GMO Asset Allocation Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
A summary of outstanding financial instruments at May 31, 2019 is as follows:
Forward Currency Contracts
GMO Asset Allocation Bond Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
As of May 31, 2019, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover commitments or collateral requirements, if any, of the relevant broker or exchange.
GMO Core Plus Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Core Plus Bond Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
A summary of outstanding financial instruments at May 31, 2019 is as follows:
Forward Currency Contracts
GMO Core Plus Bond Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
Swap Contracts
Centrally Cleared Interest Rate Swaps
| Fund Pays |
Fund Receives | Notional |
Expiration Date |
Periodic Payment Frequency |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
|||||||||||||||||||
| 1.91% |
6 Month AUD BBSW | AUD | 10,808,000 | 06/19/2029 | Semi-Annually | 5,575 | (125,030 | ) | (130,605 | ) | ||||||||||||||||
| 1.83% |
6 Month AUD BBSW | AUD | 7,448,000 | 09/18/2029 | Semi-Annually | — | (36,033 | ) | (36,033 | ) | ||||||||||||||||
| 1.78% |
6 Month AUD BBSW | AUD | 80,454,000 | 09/18/2029 | Semi-Annually | — | (128,146 | ) | (128,146 | ) | ||||||||||||||||
| 1.81% |
6 Month AUD BBSW | AUD | 81,441,000 | 09/18/2029 | Semi-Annually | — | (305,559 | ) | (305,559 | ) | ||||||||||||||||
| 2.12% |
3 Month CAD LIBOR | CAD | 7,015,000 | 06/18/2029 | Semi-Annually | — | (89,226 | ) | (89,226 | ) | ||||||||||||||||
| 3 Month CAD LIBOR |
2.25% | CAD | 46,200,000 | 06/18/2029 | Semi-Annually | (7,582 | ) | 1,000,767 | 1,008,349 | |||||||||||||||||
| 3 Month CAD LIBOR |
2.05% | CAD | 50,877,000 | 06/18/2029 | Semi-Annually | — | 413,546 | 413,546 | ||||||||||||||||||
| 3 Month CAD LIBOR |
2.16% | CAD | 9,971,000 | 06/18/2029 | Semi-Annually | — | 156,888 | 156,888 | ||||||||||||||||||
| 3 Month CAD LIBOR |
2.17% | CAD | 9,787,000 | 06/18/2029 | Semi-Annually | — | 157,346 | 157,346 | ||||||||||||||||||
| 3 Month CAD LIBOR |
2.26% | CAD | 11,087,000 | 06/18/2029 | Semi-Annually | — | 245,860 | 245,860 | ||||||||||||||||||
| 3 Month CAD LIBOR |
2.12% | CAD | 26,242,000 | 09/17/2029 | Semi-Annually | (1,936 | ) | 320,691 | 322,627 | |||||||||||||||||
| 0.10% |
6 Month CHF LIBOR | CHF | 3,984,000 | 06/19/2029 | Semi-Annually | — | (88,149 | ) | (88,149 | ) | ||||||||||||||||
| 0.07% |
6 Month CHF LIBOR | CHF | 10,726,000 | 06/19/2029 | Semi-Annually | — | (204,340 | ) | (204,340 | ) | ||||||||||||||||
| 6 Month CHF LIBOR |
0.18% | CHF | 15,807,000 | 06/19/2029 | Semi-Annually | 7,937 | 474,500 | 466,563 | ||||||||||||||||||
| 6 Month CHF LIBOR |
(0.00)% | CHF | 8,031,000 | 06/19/2029 | Semi-Annually | — | 90,848 | 90,848 | ||||||||||||||||||
| 0.61% |
6 Month EURIBOR | EUR | 10,101,000 | 06/20/2029 | Semi-Annually | — | (299,941 | ) | (299,941 | ) | ||||||||||||||||
| 0.63% |
6 Month EURIBOR | EUR | 8,080,000 | 06/20/2029 | Semi-Annually | — | (257,611 | ) | (257,611 | ) | ||||||||||||||||
| 0.56% |
6 Month EURIBOR | EUR | 2,774,000 | 06/20/2029 | Semi-Annually | — | (66,651 | ) | (66,651 | ) | ||||||||||||||||
| 0.52% |
6 Month EURIBOR | EUR | 4,642,000 | 06/20/2029 | Semi-Annually | — | (89,914 | ) | (89,914 | ) | ||||||||||||||||
| 0.60% |
6 Month EURIBOR | EUR | 6,573,000 | 06/20/2029 | Semi-Annually | — | (186,328 | ) | (186,328 | ) | ||||||||||||||||
| 0.57% |
6 Month EURIBOR | EUR | 5,411,000 | 06/20/2029 | Semi-Annually | — | (136,689 | ) | (136,689 | ) | ||||||||||||||||
| 6 Month EURIBOR |
0.54% | EUR | 4,210,000 | 06/20/2029 | Semi-Annually | — | 91,940 | 91,940 | ||||||||||||||||||
| 6 Month EURIBOR |
0.43% | EUR | 7,895,000 | 06/20/2029 | Semi-Annually | — | 72,297 | 72,297 | ||||||||||||||||||
| 1.23% |
6 Month GBP LIBOR | GBP | 18,030,000 | 06/20/2029 | Semi-Annually | 3,817 | (262,111 | ) | (265,928 | ) | ||||||||||||||||
| 1.25% |
6 Month GBP LIBOR | GBP | 5,944,000 | 06/20/2029 | Semi-Annually | — | (96,880 | ) | (96,880 | ) | ||||||||||||||||
| 1.21% |
6 Month GBP LIBOR | GBP | 6,472,000 | 09/19/2029 | Semi-Annually | — | (62,782 | ) | (62,782 | ) | ||||||||||||||||
| 1.14% |
6 Month GBP LIBOR | GBP | 5,891,000 | 09/19/2029 | Semi-Annually | — | (7,523 | ) | (7,523 | ) | ||||||||||||||||
| 3 Month NZD Bank Bill Rate |
2.07% | NZD | 44,070,000 | 06/19/2024 | Quarterly | — | 710,328 | 710,328 | ||||||||||||||||||
| 3 Month NZD Bank Bill Rate |
1.99% | NZD | 52,682,000 | 09/18/2029 | Quarterly | — | 136,370 | 136,370 | ||||||||||||||||||
| 3 Month NZD Bank Bill Rate |
1.98% | NZD | 37,868,000 | 09/18/2029 | Quarterly | (7,720 | ) | 82,221 | 89,941 | |||||||||||||||||
| 3 Month SEK STIBOR |
0.78% | SEK | 101,194,000 | 06/19/2029 | Quarterly | 19,468 | 90,776 | 71,308 | ||||||||||||||||||
| 3 Month SEK STIBOR |
0.78% | SEK | 67,707,000 | 06/19/2029 | Quarterly | — | 61,434 | 61,434 | ||||||||||||||||||
| 3 Month USD LIBOR |
2.52% | USD | 6,644,000 | 06/20/2029 | Quarterly | — | 255,211 | 255,211 | ||||||||||||||||||
| 3 Month USD LIBOR |
2.51% | USD | 5,593,000 | 06/20/2029 | Quarterly | — | 213,056 | 213,056 | ||||||||||||||||||
| 3 Month USD LIBOR |
2.52% | USD | 8,481,000 | 06/20/2029 | Quarterly | — | 328,866 | 328,866 | ||||||||||||||||||
| 3 Month USD LIBOR |
2.37% | USD | 8,236,000 | 06/20/2029 | Quarterly | — | 207,156 | 207,156 | ||||||||||||||||||
| 2.45% |
3 Month USD LIBOR | USD | 9,795,000 | 06/20/2029 | Quarterly | — | (316,441 | ) | (316,441 | ) | ||||||||||||||||
| 2.42% |
3 Month USD LIBOR | USD | 8,539,000 | 06/20/2029 | Quarterly | — | (253,686 | ) | (253,686 | ) | ||||||||||||||||
| 2.34% |
3 Month USD LIBOR | USD | 10,690,000 | 06/20/2029 | Quarterly | — | (234,784 | ) | (234,784 | ) | ||||||||||||||||
| 2.28% |
3 Month USD LIBOR | USD | 7,838,000 | 06/20/2029 | Quarterly | — | (131,788 | ) | (131,788 | ) | ||||||||||||||||
| 2.31% |
3 Month USD LIBOR | USD | 7,620,000 | 06/20/2029 | Quarterly | — | (148,261 | ) | (148,261 | ) | ||||||||||||||||
| 2.21% |
3 Month USD LIBOR | USD | 4,244,000 | 06/20/2029 | Quarterly | — | (44,092 | ) | (44,092 | ) | ||||||||||||||||
| 3 Month USD LIBOR |
2.55% | USD | 75,560,000 | 06/20/2029 | Quarterly | (66,069 | ) | 3,129,666 | 3,195,735 | |||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||
| $ | (46,510 | ) | $ | 4,667,802 | $ | 4,714,312 | ||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||
As of May 31, 2019, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover commitments or collateral requirements, if any, of the relevant broker or exchange.
GMO Core Plus Bond Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
Reverse Repurchase Agreements(i)
| Face Value |
Description |
Value ($) | ||||||||
| USD | 23,950,976 | Barclays Bank plc, 2.00%, dated 04/11/19 (collateral: Indonesia Government International Bond, 4.35%, due 01/11/48), to be repurchased on demand at face value plus accrued interest. | (23,950,976 | ) | ||||||
| USD | 4,153,144 | JP Morgan Securities, Inc., 2.10%, dated 04/02/19 (collateral: Mozambique International Bond, Reg S, 10.50%, due 01/18/23), to be repurchased on demand at face value plus accrued interest. | (4,153,144 | ) | ||||||
| USD | 12,373,790 | JP Morgan Securities, Inc., 2.15%, dated 04/02/19 (collateral: Republic of Suriname, Reg S, 9.25%, due 10/26/26), to be repurchased on demand at face value plus accrued interest. | (12,373,790 | ) | ||||||
|
|
|
|||||||||
| $ | (40,477,910 | ) | ||||||||
|
|
|
|||||||||
| Average balance outstanding | $ | (44,724,516 | ) | |||||||
| Average interest rate (net) | (0.65 | )% | ||||||||
| Maximum balance outstanding | $ | (69,681,984 | ) | |||||||
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
Average balance outstanding was calculated based on daily face value balances outstanding during the period that the Fund had entered into reverse repurchase agreements. Average interest rate was calculated based on interest received and/or paid during the period that the Fund had entered into the reverse repurchase agreements.
Credit Linked Options
| Principal / Notional Amount |
Expiration Date |
Description |
Premiums ($) | Value ($) | ||||||||||||||
| Put Sold | USD | 24,000,000 | 03/10/2020 | Lebanon Gap Credit Linked Put Option, Fund receives premium of 0.50% (OTC) (CP-DB) (b) | (361,333 | ) | (214,371 | ) | ||||||||||
| Put Sold | USD | 45,000,000 | 01/20/2021 | Republic of Philippines Credit Linked Put Option, Fund receives premium of 0.25% (OTC) (CP-DB) (b) | (559,374 | ) | 142,182 | |||||||||||
| Put Sold | USD | 9,746,000 | 01/24/2024 | Republic of Philippines Credit Linked Put Option, Fund receives premium of 0.25% (OTC) (CP-DB) (b) | (32,392 | ) | 30,793 | |||||||||||
| Put Sold | USD | 46,000,000 | 04/13/2021 | Lebanon Gap Credit Linked Put Option, Fund receives premium of 0.50% (OTC) (CP-DB) (b) | (947,472 | ) | (1,213,627 | ) | ||||||||||
| Put Sold | USD | 50,797,000 | 04/15/2024 | Banco do Brasil Credit Linked Put Option, Fund receives premium of 0.30% (OTC) (CP-DB) (b) | (823,353 | ) | 268,992 | |||||||||||
| Put Sold | USD | 100,000,000 | 04/15/2024 | Banco do Brasil Credit Linked Put Option, Fund receives premium of 0.44% (OTC) (CP-DB) (b) | (2,932,111 | ) | (228,671 | ) | ||||||||||
|
|
|
|
|
|||||||||||||||
| $ | (5,656,035 | ) | $ | (1,214,702 | ) | |||||||||||||
|
|
|
|
|
|||||||||||||||
Swap Contracts
Centrally Cleared Credit Default Swaps
| Reference Entity |
Notional |
Annual Premium |
Implied Credit Spread (1) |
Maximum Potential Amount of Future Payments by the Fund Under the Contract (2) |
Expiration Date |
Periodic Payment Frequency |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
|||||||||||||||||||||||||||||
| Buy Protection^: |
||||||||||||||||||||||||||||||||||||||
|
CDX-EMS.31.V1-5Y |
USD | 199,000,000 | 1.00% | 2.12% | N/A | 06/20/2024 | Quarterly | $ | 6,218,750 | $ | 10,053,480 | $ | 3,834,730 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
OTC Credit Default Swaps
| Reference Entity |
Counter- |
Notional |
Annual Premium |
Implied Credit Spread (1) |
Maximum Potential Amount of Future Payments by the Fund Under the Contract (2) |
Expiration Date |
Periodic Payment Frequency |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
||||||||||||||||||||||||||||||
| Buy Protection^: |
||||||||||||||||||||||||||||||||||||||||
| CDX-EM.21 |
BCLY | USD | 20,222,950 | 5.00% | 5.00% | N/A | 06/20/2019 | Quarterly | (504,450 | ) | (34,379 | ) | 470,071 | |||||||||||||||||||||||||||
| Republic of Brazil |
JPM | USD | 50,000,000 | 1.00% | 0.49% | N/A | 06/20/2019 | Quarterly | 1,008,872 | (12,515 | ) | (1,021,387 | ) | |||||||||||||||||||||||||||
| Republic of Croatia |
JPM | USD | 44,000,000 | 1.00% | 0.12% | N/A | 06/20/2019 | Quarterly | 3,659,820 | (20,124 | ) | (3,679,944 | ) | |||||||||||||||||||||||||||
| Commonwealth of Bahamas |
DB | EUR | 51,746,000 | 1.00% | 2.05% | N/A | 12/20/2020 | Quarterly | 7,730,397 | 939,650 | (6,790,747 | ) | ||||||||||||||||||||||||||||
| Petrobras Global Finance BV |
