17,223,718 | ||||||||||||
| South Africa |
1,636,810 | 37,070,511 | — | 38,707,321 | ||||||||||||
| South Korea |
5,933,349 | 223,846,268 | — | 229,779,617 | ||||||||||||
| Spain |
— | 136,313,584 | — | 136,313,584 | ||||||||||||
| Sri Lanka |
— | 68,955 | — | 68,955 | ||||||||||||
| Sweden |
— | 18,862,041 | — | 18,862,041 | ||||||||||||
| Switzerland |
— | 80,294,913 | — | 80,294,913 | ||||||||||||
| Taiwan |
12,748,886 | 96,669,978 | — | 109,418,864 | ||||||||||||
| Thailand |
— | 31,880,002 | 715,464 | 32,595,466 | ||||||||||||
| Turkey |
148,708 | 21,651,947 | — | 21,800,655 | ||||||||||||
| United Kingdom |
— | 494,176,017 | — | 494,176,017 | ||||||||||||
| 21 |
GMO Implementation Fund
(A Series of GMO Trust)
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Asset Valuation Inputs (continued) |
||||||||||||||||
| United States |
$ | 1,562,040,947 | $ | — | $ | — | $ | 1,562,040,947 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
1,715,724,365 | 2,413,755,546 | 1,757,843 | 4,131,237,754 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Brazil |
75,209,173 | — | — | 75,209,173 | ||||||||||||
| Germany |
— | 6,100,849 | — | 6,100,849 | ||||||||||||
| Russia |
— | 6,326,427 | — | 6,326,427 | ||||||||||||
| South Korea |
— | 5,800,661 | — | 5,800,661 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
75,209,173 | 18,227,937 | — | 93,437,110 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Investment Funds |
||||||||||||||||
| United States |
8,944,307 | — | — | 8,944,307 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL INVESTMENT FUNDS |
8,944,307 | — | — | 8,944,307 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Debt Obligations |
||||||||||||||||
| Canada |
— | — | 4,098,541 | 4,098,541 | ||||||||||||
| United States |
— | 896,937,536 | 2,596,814 | 899,534,350 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
— | 896,937,536 | 6,695,355 | 903,632,891 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
748,697,454 | — | — | 748,697,454 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
2,548,575,299 | 3,328,921,019 | 8,453,198 | 5,885,949,516 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives** |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign currency risk |
— | 34,344,493 | — | 34,344,493 | ||||||||||||
| Futures Contracts |
||||||||||||||||
| Equity risk |
74,250 | 29,606 | — | 103,856 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 2,548,649,549 | $ | 3,363,295,118 | $ | 8,453,198 | $ | 5,920,397,865 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives** |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign currency risk |
$ | — | $ | (6,052,645 | ) | $ | — | $ | (6,052,645 | ) | ||||||
| Futures Contracts |
||||||||||||||||
| Equity risk |
(302,299 | ) | (553,825 | ) | — | (856,124 | ) | |||||||||
| Written Options |
||||||||||||||||
| Equity risk |
(4,318,452 | ) | (9,047,610 | ) | — | (13,366,062 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (4,620,751 | ) | $ | (15,654,080 | ) | $ | — | $ | (20,274,831 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
The risks referenced in the tables above are not intended to be inclusive of all risks. Please see the “Investment and other risks” and “Derivative financial instruments” sections below for a further discussion of risks.
| * | Represents the interest in securities that were determined to have a fair value of zero at August 31, 2013. |
| ** | The tables above are based on market values or unrealized appreciation/(depreciation) rather than the notional amounts of derivatives. The uncertainties surrounding the valuation inputs for a derivative are likely to be more significant to the Fund’s net asset value than the uncertainties surrounding inputs for a non-derivative security with the same market value. |
The underlying funds, if any, held at period end are classified above as Level 1. For the summary of valuation inputs of the underlying funds, please refer to the underlying funds’ Notes to Financial Statements.
For the period ended August 31, 2013, there were no material transfers between Level 1 and Level 2.
| 22 |
GMO Implementation Fund
(A Series of GMO Trust)
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The following is a reconciliation of securities and derivatives, if any, in which significant unobservable inputs (Level 3) were used in determining value:
| Balances as of February 28, 2013 |
Purchases | Sales | Accrued Discounts/ Premiums |
Total Realized Gain/ (Loss) |
Change in Unrealized Appreciation (Depreciation) |
Transfer into Level 3* |
Transfer out of Level 3* |
Balances as of August 31, 2013 |
Net Change in Unrealized Appreciation (Depreciation) from Investments Still Held as of August 31, 2013 |
|||||||||||||||||||||||||||||||
| Common Stock |
||||||||||||||||||||||||||||||||||||||||
| India |
$ | 1,107,369 | $ | 1,085,232 | $ | (590,397 | ) | $ | — | $ | (124,571 | ) | $ | (435,254 | ) | $ | — | $ | — | $ | 1,042,379 | $ | (455,813 | ) | ||||||||||||||||
| Netherlands |
93,629 | — | — | — | — | (93,629 | ) | — | — | 0 | ** | (93,629 | ) | |||||||||||||||||||||||||||
| Thailand |
1,300,860 | 1,216,673 | (1,831,817 | ) | — | 312,026 | (282,278 | ) | — | — | 715,464 | (178,187 | ) | |||||||||||||||||||||||||||
| Debt Obligations |
||||||||||||||||||||||||||||||||||||||||
| Asset-Backed Securities |
||||||||||||||||||||||||||||||||||||||||
| Canada |
4,156,599 | — | (106 | ) | 8,155 | 9 | (66,116 | ) | — | — | 4,098,541 | (66,116 | ) | |||||||||||||||||||||||||||
| United States |
397,099 | — | — | 17,718 | — | 75,908 | — | — | 490,725 | 75,908 | ||||||||||||||||||||||||||||||
| Bank Loans |
||||||||||||||||||||||||||||||||||||||||
| United States |
4,983,209 | — | (2,838,875 | ) | 5,489 | 6,215 | (49,949 | ) | — | — | 2,106,089 | (51,238 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total |
$ | 12,038,765 | $ | 2,301,905 | $ | (5,261,195 | ) | $ | 31,362 | $ | 193,679 | $ | (851,318 | ) | $ | — | $ | — | $ | 8,453,198 | $ | (769,075 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| * | The Fund accounts for securities and derivatives, if any, transferred into and out of Level 3 at the value at the end of the period. |
| ** | Represents the interest in securities that were determined to have a fair value of zero at August 31, 2013. |
The net aggregate direct and/or indirect exposure to investments in securities and derivative financial instruments using Level 3 inputs (based on the Fund’s net assets) as of August 31, 2013 were as follows:
| Level 3 securities | Level 3 derivatives | |||||
| <1% | — | |||||
Cash
Cash and Foreign Currency, if any, on the Statement of Assets and Liabilities consists of cash balances held with the custodian.
Due to/from broker
Due to/from broker in the Statement of Assets and Liabilities includes collateral on swap contracts, futures contracts, option contracts and forward currency contracts, if any, and may include mark-to-market amounts related to foreign currency.
Foreign currency translation
The market values of foreign securities, currency holdings and related assets and liabilities are typically translated into U.S. Dollars at the close of regular trading on the NYSE, generally at 4:00 pm Boston time. Income and expenses denominated in foreign currencies are typically translated into U.S. Dollars at the close of regular trading on the NYSE. Fluctuations in the value of currency holdings and other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains or losses. Realized gains or losses and unrealized appreciation or depreciation on investment securities and income and expenses are translated on the respective dates of such transactions. The effects of changes in foreign currency exchange rates on investments in securities are not separated on the Statement of Operations from the effects of changes in market prices of those securities, but are included with the net realized and unrealized gain or loss on investment securities.
Loan agreements and participations
The Fund may invest in loans to corporate, governmental or other borrowers. The Fund’s investments in loans may be in the form of participations in loans or assignments of all or a portion of loans. 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. When investing in a loan participation, (i) the Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the party from whom the Fund has purchased the participation and only upon receipt by that party of payments from the borrower and (ii) the Fund generally has no right to enforce compliance by the borrower with the terms of the loan agreement or to vote on matters arising under the loan agreement. Thus, the Fund may be subject to credit risk both of the party from whom it purchased the loan participation and the borrower and the Fund may have minimal control
| 23 |
GMO Implementation Fund
(A Series of GMO Trust)
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
over the terms of any loan modification. When the Fund purchases assignments of loans, it acquires direct rights against the borrower. Loan agreements outstanding at the end of the period, if any, are listed in the Fund’s Schedule of Investments.
Repurchase agreements
The Fund may enter into repurchase agreements. Under a repurchase agreement the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities it acquired under the repurchase agreement. The value of the securities acquired may be less than the amount owed to the Fund by the seller. If the seller in a repurchase agreement transaction defaults or enters into insolvency proceedings and/or the value of the securities subject to the repurchase agreement is insufficient, the Fund’s recovery of cash from the seller may be delayed and, even if the Fund is able to dispose of the securities, the Fund may incur a loss equal to the difference between the cash it paid and the value of the securities. Repurchase agreements outstanding at the end of the period, if any, are listed in the Fund’s Schedule of Investments.
Reverse repurchase agreements
The Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement the Fund sells portfolio assets subject to an agreement by the Fund to repurchase the same assets at an agreed upon price and date. The Fund can use the proceeds received from entering into a reverse repurchase agreement to make additional investments, which generally causes the Fund’s portfolio to behave as if it were leveraged. If the buyer in a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund may be unable to recover the securities it sold and as a result may realize a loss on the transaction if the securities it sold are worth more than the purchase price it originally received from the buyer. Reverse repurchase agreements outstanding at the end of the period, if any, are listed in the Fund’s Schedule of Investments.
Inflation-indexed bonds
The Fund may invest in inflation-indexed bonds. 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 reflects inflation in the principal value of the bond. Most other issuers pay out any inflation related accruals as part of a semiannual coupon.
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. Coupon payments received by the Fund from inflation-indexed bonds are included in the Fund’s 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, even though principal is not paid until maturity. Inflation-indexed bonds outstanding at the end of the period, if any, are listed in the Fund’s Schedule of Investments.
Taxes and distributions
For U.S. federal income tax purposes, the Fund is disregarded as an entity separate from its sole shareholder, GMO Benchmark-Free Allocation Fund (“BFAF”), another series of the Trust. BFAF intends to qualify each tax year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. BFAF is treated as owning Implementation Fund’s assets directly for U.S. federal income tax purposes. As such, any income, gain, loss, deduction or other tax items arising in respect of the Fund’s assets will be treated as if they are realized or incurred, as applicable, directly by BFAF. The Fund may make distributions to BFAF in the sole discretion of the Trustees (or their delegates).