CITI | USD | 53,000,000 | 1.00% | 2.05% | N/A | 06/20/2024 | Quarterly | 2,755,224 | 2,733,244 | (21,980 | ) | ||||||||||||||||||||||||||||
| Republic of Argentina |
BOA | USD | 2,500,000 | 5.00% | 12.07% | N/A | 06/20/2024 | Quarterly | 359,815 | 597,068 | 237,253 | |||||||||||||||||||||||||||||
| Republic of Argentina |
CITI | USD | 10,000,000 | 5.00% | 12.07% | N/A | 06/20/2024 | Quarterly | 1,476,727 | 2,388,271 | 911,544 | |||||||||||||||||||||||||||||
| Commonwealth of Bahamas |
DB | EUR | 55,770,291 | 1.00% | 4.80% | N/A | 06/20/2025 | Quarterly | 7,903,309 | 3,257,948 | (4,645,361 | ) | ||||||||||||||||||||||||||||
| United States of Mexico |
GS | USD | 20,000,000 | 1.00% | 2.17% | N/A | 09/20/2031 | Quarterly | 2,640,655 | 2,529,836 | (110,819 | ) | ||||||||||||||||||||||||||||
| Sell Protection^: |
| |||||||||||||||||||||||||||||||||||||||
| Commonwealth of Bahamas |
DB | USD | 61,270,000 | 1.00% | 2.04% | 61,270,000 USD | 12/20/2020 | Quarterly | (7,515,364 | ) | (988,903 | ) | 6,526,461 | |||||||||||||||||||||||||||
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
| Reference Entity |
Counter- |
Notional |
Annual Premium |
Implied Credit Spread (1) |
Maximum Potential Amount of Future Payments by the Fund Under the Contract (2) |
Expiration Date |
Periodic Payment Frequency |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
||||||||||||||||||||||||||||||
| Commonwealth of Bahamas |
DB | USD | 3,487,000 | 1.00% | 2.33% | 3,487,000 USD | 06/20/2023 | Quarterly | (641,463 | ) | (179,517 | ) | 461,946 | |||||||||||||||||||||||||||
| Commonwealth of Bahamas |
DB | USD | 6,975,000 | 1.00% | 2.33% | 6,975,000 USD | 06/20/2023 | Quarterly | (1,263,915 | ) | (359,086 | ) | 904,829 | |||||||||||||||||||||||||||
| Republic of Croatia |
JPM | USD | 40,000,000 | 1.00% | 0.70% | 40,000,000 USD | 06/20/2023 | Quarterly | (6,395,816 | ) | 483,977 | 6,879,793 | ||||||||||||||||||||||||||||
| Peoples Republic of China |
JPM | USD | 4,873,000 | 1.00% | 0.59% | 4,873,000 USD | 06/20/2024 | Quarterly | 3,073 | 99,731 | 96,658 | |||||||||||||||||||||||||||||
| Peoples Republic of China |
JPM | USD | 60,000,000 | 1.00% | 0.59% | 60,000,000 USD | 06/20/2024 | Quarterly | (2,413,417 | ) | 1,227,962 | 3,641,379 | ||||||||||||||||||||||||||||
| Peoples Republic of China |
GS | USD | 25,000,000 | 1.00% | 0.69% | 25,000,000 USD | 03/20/2025 | Quarterly | (744,727 | ) | 445,204 | 1,189,931 | ||||||||||||||||||||||||||||
| Commonwealth of Bahamas |
DB | USD | 74,745,714 | 1.00% | 4.79% | 74,745,714 USD | 06/20/2025 | Quarterly | (8,891,823 | ) | (3,883,932 | ) | 5,007,891 | |||||||||||||||||||||||||||
| Indonesia |
GS | USD | 36,208,000 | 1.00% | 1.38% | 36,208,000 USD | 06/20/2025 | Quarterly | (3,153,880 | ) | (806,162 | ) | 2,347,718 | |||||||||||||||||||||||||||
| Indonesia |
GS | USD | 10,000,000 | 1.00% | 1.38% | 10,000,000 USD | 06/20/2025 | Quarterly | (961,768 | ) | (222,647 | ) | 739,121 | |||||||||||||||||||||||||||
| Peoples Republic of China |
GS | USD | 22,436,000 | 1.00% | 0.72% | 22,436,000 USD | 06/20/2025 | Quarterly | (590,310 | ) | 378,823 | 969,133 | ||||||||||||||||||||||||||||
| Republic of Brazil |
BOA | USD | 4,873,000 | 1.00% | 2.16% | 4,873,000 USD | 12/20/2025 | Quarterly | (726,704 | ) | (349,019 | ) | 377,685 | |||||||||||||||||||||||||||
| Russia |
GS | USD | 2,436,000 | 1.00% | 1.60% | 2,436,000 USD | 12/20/2025 | Quarterly | (238,041 | ) | (92,620 | ) | 145,421 | |||||||||||||||||||||||||||
| Russia |
GS | USD | 8,487,000 | 1.00% | 1.72% | 8,487,000 USD | 12/20/2026 | Quarterly | (1,059,663 | ) | (437,985 | ) | 621,678 | |||||||||||||||||||||||||||
| Republic of Malaysia |
CITI | USD | 17,200,000 | 1.00% | 1.17% | 17,200,000 USD | 12/20/2028 | Quarterly | (845,599 | ) | (263,012 | ) | 582,587 | |||||||||||||||||||||||||||
| Republic of Brazil |
JPM | USD | 40,000,000 | 1.00% | 2.65% | 40,000,000 USD | 03/20/2030 | Quarterly | (5,674,358 | ) | (6,204,988 | ) | (530,630 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
| $ | (14,083,406 | ) | $ | 1,226,825 | $ | 15,310,231 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
| ^ | Buy Protection - Fund pays a premium and buys credit protection. If a credit event occurs the Fund will, depending on the terms of the particular swap contract, either (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. |
| Sell Protection - Fund receives a premium and sells credit protection. If a credit event occurs the Fund will, depending on the terms of the particular swap contract, either (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. |
| (1) | As of May 31, 2019, implied credit spreads in absolute terms, calculated using a model, and utilized in determining the market value of credit default swap contracts on the reference security, 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. |
OTC Cross-Currency Basis Swaps
| Fund Pays |
Fund Receives |
Counterparty |
Notional Amount |
Expiration Date |
Periodic Payment Frequency |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
||||||||||||||||||||||||
| 3 Month EURIBOR plus a spread of (0.35)% |
3 Month USD LIBOR | JPM | EUR | 122,436,000 | 09/11/2020 | Quarterly | $ | — | $ | 2,097,005 | $ | 2,097,005 | ||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
OTC Cross-Currency Interest Rate Swaps
| Fund Pays |
Fund Receives |
Counterparty |
Notional Amount |
Expiration Date |
Periodic Payment Frequency |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
||||||||||||||||||||||||
| (0.22)% |
3 Month USD LIBOR | GS | JPY | 14,852,761,000 | 04/28/2025 | Quarterly | $ | — | $ | (7,389,200 | ) | $ | (7,389,200 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
Centrally Cleared Interest Rate Swaps
| Fund Pays |
Fund Receives | Notional |
Expiration Date |
Periodic |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
|||||||||||||||||||||
| (1.53)% |
6 Month EURIBOR | EUR | 18,000,000 | 03/20/2048 | Annual | — | (3,265,960 | ) | (3,265,960 | ) | ||||||||||||||||||
| 1.76% |
6 Month GBP LIBOR | GBP | 24,493,000 | 12/16/2048 | Semi-Annual | — | (3,819,536 | ) | (3,819,536 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||
| $ | — | $ | (7,085,496 | ) | $ | (7,085,496 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||
OTC Total Return Swaps
| Fund Pays |
Fund Receives | Counterparty |
Notional Amount |
Expiration Date |
Periodic Payment Frequency |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
||||||||||||||||||||||||||
| 1 Month USD LIBOR |
Total Return on JPEICORE index | JPM | USD | 24,000,001 | 07/23/2019 | Monthly | — | 8,833 | 8,833 | |||||||||||||||||||||||||
| 1 Month USD LIBOR |
Total Return on JPEICORE index | JPM | USD | 36,000,003 | 08/06/2019 | Monthly | — | 56,299 | 56,299 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| $ | — | $ | 65,132 | $ | 65,132 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
As of May 31, 2019, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover commitments or collateral requirements, if any, of the relevant broker or exchange.
GMO High Yield Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO High Yield Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
Swap Contracts
Centrally Cleared Credit Default Swaps
| Reference Entity |
Notional |
Annual Premium |
Implied Credit Spread (1) |
Maximum Potential Amount of Future Payments by the Fund Under the Contract (2) |
Expiration Date |
Periodic Payment Frequency |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
|||||||||||||||||||||||||||
| Sell Protection^: |
| |||||||||||||||||||||||||||||||||||
|
CDX-NAHYS32V1-5Y |
USD | 50,807,000 | 5.00% | 3.93% | $ | 50,807,000 | 06/20/2024 | Quarterly | $ | 3,592,760 | $ | 2,304,707 | $ | (1,288,053 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
GMO High Yield Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
OTC Credit Default Swaps
| Reference Entity |
Counterparty |
Notional Amount |
Annual Premium |
Implied Credit Spread (1) |
Maximum Potential Amount of Future Payments by the Fund Under the Contract (2) |
Expiration Date |
Periodic Payment Frequency |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
||||||||||||||||||||||||||||||
| Sell Protection^: |
| |||||||||||||||||||||||||||||||||||||||
| Frontier Communications |
BOA | USD | 1,250,000 | 5.00% | 20.36% | $ | 1,250,000 | 12/20/2019 | Quarterly | $ | (118,750 | ) | $ | (98,890 | ) | $ | 19,860 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
| ^ | Buy Protection - Fund pays a premium and buys credit protection. If a credit event occurs the Fund will, depending on the terms of the particular swap contract, either (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. |
| Sell Protection - Fund receives a premium and sells credit protection. If a credit event occurs the Fund will, depending on the terms of the particular swap contract, either (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. |
| (1) | As of May 31, 2019, implied credit spreads in absolute terms, calculated using a model, and utilized in determining the market value of credit default swap contracts on the reference security, 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. |
OTC Total Return Swaps
| Fund Pays |
Fund Receives |
Counterparty |
Notional Amount |
Expiration |
Periodic Payment Frequency |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
||||||||||||||||||||||
| 1 Month USD LIBOR |
Total Return on iBoxx High Yield Corp. ETF | BOA | USD | 1,232,091 | 06/20/2019 | Monthly | — | (14,078 | ) | (14,078 | ) | |||||||||||||||||||
| 1 Month USD LIBOR |
Total Return on iBoxx High Yield Corp. ETF | BOA | USD | 27,956,016 | 06/20/2019 | Monthly | — | (324,673 | ) | (324,673 | ) | |||||||||||||||||||
| 3 Month USD LIBOR |
Total Return on iBoxx High Yield Corp. ETF | JPM | USD | 55,224,999 | 06/20/2019 | Quarterly | — | (235,609 | ) | (235,609 | ) | |||||||||||||||||||
| 3 Month USD LIBOR |
Total Return on iBoxx High Yield Corp. ETF | GS | USD | 22,720,001 | 09/20/2019 | Quarterly | (91,381 | ) | (310,933 | ) | (219,552 | ) | ||||||||||||||||||
| 3 Month USD LIBOR |
Total Return on iBoxx High Yield Corp. ETF | GS | USD | 1,899,999 | 09/20/2019 | Quarterly | (7,642 | ) | (22,030 | ) | (14,388 | ) | ||||||||||||||||||
| 3 Month USD LIBOR |
Total Return on iBoxx High Yield Corp. ETF | MSCS | USD | 5,510,000 | 09/20/2019 | Quarterly | (28,609 | ) | (51,351 | ) | (22,742 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| $ | (127,632 | ) | $ | (958,674 | ) | $ | (831,042 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||
As of May 31, 2019, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover commitments or collateral requirements, if any, of the relevant broker or exchange.
Notes to Schedule of Investments:
144A - Securities exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional investors.
ETF - Exchange-Traded Fund
REIT - Real Estate Investment Trust.
USBM - U.S. Treasury 3 Month Bill Money Market Yield.
USD LIBOR - London Interbank Offered Rate denominated in United States Dollar.
GMO High Yield Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
GMO Opportunistic Income Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Opportunistic Income Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Opportunistic Income Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Opportunistic Income Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Opportunistic Income Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Opportunistic Income Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
PURCHASED OPTIONS — 0.0%
| Description | Counterparty | Exercise Rate |
Expiration Date |
Principal/ Notional Amount |
Floating Rate Index |
Pay/Receive Floating Rate |
Value ($) | |||||||||||||
| Option on Credit Default Swaps — Calls — 0.0% |
| |||||||||||||||||||
| CDX.NA.HYS.32.V1-5Y |
GS | 107.00% | 06/19/19 | USD | 30,000,000 | Fixed Spread | Receive | 4,493 | ||||||||||||
|
|
|
|||||||||||||||||||
| Option on Credit Default Swaps — Puts — 0.0% |
| |||||||||||||||||||
| ITRAXX.EUROPES.31.V1-5Y |
CITI | 70.00% | 06/19/19 | EUR | 82,600,000 | Fixed Spread | Pay | 196,865 | ||||||||||||
|
|
|
|||||||||||||||||||
| TOTAL PURCHASED OPTIONS (COST $246,535) |
201,358 | |||||||||
|
|
|
|||||||||
| TOTAL INVESTMENTS — 97.1% (Cost $946,087,181) |
952,039,089 | |||||||||
| Other Assets and Liabilities (net) — 2.9% | 28,469,945 | |||||||||
|
|
|
|||||||||
| TOTAL NET ASSETS — 100.0% | $980,509,034 | |||||||||
|
|
|
|||||||||
GMO Opportunistic Income Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
Written Options
| Description |
Counterparty |
Exercise Rate |
Expiration Date |
Principal/ Notional Amount |
Floating Rate Index |
Pay/Receive Floating Rate |
Value ($) | |||||||||||||||||||||||
| Written Options on Credit Default Swaps — Puts |
|
|||||||||||||||||||||||||||||
| ITRAXX.EUROPES.31.V1-5Y |
CITI | 115.00 | % | 06/19/19 | EUR | 83,230,000 | Fixed Spread | Pay | (954 | ) | ||||||||||||||||||||
| CDX.NA.HYS.32.V1-5Y |
DB | 99.00 | % | 06/19/19 | USD | 30,000,000 | Fixed Spread | Pay | (10,810 | ) | ||||||||||||||||||||
| ITRAXX.EUROPES.31.V1-5Y |
GS | 105.00 | % | 07/17/19 | EUR | 82,600,000 | Fixed Spread | Pay | (33,516 | ) | ||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||
| |
TOTAL WRITTEN OPTIONS ON CREDIT DEFAULT SWAPS — PUTS (Premiums $110,570) |
$ | (45,280 | ) | ||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||
Swap Contracts
Centrally Cleared Credit Default Swaps
| Reference Entity |
Notional |
Annual Premium |
Implied Credit Spread (1) |
Maximum Potential Amount of Future Payments by the Fund Under the Contract (2) |
Expiration Date |
Periodic Payment Frequency |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
|||||||||||||||||||||||||||||
| Buy Protection^: |
| |||||||||||||||||||||||||||||||||||||
| CDX.NA.HYS.27.V1-5Y |
USD | 23,771,090 | 5.00% | 2.83% | N/A | 12/20/2021 | Quarterly | (1,782,238 | ) | (1,232,531 | ) | 549,707 | ||||||||||||||||||||||||||
| Sell Protection^: |
| |||||||||||||||||||||||||||||||||||||
| CDX.NA.IGS.28.V1-5Y |
USD | 17,200,000 | 1.00% | 0.47% | 17,200,000 USD | 06/20/2022 | Quarterly | 300,982 | 271,502 | (29,480 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
| $ | (1,481,256 | ) | $ | (961,029 | ) | $ | 520,227 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
GMO Opportunistic Income Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
OTC Credit Default Swaps
| Reference Entity |
Counterparty |
Notional |
Annual Premium |
Implied Credit Spread (1) |
Maximum Potential Amount of Future Payments by the Fund Under the Contract (2) |
Expiration Date |
Periodic Payment Frequency |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
||||||||||||||||||||||||||||||
| Buy Protection^: |
| |||||||||||||||||||||||||||||||||||||||
| CDX.NA.HYS.25.V1-5Y |
BOA | USD | 4,400,000 | 5.00% | 0.06% | N/A | 12/20/2020 | Quarterly | 369,771 | (301,943 | ) | (671,714 | ) | |||||||||||||||||||||||||||
| CDX.NA.HYS.25.V1-5Y |
JPM | USD | 4,343,000 | 5.00% | 0.06% | N/A | 12/20/2020 | Quarterly | (26,058 | ) | (298,031 | ) | (271,973 | ) | ||||||||||||||||||||||||||
| CDX.NA.HYS.25.V5-5Y |
JPM | USD | 8,543,000 | 5.00% | 0.06% | N/A | 12/20/2020 | Quarterly | (847,893 | ) | (586,250 | ) | 261,643 | |||||||||||||||||||||||||||
| CDX.NA.IGS.25.V1-5Y |
CITI | USD | 4,300,000 | 1.00% | 0.03% | N/A | 12/20/2020 | Quarterly | 547,891 | (45,321 | ) | (593,212 | ) | |||||||||||||||||||||||||||
| CDX.NA.IGS.25.V1-5Y |
BOA | USD | 4,400,000 | 1.00% | 0.03% | N/A | 12/20/2020 | Quarterly | 710,600 | (46,375 | ) | (756,975 | ) | |||||||||||||||||||||||||||
| CDX.NA.HYS.27.V2-5Y |
GS | USD | 8,580,000 | 5.00% | 0.14% | N/A | 12/20/2021 | Quarterly | 21,450 | (775,448 | ) | (796,898 | ) | |||||||||||||||||||||||||||
| CDX.NA.HYS.27.V2-5Y |
JPM | USD | 4,300,000 | 5.00% | 0.14% | N/A | 12/20/2021 | Quarterly | (11,825 | ) | (388,628 | ) | (376,803 | ) | ||||||||||||||||||||||||||
| D.R. HORTON INC |
BCLY | USD | 17,200,000 | 1.00% | 0.37% | N/A | 06/20/2022 | Quarterly | (165,250 | ) | (334,197 | ) | (168,947 | ) | ||||||||||||||||||||||||||
|
CDX-NA.HYS.29.V1-5Y |
JPM | USD | 5,060,000 | 5.00% | 0.29% | N/A | 12/20/2022 | Quarterly | (301,070 | ) | (362,129 | ) | (61,059 | ) | ||||||||||||||||||||||||||
| CDX.NA.HYS.29.V1-5Y |
JPM | USD | 6,425,250 | 5.00% | 0.29% | N/A | 12/20/2022 | Quarterly | (282,711 | ) | (459,836 | ) | (177,125 | ) | ||||||||||||||||||||||||||
| CDX.NA.HYS.29.V1-5Y |
MSCS | USD | 3,450,800 | 5.00% | 0.29% | N/A | 12/20/2022 | Quarterly | (188,414 | ) | (246,963 | ) | (58,549 | ) | ||||||||||||||||||||||||||
| Navient Corp. |
BCLY | USD | 2,576,400 | 5.00% | 2.25% | N/A | 12/20/2022 | Quarterly | (208,665 | ) | (244,106 | ) | (35,441 | ) | ||||||||||||||||||||||||||
| Navient Corp. |
BCLY | USD | 2,576,400 | 5.00% | 2.25% | N/A | 12/20/2022 | Quarterly | (198,694 | ) | (244,106 | ) | (45,412 | ) | ||||||||||||||||||||||||||
| Navient Corp. |
BCLY | USD | 3,435,200 | 5.00% | 2.25% | N/A | 12/20/2022 | Quarterly | (264,646 | ) | (325,475 | ) | (60,829 | ) | ||||||||||||||||||||||||||
| CMBX.NA.AS.7 |
BOA | USD | 4,505,000 | 1.00% | 0.06% | N/A | 01/17/2047 | Monthly | 47,352 | (70,310 | ) | (117,662 | ) | |||||||||||||||||||||||||||
| CMBX.NA.AS.7 |
DB | USD | 16,677,794 | 1.00% | 0.06% | N/A | 01/17/2047 | Monthly | 197,705 | (260,290 | ) | (457,995 | ) | |||||||||||||||||||||||||||
| CMBX.NA.AS.7 |
GS | USD | 4,400,000 | 1.00% | 0.06% | N/A | 01/17/2047 | Monthly | 112,812 | (68,671 | ) | (181,483 | ) | |||||||||||||||||||||||||||
| CMBX.NA.AS.7 |
MSCS | USD | 13,270,000 | 1.00% | 0.06% | N/A | 01/17/2047 | Monthly | 205,782 | (207,105 | ) | (412,887 | ) | |||||||||||||||||||||||||||
| CMBX.NA.AS.7 |
DB | USD | 7,608,000 | 1.00% | 0.06% | N/A | 01/17/2047 | Monthly | (119,899 | ) | (118,738 | ) | 1,161 | |||||||||||||||||||||||||||
| CMBX.NA.AA.8 |
CSI | USD | 8,892,000 | 1.50% | 0.11% | N/A | 10/17/2057 | Monthly | 247,717 | (184,509 | ) | (432,226 | ) | |||||||||||||||||||||||||||
| CMBX.NA.AS.8 |
CGMI | USD | 8,892,000 | 1.00% | 0.07% | N/A | 10/17/2057 | Monthly | 73,095 | (133,787 | ) | (206,882 | ) | |||||||||||||||||||||||||||
| CMBX.NA.AS.8 |
MSCS | USD | 3,384,000 | 1.00% | 0.07% | N/A | 10/17/2057 | Monthly | 140,432 | (50,915 | ) | (191,347 | ) | |||||||||||||||||||||||||||
| CMBX.NA.BBB-.8 |
CITI | USD | 7,500,000 | 3.00% | 0.46% | N/A | 10/17/2057 | Monthly | 596,480 | 545,202 | (51,278 | ) | ||||||||||||||||||||||||||||
| CMBX.NA.BBB-.8 |
CSI | USD | 2,108,500 | 3.00% | 0.46% | N/A | 10/17/2057 | Monthly | 144,924 | 153,274 | 8,350 | |||||||||||||||||||||||||||||
| CMBX.NA.BBB-.8 |
GS | USD | 8,650,000 | 3.00% | 0.46% | N/A | 10/17/2057 | Monthly | 1,299,082 | 628,800 | (670,282 | ) | ||||||||||||||||||||||||||||
| CMBX.NA.BBB-.8 |
CGMI | USD | 4,223,000 | 3.00% | 0.46% | N/A | 10/17/2057 | Monthly | 392,728 | 306,985 | (85,743 | ) | ||||||||||||||||||||||||||||
| CMBX.NA.BBB-.8 |
GS | USD | 4,224,000 | 3.00% | 0.46% | N/A | 10/17/2057 | Monthly | 400,908 | 307,058 | (93,850 | ) | ||||||||||||||||||||||||||||
| CMBX.NA.AAA.9 |
CITI | USD | 4,000,000 | 0.50% | 0.04% | N/A | 09/17/2058 | Monthly | (17,096 | ) | (17,369 | ) | (273 | ) | ||||||||||||||||||||||||||
| CMBX.NA.AAA.9 |
GS | USD | 6,146,000 | 0.50% | 0.04% | N/A | 09/17/2058 | Monthly | (30,042 | ) | (26,688 | ) | 3,354 | |||||||||||||||||||||||||||
| CMBX.NA.AAA.9 |
GS | USD | 1,000,000 | 0.50% | 0.04% | N/A | 09/17/2058 | Monthly | (4,888 | ) | (4,342 | ) | 546 | |||||||||||||||||||||||||||
| CMBX.NA.AAA.9 |
MSCI | USD | 3,328,000 | 0.50% | 0.04% | N/A | 09/17/2058 | Monthly | (31,983 | ) | (14,451 | ) | 17,532 | |||||||||||||||||||||||||||
| CMBX.NA.AAA.9 |
GS | USD | 1,714,000 | 0.50% | 0.04% | N/A | 09/17/2058 | Monthly | (18,554 | ) | (7,443 | ) | 11,111 | |||||||||||||||||||||||||||
| CMBX.NA.AAA.9 |
GS | USD | 3,835,800 | 0.50% | 0.04% | N/A | 09/17/2058 | Monthly | (31,220 | ) | (16,656 | ) | 14,564 | |||||||||||||||||||||||||||
| CMBX.NA.AAA.9 |
GS | USD | 1,906,500 | 0.50% | 0.04% | N/A | 09/17/2058 | Monthly | (21,677 | ) | (8,279 | ) | 13,398 | |||||||||||||||||||||||||||
| CMBX.NA.BBB-.9 |
DB | USD | 4,400,000 | 3.00% | 0.41% | N/A | 09/17/2058 | Monthly | 950,085 | 257,328 | (692,757 | ) | ||||||||||||||||||||||||||||
| CMBX.NA.BBB-.9 |
GS | USD | 1,760,000 | 3.00% | 0.41% | N/A | 09/17/2058 | Monthly | 346,611 | 102,931 | (243,680 | ) | ||||||||||||||||||||||||||||
| CMBX.NA.BBB-.9 |
MSCS | USD | 8,528,000 | 3.00% | 0.41% | N/A | 09/17/2058 | Monthly | 974,545 | 498,748 | (475,797 | ) | ||||||||||||||||||||||||||||
| CMBX.NA.BBB-.9 |
DB | USD | 4,263,000 | 3.00% | 0.41% | N/A | 09/17/2058 | Monthly | 517,160 | 249,315 | (267,845 | ) | ||||||||||||||||||||||||||||
| Sell Protection^: |
| |||||||||||||||||||||||||||||||||||||||
|
CDX-NA.HYS.27.V3-5Y |
JPM | USD | 8,543,000 | 5.00% | 0.04% | 8,543,000 USD | 12/20/2021 | Quarterly | 1,230,192 | 993,586 | (236,606 | ) | ||||||||||||||||||||||||||||
|
CDX-NA.HYS.27.V3-5Y |
JPM | USD | 12,672,000 | 5.00% | 0.04% | 12,672,000 USD | 12/20/2021 | Quarterly | 1,795,622 | 1,473,806 | (321,816 | ) | ||||||||||||||||||||||||||||
| CDX.NA.HYS.27.V2-5Y |
GS | USD | 12,870,000 | 5.00% | 0.04% | 12,870,000 USD | 12/20/2021 | Quarterly | 1,657,013 | 1,496,834 | (160,179 | ) | ||||||||||||||||||||||||||||
| CDX.NA.HYS.27.V2-5Y |
JPM | USD | 8,600,000 | 5.00% | 0.04% | 8,600,000 USD | 12/20/2021 | Quarterly | 1,143,800 | 1,000,215 | (143,585 | ) | ||||||||||||||||||||||||||||
| CDX.NA.HYS.27.V3-5Y |
BOA | USD | 8,545,000 | 5.00% | 0.04% | 8,545,000 USD | 12/20/2021 | Quarterly | 1,369,764 | 993,819 | (375,945 | ) | ||||||||||||||||||||||||||||
| CDX.NA.HYS.29.V1-5Y |
BOA | USD | 25,885,000 | 5.00% | 0.10% | 25,885,000 USD | 12/20/2022 | Quarterly | 4,283,968 | 3,575,653 | (708,315 | ) | ||||||||||||||||||||||||||||
| CDX.NA.HYS.29.V1-5Y |
MSCS | USD | 10,233,600 | 5.00% | 0.10% | 10,233,600 USD | 12/20/2022 | Quarterly | 1,547,320 | 1,413,629 | (133,691 | ) | ||||||||||||||||||||||||||||
| CDX.NA.HYS.29.V1-5Y |
JPM | USD | 41,791,309 | 5.00% | 0.03% | 41,791,309 USD | 12/20/2022 | Quarterly | 8,914,086 | 6,656,913 | (2,257,173 | ) | ||||||||||||||||||||||||||||
| CDX.NA.HYS.29.V1-5Y |
BOA | USD | 5,115,600 | 5.00% | 0.10% | 5,115,600 USD | 12/20/2022 | Quarterly | 742,274 | 706,649 | (35,625 | ) | ||||||||||||||||||||||||||||
| CDX.NA.HYS.29.V1-5Y |
MSCS | USD | 21,042,000 | 5.00% | 0.03% | 21,042,000 USD | 12/20/2022 | Quarterly | 4,021,126 | 3,351,768 | (669,358 | ) | ||||||||||||||||||||||||||||
|
CDX-NA.HYS.31.V1-5Y |
GS | USD | 10,000,000 | 5.00% | 0.21% | 10,000,000 USD | 12/20/2023 | Quarterly | 1,166,000 | 1,278,645 | 112,645 | |||||||||||||||||||||||||||||
|
CDX-NA.HYS.31.V1-5Y |
JPM | USD | 18,517,545 | 5.00% | 0.05% | 18,517,545 USD | 12/20/2023 | Quarterly | 3,686,843 | 3,485,853 | (200,990 | ) | ||||||||||||||||||||||||||||
| CMBX.NA.A.9 |
GS | USD | 6,822,400 | 2.00% | 0.19% | 6,822,400 USD | 09/17/2058 | Monthly | 89,487 | 19,624 | (69,863 | ) | ||||||||||||||||||||||||||||
| CMBX.NA.A.6 |
CSI | USD | 4,217,000 | 2.00% | 0.21% | 4,217,000 USD | 05/11/2063 | Monthly | (52,739 | ) | (10,666 | ) | 42,073 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
| $ | 37,121,301 | $ | 23,637,608 | $ | (13,483,693 | ) | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
GMO Opportunistic Income Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
| ^ | Buy Protection - Fund pays a premium and buys credit protection. If a credit event occurs the Fund will, depending on the terms of the particular swap contract, either (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. |
| Sell Protection - Fund receives a premium and sells credit protection. If a credit event occurs the Fund will, depending on the terms of the particular swap contract, either (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. |
| (1) | As of May 31, 2019, implied credit spreads in absolute terms, calculated using a model, and utilized in determining the market value of credit default swap contracts on the reference security, 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. |
Centrally Cleared Interest Rate Swaps
| Fund Pays |
Fund Receives | Notional |
Expiration Date |
Periodic |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
|||||||||||||||||||||
| 1.27% |
3 Month USD LIBOR | USD | 10,495,000 | 03/10/2021 | Quarterly | — | 139,107 | 139,107 | ||||||||||||||||||||
| 2.10% |
3 Month USD LIBOR | USD | 4,101,000 | 11/24/2021 | Quarterly | 90,788 | (14,959 | ) | (105,747 | ) | ||||||||||||||||||
| 2.06% |
3 Month USD LIBOR | USD | 10,281,000 | 11/10/2022 | Quarterly | 163,222 | (49,916 | ) | (213,138 | ) | ||||||||||||||||||
| 2.15% |
3 Month USD LIBOR | USD | 6,877,000 | 10/13/2024 | Quarterly | 164,029 | (73,685 | ) | (237,714 | ) | ||||||||||||||||||
| 2.65% |
3 Month USD LIBOR | USD | 19,740,000 | 01/18/2025 | Quarterly | (228,827 | ) | (742,041 | ) | (513,214 | ) | |||||||||||||||||
| 2.00% |
3 Month USD LIBOR | USD | 19,668,000 | 04/16/2025 | Quarterly | (91,173 | ) | (40,158 | ) | 51,015 | ||||||||||||||||||
| 2.58% |
3 Month USD LIBOR | USD | 3,162,000 | 02/04/2026 | Quarterly | — | (118,585 | ) | (118,585 | ) | ||||||||||||||||||
| 1.65% |
3 Month USD LIBOR | USD | 5,536,000 | 05/19/2026 | Quarterly | 221,122 | 126,872 | (94,250 | ) | |||||||||||||||||||
| 2.88% |
3 Month USD LIBOR | USD | 7,356,000 | 06/04/2028 | Quarterly | — | (500,426 | ) | (500,426 | ) | ||||||||||||||||||
| 3.00% |
3 Month USD LIBOR | USD | 6,581,000 | 07/30/2028 | Quarterly | — | (519,067 | ) | (519,067 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||
| $ | 319,161 | $ | (1,792,858 | ) | $ | (2,112,019 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||
OTC Total Return Swaps
| Fund Pays |
Fund Receives | Counterparty |
Notional Amount |
Expiration |
Periodic Payment Frequency |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
||||||||||||||||||||||||
| Total Return on iBoxx USD Liquid Leverage Loans Index |
3 Month USD LIBOR | MSCS | USD | 19,999,999 | 06/20/2019 | Quarterly | — | (48,026 | ) | (48,026 | ) | |||||||||||||||||||||
| Total Return on iBoxx USD Liquid Leverage Loans Index |
3 Month USD LIBOR | GS | USD | 30,000,001 | 06/20/2019 | Quarterly | — | (1,155,115 | ) | (1,155,115 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
| $ | — | $ | (1,203,141 | ) | $ | (1,203,141 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
As of May 31, 2019, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover commitments or collateral requirements, if any, of the relevant broker or exchange.