The Fund may be subject to taxation on realized capital gains, repatriation proceeds and other transaction-based taxes imposed by certain countries in which it invests. Taxes related to capital gains realized during the period ended August 31, 2013, if any, are reflected as part of Net realized gain (loss) in the Statement of Operations. Changes in tax liabilities related to capital gain taxes on unrealized investment gains, if any, are reflected as part of Change in net unrealized appreciation (depreciation) in the Statement of Operations. Transaction-based charges are generally calculated as a percentage of the transaction amount.
As of August 31, 2013, the approximate cost for U.S. federal income tax purposes and the aggregate investment-level gross and net unrealized appreciation (depreciation) in the value of investments were as follows:
| Aggregate Cost ($) |
Gross Unrealized Appreciation ($) |
Gross Unrealized (Depreciation) ($) |
Net Unrealized Appreciation (Depreciation) ($) |
|||||||||
| 5,877,290,197 | 167,996,493 | (159,337,174) | 8,659,319 | |||||||||
| 24 |
GMO Implementation Fund
(A Series of GMO Trust)
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The Fund is subject to authoritative guidance related to the accounting and disclosure of uncertain tax positions under U.S. GAAP. This guidance sets forth a minimum threshold for the financial statement recognition of tax positions taken based on the technical merits of such positions. United States and non-U.S. tax rules (including the interpretation and application of tax laws) are subject to change. The Fund files tax returns and/or adopts certain tax positions in various jurisdictions. Non-U.S. taxes are provided for based on the Fund’s understanding of the prevailing tax rules of the non-U.S. markets in which it invests. Recently enacted tax rules, including interpretations of tax laws (e.g., regulations pertaining to the U.S. Foreign Account Tax Compliance Act) and proposed legislation currently under consideration in various jurisdictions, including the U.S., might affect the way the Fund is taxed prospectively and/or retroactively. Prior to the expiration of the relevant statutes of limitations, if any, the Fund is subject to examination by U.S. federal, state, local and non-U.S. jurisdictions with respect to the tax returns it has filed and/or the tax positions it has adopted.
Security transactions and related investment income
Security transactions are accounted for in the financial statements on trade date. For purposes of daily net asset value calculations, the Fund’s policy is that security transactions are generally accounted for on the following business day. The Manager may override that policy and the Fund may account for security transactions on trade date if it experiences significant purchases or redemptions or engages in significant portfolio transactions. Dividend income, net of applicable foreign withholding taxes, if any, is recorded on the ex-dividend date or, if later, when the Fund is informed of the ex-dividend date. Income dividends and capital gain distributions from the underlying funds are recorded on the ex-dividend date. Interest income is recorded on the accrual basis and is adjusted for the amortization of premiums and accretion of discounts. Principal on inflation-indexed securities is adjusted for inflation and any increase or decrease is recorded as interest income or investment loss. Coupon income is not recognized on securities for which collection is not expected. Non-cash dividends, if any, are recorded at the fair market value of the asset received. In determining the net gain or loss on securities sold, the Fund uses the identified cost basis.
Expenses
Most of the expenses of the Trust are directly identifiable to an individual fund. Common expenses are allocated among the Funds based on, among other things, the nature and type of expense and the relative size of the Funds. In addition, the Fund incurs fees and expenses indirectly as a shareholder in the underlying funds.
State Street Bank and Trust Company (“State Street”) serves as the Fund’s custodian, fund accounting agent and transfer agent. State Street’s transfer agent fees may be reduced by an earnings allowance calculated on the average daily cash balances the Fund maintains in a State Street transfer agent account. Earnings allowances are reported as a reduction of expenses in the Statement of Operations. Prior to December 31, 2012, State Street’s custodian fees may have been reduced by an earnings allowance calculated on the average daily cash balance the Fund maintained in a State Street custodial account. Earnings allowances were reported as a reduction of expenses in the Statements of Operations. Effective January 1, 2013, any cash balances maintained at the custodian are held in a Demand Deposit Account and interest income earned, if any, is shown as interest income in the Statements of Operations.
| 3. | Investment and other risks |
Investing in mutual funds involves many risks. 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 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.
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.
• MARKET RISK. The Fund is subject to market risk, which is the risk that the market value of its holdings will decline. Market risks include:
Equities — The Fund runs the risk that the market prices of its equity investments will decline. The market prices of equities may decline for reasons that directly relate to the issuing company, such as poor management performance or reduced demand for its goods or services. They also may decline due to factors that affect a particular industry, such as a decline in demand, labor or raw material shortages, or increased production costs. In addition, market prices may decline as a result of general market conditions 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. Equities generally have significant price volatility, and the market prices of equities can decline in a rapid or unpredictable manner.
The Fund invests a substantial portion of its assets in equities and, as a result, declines in stock market prices generally are likely to reduce the net asset values of the Fund’s shares.
| 25 |
GMO Implementation Fund
(A Series of GMO Trust)
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
If the Fund purchases equities 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 appreciate or will decline for a variety of reasons, one of which may be the Manager’s overestimation of the value of those investments.
The market prices of equities trading at high multiples of current earnings often are more sensitive to changes in future earnings expectations than the market prices of equities trading at lower multiples.
Fixed Income Investments — The Fund’s investments in fixed income securities (including bonds, notes, bills, synthetic debt instruments and asset-backed securities) are subject to various market risks. The market price of a fixed income investment can decline due to a number of market-related factors, including rising interest rates and widening credit spreads, or decreased liquidity stemming from the market’s uncertainty about the value of a fixed income investment (or class of fixed income investments). In addition, the market price of fixed income investments with complex structures, such as asset-backed securities and sovereign and quasi-sovereign debt instruments, can decline due to market uncertainty about their credit quality and the reliability of their payment streams. Some fixed income securities also are subject to unscheduled prepayment, and the Fund may be unable to invest prepayments at as high a yield as was provided by the fixed income security. When interest rates rise, these securities also may be repaid more slowly than anticipated, which could cause the market price of the Fund’s investment to decrease. During periods of economic uncertainty and change, the market price of the Fund’s investments in below investment grade securities (commonly referred to as “junk bonds”) may be particularly volatile. Often junk bonds are subject to greater sensitivity to interest rate and economic changes than higher rated bonds and can be more difficult to value, exposing the Fund to the risk that the price of which it sells them will be less than the value placed on them when they were held by the Fund. See “Credit Risk” and “Liquidity Risk” below for more information about these risks.
A risk of the Fund’s investments in fixed income securities is that an increase in prevailing interest rates will cause the market price of those securities to decline. The risk associated with increases in interest rates (also called “interest rate risk”) is generally greater when the Fund invests in fixed income securities with longer durations and in some cases duration can increase.
The extent to which a fixed income security’s price changes with changes in interest rates is referred to as interest rate duration, which can be measured mathematically or empirically. A longer-maturity investment generally has longer interest rate duration because the investment’s fixed rate is locked in for a longer period of time. Floating-rate or adjustable-rate securities, however, generally have shorter interest rate durations because their interest rates are not fixed but rather float up and down as interest rates change. Conversely, inverse floating-rate securities have durations that move in the opposite direction from short-term interest rates and thus tend to underperform fixed rate securities when interest rates rise but outperform them when interest rates decline. Fixed income securities paying no interest, such as zero coupon and principal-only securities, create additional interest rate risk.
The market price of inflation-indexed bonds (including Inflation-Protected Securities issued by the U.S. Treasury (“TIPS”)) normally changes when real interest rates change. Their value typically will decline during periods of rising real interest rates (i.e., nominal interest rate minus inflation) and increase during periods of declining real interest rates. Real interest rates may not fluctuate in the same manner as nominal interest rates. In some interest rate environments, such as when real interest rates are rising faster than nominal interest rates, the market price of inflation-indexed bonds may decline more than the price of non-inflation-indexed (or nominal) fixed income bonds with similar maturities. The market price of the Fund’s inflation-indexed bonds, however, will not necessarily change in the same proportion as changes in nominal interest rates, and short term increases in inflation may lead to a decline in their price. Moreover, if the index measuring inflation falls, the principal value of inflation-indexed bond investments will be adjusted downward, and, consequently, the interest they pay (calculated with respect to a smaller principal amount) will be reduced. In the case of TIPS, the U.S. government guarantees the repayment of the original bond principal upon maturity (as adjusted for inflation). Generally, when interest rates on short term U.S. Treasury obligations equal or approach zero, if the Fund has invested 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.
Market risk for fixed income securities denominated in non-U.S. currencies is also affected by currency risk. See “Currency Risk” below.
• NON-U.S. INVESTMENT RISK. Because the Fund invests in 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 non-U.S. countries include 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 non-U.S. securities often are not subject to the same degree of regulation as U.S. issuers. Reporting, accounting, custody and auditing standards of non-U.S. countries differ, in some cases significantly, from U.S. standards. Non-U.S. portfolio transactions generally involve higher commission rates, transfer taxes and custodial costs. In addition, some jurisdictions may limit the Fund’s ability to profit from short-term trading (as defined in the relevant jurisdiction).
The Fund may be subject to non-U.S. taxation, including potentially on a retroactive basis, on (i) capital gains it realizes or dividends or interest it receives on non-U.S. investments, (ii) transactions in those investments and (iii) the repatriation of proceeds generated from the sale of those investments. The Fund may seek to collect a refund on taxes paid to a non-U.S. country. In those cases, all or a portion of those taxes could
| 26 |
GMO Implementation Fund
(A Series of GMO Trust)
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
ultimately be recovered by the Fund. However, the recovery process could take several years and the Fund will incur expenses in its efforts to collect the refund, which will reduce the benefit of any recovery. The Fund’s efforts to collect a refund may not be successful, in which case the Fund will have incurred additional expenses for no economic benefit. The Fund’s decision to pursue a refund is in its sole discretion, and it may decide not to pursue a refund, even if eligible.
Also, investing in non-U.S. securities exposes the Fund to the risk of nationalization, expropriation or confiscatory taxation of assets of their issuers, 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.
In some non-U.S. markets, custody arrangements for securities provide significantly less protection 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 it does not have in the U.S. with respect to participating brokers, custodians, clearing banks or other clearing agents, escrow agents, and issuers. Fluctuations in non-U.S. currency exchange rates also will affect the market value of the Fund’s non-U.S. investments (see “Currency Risk” below).
U.S. investors are required to maintain a license to invest directly in many non-U.S. markets. These licenses are often subject to limitations, including maximum investment amounts. Once a license is obtained, the Fund’s 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, to obtain exposure to the market the Fund will be required to purchase American Depositary Receipts, Global Depositary Receipts, shares of other funds that are licensed to invest directly, or derivative instruments. The receipt of a non-U.S. license by one of the Manager’s clients may preclude other clients, including the Fund, from obtaining a similar license, and this could limit the Fund’s investment opportunities. In addition, the activities of another of the Manager’s clients could cause the suspension or revocation of a license and thereby limit the Fund’s investment opportunities.