GMO Opportunistic Income Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
GMO U.S. Treasury Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
Each Fund has elected to be treated or intends to elect to be treated and intends to qualify each tax year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. Each Fund intends to distribute its net investment income, if any, and 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. As of May 31, 2019, the approximate total cost, aggregate investment-level gross/net unrealized appreciation (depreciation) in the value of total investments (including total securities sold short, if any), and the net unrealized appreciation (depreciation) of outstanding financial instruments for U.S. federal income tax purposes were as follows:
| Total Investments | Outstanding Financial Instruments |
|||||||||||||||||
| Fund Name | Aggregate Cost ($) |
Gross Unrealized Appreciation ($) |
Gross Unrealized (Depreciation) ($) |
Net Unrealized Appreciation (Depreciation) ($) |
Net Unrealized Appreciation (Depreciation) ($) |
|||||||||||||
| Asset Allocation Bond Fund |
326,390,560 | 6,268,859 | (42) | 6,268,817 | (209,623) | |||||||||||||
| Core Plus Bond Fund |
747,863,029 | 14,684,767 | (2,833,814) | 11,850,953 | 4,231,467 | |||||||||||||
| Emerging Country Debt Fund |
4,402,682,036 | 189,314,576 | (455,104,428) | (265,789,852) | 13,098,460 | |||||||||||||
| High Yield Fund |
212,606,208 | 1,542,663 | (318,536) | 1,224,127 | (2,673,297) | |||||||||||||
|
Opportunistic Income Fund |
950,769,869 | 26,111,247 | (24,842,027) | 1,269,220 | (15,851,851) | |||||||||||||
| U.S. Treasury Fund |
477,484,938 | 152,550 | (58,785) | 93,765 | — | |||||||||||||
Investments in affiliated companies and other Funds of the Trust
An affiliated company for the purposes of this disclosure is a company in which a Fund has or had direct ownership of at least 5% of the issuer’s voting securities or an investment in other funds of GMO Trust (“underlying funds”). A summary of the Funds’ transactions involving companies that are or were affiliates during the period ended May 31, 2019 is set forth below:
| Affiliate | Value, beginning of period |
Purchases | Sales Proceeds |
Dividend Income* |
Net Realized Gain (Loss) |
Net Increase/ |
Value, end of period |
|||||||||||||||||||||
| Asset Allocation Bond Fund |
| |||||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 29,705,779 | $ | 40,583,681 | $ | 65,690,000 | $ | 153,740 | $ | — | $ | — | $ | 4,599,460 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Core Plus Bond Fund |
| |||||||||||||||||||||||||||
| GMO Emerging Country Debt Fund, Class IV |
$ | 34,628,088 | $ | — | $ | — | $ | — | $ | — | $ | 530,351 | $ | 35,158,439 | ||||||||||||||
| GMO Opportunistic Income Fund, Class VI |
135,749,920 | — | — | — | — | 2,589,659 | 138,339,579 | |||||||||||||||||||||
| GMO U.S. Treasury Fund |
39,599,632 | 86,000,000 | 106,999,999 | 76,685 | — | — | 18,599,633 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Totals |
$ | 209,977,640 | $ | 86,000,000 | $ | 106,999,999 | $ | 76,685 | $ | — | $ | 3,120,010 | $ | 192,097,651 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Emerging Country Debt Fund |
| |||||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 74,190,722 | $ | — | $ | — | $ | 475,175 | $ | — | $ | — | $ | 74,190,722 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| High Yield Fund |
| |||||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 3,539,546 | $ | 28,549,901 | $ | 28,872,000 | $ | 42,257 | $ | — | $ | — | $ | 3,217,447 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Opportunistic Income Fund |
| |||||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 17,465,242 | $ | 5,000,000 | $ | 10,750,000 | $ | 80,929 | $ | (2,403 | ) | $ | 2,403 | $ | 11,715,242 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| * | The table above includes estimated sources of all distributions paid by the underlying funds during the period March 1, 2019 through May 31, 2019. The actual tax characterization of distributions paid by the underlying funds will be determined at the end of the fiscal year ending February 29, 2020. |
Basis of presentation
The preparation of the Schedule of Investments in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires Grantham, Mayo, Van Otterloo & Co. LLC (“GMO”) to make estimates and assumptions that affect the reported amounts and disclosures in the Schedule of Investments during the reporting period. GMO believes the estimates and security valuations are appropriate; however, actual results may differ from those estimates, and the security valuations reflected in the Schedule of Investments may differ from the value a Fund ultimately realizes upon the sale of those securities.
Portfolio valuation
Typically, the Funds and the underlying funds value fixed income securities at the most recent price supplied by a pricing source determined by GMO. GMO evaluates pricing sources on an ongoing basis and may change a pricing source at any time. GMO 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 source) when it believes that the price supplied is not reliable. Alternative pricing sources are often but not always available for securities held by the Funds and the underlying funds.
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 GMO 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 that 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 price quoted (which may be based on a model) by the relevant clearing house. If an updated quote for a cleared derivative is not available when a Fund calculates its net asset value, the derivative will generally be valued using an industry standard model, which may differ from the model used by the relevant clearing house. Over-the-counter (“OTC”) derivatives are generally valued at the price determined by an industry standard model. Unlisted securities 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 of GMO Trust (“Trustees”) or persons acting at their direction pursuant to procedures approved by the Trustees. Because of the uncertainty inherent in fair value pricing, the price determined for a particular security may be materially different from the value realized upon its sale. The Funds and/or the underlying funds classify such securities as Level 3 (levels defined below). For the period ended May 31, 2019, the Funds did not reduce the value of any of their OTC derivatives contracts, if any, based on the creditworthiness of their counterparties. See “Derivative financial instruments” for a further discussion on valuation of derivatives.
The foregoing valuation methodologies are modified for equities that trade in non-U.S. securities markets that close before the close of the New York Stock Exchange (“NYSE”) due to time zone differences, including the value of equities 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 price will generally be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees that are intended to reflect valuation changes through the NYSE close. 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).
“Quoted price” typically means the bid price for securities held long and the ask price for securities sold short. If a market quotation for a security does not involve a bid or an ask, the “quoted price” may be the price provided by a market participant or other third-party pricing source in accordance with the market practice for that security. If an updated quoted price for a security is not available when a Fund calculates its net asset value, the Fund will generally use the last quoted price so long as GMO believes that the last quoted price continues to represent that security’s fair value.
In the case of derivatives, prices determined by a model may reflect an estimate of the average of bid and ask prices, regardless of whether a Fund has a long position or a short position.
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 methodologies 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.
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; 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 certain U.S. government agency securities, mortgage-backed securities, asset-backed securities, certain sovereign debt obligations, and corporate bonds valued using vendor prices or
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; certain debt obligations, such as collateralized loan obligations, that have yet to begin trading that are valued at cost; 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, certain debt securities (such as asset-backed, mortgage-backed, loans and sovereign debt) and derivatives even though they may be 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.
The following is a summary of the respective levels assigned to the Funds’ direct securities and derivatives, if any, as of May 31, 2019:
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Asset Allocation Bond Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Debt Obligations |
||||||||||||||||
| U.S. Government |
$ | 899,956 | $ | 318,846,280 | $ | — | $ | 319,746,236 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
899,956 | 318,846,280 | — | 319,746,236 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
4,599,460 | — | — | 4,599,460 | ||||||||||||
| Short-Term Investments |
1,621,974 | 6,691,707 | — | 8,313,681 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 7,121,390 | 325,537,987 | — | 332,659,377 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives^ |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | 1,059,455 | — | 1,059,455 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 7,121,390 | $ | 326,597,442 | $ | — | $ | 333,718,832 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives^ |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
$ | — | $ | (1,269,078 | ) | $ | — | $ | (1,269,078 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Core Plus Bond Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Debt Obligations |
||||||||||||||||
| Asset-Backed Securities |
$ | — | $ | 46,973,338 | $ | — | $ | 46,973,338 | ||||||||
| U.S. Government |
156,430,808 | — | — | 156,430,808 | ||||||||||||
| U.S. Government Agency |
— | 100,290,363 | — | 100,290,363 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
156,430,808 | 147,263,701 | — | 303,694,509 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
295,088,552 | — | — | 295,088,552 | ||||||||||||
| Short-Term Investments |
4,750,677 | 156,180,244 | — | 160,930,921 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
456,270,037 | 303,443,945 | — | 759,713,982 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives^ |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | 2,717,208 | — | 2,717,208 | ||||||||||||
| Futures Contracts |
||||||||||||||||
| Interest Rate Risk |
915,550 | — | — | 915,550 | ||||||||||||
| Swap Contracts |
||||||||||||||||
| Interest Rate Risk |
— | 8,239,767 | — | 8,239,767 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 457,185,587 | $ | 314,400,920 | $ | — | $ | 771,586,507 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Core Plus Bond Fund (continued) |
||||||||||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives^ |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
$ | — | $ | (4,115,603 | ) | $ | — | $ | (4,115,603 | ) | ||||||
| Swap Contracts |
||||||||||||||||
| Interest Rate Risk |
— | (3,571,965 | ) | — | (3,571,965 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | — | $ | (7,687,568 | ) | $ | — | $ | (7,687,568 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Emerging Country Debt Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Debt Obligations |
||||||||||||||||
| Asset-Backed Securities |
$ | — | $ | 38,820,766 | $ | — | $ | 38,820,766 | ||||||||
| Corporate Debt |
— | 33,940,771 | 25,870,942 | 59,811,713 | ||||||||||||
| Foreign Government Agency |
— | 734,296,956 | 198,564,715 | 932,861,671 | ||||||||||||
| Foreign Government Obligations |
— | 1,934,203,344 | 215,208,901 | 2,149,412,245 | ||||||||||||
| U.S. Government |
598,133,849 | 78,091,800 | — | 676,225,649 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
598,133,849 | 2,819,353,637 | 439,644,558 | 3,857,132,044 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Loan Assignments |
— | — | 7,844,663 | 7,844,663 | ||||||||||||
| Loan Participations |
— | — | 56,829,651 | 56,829,651 | ||||||||||||
| Mutual Funds |
74,190,722 | — | — | 74,190,722 | ||||||||||||
| Rights/Warrants |
— | 18,808,174 | 2,606,713 | 21,414,887 | ||||||||||||
| Short-Term Investments |
119,480,217 | — | — | 119,480,217 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
791,804,788 | 2,838,161,811 | 506,925,585 | 4,136,892,184 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives^ |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | 1,824,725 | — | 1,824,725 | ||||||||||||
| Options |
||||||||||||||||
| Credit Risk |
— | — | 441,967 | 441,967 | ||||||||||||
| Swap Contracts |
||||||||||||||||
| Credit Risk |
— | 25,135,194 | — | 25,135,194 | ||||||||||||
| Interest Rate Risk |
— | 2,162,137 | — | 2,162,137 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 791,804,788 | $ | 2,867,283,867 | $ | 507,367,552 | $ | 4,166,456,207 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives^ |
||||||||||||||||
| Options |
||||||||||||||||
| Credit Risk |
$ | — | $ | — | $ | (1,656,669 | ) | $ | (1,656,669 | ) | ||||||
| Swap Contracts |
||||||||||||||||
| Credit Risk |
— | (13,854,889 | ) | — | (13,854,889 | ) | ||||||||||
| Interest Rate Risk |
— | (14,474,696 | ) | — | (14,474,696 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | — | $ | (28,329,585 | ) | $ | (1,656,669 | ) | $ | (29,986,254 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| High Yield Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Debt Obligations |
||||||||||||||||
| Corporate Debt |
$ | — | $ | 44,242,011 | $ | — | $ | 44,242,011 | ||||||||
| U.S. Government |
58,382,447 | — | — | 58,382,447 | ||||||||||||
| U.S. Government Agency |
17,004,726 | — | — | 17,004,726 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
75,387,173 | 44,242,011 | — | 119,629,184 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
3,217,447 | — | — | 3,217,447 | ||||||||||||
| Short-Term Investments |
48,990,156 | 41,993,548 | — | 90,983,704 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
127,594,776 | 86,235,559 | — | 213,830,335 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives^ |
||||||||||||||||
| Futures Contracts |
||||||||||||||||
| Interest Rate Risk |
241,120 | — | — | 241,120 | ||||||||||||
| Swap Contracts |
||||||||||||||||
| Credit Risk |
— | 2,304,707 | — | 2,304,707 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 127,835,896 | $ | 88,540,266 | $ | — | $ | 216,376,162 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| High Yield Fund (continued) |
||||||||||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives^ |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
$ | — | $ | (800,604 | ) | $ | — | $ | (800,604 | ) | ||||||
| Futures Contracts |
||||||||||||||||
| Interest Rate Risk |
(14,578 | ) | — | — | (14,578 | ) | ||||||||||
| Swap Contracts |
||||||||||||||||
| Credit Risk |
— | (98,890 | ) | — | (98,890 | ) | ||||||||||
| Interest Rate Risk |
— | (958,674 | ) | — | (958,674 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (14,578 | ) | $ | (1,858,168 | ) | $ | — | $ | (1,872,746 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| Opportunistic Income Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Debt Obligations |
||||||||||||||||
| Asset-Backed Securities |
$ | — | $ | 865,559,173 | $ | 28,896,333 | $ | 894,455,506 | ||||||||
| U.S. Government |
7,299,546 | — | — | 7,299,546 | ||||||||||||
| U.S. Government Agency |
— | — | 14,218,939 | 14,218,939 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
7,299,546 | 865,559,173 | 43,115,272 | 915,973,991 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
11,715,242 | — | — | 11,715,242 | ||||||||||||
| Short-Term Investments |
24,148,498 | — | — | 24,148,498 | ||||||||||||
| Purchased Options |
— | 201,358 | — | 201,358 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
43,163,286 | 865,760,531 | 43,115,272 | 952,039,089 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives^ |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | 1,263 | — | 1,263 | ||||||||||||
| Futures Contracts |
||||||||||||||||
| Interest Rate Risk |
360,221 | — | — | 360,221 | ||||||||||||
| Swap Contracts |
||||||||||||||||
| Credit Risk |
— | 29,768,137 | — | 29,768,137 | ||||||||||||
| Interest Rate Risk |
— | 265,979 | — | 265,979 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 43,523,507 | $ | 895,795,910 | $ | 43,115,272 | $ | 982,434,689 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
| |||||||||||||||
| Derivatives^ |
| |||||||||||||||
| Written Options |
||||||||||||||||
| Credit Risk |
$ | — | $ | (45,280 | ) | $ | — | $ | (45,280 | ) | ||||||
| Swap Contracts |
||||||||||||||||
| Credit Risk |
— | (7,091,558 | ) | — | (7,091,558 | ) | ||||||||||
| Interest Rate Risk |
— | (3,261,978 | ) | — | (3,261,978 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | — | $ | (10,398,816 | ) | $ | — | $ | (10,398,816 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| U.S. Treasury Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Short-Term Investments |
$ | 444,081,476 | $ | 33,497,227 | $ | — | $ | 477,578,703 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
444,081,476 | 33,497,227 | — | 477,578,703 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 444,081,476 | $ | 33,497,227 | $ | — | $ | 477,578,703 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
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.
| ^ | In the tables above derivatives are based on market values, rather than the notional amounts of derivatives, except for forward currency contracts which are based on unrealized appreciation/(depreciation). 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. Excludes purchased options and rights/warrants, if any, which are included in investments. |
The underlying funds held at period end are classified above as Level 1. Certain 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 which may have been valued using significant unobservable inputs. For a summary of the levels assigned to the underlying funds’ direct securities and derivatives, if any, please refer to the underlying funds’ portfolio valuation notes which are available on the Securities and Exchange Commission’s website at www.sec.gov or on GMO’s website at www.gmo.com.
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). Level 3 holdings include investments valued using unadjusted prices supplied by a third-party pricing source (e.g., broker quotes, vendor). Emerging Country Debt Fund’s Level 3 holdings also include the Republic of Albania Par Bond, due 8/31/25, which is valued by applying a 140 basis point spread to the yield of the U.S. Treasury Strip Principal, due 8/15/25. Opportunistic Income Fund’s Level 3 holdings also consists of three U.S. Agency for International Development Floater Bonds which were valued using current LIBOR yield and adjusted by 125 basis points for liquidity considerations. There were no other Funds with classes of investments or derivatives with direct material Level 3 holdings at May 31, 2019.
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, 2019 |
Purchases | Sales | Accrued Discounts/ Premiums |
Total Realized Gain/ (Loss) |
Change in Unrealized Appreciation (Depreciation) |
Transfer Level 3 |
Transfer out of Level 3 |
Balances May 31, |
Net Change in Unrealized Appreciation (Depreciation) from Investments Still Held as of May 31, 2019 |
|||||||||||||||||||||||||||||||
| Emerging Country Debt Fund |
|
|||||||||||||||||||||||||||||||||||||||
| Debt Obligations |
|
|||||||||||||||||||||||||||||||||||||||
| Corporate Debt |
$ | 24,697,310 | $ | — | $ | — | $ | (378 | ) | $ | — | $ | 1,174,010 | $ | — | $ | — | $ | 25,870,942 | $ | 1,174,010 | |||||||||||||||||||
| Foreign Government Agency |
130,262,106 | — | (1,253,637 | ) | 776,111 | — | 5,258,985 | 63,521,150 | ‡ | — | 198,564,715 | 5,258,985 | ||||||||||||||||||||||||||||
| Foreign Government Obligations |
116,011,870 | — | — | 738,061 | — | 6,456,182 | 92,002,788 | ‡ | — | 215,208,901 | 6,456,182 | |||||||||||||||||||||||||||||
| Loan Assignments |
7,965,089 | — | (93,406 | ) | (4,100 | ) | — | (22,920 | ) | — | — | 7,844,663 | (22,920 | ) | ||||||||||||||||||||||||||
| Loan Participations |
58,083,336 | — | (882,114 | ) | 380,033 | — | (751,604 | ) | — | — | 56,829,651 | (751,604 | ) | |||||||||||||||||||||||||||
| Rights/Warrants |
2,736,698 | — | — | — | — | (129,985 | ) | — | — | 2,606,713 | (129,985 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total Investments |
339,756,409 | — | (2,229,157 | ) | 1,889,727 | — | 11,984,668 | 155,523,938 | — | 506,925,585 | 11,984,668 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Derivatives |
|
|||||||||||||||||||||||||||||||||||||||
| Options |
(993,146 | ) | — | — | — | (182,626 | ) | (38,930 | ) | — | — | (1,214,702 | ) | (38,930 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total |
$ | 338,763,263 | $ | — | $ | (2,229,157 | )# | $ | 1,889,727 | $ | (182,626 | ) | $ | 11,945,738 | $ | 155,523,938 | $ | — | $ | 505,710,883 | $ | 11,945,738 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Opportunistic Income Fund |
|
|||||||||||||||||||||||||||||||||||||||
| Debt Obligations |
|
|||||||||||||||||||||||||||||||||||||||
| Asset-Backed Securities |
$ | 30,514,634 | $ | — | $ | (1,062,904 | ) | $ | 45,820 | $ | — | $ | (601,217 | ) | $ | — | $ | — | $ | 28,896,333 | $ | (601,217 | ) | |||||||||||||||||
| U.S. Government Agency |
14,579,868 | — | (375,000 | ) | 879 | — | 13,192 | — | — | 14,218,939 | 13,192 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total Investments |
$ | 45,094,502 | $ | — | $ | (1,437,904 | )## | $ | 46,699 | $ | — | $ | (588,025 | ) | $ | — | $ | — | $ | 43,115,272 | $ | (588,025 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| ‡ | Financial assets transferred between levels were due to a change in observable and/or unobservable inputs. |
| # | Includes $2,229,157 of proceeds received from partial calls and/or principal paydowns as applicable. |
| ## | Includes $1,437,904 of proceeds received from partial calls and/or principal paydowns as applicable. |
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 Eastern 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 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.
Indexed investments
Each Fund may invest in various transactions and instruments that are designed to track the performance of an index (including, but not limited to, securities indices and credit default indices). Indexed securities are securities the redemption values and/or coupons of which are indexed to a specific instrument, group of instruments, index, or other statistic. Indexed securities typically, but not always, are debt securities or deposits whose value at maturity or coupon rate is determined by reference to other securities, securities or inflation indices, currencies, precious metals or other commodities, or other financial indicators. For example, the maturity value of gold-indexed securities depends on the price of gold and, therefore, their price tends to rise and fall with gold prices.
Loan assignments and participations
The Funds (except U.S. Treasury Fund) may invest in direct debt instruments, which are interests in amounts owed to lenders or lending syndicates, to suppliers of goods or services, or to other parties by corporate, governmental or other borrower. Such “loans” may include bank loans, promissory notes, and loan participations, or in the case of suppliers of goods or services, trade claims or other receivables. A loan is often administered by a bank or other financial institution that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. Unless, under the terms of the loan or other indebtedness a Fund has direct recourse against the borrower, it may have to rely on the agent to enforce its rights against the borrower. 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. Loan assignments and participations 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 with banks and brokers. 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. 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 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 each applicable Fund’s Schedule of Investments.
Reverse repurchase agreements
The Funds may enter into reverse repurchase agreements with banks and brokers to enhance return. 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 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. As of May 31, 2019, the Fund listed below had entered into reverse repurchase agreements.
| Fund Name | Received
from agreements ($) |
Market value of securities plus accrued interest ($) | ||
| Emerging Country Debt Fund |
40,477,910 | 40,526,811 | ||
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/deflation. Two structures are common. The U.S. Treasury and some other issuers use a structure that accrues inflation/deflation into the principal value of the bond. Many other issuers adjust the coupon accruals for inflation related changes.
The market price 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. Coupon payments received by a Fund from inflation-indexed bonds are generally included in the Fund’s gross income for the period in which they accrue. In addition, any increase/decrease in the principal amount of an inflation-indexed bond is generally included in the Fund’s gross income 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. Investments in when-issued securities also present the risk that the security will not be issued or delivered. Delayed delivery commitments outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Short sales
Certain Funds may enter into short sales transactions. A short sale is a transaction in which a Fund sells securities it may not own in anticipation of a decline in the fair market value of the securities. Securities sold in short sale transactions and the interest payable on such securities, if any, are reflected as a liability. A Fund is obligated to deliver securities at the trade price at the time the short position is closed. Possible losses from short sales may be unlimited, whereas losses from purchases cannot exceed the total amount invested. Short sales outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Recently-issued accounting guidance
In March 2017, the Financial Accounting Standards Board issued ASU 2017-08, Premium Amortization of Purchased Callable Debt Securities, which amends the amortization period for certain purchased callable debt securities. Under this ASU, the premium amortization of purchased callable debt securities that have explicit, non-contingent call features, and are callable at fixed prices, will be amortized to the earliest call date. The guidance will be applied on a modified retrospective basis. It is in effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.
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 Allocation Bond Fund |
Core Plus Bond Fund |
Emerging Country Debt Fund | High Yield Fund | Opportunistic Income Fund | U.S. Treasury Fund | |||||||
| Commodities Risk | X | |||||||||||
| Counterparty Risk | X | X | X | X | X | X | ||||||
| Credit Risk | X | X | X | X | X | X | ||||||
| Currency Risk | X | X | X | X | X | |||||||
| Derivatives and Short Sales Risk | X | X | X | X | X | |||||||
| Focused Investment Risk | X | X | X | X | X | |||||||
| Fund of Funds Risk | X | X | X | X | X | |||||||
| Futures Contracts Risk | X | X | X | |||||||||
| Illiquidity Risk | X | X | X | X | X | |||||||
| Large Shareholder Risk | X | X | X | X | X | X | ||||||
| Leveraging Risk | X | X | X | X | X | |||||||
| Management and Operational Risk | X | X | X | X | X | X | ||||||
| Asset Allocation Bond Fund |
Core Plus Bond Fund |
Emerging Country Debt Fund | High Yield Fund | Opportunistic Income Fund | U.S. Treasury Fund | |||||||
| Market Disruption and Geopolitical Risk | X | X | X | X | X | X | ||||||
| Market Risk – Asset-Backed Securities | X | X | X | X | ||||||||
| Market Risk – Equities | X | X | ||||||||||
| Market Risk – Fixed Income | X | X | X | X | X | X | ||||||
| Non-Diversified Funds | X | X | X | X | X | |||||||
| Non-U.S. Investment Risk | X | X | X | X | X | |||||||
| Small Company Risk | 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 GMO 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 or other investment companies (collectively, “Underlying Funds”) is exposed to the risks to which the Underlying Funds in which it invests are exposed, as well as the risk that the Underlying Funds will not perform as expected. 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 Underlying Funds.
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.
• COMMODITIES RISK. Commodity prices can be extremely volatile and are affected by many factors. Exposure to commodities can cause the value of a Fund’s shares to decline or fluctuate in a rapid and unpredictable manner. In addition, the value of commodity-related derivatives or indirect investments in commodities may fluctuate more than the commodity, commodities or commodity index to which they relate. See “Derivatives and Short Sales Risk” for a discussion of specific risks of a Fund’s derivatives investments, including commodity-related derivatives.
• 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 be forced to hold investments it would prefer to sell, resulting in losses for the Fund. In addition, a Fund may suffer losses if a counterparty fails to comply with applicable laws, regulations or other requirements. The Funds are not subject to any limit on their exposure to any one counterparty nor to a requirement that counterparties with whom they enter into contracts maintain a specific rating by a nationally recognized rating organization. Counterparty risk is pronounced during unusually adverse market conditions and is particularly acute in environments in which financial services firms are exposed (as they were in 2008) 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 (whether or not the obligation is collateralized), 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 during which events may occur that prevent settlement. Counterparty risk also is greater when a Fund has entered into derivatives contracts with a single or small group of counterparties as it sometimes does as a result of its use of swaps and other OTC derivatives. Funds that use swap contracts are subject, in particular, to the creditworthiness of the counterparties because
some types of swap contracts have terms longer than six months (and, in some cases, decades). The creditworthiness of a counterparty can be expected to 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 if the Fund’s interest in the collateral is not perfected or additional collateral is not posted promptly as required. GMO’s view with respect to a particular counterparty is subject to change. The fact, however, that it changes adversely (whether due to external events or otherwise) does not mean that a Fund’s existing transactions with that counterparty will necessarily be terminated or modified. In addition, a Fund may enter into new transactions with a counterparty that GMO no longer considers a desirable counterparty (for example, re-establishing the transaction with a lower notional amount or entering into a countervailing trade with the same counterparty). Counterparty risk also will be greater if a counterparty’s obligations exceed the value of the collateral held by the Fund (if any).
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 has been and will continue to be affected by new rules and regulations relating to the derivatives market. As described under “Derivatives and Short Sales Risk,” 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. 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. Also, in the event of a counterparty’s (or its affiliate’s) insolvency, the possibility exists that the Funds’ ability to exercise remedies, such as the termination of transactions, netting of obligations or realization on collateral, could be stayed or eliminated under new special resolution regimes adopted in the United States, the European Union and various other jurisdictions. Such regimes provide governmental authorities broad authority to intervene when a financial institution is experiencing financial difficulty. In particular, in the European Union, governmental authorities could reduce, eliminate, or convert to equity the liabilities to the Funds of a counterparty experiencing financial difficulties (sometimes referred to as a “bail in”).
• CREDIT RISK. This is the risk that the issuer or guarantor of a fixed income investment or the obligors of obligations underlying an asset-backed security will be unable or unwilling to satisfy their obligation to pay principal and interest or otherwise to honor their obligations in a timely manner. The market price of a fixed income investment will normally decline as a result (and/or in anticipation) of the issuer’s, guarantor’s, or obligors’ failure to meet their payment obligations or a downgrading of the credit rating of the investment. This risk is particularly acute in environments in which financial services firms are exposed (as they were in 2008) to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Fixed income investments also are subject to illiquidity risk. See “Illiquidity Risk.”
All fixed income investments 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, a government or government entity, 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 term of a fixed income investment. 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 or quasi-sovereign debt involve the risk that the governmental entities responsible for repayment will be unable or unwilling to pay interest and repay principal when due. A governmental entity’s ability and willingness to pay interest and repay principal in a timely manner can be expected to 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. Investments in quasi-sovereign issuers are subject to the additional risk that the issuer will default independently of its sovereign. Sovereign debt risk is greater for fixed income securities issued or guaranteed by emerging countries.
In many cases, the credit risk and market price of a fixed income investment are reflected in its credit ratings, and a Fund holding a rated investment is subject to the risk that the investment’s rating will be downgraded, resulting in a decrease in the market price of the fixed income investment.
Securities issued by the U.S. government historically have presented minimal credit risk. However, events in 2011 led several major rating agencies to downgrade the long-term credit rating of U.S. bonds and introduced greater uncertainty about the repayment by the United States of its obligations. A further credit rating downgrade could decrease, and a default in the payment of principal or interest
on U.S. government securities would decrease, the market price of a Fund’s investments and increase the volatility of a Fund’s portfolio.