Because the Fund may invest a significant portion of its assets in securities of issuers tied economically to emerging countries (or investments related to emerging markets), it is subject to greater non-U.S. investment risk than funds investing primarily in more developed non-U.S. countries (or markets). 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 of securities in the Fund’s portfolio; greater governmental involvement in the economy; less governmental supervision and regulation of the securities markets and participants in those markets; controls on non-U.S. investment, capital controls and limitations on repatriation of invested capital, dividends, interest and other income and on the Fund’s 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.
• SMALLER COMPANY RISK. Companies with smaller market capitalizations, including small- and mid-cap 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 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. In addition, market risk and liquidity risk are particularly pronounced for securities of these companies.
• MANAGEMENT AND OPERATIONAL RISK. The Fund is subject to management risk because it relies on the Manager’s ability to achieve its investment objective. The Fund runs the risk that the Manager’s investment techniques will fail to produce desired results and cause the Fund to incur significant losses. The Manager also may fail to use derivatives effectively, choosing to hedge or not to hedge positions at disadvantageous times.
The Manager’s portfolio managers may use quantitative analyses and models. Any imperfections, errors or limitations in those analyses and models could affect the ability of the portfolio managers to implement the Fund’s strategies. By necessity, these analyses and models make simplifying assumptions that limit their effectiveness. Models that appear to explain prior market data can fail to predict future market events. Further, the data used in models may be inaccurate or may not include the most recent information about a company or a security. The Fund also runs the risk that GMO’s assessment of an investment may be wrong. There can be no assurance that key personnel of the Manager will continue to be employed by the Manager. The loss of their services could have an adverse impact on the Manager’s ability to achieve the Fund’s investment objective.
The Fund also is subject to the risk of loss as a result of other services provided by the Manager and other service providers, including pricing, administrative, accounting, tax, legal, custody, transfer agency, and other services. Operational risk includes the possibility of loss caused by 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 benefiting from potential investment gains or avoiding losses on the security. The Manager is not
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contractually liable to the Fund for losses associated with operational risk absent the Manager’s 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.
• LIQUIDITY RISK. Liquidity risk is the risk that low trading volume, lack of a market maker, large position size or legal restrictions (including daily price fluctuation limits or “circuit breakers”) limits or prevents the Fund from selling particular securities or unwinding derivative positions at desirable prices. In addition to these risks, the Fund is 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 a short position). Because the Fund’s principal investment strategies may involve investment in asset-backed securities, emerging country debt securities, securities of companies with smaller market capitalizations or smaller total float-adjusted market capitalizations and emerging market securities, the Fund has increased exposure to liquidity risk. These types of investments can be difficult to value, exposing the Fund to the risk that the price at which it sells them will be less than the value placed on them when they were held by the Fund. In addition, TIPS have exhibited periods of greatly reduced liquidity when disruptions in fixed income markets have occurred, such as the events surrounding the bankruptcy of Lehman Brothers in 2008. Less liquid securities are more susceptible than other securities to price declines when market prices decline generally.
• DERIVATIVES RISK. 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 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. Derivatives include futures, non-U.S. 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 use of derivatives involves risks that are in addition to, and potentially greater than, the risks of investing directly in securities and other more traditional assets. In particular, the Fund’s use of OTC derivatives exposes it to the risk that the counterparties will be unable or unwilling to make timely settlement payments or otherwise honor their obligations. An OTC derivatives contract typically can be closed only with the consent of 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 it does, the Fund may decide not to pursue its claims against the counterparty to avoid incurring the cost and unpredictability of legal proceedings. The Fund, therefore, may be unable to obtain payments the Manager believes are owed to it 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 (i) do not require the counterparty to post collateral (e.g., non-U.S. currency forwards), (ii) require collateral but that do not provide for the Fund’s security interest in it to be perfected, (iii) require a significant upfront deposit by the Fund unrelated to the derivative’s intrinsic value, or (iv) do not require that collateral be regularly marked-to-market. When a counterparty’s obligations are not fully secured by collateral, the Fund runs the risk of having limited recourse if the counterparty defaults. Even when obligations are required by contract to be collateralized, the Fund often will not receive the collateral the day the collateral is called for.
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 of 2008) in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. In addition, during those periods, the Fund may have a greater need for cash to provide collateral for large swings in its mark-to-market obligations under the derivatives in which it has invested.
Derivatives also present other risks described in this section, including market risk, liquidity risk, currency risk, credit 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 may not produce valuations that are consistent with the values the Fund realizes when it closes or sells an OTC derivative. 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 Fund’s net asset value.
The Fund’s 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 Fund’s risk exposures, potentially resulting in losses for the Fund.
Swap contracts and other OTC derivatives are highly susceptible to liquidity risk (see “Liquidity Risk” above) 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
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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.
The Fund’s use of derivatives may be subject to one or more special tax rules and could generate additional taxable income for shareholders.
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 (and many of the rules are not yet final), its ultimate impact remains unclear.
Under recently adopted rules and regulations, transactions in some types of swaps (including interest rate swaps and credit default swaps on North American and European indices) are required to be centrally cleared. In a transaction involving those swaps (“cleared derivatives”), a Fund’s counterparty is a clearing house, rather than a bank or broker. Since the Fund is not a member of clearing houses and only members of a clearing house (“clearing members”) can participate directly in the clearing house, the Fund will hold cleared derivatives through accounts at clearing members. In cleared derivatives transactions, the Fund will make payments (including margin payments) to and receive payments from a clearing house through its accounts at clearing members. Clearing members guarantee performance of their clients’ obligations to the clearing house.
In many ways, cleared derivative arrangements are less favorable to mutual funds than bilateral arrangements. For example, the Fund may be required to provide more margin for cleared derivatives transactions than for bilateral derivatives transactions. Also, in contrast to a bilateral derivatives transaction, following a period of notice to the Fund, a clearing member generally can require termination of an existing cleared derivatives transaction at any time or an increase in margin requirements above the margin that the clearing member required at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions or to terminate those transactions at any time. Any increase in margin requirements or termination of existing cleared derivatives transactions by the clearing member or the clearing house could interfere with the ability of the Fund to pursue its investment strategy. Further, any increase in margin requirements by a clearing member could expose the Fund to greater credit risk to its clearing member, because (as described under “Counterparty Risk” below) margin for cleared derivatives transactions in excess of a clearing house’s margin requirements typically is held by the clearing member. Also, the Fund is subject to risk if it enters into a derivatives transaction that is required to be cleared (or that the Manager expects to be cleared), and no clearing member is willing or able to clear the transaction on the Fund’s behalf. While the documentation in place between the Fund and their clearing members generally provides that the clearing members will accept for clearing all cleared derivatives transactions that are within credit limits (specified in advance) for each Fund, the Fund is still subject to the risk that no clearing member will be willing or able to clear a transaction. In those cases, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of the transaction, including loss of an increase in the value of the transaction and/or loss of hedging protection. In addition, the documentation governing the relationship between the Fund and clearing members is drafted by the clearing members and generally is less favorable to the Fund than typical bilateral derivatives documentation. For example, documentation relating to cleared derivatives generally includes a one-way indemnity by the Fund in favor of the clearing member for losses the clearing member incurs as the Fund’s clearing member and typically does not provide the Fund any remedies if the clearing member defaults or becomes insolvent.
These and other new rules and regulations could, among other things, further restrict the Fund’s ability to engage in, or increase the cost to the Fund of, derivatives transactions, for example, by making some types of derivatives no longer available to the Fund, increasing margin or capital requirements, or otherwise limiting liquidity or increasing transaction costs. These regulations are new and evolving, so their potential impact on the Fund and the financial system are not yet known. While the new regulations and central clearing of some derivatives transactions are designed to reduce systemic risk (i.e., the risk that the interdependence of large derivatives dealers could cause them to suffer liquidity, solvency or other challenges simultaneously), there is no assurance that the new clearing mechanisms will achieve that result, and in the meantime, as noted above, central clearing exposes the Fund to new kinds of risks and costs.
• CURRENCY RISK. Currency risk is the risk that fluctuations in exchange rates will adversely affect the market value of the Fund’s investments. Currency risk includes the risk that the non-U.S. currencies in which the Fund’s investments are traded, in which the Fund receives income, or in which the Fund has taken a position, will decline in value relative to the U.S. Dollar. Currency risk also includes the risk that the currency to which the Fund has obtained exposure through hedging declines in value relative to the currency being hedged, in which event the Fund may realize a loss both on the hedging instrument and 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 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 may use derivatives to take overweighted or underweighted currency positions relative to the currency exposure of its portfolio. If the exchange rates of the currencies involved do not move as expected, the Fund could lose money both on its holdings of a particular currency and on the derivative. See also “Non-U.S. Investment Risk” above.
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Some currencies are illiquid (e.g., some emerging country currencies), and the Fund may not be able to convert them into U.S. Dollars, in which case the Manager may decide to purchase U.S. Dollars in a parallel market in which 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 non-U.S. 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).
• CREDIT RISK. This is the risk that the issuer or guarantor of a fixed income investment or the obligor of an obligation underlying an asset-backed security will be unable or unwilling to satisfy its obligation to pay principal and interest or otherwise to honor its obligations in a timely manner. The market price of a fixed income investment will normally decline as a result of the issuer’s, guarantor’s or obligor’s failure to meet its payment obligations or the downgrading of its credit rating. This risk is particularly acute in environments (like those of 2008) in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions.
All fixed income securities are subject to credit risk. Financial strength and solvency of an issuer are the primary factors influencing credit risk. The risk varies depending upon whether the issuer is a corporation or U.S. or non-U.S. government (or sub-division or instrumentality) and whether the particular security has a priority over other obligations of the issuer in payment of principal and interest and whether it has any collateral backing or credit enhancement. Credit risk may change over the life of a fixed income security. U.S. government securities are subject to varying degrees of credit risk depending upon whether the securities are supported by the full faith and credit of the United States, supported by the ability to borrow from the U.S. Treasury, supported only by the credit of the issuing U.S. government agency, instrumentality, or corporation, or otherwise supported by the United States. For example, issuers of many types of U.S. government securities (e.g., the Federal Home Loan Mortgage Corporation (“Freddie Mac”), Federal National Mortgage Association (“Fannie Mae”), and Federal Home Loan Banks), although chartered or sponsored by Congress, are not funded by Congressional appropriations and their fixed income securities, including mortgage-backed and other asset-backed securities, are neither guaranteed nor insured by the U.S. government. These securities are subject to more credit risk than U.S. government securities that are supported by the full faith and credit of the United States (e.g., U.S. Treasury bonds). Investments in sovereign debt involve the risk that the governmental entities responsible for repayment may be unable or unwilling to pay interest and repay principal when due. A governmental entity’s willingness or ability to pay interest and repay principal in a timely manner may be affected by a variety of factors, including its cash flow, the size of its reserves, its access to foreign exchange, the relative size of its debt service burden to its economy as a whole, and political constraints. In addition, payment of principal of fixed income securities guaranteed by the U.S. government can be delayed because the guarantee generally only requires payment upon maturity of the securities. Investments in quasi-sovereign issuers are subject to the additional risk that the issuer may default independently of its sovereign. Sovereign debt risk is greater for fixed income securities issued or guaranteed by emerging countries.