As described under “Market Risk — Asset-Backed Securities,” 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 under “Market Risk — Asset-Backed Securities.” The obligations of issuers also may be 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 and Short Sales Risk” for more information regarding risks associated with the use of credit default swaps.
The extent to which the market price of a fixed income investment changes in response to a credit event depends on many factors and can be difficult to predict. For example, even though the effective duration of a long-term floating rate security is very short, an adverse credit event or change in the perceived creditworthiness of its issuer could cause its market price to decline much more than its effective duration would suggest.
Credit risk is particularly pronounced for below investment grade investments (commonly referred to as “high yield” or “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 investments have speculative characteristics, often are less liquid than higher quality investments, present a greater risk of default and are more susceptible to real or perceived adverse industry conditions. Investments in distressed or defaulted or other low quality debt instruments generally are considered speculative and typically involve substantial risks not normally associated with investments in higher quality investments, including adverse business, financial or economic conditions that lead to payment defaults and insolvency proceedings on the part of their issuers. In particular, distressed or defaulted obligations might be repaid, if at all, only after lengthy workout or bankruptcy proceedings, during which the issuer does not make any interest or other payments and a Fund incurs additional expenses in seeking recovery. If GMO’s assessment of the eventual recovery value of a distressed or defaulted debt instrument proves incorrect, a Fund is likely to lose a substantial portion or all of its investment or may be required to accept cash or instruments worth less than its original investment. In the event of a default of sovereign debt, the Funds may be unable to pursue legal action against the issuer.
• 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 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. 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 is likely to realize a loss on both the hedging instrument and the currency being hedged. Currency exchange rates can fluctuate significantly for many reasons. See “Market Disruption and Geopolitical Risk.”
Many of the Funds use derivatives to take currency positions that are under- or over-weighted (in some cases significantly) relative to the currency exposure of their portfolios and their benchmarks. If the exchange rates of the currencies involved do not move as expected, a Fund could lose money on both its holdings of a particular currency and the derivative. See also “Non-U.S. Investment Risk.”
Some currencies are illiquid (e.g., some emerging country currencies), and a Fund may not be able to convert them into U.S. dollars or may only be able to do so at an unfavorable exchange rate. Exchange rates for many currencies are affected by exchange control regulations.
Derivative transactions in foreign currencies (such as futures, forwards, options and swaps) may involve leveraging risk in addition to currency risk, as described 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”).
• DERIVATIVES AND SHORT SALES 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, such as securities, commodities or currencies, reference rates, such as interest rates, currency exchange rates or inflation rates, or indices. Derivatives involve the risk that their value may not change as expected relative to changes in the value of the assets, rates, or indices they are designed to track. Derivatives include, but are not limited to, futures contracts, forward contracts, foreign currency contracts, swap contracts, contracts for differences, options on securities and indices, options on futures contracts, options on swap contracts, interest rate caps, floors and collars, reverse repurchase agreements, and other OTC contracts.
The use of derivatives involves risks that are in addition to, and potentially greater than, the risks of investing directly in securities. 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, or the position transferred, only with the consent of the other party to the contract. If the counterparty defaults, the Fund will still 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 the cost and unpredictability of legal proceedings. The Fund, therefore, runs the risk of being unable to obtain payments GMO believes are owed to it under an OTC derivatives contract or of those payments being delayed or made only after the Fund has incurred the cost of litigation.
A Fund may invest in derivatives that (i) do not require the counterparty to post collateral (e.g., foreign 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 fundamental fair (or 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 a greater risk of not being able to recover what it is owed if the counterparty defaults.
Derivatives also present other risks described in this section, including market risk, illiquidity 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 and exposes the Funds to the risk that the pricing models used do 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, there is a risk that inaccurate valuations will result in increased cash payments to counterparties, under-collateralization 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 cost 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.
Swap contracts and other OTC derivatives are highly susceptible to illiquidity risk (see “Illiquidity Risk”) and counterparty risk (see “Counterparty Risk”). These derivatives also are subject to documentation risk, which is the risk that ambiguities, inconsistencies or errors in the documentation relating to a derivative transaction will lead to a dispute with the counterparty or unintended investment results. In addition, see “Commodities Risk” for a discussion of risks specific to commodity-related derivatives. 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 could result in a loss substantially greater than the amount invested in the derivative itself. See “Leveraging Risk.”
Special tax rules apply to a Fund’s transactions in derivatives, which could increase the taxes payable by shareholders subject to U.S. income taxation. In particular, a Fund’s derivative transactions potentially could cause a substantial portion of the Fund’s distributions to be taxable at ordinary income tax rates. In addition, the tax treatment of a Fund’s use of derivatives will sometimes be unclear. See the Funds’ Prospectus and Statement of Additional Information for more information.
The Securities and Exchange Commission has proposed a rule under the Investment Company Act of 1940, as amended (the “1940 Act”), regulating the use by registered investment companies of derivatives and many related instruments. That rule, if adopted as proposed, would, among other things, restrict a Fund’s ability to engage in derivatives transactions or so increase the cost of derivatives transactions that GMO would be unable to implement a Fund’s investment strategy.
Derivatives Regulation. The U.S. government has enacted legislation that provides for regulation of the derivatives market, including clearing, margin, reporting, and registration requirements. The European Union (and some other countries) have adopted similar requirements, which affect a Fund when it enters into a derivatives transaction with a counterparty subject to those requirements. Because these U.S. and European Union requirements are evolving, their impact on the Funds remains unclear.
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 hold cleared derivatives through accounts at clearing members. In cleared derivative positions, the Funds 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 some ways, cleared derivative arrangements are less favorable to mutual funds than bilateral arrangements, for example, by requiring that funds provide more margin for their cleared derivative positions. Also, as a general matter, in contrast to a bilateral derivative position, following a period of notice to a Fund, a clearing member at any time can require termination of an existing cleared derivative position or an increase in the margin required at the outset of a transaction. Clearing houses also have broad rights to increase the margin required for existing positions or to terminate those positions at any time. Any increase in margin requirements or termination of existing cleared derivative positions 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 margin for cleared derivative positions in excess of a clearing house’s margin requirements typically is held by the clearing member (see “Counterparty Risk”). Also, a Fund is subject to risk if it enters into a derivatives transaction that is required to be cleared (or that GMO 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 position might have to be terminated, and the Fund could lose some or all of the benefit of the position, including loss of an increase in the value of the position and 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 the documentation for typical bilateral derivatives. 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. Also, such documentation typically does not provide the Funds any remedies if the clearing member defaults or becomes insolvent. While futures contracts entail similar risks, the risks are likely to be more pronounced for cleared derivatives due to their more limited liquidity and market history.
Some types of cleared derivatives are required to be executed on an exchange or on a swap execution facility. A swap execution facility is a trading platform where multiple market participants can execute derivatives by accepting bids and offers made by multiple other participants in the platform. While this execution requirement is designed to increase transparency and liquidity in the cleared derivatives market, trading on a swap execution facility can create additional costs for the Funds. For example, swap execution facilities typically charge fees, and if a Fund executes derivatives on a swap execution facility through a broker intermediary, the intermediary may impose fees as well. Also, a Fund may be required to indemnify a swap execution facility, or a broker intermediary who executes cleared derivatives on a swap execution facility on the Fund’s behalf, against any losses or costs that may be incurred as a result of the Fund’s transactions on the swap execution facility.
If a Fund wishes to execute a package of transactions that include a swap that is required to be executed on a swap execution facility as well as other transactions (for example, a transaction that includes both a security and an interest rate swap that hedges interest rate exposure with respect to such security), the Fund may be unable to execute all components of the package on the swap execution facility. In that case, the Fund would need to trade some components of the package on the swap execution facility and other components in another manner, which could subject the Fund to the risk that some components would be executed successfully and others would not, or that the components would be executed at different times, leaving the Fund with an unhedged position for a period of time.
The U.S. government and the European Union have adopted mandatory minimum margin requirements for bilateral derivatives. New variation margin requirements became effective in March 2017 and new initial margin requirements will become effective in 2020. Such requirements could increase the amount of margin a Fund needs to post in connection with its derivatives transactions and, therefore, make derivatives transactions more expensive.
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 or otherwise limiting liquidity. The implementation of the clearing requirement has increased the cost of derivatives transactions for the Funds, since the Funds have to pay fees to their clearing members and are typically required to post more margin for cleared derivatives than they historically posted for bilateral derivatives. The cost of derivatives transactions is expected to increase further as clearing members raise their fees to cover the cost of additional capital requirements and other regulatory changes applicable to the clearing members. These rules and regulations are evolving, and, therefore, their potential impact on the Funds and the financial system are not yet known. While the new rules and 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 they will achieve that result, and in the meantime, as noted above, central clearing and related requirements expose the Funds to new kinds of costs and risks.
Options. Some Funds are permitted to write options. The market price of an option is affected by many factors, including changes in the market prices or dividend rates of underlying securities (or in the case of indices, the securities in such indices); the time remaining before expiration; changes in interest rates or exchange rates; and changes in the actual or perceived volatility of the relevant stock market and underlying securities. 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 at any time before the option’s expiration, the writer of an American-style option has no control over when it will be required to fulfill its obligations as a writer of the option. (The writer of a European-style option is not subject to this risk because the holder may only exercise the option on its expiration date.)
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, GMO, and other funds advised by GMO likely constitute such a group. When applicable, these limits 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-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.
Short Investment Exposure. Some Funds may sell securities or currencies short as part of their investment programs in an attempt to increase their returns or for hedging purposes. Short sales expose a Fund to the risk that it will be required to acquire, convert, or exchange a security or currency to replace the borrowed security or currency when the security or currency sold short has appreciated in value, thus resulting in a loss to the Fund. Purchasing a security or currency to close out a short position can itself cause the price of the security or currency to rise further, thereby exacerbating any losses. A Fund that sells short a security or currency it does not own typically pays borrowing fees to a broker and is required to pay the broker any dividends or interest it receives on a borrowed security.
A Fund also may create short investment exposure by taking a derivative position in which the value of the derivative moves in the opposite direction from the price of an underlying asset, pool of assets, rate, currency or index.
Short sales of securities or currencies a Fund does not own and “short” derivative positions involve forms of investment leverage, and the amount of the Fund’s potential loss is theoretically unlimited. A 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 or takes “short” derivative positions.
• FOCUSED INVESTMENT RISK. Funds with investments that are focused in a limited number of asset classes, sectors, industries, issuers, currencies, countries, or regions (or in sectors within a country or region) that are subject to the same or similar risk factors and Funds with investments whose prices are closely correlated are subject to greater overall risk than Funds with investments that are more diversified or whose prices are not as closely correlated.
A Fund that invests in the securities of a small number of issuers has greater exposure to adverse developments affecting those issuers and to a decline in the market price of those issuers’ securities than Funds investing in the securities of a larger number of issuers. 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 a particular geographic region, country or market (e.g., emerging markets), or to sectors within a region, country, or market (e.g., Russian oil) have more exposure to regional and country economic risks than funds making 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 the value of the currency of 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.”
• FUND OF FUNDS RISK. Funds that invest in Underlying Funds (including underlying GMO Funds) are exposed to the risk that the Underlying Funds will not perform as expected. The Funds also are indirectly exposed to all of the risks to which the Underlying Funds are exposed.
Because, absent reimbursement, a Fund bears the fees and expenses of an Underlying Fund (including purchase premiums and redemption fees, if any) in which it invests, the Fund will incur additional expenses when investing in an Underlying Fund. 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.
In addition, to the extent a Fund invests in shares of underlying GMO Funds, it is indirectly subject to Large Shareholder Risk when an underlying GMO Fund has large shareholders (e.g., other GMO Funds). See “Large Shareholder Risk.”
At any particular time, one Underlying Fund may be purchasing securities of an issuer whose securities are being sold by another Underlying Fund, resulting in a Fund that holds each Underlying Fund indirectly incurring the costs associated with the two transactions without changing its exposure to those securities.
Investments in exchange-traded funds (“ETFs”) involve the risk that an ETF’s performance will not track the performance of the index it is designed to track. In addition, ETFs often use derivatives to track the performance of an index, and, therefore, investments in those ETFs are subject to the same derivatives risks discussed in “Derivatives and Short Sales Risk.” ETFs are investment companies that typically hold a portfolio of securities designed to track the price, performance, and dividend yield of a particular securities market index (or sector of an index). As investment companies, ETFs incur their own management and other fees and expenses, such as trustee fees, operating expenses, registration fees, and marketing expenses, and a Fund that invests in ETFs bears a proportionate share of such fees and expenses. As a result, an investment by a Fund in an ETF could result in higher expenses and lower returns than if the Fund were to invest directly in the securities underlying the ETF.
A Fund’s investments in one or more Underlying Funds could affect the amount, timing and character of its distributions and could cause the Fund to recognize taxable income in excess of the cash generated by such investments, requiring the Fund in turn to liquidate investments at disadvantageous times to generate cash needed to make required distributions.
• FUTURES CONTRACTS RISK. The risk of loss to a Fund resulting from its use of futures contracts (or “futures”) is potentially unlimited. Futures markets are highly volatile, and the use of futures contracts may increase the volatility of the Fund’s net asset value. A Fund’s ability to establish and close out positions in futures contracts is subject to the development and maintenance of a liquid secondary market. A liquid secondary market may not exist for any particular futures contract at any particular time, and a Fund might be unable to effect closing transactions to terminate its exposure to the contract. In using futures contracts, a Fund relies on GMO’s ability to predict market and price movements correctly. The skills needed to use futures contracts successfully are different from those needed for traditional portfolio management. If a Fund uses futures contracts for hedging purposes, it runs the risk that changes in the prices of the contracts will not correlate perfectly with changes in the securities, index, or other asset underlying the contracts or movements in the prices of the Fund’s investments that are the subject of the hedge.
A Fund typically will be required to post margin with its futures commission merchant in connection with its positions in futures contracts. If the Fund has insufficient cash to meet margin requirements, the Fund typically will have to sell other investments at disadvantageous times. A Fund also runs the risk of being unable to reenter or be delayed in recovering margin or other amounts deposited with a futures commission merchant or futures clearinghouse. For example, should the futures commission merchant become insolvent, a Fund may be unable to recover all (or any) of the margin it has deposited or realize the value of any increase in the price of its positions.
The Commodity Futures Trading Commission (the “CFTC”) and the various exchanges have established limits (referred to as “speculative position limits”) on the maximum net long or net short positions that any person and certain of its affiliated entities may hold or control in a particular futures contract. In addition, an exchange may impose trading limits on the number of contracts a person may trade on a particular day. An exchange may order the liquidation of positions found to be in violation of these limits, and it may impose sanctions or restrictions. In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act requires the CFTC to establish speculative position limits on listed futures and economically equivalent OTC derivatives, and those limits may adversely affect the market liquidity of those futures and derivatives. As a result of such limits, positions held by other GMO clients or by GMO or its affiliates could prevent GMO from taking positions on behalf of a Fund in a particular futures contract or OTC derivative.
Futures contracts traded on markets outside the United States are not subject to regulation by the CFTC or other U.S. regulators. U.S. regulators neither regulate the activities of a foreign exchange nor have the power to compel enforcement of the rules of a foreign exchange or the laws of the country where the exchange is located. In addition, foreign futures contracts may be less liquid and more volatile than U.S. contracts.