In some cases, the credit risk of a fixed income security is reflected in its credit ratings, and if the Fund holds such a security, the Fund is subject to the risk that the security’s rating will be downgraded.
Securities issued by the U.S. Treasury historically have presented minimal credit risk. However, recent events have led to a downgrade in the long-term U.S. credit rating by at least one major rating agency and have introduced greater uncertainty about the ability of the U.S. to repay its obligations. A further credit rating downgrade or a U.S. credit default could decrease the value and increase the volatility of the Fund’s investments.
As described under “Market Risk — Asset-Backed Securities” below, asset-backed securities may be backed by many types of assets and their payment of interest and repayment of principal largely depend on the cash flows generated by the assets backing them. The credit risk of a particular asset-backed security depends on many factors, as described in “Market Risk — Asset-Backed Securities” below.
The obligations of issuers also are subject to bankruptcy, insolvency and other laws affecting the rights and remedies of creditors. The Fund also is exposed to credit risk on a reference security to the extent it writes protection under credit default swaps. See “Derivatives Risk” above for more information regarding risks associated with the use of credit default swaps.
The extent to which the market price of a fixed income security changes in response to a credit event depends on a number of factors and can be difficult to predict. For example, floating rate securities may have final maturities of ten or more years, but their effective durations will tend to be very short. If the issuer of floating rate securities experiences an adverse credit event, or a change occurs in its perceived creditworthiness, the market price of its securities could decline much more than would be predicted by a change in their yield relative to their effective duration.
Credit risk is particularly pronounced for below investment grade securities (commonly referred to as “junk bonds”). The sovereign debt of many non-U.S. governments, including their sub-divisions and instrumentalities, is below investment grade. Many asset-backed securities also are below investment grade. Below investment grade securities have speculative characteristics, often are less liquid than higher quality securities,
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present a greater risk of default and are more susceptible to real or perceived adverse industry conditions. In the event of default of sovereign debt, the Fund may be unable to pursue legal action against the sovereign issuer.
Market Risk — Asset-Backed Securities — Investments in asset-backed securities not only are subject to all of the market risks described above for fixed income securities but to other market risks as well.
Funds investing in asset-backed securities are exposed to the risk that these securities experience severe credit downgrades, illiquidity, defaults, and declines in market value. These risks are particularly acute during periods of adverse market conditions, such as those that occurred in 2008. Asset-backed securities may be backed by many types of assets, including pools of residential and commercial mortgages, automobile loans, educational loans, home equity loans, and credit-card receivables. They also may be backed by pools of corporate or sovereign bonds, bank loans made to corporations, or a combination of these bonds and loans (commonly referred to as “collateralized debt obligations” or “collateralized loan obligations”) and by the fees earned by service providers.
As described under “Market Risk — Fixed Income Investments” above, the market price of fixed income investments with complex structures, such as asset-backed securities, can decline due to a number of factors, including market uncertainty about their credit quality and the reliability of their payment streams. Payment of interest on asset-backed securities and repayment of principal largely depend on the cash flow generated by the assets backing the securities, as well as the deal structure (e.g., 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 and the credit quality of the credit-support provider, if any, and the reliability of various other service providers with access to the payment stream. A problem in any one of these areas can lead to a reduction in the payment stream the Manager expected the Fund to receive at the time the Fund purchased the asset-backed security. Asset-backed securities involve risk of loss of principal if obligors of the underlying obligations default and the value of the defaulted obligations exceeds whatever credit support the securities may have. Asset-backed securities backed by sub-prime mortgage loans, in particular, may cause the Fund to suffer significantly greater declines in value due to defaults, as sub-prime mortgage loans are typically made to less creditworthy borrowers and thus have a higher risk of default than conventional mortgage loans. The obligations of issuers (and obligors of asset-backed securities) also are subject to bankruptcy, insolvency and other laws affecting the rights and remedies of creditors. See “Credit Risk” above for more information about credit risk.
With the deterioration of worldwide economic and liquidity conditions that occurred and became acute in 2008, the markets for asset-backed securities became fractured, and uncertainty about the creditworthiness of those securities (and underlying assets) caused credit spreads (the difference between yields on asset-backed securities and U.S. Government securities) to widen dramatically. Concurrently, systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions reduced the ability of financial institutions to make markets in many fixed income securities. These events reduced liquidity and contributed to substantial declines in the market prices of asset-backed and other fixed income securities. 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., sub-prime mortgages) have had, and may continue to have, adverse valuation and liquidity effects on asset-backed securities.
The market price of an asset-backed security may depend on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. In some circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying assets. The insolvency of an entity that generated the assets underlying an asset-backed security is likely to result in a decline in the market price of that security, as well as costs and delays. The obligations underlying asset-backed securities, in particular securities backed by pools of residential and commercial mortgages, also are subject to unscheduled prepayment, and the Fund may be unable to invest prepayments at as high a yield as was provided by the asset-backed security. When interest rates rise, these obligations also may be repaid more slowly than anticipated, which could cause the market price of the Fund’s investment to decrease.
In addition, the existence of insurance on an asset-based security does not guarantee that the 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 risk of investing in asset-backed securities has increased since the deterioration in worldwide economic and liquidity conditions referred to above 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 correlated. See “Focused Investment Risk” below for more information about risks of investing in correlated sectors. A single financial institution may serve as a trustee for many asset-backed securities. As a result, a disruption in that institution’s business may have a material impact on many investments.
• COUNTERPARTY RISK. To the extent the Fund enters into contracts with counterparties, such as repurchase or reverse repurchase agreements or OTC derivatives contracts, or lends its securities, it runs the risk that the counterparty 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. The Fund is not subject to any limits on its exposure to any one counterparty nor to a requirement that counterparties maintain a specific rating by a
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nationally recognized rating organization to be considered for potential transactions. To the extent that GMO’s view with respect to a particular counterparty changes (whether due to external events or otherwise), existing transactions are not required to be terminated or modified. Additionally, new transactions may be entered into with a counterparty that is no longer considered eligible if the transaction is primarily designed to reduce the overall risk of potential exposure to that counterparty (for example, re-establishing the transaction with a lesser notional amount). Counterparty risk is pronounced during unusually adverse market conditions and is particularly acute in environments (like those of 2008) in which financial services firms are exposed to systemic risks of the type evidenced by the insolvency of Lehman Brothers 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 derivative in accordance with its terms because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem. If a counterparty’s obligation to the Fund is not collateralized, then the Fund is essentially an unsecured creditor of the counterparty. If a counterparty defaults, the Fund will have contractual remedies, but the Fund may be unable to enforce them, thus causing the Fund to suffer a loss. Counterparty risk is greater for derivatives with longer maturities because of the longer time that events may occur that 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. Significant exposure to a single counterparty increases the Fund’s counterparty risk. To the extent the Fund uses swap contracts, it is subject, in particular, to the creditworthiness of the counterparties because some types of swap contracts have durations longer than six months (and, in some cases, decades). The creditworthiness of a counterparty may be adversely affected by greater than average volatility in the markets, even if the counterparty’s net market exposure is small relative to its capital. Counterparty risk still exists even if a counterparty’s obligations are secured by collateral because the Fund’s interest in the collateral may not be perfected or additional collateral may not be promptly posted as required.
The Fund also is 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 derivatives will be affected by new rules and regulations affecting the derivatives market. As described under “Derivatives Risk” above, some derivatives transactions are required to be centrally cleared, and a party to a cleared derivatives transaction is subject to the credit risk of the clearing house and the clearing member through which it holds its cleared position, rather than the credit risk of its original counterparty to the derivatives transaction. Credit risk of market participants with respect to derivatives that are centrally cleared is concentrated in a few clearing houses, and it is not clear how an insolvency proceeding of a clearing house would be conducted and what impact an insolvency of a clearing house would have on the financial system. A clearing member is obligated by contract and by applicable regulation to segregate all funds received from customers with respect to cleared derivatives transactions from the clearing member’s proprietary assets. However, all funds and other property received by a clearing member from its customers with respect to cleared derivatives are generally held by the clearing member on a commingled basis in an omnibus account, and the clearing member may invest those funds in certain instruments permitted under the applicable regulations. Therefore, the Fund might not be fully protected in the event of the bankruptcy of the Fund’s clearing member because the Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the clearing member’s customers for a relevant account class. Also, the clearing member is required to transfer to the clearing house the amount of margin required by the clearing house for cleared derivatives, which amounts are generally held in an omnibus account at the clearing house for all customers of the clearing member. Regulations promulgated by the Commodities Futures Trading Commission require that the clearing member notify the clearing house of the initial margin provided by the clearing member to the clearing house that is attributable to each customer. However, if the clearing member does not accurately report the Fund’s initial margin, the Fund is subject to the risk that a clearing house will use the Fund’s assets held in an omnibus account at the clearing house to satisfy payment obligations of a defaulting customer of the clearing member to the clearing house. In addition, clearing members generally provide the clearing house the net amount of variation margin required for cleared swaps for all of its customers in the aggregate, rather than individually for each customer. The Fund is therefore subject to the risk that a clearing house will not make variation margin payments owed to the Fund if another customer of the clearing member has suffered a loss and is in default, and the risk that the Fund will be required to provide additional variation margin to the clearing house before the clearing house will move the Fund’s cleared derivatives transactions to another clearing member. In addition, if a clearing member does not comply with the applicable regulations or its agreement with the Fund, or in the event of fraud or misappropriation of customer assets by a clearing member, the Fund could have only an unsecured creditor claim in an insolvency of the clearing member with respect to the margin held by the clearing member.
• LEVERAGING RISK. The use of reverse repurchase agreements and other derivatives and securities lending creates leverage (i.e., the Fund’s investment exposures exceed its net asset value). Leverage increases the Fund’s losses when the value of its investments (including derivatives) declines. Because many derivatives have a leverage component (i.e., a notional value in excess of the assets needed to establish 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 Fund’s use of reverse repurchase agreements also subjects it to interest costs based on the difference between the sale and repurchase price of the
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security involved. The Fund’s portfolio also will be leveraged if it borrows money to meet redemption requests or settle investment transactions or if it exercises its 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.
• OPTIONS RISK. The market price of options written by the Fund will be affected by many factors, including changes in the market price or dividend rates of underlying securities (or in the case of indices, the securities comprising such indices); changes in interest rates or exchange rates; changes in the actual or perceived volatility of the relevant stock market and underlying securities; and the time remaining before an option’s expiration. The market price of an option also may be adversely affected if the market for the option 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 because the holder may only exercise the option on its expiration date.) If the Fund writes a call option and does not hold the underlying security or instrument, the amount of the Fund’s potential loss is theoretically unlimited.
National securities exchanges generally have established limits on the maximum number of options an investor or group of investors acting in concert may write. The Fund, the Manager, and other funds advised by the Manager may constitute such a group. These limits could restrict the Fund’s ability to purchase or write options on a particular security.
Unlike exchange-traded options, which are standardized with respect to the underlying instrument, expiration date, contract size, and strike price, the terms of OTC options (i.e., options not traded on exchanges) generally are established through negotiation with the other party to the option contract. While the Fund has greater flexibility to tailor an OTC option, OTC options generally expose the Fund to greater credit risk than exchange-traded options, which are guaranteed by the clearing organization of the exchanges where they are traded. Purchasing and writing put and call options are highly specialized activities and entail greater than ordinary market risks.
• REAL ESTATE RISK. To the extent the Fund concentrates its assets in real estate-related investments, the value of its portfolio is subject to factors affecting the real estate industry and may fluctuate more than the value of a portfolio that consists of securities of companies in a broader range of industries. 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 operating costs and property taxes, levels of occupancy, adequacy of rent to cover operating costs, 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, some mortgage Real Estate Investment Trusts (REITs) may hold mortgages that the mortgagors elect to prepay, which prepayment may reduce 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 subject to the risk of fluctuations in income from underlying real estate assets, their inability to manage effectively the cash flows generated by those assets, prepayments and defaults by borrowers, and their failure to qualify for the special tax treatment granted to REITs under the Internal Revenue Code of 1986, as amended, or to maintain their exemption from investment company status under the 1940 Act.
• MARKET DISRUPTION AND GEOPOLITICAL RISK. The Fund is subject to the risk that geopolitical and other events will disrupt securities markets, adversely affect global economies and markets and thereby decrease the value of the Fund’s investments. 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. Securities markets may be susceptible to market manipulation (e.g., the potential manipulation of the London Interbank Offered Rate (LIBOR)) or other fraudulent trade practices, which could disrupt the orderly functioning of these markets or adversely affect the value of investments traded in these markets, including investments of the Fund. While the U.S. government has honored its credit obligations continuously for the last 200 years, it remains possible that the U.S. could default on its obligations. While it is impossible to predict the consequences of such an unprecedented event, it is likely that a default by the U.S. would be highly disruptive to the U.S. and global securities markets and could significantly impair the value of the Fund’s investments. Similarly, political events within the U.S. at times have resulted, and may in the future result, in a shutdown of government services, which could negatively affect the U.S. economy, decrease the value of many Fund investments, and increase uncertainty in or impair the operation of the U.S. or other securities markets. The uncertainty surrounding the sovereign debt of a significant number of European Union countries, as well as the continued existence of the European Union itself, have disrupted and may continue to disrupt markets in the U.S. and around the world. If one or more countries leave the European Union or the European Union dissolves, the world’s securities markets likely will be significantly disrupted. Substantial government interventions (e.g., currency controls) also could negatively impact the Fund. War, terrorism, economic uncertainty, 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
| 33 |
GMO Implementation Fund
(A Series of GMO Trust)
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
disruptive to economies and markets, adversely affecting individual companies and industries, securities markets, interest rates, credit ratings, inflation, investor sentiment, and other factors affecting the value of the Fund’s investments. During such market disruptions, the Fund’s exposure to the risks described elsewhere in this “Investment and other risk” section will likely increase. Market disruptions, including sudden government interventions, can also prevent the Fund from implementing its investment programs for a period of time and achieving its investment objectives. For example, a market disruption may adversely affect the orderly functioning of the securities markets and may cause the Fund’s derivatives counterparties to discontinue offering derivatives on some underlying commodities, securities, reference rates or indices, or to offer them on a more limited basis. To the extent that the Fund has focused its investments in the stock index of a particular region, adverse geopolitical and other events could have a disproportionate impact on the Fund.
• SHORT SALES RISK. The Fund may use short sales in its investment programs in an attempt to increase its returns or for hedging purposes.
In implementing its principal investment strategies, the Fund is permitted to engage in short sales of securities or currencies that it does not own. To do so, the Fund borrows a security (e.g., shares of an exchange-traded fund (“ETF”)) or currency from a broker and sells it to a third party. This type of short sale exposes the Fund to the risk that it will be required to acquire, convert, or exchange securities or currencies to replace the borrowed securities at a time when the securities or currencies sold short have appreciated in value, thus resulting in a loss to the Fund. If the Fund engages in short sales of securities or currencies it does not own, it may have to pay a premium to borrow the securities or currencies and must pay to the lender any dividends or interest it receives on the securities or currencies while they are borrowed. In addition, purchasing securities or currencies to close out a short position can itself cause the price of the securities or currencies to rise further, thereby exacerbating any losses.
Short sales of securities or currencies the Fund does not own involve a form of investment leverage, and the amount of a Fund’s potential loss is theoretically unlimited. The Fund is subject to increased leveraging risk and other investment risks described in this “Investments and other risks” section to the extent it sells short securities or currencies it does not own.
• FOCUSED INVESTMENT RISK. Funds whose investments are focused in particular countries, regions, sectors, companies or industries with high positive correlations to one another (e.g., different industries within broad sectors, such as technology or financial services), or in securities from issuers with high positive correlations to one another (such as U.S. Treasury Fund’s investments in securities issued by the U.S. Treasury and other fixed income securities that are backed by the full faith and credit of the U.S. government), are subject to greater overall risk than funds whose investments are more diversified. To the extent the Fund invests in the securities of a limited number of issuers, it is particularly exposed to adverse developments affecting those issuers, and a decline in the market price of a particular security held by the Fund is likely to affect the Fund’s 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, it is vulnerable to events affecting those securities, sectors, 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. See also “Real Estate Risk” above.
Similarly, to the extent the Fund has a significant portion of its assets in investments tied economically to a particular geographic region, non-U.S. country or particular market (e.g., emerging markets), it has more exposure to regional and country economic risks than funds making non-U.S. investments throughout the world. The political and economic prospects of one country or group of countries within the same geographic region may affect other countries in that region, and a recession, debt crisis or decline in currency valuation in one country can spread to other countries. Furthermore, companies in a particular geographic region or country are vulnerable to events affecting other companies in that region or country because they often share common characteristics, are exposed to similar business risks and regulatory burdens, and react similarly to specific economic, market, political or other developments. See also “Non-U.S. Investment Risk” above.
• LARGE SHAREHOLDER RISK. To the extent that a large number of shares of the Fund are held by a single shareholder (e.g., an institutional investor or another GMO Fund) or a group of shareholders with a common investment strategy (e.g. GMO asset allocation accounts), the Fund is subject to the risk that a redemption by that shareholder of all or a large portion of its Fund shares will adversely affect the Fund’s performance if it is forced to sell portfolio securities to raise the cash needed to satisfy the redemption request. 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. Asset allocation decisions by the Manager may result in substantial redemptions from (or investments in) the Fund. These transactions may adversely affect the Fund’s performance to the extent that the Fund is required to sell investments (or invest cash) at times when it would not otherwise do so. Redemptions of a large number of shares also may increase transaction costs or, by necessitating a sale of portfolio securities, accelerate the realization of taxable gains to shareholders. In addition, to the extent the Fund invests in other GMO Funds subject to large shareholder risk, it is indirectly subject to this risk.
• FUND OF FUNDS RISK AND RELATED CONSIDERATIONS. The Fund may invest in shares of other investment companies, including other GMO Funds, money market funds, and ETFs (for purposes of this risk disclosure, “underlying Funds”), and is exposed to the risk that the underlying Funds will not perform as expected.
| 34 |
GMO Implementation Fund
(A Series of GMO Trust)
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Because the Fund bears the fees and expenses of the underlying Funds in which it invests (absent reimbursement of those expenses), the Fund will incur additional expenses when investing in underlying Funds. In addition, total Fund expenses will increase if the Fund makes a new or further investment in underlying Funds with higher fees or expenses than the average fees and expenses of the underlying Funds then in the Fund’s portfolio.
The Fund also is indirectly exposed to all of the risks of an investment in the underlying Funds.
Investments in ETFs involve the risk that the ETF’s performance may not track the performance of the index the ETF is designed to track. Unlike the index, an ETF incurs administrative expenses and transaction costs in trading securities. In addition, the timing and magnitude of cash inflows and outflows from and to investors buying and redeeming shares in the ETF could create cash balances that cause the ETF’s performance to deviate from the index (which remains “fully invested” at all times). Performance of an ETF and the index it is designed to track also may diverge because the composition of the index and the securities held by the ETF may occasionally differ. In addition, ETFs often use derivatives to track the performance of the relevant index, and, therefore, investments in those ETFs are subject to the same derivatives risks discussed above.
• NON-DIVERSIFIED FUNDS. The Fund is a “non-diversified investment company” under the 1940 Act. This means that it is allowed to invest in the securities of a relatively small number of issuers and/or non-U.S. 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.”
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 cash, cash equivalents, or high quality debt investments on a temporary basis, the Fund may not achieve its investment objective.
| 4. | Derivative financial instruments |
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 Fund’s portfolio. Derivatives may relate to securities, interest rates, currencies, currency exchange rates, inflation rates, commodities and related indices, and include foreign currency contracts, swap contracts, reverse repurchase agreements, and other exchange-traded and OTC contracts.
The Fund may use derivatives in an attempt to reduce its investment exposures (which may result in a reduction below zero) or the investment exposures of GMO Benchmark-Free Allocation Fund (“BFAF”). The 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 or BFAF’s 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 Fund may use derivatives in an attempt to adjust elements of its or BFAF’s 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 the Fund or BFAF 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 those stocks) in combination with a long futures contract on another index (to synthetically “buy” exposure to that index). In adjusting investment exposures, the Fund also may use currency derivatives, seeking currency exposure that is different (in some cases, significantly different) from the currency exposure represented by its or BFAF’s portfolio. The Fund’s foreign currency exposure may differ significantly from the currency exposure represented by its investments.
The Fund may use derivatives to effect transactions intended as substitutes for securities lending.
The Fund is not limited in its use of derivatives or in the absolute face value of its derivative positions. As a result of its derivative positions, the Fund may have gross investment exposures in excess of its net assets (i.e., the Fund may be leveraged) and therefore is subject to heightened risk of loss. The Fund’s performance can depend substantially, if not primarily, on the performance of assets or indices underlying its derivatives even though it does not own those assets or indices.
Certain derivatives transactions used by the Fund, including certain interest rate swaps and certain credit default index swaps, are required to be transacted through a central clearing organization. The Fund holds cleared derivatives transactions through clearing members, who are members of derivatives clearing houses. In contrast to bilateral derivatives transactions, following a period of advance notice to the Fund, clearing members generally can require termination of existing cleared derivatives transactions at any time and increases in margin above the margin that it required at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions and to terminate transactions. Any such increase or termination could interfere with the ability of the Fund to pursue its investment strategy. Also, the Fund is subject to execution risk if it enters into a derivatives transaction that is required to be cleared (or that the Manager expects to be cleared), and no
| 35 |
GMO Implementation Fund
(A Series of GMO Trust)
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
clearing member is willing or able to clear the transaction on the Fund’s behalf. In that case, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of any increase in the value of the transaction after the time of the transaction.