• ILLIQUIDITY RISK. Illiquidity 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, delays or prevents a Fund from selling particular securities or closing derivative positions at desirable prices. In addition to these risks, a Fund is exposed to illiquidity 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). To the extent a Fund’s investments include asset-backed securities, distressed, defaulted or other low quality debt securities, emerging country debt or equity securities or securities of companies with smaller market capitalizations or smaller total float-adjusted market capitalizations, it is subject to increased illiquidity risk. 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 price at which they were valued when held by the Fund. Illiquidity risk also tends to be greater in times of financial stress. For example, inflation-protected securities issued by the U.S. Treasury (“TIPS”) have experienced periods of greatly reduced liquidity during disruptions in fixed income markets, such as the events surrounding the bankruptcy of Lehman Brothers in 2008. Less liquid securities are often more susceptible than other securities to price declines when market prices decline generally.
A Fund may buy securities or other investments that are less liquid than those in its benchmark. The more illiquid investments a Fund has, the greater the likelihood of its paying redemption proceeds in-kind.
The Securities and Exchange Commission has adopted Rule 22e-4 under the 1940 Act, which requires each Fund to adopt a liquidity risk management program to assess and manage its illiquidity risk. Under its program, each Fund will be required to classify its investments into specific liquidity categories and monitor compliance with limits on investments on illiquid investments. The term “illiquid investments” for purposes of the program means investments that GMO reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the investments. The Funds do not expect Rule 22e-4 to have a significant effect on investment operations. While the liquidity risk management program attempts to assess and manage illiquidity risk, there is no guarantee it will be effective in reducing the illiquidity risk inherent in a Fund’s investments.
Historically, credit markets have experienced periods characterized by a significant lack of liquidity, and they may experience similar periods in the future. If a Fund is required to sell illiquid investments to satisfy collateral posting requirements or to meet redemptions, those sales could put significant downward price pressure on the market price of the securities being sold.
A Fund’s ability to use options as part of its investment program depends on the liquidity of the options market. That market may not be liquid when a Fund seeks to close out an option position, and the hours of trading for options on an exchange may not conform to the hours during which the underlying securities 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 those securities that are not immediately reflected in the options markets. If a Fund receives a redemption request and is unable to close out an option it has sold, the Fund would temporarily be leveraged in relation to its assets.
• LARGE SHAREHOLDER RISK. To the extent 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 by forcing the Fund to sell portfolio securities, at disadvantageous prices to raise the cash needed to satisfy the redemption request. In addition, the Funds and other accounts over which GMO has investment discretion that invest in the Funds are not limited in how often they may sell Fund shares. The Asset Allocation Funds and separate accounts managed by GMO for its clients hold substantial percentages of the outstanding shares of many Funds, and asset allocation decisions by GMO may result in substantial redemptions from (or investments in) those Funds, adversely affecting the Fund’s performance to the extent that the Fund is required to sell investments when it would not have otherwise done so. Redemptions of a large number of shares also may increase transaction costs or, by necessitating a sale of portfolio securities, have adverse tax consequences for Fund shareholders. Further, from time to time a Fund may trade in anticipation of a purchase or redemption order that ultimately is not received or differs in size from the actual order, leading to temporary underexposure or overexposure to the Fund’s intended investment program. In addition, redemptions and purchases of shares by a large shareholder or group of shareholders could limit the use of any capital loss carryforwards to offset future realized capital gains (if any) and other losses that would otherwise reduce distributable net investment income. In addition, large shareholders may limit or prevent a Fund’s use of equalization for U.S. federal tax purposes.
To the extent a Fund invests in other GMO Funds subject to large shareholder risk, the Fund is indirectly subject to this risk.
• LEVERAGING RISK. The use of traditional borrowing (including to meet redemption requests) 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, similar to short sales, have the potential for unlimited loss, regardless of the size of the initial investment. Similarly, a Fund’s portfolio will be leveraged and can incur losses if the value of the Fund’s assets declines between the time a redemption request is received or deemed to be received by a Fund (which in some cases is the business day prior to actual receipt by the Fund of the redemption request) and the time at which the Fund liquidates assets to meet redemption requests. Such a decline in the value of a Fund’s assets is more likely in the case of Funds managed from GMO’s non-U.S. offices for which the time period between the determination of net asset value and corresponding liquidation of assets could be longer due to time zone differences. In the case of redemptions representing a significant portion of a Fund’s portfolio, the leverage effects described above can be significant and could expose a Fund and non-redeeming shareholders to material losses.
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.
Some Funds are permitted to purchase securities on margin or to sell securities short, either of which creates leverage. To the extent the market prices of securities pledged to counterparties to secure a Fund’s margin account or short sale decline, the Fund may be required to deposit additional funds with the counterparty to avoid having the pledged securities liquidated.
• MANAGEMENT AND OPERATIONAL RISK. Each Fund is subject to management risk because it relies on GMO to achieve its investment objective. Each Fund runs the risk that GMO’s investment techniques will fail to produce desired results and cause the Fund to incur significant losses. GMO also may fail to use derivatives effectively, choosing to hedge or not to hedge positions at disadvantageous times.
For many Funds, GMO uses quantitative models as part of its investment process and in making investment decisions for those Funds. Those Funds run the risk that GMO’s models will not accurately predict future market movements or characteristics. In addition, those models are based on assumptions that can limit their effectiveness, and they rely on data that is subject to limitations (e.g., inaccuracies, staleness) that could adversely affect their predictive value. The Funds also run the risk that GMO’s assessment of an investment (including a security’s fundamental fair (or intrinsic) value) is wrong.
The usefulness of GMO’s models may be diminished by the faulty incorporation of mathematical models into computer code, by reliance on proprietary and third-party technology that includes errors, omissions, bugs, or viruses, and by the retrieval of limited or imperfect data for processing by the model. These risks are more likely to occur when GMO is making changes to its models. Any of these risks could adversely affect a Fund’s performance.
There can be no assurance that key GMO personnel will continue to be employed by GMO. The loss of their services could have an adverse impact on GMO’s ability to achieve the Funds’ investment objectives.
The Funds also are subject to a risk of loss resulting from other services provided by GMO and other service providers, including pricing, administrative, accounting, tax, legal, custody, transfer agency, and other operational 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 could prevent a Fund from benefiting from investment gains or avoiding losses. In addition, a service provider may be unable to provide a net asset value for a Fund or share class on a timely basis. GMO is not contractually liable to the Funds for losses associated with operational risk absent its 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 contractual limitations on their liability to the Funds for losses resulting from their errors.
The Funds and their service providers (including GMO) are susceptible to cyber-attacks and to technological malfunctions that have effects similar to those of a cyber-attack. Cyber-attacks include, among others, stealing or corrupting data maintained online or digitally, preventing legitimate users from accessing information or services on a website, releasing confidential information without authorization, and disrupting operations. Successful cyber-attacks against, or security breakdowns of, a Fund, GMO, a sub-adviser, or a custodian, transfer agent, or other service provider may adversely affect the Fund or its shareholders. For instance, cyber-attacks may interfere with the processing of shareholder transactions, affect a Fund’s ability to calculate its net asset value, cause the release or misappropriation of private shareholder information or confidential Fund information, impede trading, cause reputational damage, and subject the Fund to regulatory fines, penalties or financial losses and additional compliance costs. The Funds’ service providers regularly experience cyber-attacks and expect they will continue to do so. While GMO has established business continuity plans and systems designed to prevent, detect and respond to cyber-attacks, those plans and systems have inherent limitations. Similar types of cyber security risks also are present for issuers of securities in which the Funds invest, which could have material adverse consequences for those issuers and result in a decline in the market price of their securities. Furthermore, as a result of cyber-attacks, technological disruptions, malfunctions, or failures, an exchange or market may close or suspend trading in specific securities or the entire market, which could prevent the Funds from, among other things, buying or selling securities or accurately pricing their investments. The Funds cannot directly control cyber security plans and systems of their service providers, the Funds’ counterparties, issuers of securities in which the Funds invest, or securities markets and exchanges.
• MARKET DISRUPTION AND GEOPOLITICAL RISK. The Funds are subject to the risk that geopolitical and other events (e.g., wars and terrorism) will disrupt securities markets and adversely affect global economies and markets, thereby reducing the value of the Funds’ investments. Sudden or significant changes in the supply or prices of commodities or in other economic inputs (e.g., the marked decline in oil prices in late 2014) may have material and unexpected effects on both global securities markets and individual countries, regions, sectors, companies, or industries. Terrorism in the United States and around the world 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 or other fraudulent trading practices, which could disrupt their orderly functioning or reduce the prices of securities traded on them, including securities held by the Funds. Fraud and other deceptive practices committed by an issuer of securities held by a Fund undermine GMO’s due diligence efforts and, when discovered, will likely cause a steep decline in the market price of those securities and thus negatively affect the value of the Fund’s investments. In addition, when discovered, financial fraud may contribute to overall market volatility, which can negatively affect a Fund’s investment program.
While the U.S. government has always honored its credit obligations, a default by the U.S. government (as has been threatened in recent years) would be highly disruptive to the U.S. and global securities markets and could significantly reduce the value of the Funds’ investments. Similarly, political events within the United States have resulted, and may in the future result, in shutdowns of government services, which could adversely affect the U.S. economy, reduce the value of many Fund investments, and impair the operation of the U.S. or other securities markets. Uncertainty over the sovereign debt of several European Union countries, as well as uncertainty over the continued existence of the European Union itself, has disrupted and may continue to disrupt markets in the United States and around the world. If a country changes its currency or if the European Union dissolves, the world’s securities markets likely will be significantly disrupted. In June 2016, the United Kingdom approved a referendum to leave the European Union (commonly known as “Brexit”). In March 2017, the United Kingdom commenced the formal process of withdrawing from the European Union, which provided the United Kingdom with two years to negotiate an exit agreement with the European Union, with a deadline of March 29, 2019. On November 25, 2018, European Union leaders approved the terms of the United Kingdom’s withdrawal from the European Union, which the United Kingdom’s Parliament subsequently rejected. The European Union has agreed to delay the United Kingdom’s exit until October 31, 2019. While negotiations continue, it remains unclear whether a negotiated withdrawal agreement can be reached. If the United Kingdom leaves the European Union without finalizing agreements on trade, finance and other key elements, the withdrawal may lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European Union laws to replicate or replace. The potential implications of a “no deal” scenario include a shrinking United Kingdom economy and far-reaching disruptions to world securities markets. Brexit has resulted in volatility in European and global markets and could have a negative long-term effect on financial markets in the United Kingdom and throughout Europe. The consequences of the United Kingdom’s or another country’s
exit from the European Union also could threaten the stability of the euro for remaining countries and could negatively affect the financial markets of other countries in the European region and beyond.
War, terrorism, economic uncertainty, and related geopolitical events, such as sanctions, tariffs, the imposition of exchange controls or other cross-border trade barriers, 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. For example, the U.S. has imposed economic sanctions, which consist of asset freezes, restrictions on dealings in debt and equity, and certain industry-specific restrictions. These types of sanctions have recently been applied against the Venezuelan and Russian governments, as well as against certain Russian and Venezuelan officials and institutions. These sanctions, any additional sanctions or intergovernmental actions, or even the threat of further sanctions, may result in a decline of the value and liquidity of Russian and Venezuelan securities, a weakening of the Russian and Venezuelan currencies or other adverse consequences to their respective economies. Sanctions impair the ability of the Funds to buy, sell, receive or deliver those securities and/or assets that are within the scope of the sanctions. In addition, 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 market price 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 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 a Fund has focused its investments in the stock index of a particular region, adverse geopolitical and other events in that region could have a disproportionate impact on the Fund.
• MARKET RISK. All of the Funds are subject to market risk, which is the risk that the market price of their holdings will decline. Market risks include:
Asset-Backed Securities — Investments in asset-backed securities not only are subject to all of the market risks described under “Market Risk — Fixed Income,” but to other market risks as well.
Asset-backed securities are often exposed to greater risk of severe credit downgrades, illiquidity, and defaults than many other types of fixed income investments. These risks become particularly acute during periods of adverse market conditions, such as those that occurred in 2008.
As described under “Market Risk — Fixed Income” the market price of asset-backed securities, like that of other fixed income investments with complex structures, can decline for a variety of reasons, 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., the amount of underlying assets or other support available 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 performance of other service providers with access to the payment stream. A problem in any of these factors can lead to a reduction in the payment stream GMO expected a Fund to receive when the Fund purchased the asset-backed security. Principal repayments of asset-backed securities are at risk if obligors of the underlying obligations default and the value of the defaulted obligations exceeds whatever credit support the securities have. Asset-backed securities backed by sub-prime mortgage loans, in particular, expose a Fund to potentially greater declines in value due to defaults because sub-prime mortgage loans are typically made to less creditworthy borrowers and thus have a higher risk of default than conventional mortgage loans. 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” for more information about credit risk.
When worldwide economic and liquidity conditions deteriorated 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 asset-backed (as well as others) fixed income securities. These events reduced liquidity and contributed to substantial declines in the market prices of asset-backed (and other) fixed income securities, and they 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 depends in part on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. The mishandling of documentation for underlying assets also can affect the rights of holders of those underlying assets. The insolvency of a servicer is likely to result in a decline in the market price of the securities it is servicing, 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, the obligations underlying asset-backed securities may be repaid more slowly than anticipated, and the market price of those securities may decrease.
The existence of insurance on an asset-backed security does not guarantee that the principal and interest will be paid because the insurer could default on its obligations.
The risk of investing in asset-backed securities has increased since 2008 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” for more information about risks of investing in correlated sectors. A single financial institution may serve as a servicer for many asset-backed securities. As a result, a disruption in that institution’s business would likely have a material impact on the many asset-backed securities it services. The risks associated with asset-backed securities are particularly pronounced for Opportunistic Income Fund, which has invested a substantial portion of its assets in asset-backed securities, and for the Funds that have invested a substantial portion of their assets in Opportunistic Income Fund.
Equities — Funds that invest in equities run the risk that the market price of an equity will decline. That decline may be attributable to factors affecting the issuer, such as a failure to keep up with technological advances or reduced demand for its goods or services, or to factors affecting a particular industry, such as a decline in demand, labor or raw material shortages, or increased production costs. A decline also may result from 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. The market prices of equities are volatile and can decline in a rapid or unpredictable manner. If a Fund purchases an equity for what GMO believes is less than its fundamental fair (or intrinsic) value, the Fund runs the risk that the market price of the equity will not appreciate or will decline due to GMO’s incorrect assessment. 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 — Funds that invest in fixed income investments (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 market-related factors, including rising interest rates and widening credit spreads, or decreased liquidity due to market 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 uncertainty about their credit quality and the reliability of their payment streams. Some fixed income investments 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 investment. When interest rates rise, fixed income investments also may be repaid more slowly than anticipated, causing a decrease in their market price. During periods of economic uncertainty and change, the market price of a Fund’s investments in below investment grade investments (commonly referred to as “high yield” or “junk bonds”) may be particularly volatile. Often, below investment grade investments are subject to greater sensitivity to interest rate and economic changes than higher rated investments 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 price at which they were valued when held by the Fund. See “Credit Risk” and “Illiquidity Risk” for more information about these risks.
A risk run by each Fund with significant investment in fixed income investments 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 greater for Funds investing in fixed income investments with longer durations. In addition, in managing some Funds, GMO may seek to evaluate potential investments in part by considering the volatility of interest rates. The value of a Fund’s investments would likely be significantly reduced if GMO’s assessment proves incorrect.