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. See “Investment and other risks” above for further information.
The Fund held derivatives during the period ended August 31, 2013. The following table shows how the Fund used these derivatives (marked with an X):
| Type of Derivative and Objective for Use | ||||
| Forward currency contracts | ||||
| Adjust exposure to foreign currencies |
X | |||
| To manage against anticipated currency exchange rate changes |
X | |||
| Futures contracts | ||||
| Adjust exposure to certain securities markets |
X | |||
| Maintain the diversity and liquidity of the portfolio |
X | |||
| Options (Written) | ||||
| Used written put option contracts as substitute for direct equity investments |
X | |||
| Swap contracts | ||||
| Adjust exposure to certain securities markets |
X | |||
| Adjust exposure to certain companies and industries |
X | |||
| To hedge some or all of the broad market exposure of the assets in which the Fund invests |
X | |||
| Rights and/or warrants | ||||
| Received as a result of corporate actions |
X | |||
Forward currency contracts
The Fund may enter into forward currency contracts, including forward cross currency contracts. A forward currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date (or to pay or receive the amount of the change in relative values of the two currencies). The market value of a forward currency contract fluctuates with changes in forward currency exchange rates. The value of each of the Fund’s forward currency contracts is marked-to-market daily using rates supplied by a quotation service and changes in value are recorded by the Fund as unrealized gains or losses. Realized gains or losses on the contracts are equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
These contracts involve market risk in excess of the unrealized gain or loss. Forward currency contracts expose the Fund to the market risk of unfavorable movements in currency values and the risk that the counterparty will be unable or unwilling to meet the terms of the contracts. Most forward currency contracts are not collateralized. Forward currency contracts outstanding at the end of the period, if any, are listed in the Fund’s Schedule of Investments.
Futures contracts
The Fund may purchase and sell futures contracts. A futures contract is a contract that obligates the holder to buy or sell an asset at a predetermined delivery price at a specified time in the future. Some futures contracts are net (cash) settled. Upon entering into a futures contract, the Fund is required to deposit cash, U.S. government and agency obligations or other liquid assets with the futures clearing broker in accordance with the initial margin requirements of the broker or exchange. Futures contracts are generally valued at the settlement price established at the close of business each day by the board of trade or exchange on which they are traded (and if the futures are traded outside the U.S. and the market for such futures is closed prior to the close of NYSE due to time zone differences, the values will be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees to reflect estimated valuation changes through the NYSE close). The value of each of the Fund’s futures contracts is marked-to-market daily and an appropriate payable or receivable for the change in value (“variation margin”) is recorded by the Fund. The payable or receivable is settled on the following business day. Gains or losses are recognized but not accounted for as realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin as recorded on the Statement of Assets and Liabilities. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day’s settlement price, thereby effectively preventing
| 36 |
GMO Implementation Fund
(A Series of GMO Trust)
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
liquidation of unfavorable positions. Futures contracts expose the Fund to the risk that it may not be able to enter into a closing transaction due to an illiquid market. Futures contracts outstanding at the end of the period, if any, are listed in the Fund’s Schedule of Investments.
Options
The Fund may purchase call and put options. A call option gives the holder the right to buy an asset; a put option gives the holder the right to sell an asset. By purchasing options the Fund alters its exposure to the underlying asset by, in the case of a call option, entitling it to purchase the underlying asset at a set price from the writer of the option and, in the case of a put option, entitling it to sell the underlying asset at a set price to the writer of the option. The Fund pays a premium for a purchased option. That premium is disclosed in the Schedule of Investments and is subsequently reflected in the marked-to-market value of the option. The potential loss associated with purchasing put and call options is limited to the premium paid. Purchased option contracts outstanding at the end of the period, if any, are listed in the Fund’s Schedule of Investments.
The Fund may write (i.e., sell) call and put options on futures, swaps (“swaptions”), securities or currencies it owns or in which it may invest. Writing options alters the Fund’s exposure to the underlying asset by, in the case of a call option, obligating the Fund to sell the underlying asset at a set price to the option-holder and, in the case of a put option, obligating the Fund to purchase the underlying asset at a set price from the option-holder. In some cases (e.g., index options), settlement will be in cash, based on a formula price. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and is subsequently included in the marked-to-market value of the option. As a writer of an option, the Fund has no control over whether it will be required to sell (call) or purchase (put) the underlying asset and as a result bears the risk of an unfavorable change in the price of the asset underlying the option. In the event that the Fund writes call options without an offsetting exposure (e.g., call options on an asset that the Fund does not own), it bears an unlimited risk of loss if the price of the underlying asset increases during the term of the option. OTC options expose the Fund to the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. Written option contracts outstanding at the end of the period, if any, are listed in the Fund’s Schedule of Investments.
When an option contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction in the cost of investments purchased. Gains and losses from the expiration or closing of written option contracts are separately disclosed in the Statement of Operations.
For the period ended August 31, 2013, investment activity in options contracts written by the Fund was as follows:
| Puts | Calls | |||||||||||||||||||||||
| Principal Amount of Contracts |
Number of Contracts |
Premiums | Principal Amount of Contracts |
Number of Contracts |
Premiums | |||||||||||||||||||
| Outstanding, beginning of period |
— | 4,383 | $ | 3,763,138 | — | — | $ | — | ||||||||||||||||
| Options written |
— | 41,135 | 42,574,258 | — | — | — | ||||||||||||||||||
| Options bought back |
— | (13,389 | ) | (15,327,882 | ) | — | — | — | ||||||||||||||||
| Options expired |
— | (23,484 | ) | (22,474,299 | ) | — | — | — | ||||||||||||||||
| Options exercised |
— | (29 | ) | (140,502 | ) | — | — | — | ||||||||||||||||
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| Outstanding, end of period |
— | 8,616 | $ | 8,394,713 | — | — | $ | — | ||||||||||||||||
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Exchange-traded 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 (and if the underlying reference security closes or the official closing time of the underlying index occurs prior to the close of the NYSE due to time zone differences, the values will be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees to reflect estimated valuation changes through the NYSE close). The Fund values OTC options using inputs provided by primary pricing sources and industry models.
Swap contracts
The Fund may enter into various types of swap contracts, including, without limitation, swaps on securities and securities indices, interest rate swaps, total return swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps and other types of available swaps. A swap contract is an agreement to exchange the return generated by one asset for the return generated by another asset. Some swap contracts are net settled. When entering into a swap contract and during the term of the transaction, the Fund and/or the swap counterparty may post or receive cash or securities as collateral.
| 37 |
GMO Implementation Fund
(A Series of GMO Trust)
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
Initial upfront payments received or made upon entering into a swap contract are included in the fair market value of the swap. The Fund does not amortize upfront payments. Net periodic payments made or received to compensate for differences between the stated terms of the swap contract and prevailing market conditions (credit spreads, currency exchange rates, interest rates, and other relevant factors) are recorded as realized gains or losses on the Statement of Operations. A liquidation payment received or made at the termination of the swap contract is recorded as realized gain or loss in the Statement of Operations.
Interest rate swap contracts involve an exchange by the parties of their respective commitments to pay or right to receive interest (e.g., an exchange of floating rate interest payments for fixed rate interest payments with respect to the notional amount of principal).
Total return swap contracts involve a commitment by one party to pay interest to the other party in exchange for a payment to it from the other party based on the return of a reference asset (e.g., a security, basket of securities, or futures contract), both based on notional amounts. To the extent the return of the reference asset exceeds or falls short of the interest payments, one party is entitled to receive a payment from or obligated to make a payment to the other party.
In a credit default swap contract, one party makes payments to another party in exchange for the right to receive a specified return (or to put a security) if a credit event (e.g., default or similar event) occurs with respect to a reference entity or entities. A seller of credit default protection receives periodic payments in return for its obligation to pay the principal amount of a debt security (or other agreed-upon value) to the other party upon the occurrence of a credit event. If no credit event occurs, the seller has no payment obligations so long as there is no early termination.
For credit default swap contracts on asset-backed securities, a credit event may be triggered by various occurrences, which may include an issuer’s failure to pay interest or principal on a reference security, 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 contracts on corporate or sovereign issuers, a credit event may be triggered by such occurrences as the issuer’s bankruptcy, failure to pay interest or principal, repudiation/moratorium and/or restructuring.
Variance swap contracts 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 payable 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 be entitled to receive a payment when the realized price variance of the underlying asset is greater than the strike price and would be obligated to make a payment when that variance is less than the strike price. A payer of the realized price variance would be obligated to make a payment when the realized price variance of the underlying asset is greater than the strike price and would be entitled to 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.
Generally, the Fund prices its OTC swap contracts daily using industry standard models that may incorporate quotations from market makers or pricing vendors and record the change in value, if any, as unrealized gain or loss in the Statement of Operations. Gains or losses are realized upon termination of the swap contracts or reset dates, as appropriate. Cleared swap contracts are valued using the quote (which may be based on a model) published by the relevant clearing house. If an updated quote for a cleared swap contract is not available by the time that a Fund calculates its net asset value on any business day, then that swap contract will generally be valued using an industry standard model, which may differ from the model used by the relevant clearing house.
The values assigned to swap contracts may differ significantly from the values that would be realized upon termination, and the differences could be material. Entering into swap contracts involves counterparty credit, legal, and documentation risk that is generally not reflected in the values assigned to the swap contract. Such risks include the possibility that the counterparty defaults on its obligations to perform or disagrees as to the meaning of contractual terms, that the Fund has amounts on deposit in excess of amounts owed by the Fund, or that any collateral the other party posts is insufficient or not timely received by the Fund. Credit risk is particularly acute in economic environments 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. Swap contracts outstanding at the end of the period, if any, are listed in the Fund’s Schedule of Investments.
Rights and warrants
The 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 set price. Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in the section entitled “Options” above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. However, warrants and rights often do not have standardized terms, and may have longer maturities and may be less liquid than exchange-traded options. In addition, the terms of warrants or rights may limit the Fund’s ability to exercise the warrants or
| 38 |
GMO Implementation Fund
(A Series of GMO Trust)
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
rights at such times and in such quantities as the Fund would otherwise wish. Rights and/or warrants outstanding at the end of the period, if any, are listed in the Fund’s Schedule of Investments.
As provided by U.S. GAAP, the table below is based on market values or unrealized appreciation/(depreciation) rather than the notional amounts of derivatives. Changes to market values of reference asset(s) will tend to have a greater impact on the Fund (with correspondingly greater risk) the greater the notional amount. For further information on notional amounts, see the Schedule of Investments.
The following is a summary of the valuations of derivative instruments categorized by risk exposure:
The Effect of Derivative Instruments on the Statement of Assets and Liabilities as of August 31, 2013 and Statement of Operations for the period ended August 31, 2013^:
| Credit Contracts |
Commodity Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate Contracts |
Other Contracts |
Total | ||||||||||||||||||||||
| Asset: |
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| Unrealized Appreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | 34,344,493 | $ | — | $ | — | $ | 34,344,493 | ||||||||||||||
| Unrealized Appreciation on Futures Contracts* |
— | — | 103,856 | — | — | — | 103,856 | |||||||||||||||||||||
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| Total |
$ | — | $ | — | $ | 103,856 | $ | 34,344,493 | $ | — | $ | — | $ | 34,448,349 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | 103,856 | $ | 34,344,493 | $ | — | $ | — | $ | 34,448,349 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Liability: |
||||||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | (6,052,645 | ) | $ | — | $ | — | $ | (6,052,645 | ) | ||||||||||||
| Unrealized Depreciation on Futures Contracts* |
— | — | (856,124 | ) | — | — | — | (856,124 | ) | |||||||||||||||||||
| Written Options, at value |
— | — | (13,366,062 | ) | — | — | — | (13,366,062 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | (14,222,186 | ) | $ | (6,052,645 | ) | $ | — | $ | — | $ | (20,274,831 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Derivatives not subject to Master Agreements |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total subject to Master Agreements |
$ | — | $ | — | $ | (14,222,186 | ) | $ | (6,052,645 | ) | $ | — | $ | — | $ | (20,274,831 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Realized Gain (Loss) on: |
||||||||||||||||||||||||||||
| Investments (rights and/or warrants) |
$ | — | $ | — | $ | 56,459 | $ | — | $ | — | $ | — | $ | 56,459 | ||||||||||||||
| Forward Currency Contracts |
— | — | — | 17,067,601 | — | — | 17,067,601 | |||||||||||||||||||||
| Futures Contracts |
— | — | (2,642,380 | ) | — | — | — | (2,642,380 | ) | |||||||||||||||||||
| Swap Contracts |
— | — | 2,399,249 | — | — | — | 2,399,249 | |||||||||||||||||||||
| Written Options |
— | — | (168,887 | ) | — | — | — | (168,887 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | (355,559 | ) | $ | 17,067,601 | $ | — | $ | — | $ | 16,712,042 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Change in Appreciation (Depreciation) on: |
||||||||||||||||||||||||||||
| Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | 17,751,783 | $ | — | $ | — | $ | 17,751,783 | ||||||||||||||
| Futures Contracts |
— | — | 1,019,570 | — | — | — | 1,019,570 | |||||||||||||||||||||
| Swap Contracts |
— | — | (1,052,432 | ) | — | — | — | (1,052,432 | ) | |||||||||||||||||||
| Written Options |
— | — | (6,041,429 | ) | — | — | — | (6,041,429 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | (6,074,291 | ) | $ | 17,751,783 | $ | — | $ | — | $ | 11,677,492 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
The risks referenced in the tables above are not intended to be inclusive of all risks. Please see the “Investment and other risks” and “Portfolio valuation” sections for a further discussion of risks.
| ^ | Because the Fund recognizes changes in value through the Statement of Operations, it does not qualify for hedge accounting under authoritative guidance for derivative instruments. The Fund’s investments in derivatives may represent an economic hedge; however, they are considered to be non-hedge transactions for the purpose of these tables. |
| * | The table includes cumulative appreciation/depreciation of futures and cleared swap contracts as reported in the Schedule of Investments. Period end variation margin on open futures and cleared swap contracts is reported within the Statement of Assets and Liabilities. |
The Fund is party to International Swaps and Derivatives Association, Inc. Master Agreements, Global Master Repurchase Agreements or other similar types of agreements (collectively, “Master Agreements”) that generally govern the terms of some over-the-counter derivative transactions, repurchase agreements and reverse repurchase agreements between the parties. The Master Agreements may include collateral posting terms and
| 39 |
GMO Implementation Fund
(A Series of GMO Trust)
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
netting provisions that apply in the event of a default and/or termination event. Upon the occurrence of such an event, including the bankruptcy or insolvency of the counterparty, the Master Agreements may permit the non-defaulting party to calculate a single net payment to close out applicable transactions. However, there is no guarantee that the terms of a Master Agreement will be enforceable; for example, when bankruptcy or insolvency laws impose restrictions on or prohibitions against the right of offset obligations. Additionally, the netting and close out provisions of a Master Agreement may not extend to the obligations of the counterparty’s affiliates or across varying types of transactions. Termination events may also include a decline in the net assets of a Fund below a certain level over a specified period of time and may entitle a counterparty to elect to terminate early with respect to some or all the transactions under the Master Agreement with that counterparty. Such an election by one or more of the counterparties could have a material adverse impact on the Fund’s operations. For more information about other uncertainties and risks, see the Investment and Other Risks note.
For financial reporting purposes, on the Statement of Assets and Liabilities any cash collateral that has been pledged to cover obligations of the Fund is reported as Due from Broker and any cash collateral received from the counterparty is reported as Due to Broker. Any non-cash collateral pledged by the Fund is noted in the Schedule of Investments. The tables below show the potential effect of netting arrangements made available by the Master Agreements on the financial position of the Fund. For financial reporting purposes, the Fund’s Statement of Assets and Liabilities generally show derivative assets and derivative liabilities (regardless of whether they that are subject to netting arrangements) on a gross basis, which reflects the full risks and exposures of the Fund prior to netting. See Note 2 for information on repurchase agreements and reverse repurchase agreements held by the Fund at August 31, 2013, if any.
The tables above present the Fund’s derivative assets and liabilities by type of financial instrument. The following tables present the Fund’s OTC derivative assets and liabilities by counterparty net of amounts that may be available for offset under the Master Agreements and net of the related collateral received or pledged by the Fund as of August 31, 2013:
| Counterparty | Gross Derivative Assets Subject to Master Agreements |
Collateral Received |
Derivative Assets/(Liabilities) Available for Offset |
Net Amount of Derivative Assets |
||||||||||||
| Bank of America, N.A. |
$ | 3,290,642 | $ | — | $ | — | $ | 3,290,642 | ||||||||
| Barclays Bank PLC |
17,252,868 | — | (1,660,479 | ) | 15,592,389 | |||||||||||
| Brown Brothers Harriman & Co. |
1,321,464 | — | — | 1,321,464 | ||||||||||||
| Deutsche Bank AG |
1,850,051 | — | (376,710 | ) | 1,473,341 | |||||||||||
| Goldman Sachs International |
70,648 | — | 70,648 | — | ||||||||||||
| JPMorgan Chase Bank, N.A. |
3,576,721 | — | (2,261,375 | ) | 1,315,346 | |||||||||||
| Morgan Stanley & Co. International PLC |
6,982,099 | — | — | 6,982,099 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 34,344,493 | $ | — | $ | (4,227,916 | ) | $ | 29,975,281 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Counterparty | Gross Derivative Liabilities Subject to Master Agreements |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Barclays Bank PLC |
$ | 1,660,479 | $ | — | $ | 1,660,479 | $ | — | ||||||||
| Deutsche Bank AG |
376,710 | — | 376,710 | — | ||||||||||||
| Goldman Sachs International |
1,754,081 | — | (70,648 | ) | 1,683,433 | |||||||||||
| JPMorgan Chase Bank, N.A. |
2,261,375 | — | 2,261,375 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 6,052,645 | $ | — | $ | 4,227,916 | $ | 1,683,433 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 40 |
GMO Implementation Fund
(A Series of GMO Trust)
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
The following tables present the Fund’s exchange-traded or cleared derivative assets and liabilities by counterparty net of amounts that may be available for offset under the Master Agreements and net of the related collateral received by the Fund as of August 31, 2013:
| Counterparty | Gross Derivative Liabilities in the Statement of Assets and Liabilities |
Collateral Pledged |
Derivative (Assets)/Liabilities Available for Offset |
Net Amount of Derivative Liabilities |
||||||||||||
| Goldman Sachs & Co. |
$ | 750,791 | $ | (750,791 | ) | $ | — | $ | — | * | ||||||
| Morgan Stanley & Co. LLC |
13,366,062 | (13,366,062 | ) | — | — | * | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 14,116,853 | $ | (14,116,853 | ) | $ | — | $ | — | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | In some instances, the actual collateral received and/or pledged may be more than the amount shown. |
The average derivative activity, based on absolute values (forward currency contracts, futures contracts, rights and/or warrants), notional amounts (swap contracts) or principal amounts (options) outstanding at each month-end, was as follows for the period ended August 31, 2013:
| Forward Currency Contracts ($) |
Futures Contracts ($) |
Swap Contracts ($) |
Options ($) | Rights and/or warrants ($) |
||||||||||||
| 2,428,285,473 |
103,316,135 | 5,581,576 | 137,254 | 353,721 | ||||||||||||
| 5. | Fees and other transactions with affiliates |
GMO does not charge the Fund any management or shareholder service fees for its services.
The Manager has contractually agreed to reimburse the Fund for its “Specified Operating Expenses” (as defined below). Any such reimbursements are paid to the Fund concurrently with the payment of management fees to the Manager. “Specified Operating Expenses” means only the following expenses to the extent that they are borne by the Fund: audit expenses, fund accounting expenses, pricing service expenses, expenses of non-investment related tax services, transfer agency expenses, expenses of non-investment related legal services provided to the Funds by or at the direction of the Manager, federal securities law filing expenses, printing expenses, state and federal registration fees and custody expenses.
This contractual reimbursement will continue through at least June 30, 2014 for the Fund unless the Fund’s Board of Trustees authorizes its modification or termination, or reduces the fee rates paid to the Manager under the Fund’s management contract or servicing agreement.
The Fund’s portion of the gross fees paid by the Trust to the Trust’s independent Trustees and their legal counsel and any Trust Officers or agents unaffiliated with the Manager during the period ended August 31, 2013 is shown in the table below and is included in the Statement of Operations.
| Independent Trustees and their legal counsel ($) |
Agents unaffiliated with the Manager ($) |
|||||
| 17,287 | 2,024 | |||||
| 41 |
GMO Implementation Fund
(A Series of GMO Trust)
Notes to Financial Statements — (Continued)
August 31, 2013 (Unaudited)
| 6. | Purchases and sales of securities |
Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 2013 are noted in the table below:
| Purchases ($) | Purchases ($) | Sales ($) | Sales ($) | |||||||||||
| U.S. Government Securities |
Investments (Non-U.S. Government Securities) |
U.S. Government Securities |
Investments (Non-U.S. Government Securities) |
|||||||||||
| 917,399,602 | 3,343,796,186 | — | 1,305,615,186 | |||||||||||
| 7. | Guarantees |
In the normal course of business the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as it involves possible future claims that may or may not be made against the Fund. Based on experience, the Manager is of the view that the risk of loss to the Fund in connection with the Fund’s indemnification obligations is remote; however, there can be no assurance that such obligations will not result in material liabilities that adversely affect the Fund.
| 8. | Principal shareholders and related parties |
| Number of shareholders that held more than 10% of the outstanding shares of the Fund |
Percentage of outstanding shares of the Fund held by those shareholders owning greater than 10% of the outstanding shares of the Fund |
Percentage of the shares of the Fund held by senior management of the Manager and GMO Trust officers |
Percentage of the Fund’s shares held by accounts for which the Manager has investment discretion |
|||||||||||
| 1* | 100% | — | 100% | |||||||||||
| * | The Shareholder is another fund of the Trust. |
| 9. | Share transactions |
The Declaration of Trust permits the Fund to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund’s shares were as follows:
| Six Months Ended August 31, 2013 (Unaudited) |
Period from March 1, 2012 (commencement of operations) through February 28, 2013 |
|||||||||||||||
| Core Class: | Shares | Amount | Shares | Amount | ||||||||||||
| Shares sold |
288,220,684 | $ | 3,388,463,880 | 235,543,110 | $ | 2,460,130,863 | ||||||||||
| Shares repurchased |
(5,258,745 | ) | (62,086,965 | ) | (16,841,554 | ) | (175,132,923 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) |
282,961,939 | $ | 3,326,376,915 | 218,701,556 | $ | 2,284,997,940 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 42 |
GMO Implementation Fund
(A Series of GMO Trust)
Board Review of Management Agreement
August 31, 2013 (Unaudited)
Approval of renewal of management agreement for GMO Implementation Fund. In determining to approve the renewal of the management agreement of the Fund for an additional twelve month period commencing June 30, 2013, the Trustees, all but one of whom is not an “interested person” of GMO Trust (the “Trust”), considered information that they believed, in light of the legal advice furnished to them, to be relevant. The Trustees considered information relating specifically to the Fund as well as information relating to the series of the Trust generally (collectively, the “GMO funds”).
The Trustees met independently and with representatives of Grantham, Mayo, Van Otterloo & Co. LLC (the “Manager”) throughout the year and considered information relevant to renewal of the Fund’s management agreement. In addition, at a meeting held on May 22, 2013, the Trustees met with representatives of the Manager to discuss, among other things, the investment performance of the Fund and the other GMO funds and various methods for evaluating their investment performance. At a separate meeting also held on May 22, 2013 and attended only by the Trustees who are not “interested persons” of the Trust (the “Independent Trustees”), their independent legal counsel and their independent compliance consultant, the Independent Trustees discussed the extensive materials provided by the Manager to the Trustees for their consideration in connection with their decision whether to renew the management agreements of the Fund and the other GMO funds. At their separate meeting, the Independent Trustees instructed their independent legal counsel to request additional information from the Manager. Prior to and at a meeting of the Trustees on June 6, 2013, the Manager provided that information. In addition, prior to and at the meeting of the Trustees on June 6, 2013, representatives of the Manager met with the Trustees to answer questions.
The Trustees considered the Fund’s investment performance, as well as the performance of the other GMO funds managed by the investment division that manages the Fund. The Trustees discussed how funds with various investment styles were expected to perform in different market conditions and considered whether the Fund had performed as expected given market conditions in recent years. In addition, the Trustees took into account their discussion with representatives of the Manager regarding ways to evaluate the performance of the Fund, given that the Fund is not a standalone investment and the investment strategies the Manager pursues for the Fund are intended to complement the strategies being pursued by the Manager in GMO Benchmark-Free Allocation Fund. The Trustees’ review of Fund performance was based on information provided to the Trustees, which included data for various periods, information as to performance in relation to risk and other data provided by the Manager, and comparisons against the performance of products managed by other managers that were prepared by third-party data services.
The Trustees compared the total expense ratio (i.e., total annual operating expenses per share as a percentage of net asset value per share) of the Fund to the total expense ratios of funds determined by a third-party data service to have similar objectives. The Trustees recognized that the Manager had undertaken to reimburse specified operating expenses of the Fund.
The Trustees gave substantial consideration to the fact that the Fund does not pay a fee to the Manager under the Fund’s management agreement or any shareholder servicing and supplemental support agreement. The Trustees took note of various “fallout benefits” to the Manager resulting from its management of the Fund. The Trustees also considered the types of investors to which shares of the Fund were marketed.
The Trustees considered the experience, sophistication and depth of the Manager and its personnel (including management and investment management personnel, as well as members of the legal, compliance and risk and controls departments), the resources the Manager employed in advising the Fund, the Manager’s reputation and relationship with Fund investors, and other matters concerning the business and organization of the Manager and the nature and quality of its services to the Fund.
After reviewing these factors, among others, the Trustees concluded, within the context of their overall review of the Fund’s management agreement, that the fees to be paid by the Fund to the Manager were within the range of fees that would be established through arm’s-length bargaining.
Following their review, on June 6, 2013, the Independent Trustees in their capacity as such, and then all Trustees voting together, based on their evaluation of all factors that they deemed to be relevant, including those factors described above, approved the renewal of the Fund’s management agreement for an additional twelve-month period commencing June 30, 2013.
| 43 |
GMO Implementation Fund
(A Series of GMO Trust)
August 31, 2013 (Unaudited)
Expense Examples: The following information is in relation to expenses for the six month period ended August 31, 2013.
As a shareholder of the Fund, you may incur two types of costs: (1) transactions costs, including purchase premium and redemption fees, if applicable; and (2) ongoing costs, including direct and/or indirect management fees, direct and/or indirect shareholder services fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in Dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period, March 1, 2013 through August 31, 2013.
Actual Expenses
This section of the table for the class below provides information about actual account values and actual expenses. you may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $10,000,000 account value divided by $1,000 = 10,000), then multiply the result by the number under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
This section of the table for the class below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as purchase premium and redemption fees. Therefore, this section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Actual | Hypothetical |
|
||||||||||||||||||||||||||
| Beginning Account Value March 1, 2013 |
Ending Account Value August 31, 2013 |
Expenses Paid During the Period* |
Beginning Account Value March 1, 2013 |
Ending Account Value August 31, 2013 |
Expenses Paid During the Period* |
Annualized Net Expense Ratio |
||||||||||||||||||||||
| Core | $1,000.00 | $1,031.00 | $0.00 | $1,000.00 | $1,025.20 | $0.00 | 0.00%** | |||||||||||||||||||||
| * | Expenses are calculated using the annualized expense ratio (including indirect expenses incurred) for the six months ended August 31, 2013, multiplied by the average account value over the period, multiplied by 184 days in the period, divided by 365 days in the year. |
| ** | Ratio rounds to 0.00%. |
| 44 |
Item 2. Code of Ethics.
Not applicable to this filing.
Item 3. Audit Committee Financial Expert.
Not applicable to this filing.
Item 4. Principal Accountant Fees and Services.
Not applicable to this filing.
Item 5. Audit Committee of Listed Registrants.
Not applicable to this Registrant.
Item 6. Schedule of Investments.
The complete schedule of investments for each series of the Registrant is included as part of the semiannual reports to shareholders filed under Item 1 of this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable to this Registrant.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable to this Registrant.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable to this Registrant.
Item 10. Submission of Matters to a Vote of Security Holders.
There were no material changes to the procedures by which shareholders may recommend nominees to the registrant’s Board of Trustees.
Item 11. Controls and Procedures.
| (a) | The registrant’s Principal Executive Officer and Principal Financial Officer have concluded as of a date within 90 days of the filing of this report, based on their evaluation of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) that the design and operation of such procedures are effective to provide reasonable assurance that information required to be disclosed by the registrant on Form N-CSR is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms. |
| (b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Exhibits.
(a)(1) Not applicable to this filing.
(a)(2) Certifications by the Principal Executive Officer and Principal Financial Officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940 are attached hereto as EX-99.CERT.
(a)(3) Not applicable to this Registrant.
| (b) | Certifications by the Principal Executive Officer and Principal Financial Officer of the registrant pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940 are attached hereto as EX-99.906CERT. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (Registrant) | GMO Trust | |
| By (Signature and Title): | /s/ J.B. Kittredge | |
| J.B. Kittredge, Chief Executive Officer | ||
| Date: November 5, 2013 | ||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By (Signature and Title): | /s/ J.B. Kittredge | |
| J.B. Kittredge, Principal Executive Officer | ||
| Date: November 5, 2013 | ||
| By (Signature and Title): | /s/ Sheppard N. Burnett | |
| Sheppard N. Burnett, Principal Financial Officer | ||
| Date: November 5, 2013 | ||
EX-99.CERT
CERTIFICATION PURSUANT TO RULE 30(a)-2(a) UNDER THE 1940 ACT AND SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002:
I, J.B. Kittredge, Principal Executive Officer of the Registrant, certify that:
1. I have reviewed this report on Form N-CSR of the Series of GMO Trust;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 5, 2013
| /s/ J.B. Kittredge |
| J.B. Kittredge, Principal Executive Officer |
EX-99.CERT
CERTIFICATION PURSUANT TO RULE 30(a)-2(a) UNDER THE 1940 ACT AND SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002:
I, Sheppard N. Burnett, Principal Financial Officer of the Registrant, certify that:
1. I have reviewed this report on Form N-CSR of the Series of GMO Trust;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 5, 2013
| /s/ Sheppard N. Burnett |
| Sheppard N. Burnett, Principal Financial Officer |
EX-99.906 CERT
CERTIFICATION PURSUANT TO RULE 30(a)-2(b) UNDER THE 1940 ACT AND SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
J.B. Kittredge, Principal Executive Officer of GMO Trust (the “Registrant”), certifies to the best of his knowledge that:
| 1. | The Registrant’s periodic report on Form N-CSR for the period ended August 31, 2013 (the “Form N-CSR”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
| /s/ J.B. Kittredge | ||
| J.B. Kittredge | ||
| Principal Executive Officer | ||
| Date: November 5, 2013 | ||
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission (the “Commission”) or its staff upon request.
This certification is being furnished to the Commission solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR with the Commission.
EX-99.906 CERT
CERTIFICATION PURSUANT TO RULE 30(a)-2(b) UNDER THE 1940 ACT AND SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Sheppard N. Burnett, Principal Financial Officer of GMO Trust (the “Registrant”), certifies to the best of his knowledge that:
| 1. | The Registrant’s periodic report on Form N-CSR for the period ended August 31, 2013 (the “Form N-CSR”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
| /s/ Sheppard N. Burnett | ||
| Sheppard N. Burnett | ||
| Principal Financial Officer | ||
| Date: November 5, 2013 | ||
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission (the “Commission”) or its staff upon request.
This certification is being furnished to the Commission solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR with the Commission.