The extent to which the market price of a fixed income investment 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 its fixed rate is locked in for a longer period of time. Floating-rate or variable-rate investments 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 investments have durations that move in the opposite direction from short-term interest rates and thus tend to underperform fixed rate investments when interest rates rise but outperform them when interest rates decline. Fixed income investments paying no interest, such as zero coupon and principal-only securities, are subject to additional interest rate risk.
The market price of inflation-indexed bonds (including TIPS) typically declines during periods of rising real interest rates (i.e. nominal interest rate minus inflation) and increases during periods of declining real 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.
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 GMO waives or reduces its management fees.
Fixed income securities denominated in foreign currencies also are subject to currency risk. See “Currency Risk.”
In response to government intervention, economic or market developments, or other factors, markets for fixed income investments may experience periods of high volatility, reduced liquidity or both. During those periods, a Fund could have unusually high shareholder redemptions, requiring it to generate cash by selling portfolio investments when it would otherwise not do so, including at unfavorable prices. Moreover, fixed income investments will be difficult to value during such periods. During the last ten years, central banks and governmental financial regulators, including the U.S. Federal Reserve, kept interest rates historically low. However, more recently, the U.S. Federal Reserve has increased interest rates. A substantial increase in interest rates could have an adverse effect on prices for fixed income investments and on the performance of the Funds. Other actions by central banks or regulators (such as intervention in foreign currency markets or currency controls) also could have a material adverse effect on the Funds.
• NON-DIVERSIFIED FUNDS. All of the Funds (except U.S. Treasury Fund) 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. As a result, they are likely to be subject to greater credit, market and other risks than if their investments were more diversified, and poor performance by a single investment is likely to have a greater impact on their performance.
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 within the meaning of the 1940 Act.
• NON-U.S. INVESTMENT RISK. Funds that invest in non-U.S. securities are subject to more risks than Funds that invest only in U.S. securities. Many non-U.S. securities markets list securities of only a small number of companies in a small number of industries. As a result, the market prices of securities traded on those markets (particularly in emerging markets) often fluctuate more than those of U.S. securities. In addition, issuers of non-U.S. securities (particularly those tied economically to emerging countries) often are not subject to as much regulation as U.S. issuers, and the reporting, accounting, custody, and auditing standards to which those issuers are subject often are not as rigorous as U.S. standards. Transactions in non-U.S. securities generally involve higher commission rates, transfer taxes, and custodial costs. In addition, some countries limit a Fund’s ability to profit from short-term trading (as defined in that country).
A Fund may be subject to non-U.S. taxation, including potentially on a retroactive basis, on (i) capital gains it realizes or dividends, interest, or other amounts it realizes or accrues in respect of non-U.S. investments; (ii) transactions in those investments; and (iii) repatriation of proceeds generated from the sale or other disposition of those investments. A Fund may seek a refund of taxes paid, but its efforts may not be successful, in which case the Fund will have incurred additional expenses for no benefit. In addition, a Fund’s pursuit of a tax refund may subject it to administrative and judicial proceedings in the country where it is seeking the refund. A Fund’s decision to seek a refund is in its sole discretion, and, particularly in light of the cost involved, it may decide not to seek a refund, even if it is entitled to one. The outcome of a Fund’s efforts to obtain a refund is inherently unpredictable. In some cases, the amount of a refund could be material to a Fund’s net asset value. Accordingly, a refund is not typically reflected in the Fund’s net asset value until it is received or until GMO is confident that it will be received. Generally, absent a determination that a refund is collectible and free from significant contingencies, a refund is not reflected in a Fund’s net asset value.
Investing in non-U.S. securities also exposes a Fund to the risk of nationalization, expropriation, or confiscatory taxation of assets of their issuers, government involvement in every country, including the U.S., or in the affairs of specific companies or industries (including wholly or partially state-owned enterprises), 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, including the imposition of economic sanctions.
In some non-U.S. securities markets, custody arrangements for securities provide significantly less protection than custody arrangements in U.S. securities 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 United States. Fluctuations in currency exchange rates also affect the market prices of a Fund’s non-U.S. securities (see “Currency Risk”).
The Funds need a license to invest directly in securities traded in many non-U.S. securities 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 to invest in a particular market is terminated or suspended, to obtain exposure to that 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 GMO’s clients may preclude a Fund from obtaining a similar license. In addition, the activities of a GMO client could cause the suspension or revocation of a Fund’s license.
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); increased risk of nationalization, expropriation, or other confiscation of issuer assets; greater governmental involvement in the economy or in the affairs of specific companies or industries (including wholly or partially state-owned enterprises); less governmental supervision and regulation of securities markets and participants in those markets; controls on 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; less rigorous auditing and financial reporting standards and resulting unavailability of reliable information about issuers; slower clearance and settlement; difficulties in obtaining and enforcing legal judgments; and significantly smaller market capitalizations of issuers. In addition, the economies of emerging countries may depend predominantly on only a few industries or revenues from particular commodities and often are more volatile than the economies of developed countries.
• SMALL COMPANY RISK. Companies with smaller market capitalizations tend to have limited product lines, markets, or financial resources, lack the competitive strength of larger companies, have less experienced managers and depend on fewer key employees than larger companies. 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. Market risk and illiquidity risk are particularly pronounced for the securities of these companies.
Temporary Defensive Positions. Temporary defensive positions are positions that are inconsistent with a Fund’s principal investment strategies and are taken in response to adverse market, economic, political or other conditions.
The Funds (other than Emerging Country Debt Fund, High Yield Fund and U.S. Treasury Fund) may take temporary defensive positions if deemed prudent by GMO. Many of the Funds have previously taken 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.
Derivative financial instruments
Derivatives are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices that are used 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 indices, and include foreign currency contracts, swap contracts, reverse repurchase agreements, and other exchange-traded and OTC contracts.
The Funds may use derivatives to gain long investment exposure to securities or other assets. In particular, the Funds may use swaps, options, or other derivatives on an index, an ETF, 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 or may use a bond futures contract to short the bond market of a particular country. A Fund also may use currency derivatives in an attempt to reduce (which may result in a reduction below zero) some aspect of the currency exposure in its portfolio. For these purposes, the Fund may use an instrument denominated in a different currency that GMO 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, ETFs, and currencies without actually having to sell existing investments or make new direct investments. For instance, GMO 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 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 their portfolio investments.
Each of the Funds is not limited in its use of derivatives or in the total notional value of its derivative positions. As a result of their derivative positions, a Fund may have gross investment exposures in excess of its net assets (i.e. the Fund may be leveraged) and therefore are subject to heightened risk of loss. Each Fund’s (other than 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 that may be 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, if any, through clearing members, who are members of derivatives clearing houses. Certain other derivatives, including futures and certain options, are transacted on exchanges. The Funds hold exchange-traded derivatives through clearing brokers that are typically members of the exchanges. In contrast to bilateral derivatives transactions, following a period of advance notice to the Fund, clearing brokers generally can require termination of existing cleared or exchange-traded derivatives transactions at any time and increases in margin
above the margin that it required at the beginning of a transaction. Clearing houses and exchanges 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 GMO 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 May 31, 2019, the following table shows how the Fund used these derivatives (marked with an X):
| Type of Derivative and Objective for Use | Asset Allocation |
Core Plus Bond Fund |
Emerging Country |
High Yield Fund |
Opportunistic Income Fund | |||||
| Forward currency contracts | ||||||||||
| Adjust currency exchange rate risk |
X | X | X | X | X | |||||
| Adjust exposure to foreign currencies |
X | X | X | X | ||||||
| Futures contracts | ||||||||||
| Adjust interest rate exposure |
X | X | X | |||||||
| Maintain the diversity and liquidity of the portfolio |
X | X | X | |||||||
| Options (Purchased) | ||||||||||
| Adjust currency exchange rate risk |
X | X | ||||||||
| Adjust exposure to foreign currencies |
X | X | ||||||||
| Adjust interest rate exposure |
X | |||||||||
| Achieve exposure to a reference entity’s credit |
X | |||||||||
| Provide a measure of protection against default loss |
X | |||||||||
| Options (Written) | ||||||||||
| Achieve exposure to a reference entity’s credit |
X | |||||||||
| Adjust currency exchange rate risk |
X | X | ||||||||
| Adjust exposure to foreign currencies |
X | X | ||||||||
| Adjust interest rate exposure |
X | |||||||||
| Provide a measure of protection against default loss |
X | |||||||||
| Options (Credit linked) | ||||||||||
| Achieve exposure to a reference entity’s credit |
X | |||||||||
| Swap contracts | ||||||||||
| Achieve exposure to a reference entity’s credit |
X | X | X | |||||||
| Adjust exposure to certain markets |
X | |||||||||
| Adjust interest rate exposure |
X | X | X | X | ||||||
| Provide a measure of protection against default loss |
X | X | X | |||||||
| Provide exposure to the Fund’s benchmark |
X | X | ||||||||
| Adjust exposure to foreign currencies |
X | |||||||||
| Rights and/or warrants | ||||||||||
| Achieve exposure to a reference commodity/economic statistic |
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 price 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 settled.
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 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 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 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. 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. “Quanto” options are cash-settled options in which the underlying asset (often an index) is denominated in a currency other than the currency in which the option is settled. 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, if any, which is disclosed in the Schedule of Investments, 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, 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 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.
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 industry models and inputs provided by primary pricing sources.
Swap contracts
The Funds may directly or indirectly use various swap contracts, including, without limitation, swaps on securities and securities indices, total return swaps, interest rate swaps, basis swaps, currency swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps, municipal swaps, dividend swaps, volatility swaps, correlation 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. A liquidation payment received or made at the termination of the swap contract is recorded as realized gain or loss. The periodic frequency of payments received may differ from periodic payment frequencies made and their frequencies could be monthly, quarterly, semiannually, annually or at maturity.
Interest rate swap contracts involve an exchange by the parties of their respective commitments to pay or rights 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). Basis swaps are interest rate swaps that involve the exchange of two floating interest rate payments and may involve the exchange of two different currencies.
Inflation swaps involve the exchange of a floating rate linked to an index for a fixed rate interest payment with respect to a notional amount or 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.
Correlation swaps involve receiving a stream of payments based on the actual average correlation between or among the price movements of two or more underlying variables over a period of time, in exchange for making a regular stream of payments based on a fixed “strike” correlation level (or vice versa), where both payment streams are based on a notional amount. The underlying variables may include, without limitation, commodity prices, exchange rates, interest rates and stock indices.
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. 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.
The values assigned to swap contracts may differ significantly from the values 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 as of May 31, 2019:
The risks referenced in the tables below 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.
| Credit Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate Contracts |
Other Contracts |
Total | |||||||||||||||||||
| Asset Allocation Bond Fund |
||||||||||||||||||||||||
| Asset Derivatives |
||||||||||||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
$ | — | $ | — | $ | 1,059,455 | $ | — | $ | — | $ | 1,059,455 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | — | $ | 1,059,455 | $ | — | $ | — | $ | 1,059,455 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liability Derivatives |
||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | (1,269,078 | ) | $ | — | $ | — | $ | (1,269,078 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | — | $ | (1,269,078 | ) | $ | — | $ | — | $ | (1,269,078 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Core Plus Bond Fund |
||||||||||||||||||||||||
| Asset Derivatives |
||||||||||||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
$ | — | $ | — | $ | 2,717,208 | $ | — | $ | — | $ | 2,717,208 | ||||||||||||
| Unrealized Appreciation on Futures Contracts |
— | — | — | 915,550 | — | 915,550 | ||||||||||||||||||
| Swap Contracts, at value |
— | — | — | 8,239,767 | — | 8,239,767 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | — | $ | 2,717,208 | $ | 9,155,317 | $ | — | $ | 11,872,525 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liability Derivatives |
||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | (4,115,603 | ) | $ | — | $ | — | $ | (4,115,603 | ) | ||||||||||
| Swap Contracts, at value |
— | — | — | (3,571,965 | ) | — | (3,571,965 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | — | $ | (4,115,603 | ) | $ | (3,571,965 | ) | $ | — | $ | (7,687,568 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Emerging Country Debt Fund |
||||||||||||||||||||||||
| Asset Derivatives |
||||||||||||||||||||||||
| Investments, at value (rights and/or warrants) |
$ | — | $ | — | $ | — | $ | — | $ | 21,414,887 | $ | 21,414,887 | ||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
— | — | 1,824,725 | — | — | 1,824,725 | ||||||||||||||||||
| Options, at value |
441,967 | — | — | — | — | 441,967 | ||||||||||||||||||
| Swap Contracts, at value |
25,135,194 | — | — | 2,162,137 | — | 27,297,331 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | 25,577,161 | $ | — | $ | 1,824,725 | $ | 2,162,137 | $ | 21,414,887 | $ | 50,978,910 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liability Derivatives |
||||||||||||||||||||||||
| Options, at value |
$ | (1,656,669 | ) | $ | — | $ | — | $ | — | $ | — | $ | (1,656,669 | ) | ||||||||||
| Swap Contracts, at value |
(13,854,889 | ) | — | — | (14,474,696 | ) | — | (28,329,585 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | (15,511,558 | ) | $ | — | $ | — | $ | (14,474,696 | ) | $ | — | $ | (29,986,254 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Credit Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate Contracts |
Other Contracts |
Total | |||||||||||||||||||
| High Yield Fund |
||||||||||||||||||||||||
| Asset Derivatives |
||||||||||||||||||||||||
| Unrealized Appreciation on Futures Contracts |
$ | — | $ | — | $ | — | $ | 241,120 | $ | — | $ | 241,120 | ||||||||||||
| Swap Contracts, at value |
2,304,707 | — | — | — | — | 2,304,707 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | 2,304,707 | $ | — | $ | — | $ | 241,120 | $ | — | $ | 2,545,827 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liability Derivatives |
||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | (800,604 | ) | $ | — | $ | — | $ | (800,604 | ) | ||||||||||
| Unrealized Depreciation on Futures Contracts |
— | — | — | (14,578 | ) | — | (14,578 | ) | ||||||||||||||||
| Swap Contracts, at value |
(98,890 | ) | — | — | (958,674 | ) | — | (1,057,564 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | (98,890 | ) | $ | — | $ | (800,604 | ) | $ | (973,252 | ) | $ | — | $ | (1,872,746 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Opportunistic Income Fund |
||||||||||||||||||||||||
| Asset Derivatives |
||||||||||||||||||||||||
| Investments, at value (purchased options) |
$ | 201,358 | $ | — | $ | — | $ | — | $ | — | $ | 201,358 | ||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
— | — | 1,263 | — | — | 1,263 | ||||||||||||||||||
| Unrealized Appreciation on Futures Contracts |
— | — | — | 360,221 | — | 360,221 | ||||||||||||||||||
| Swap Contracts, at value |
29,768,137 | — | — | 265,979 | — | 30,034,116 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | 29,969,495 | $ | — | $ | 1,263 | $ | 626,200 | $ | — | $ | 30,596,958 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liability Derivatives |
||||||||||||||||||||||||
| Written Options, at value |
$ | (45,280 | ) | $ | — | $ | — | $ | — | $ | — | $ | (45,280 | ) | ||||||||||
| Swap Contracts, at value |
(7,091,558 | ) | — | — | (3,261,978 | ) | — | (10,353,536 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | (7,136,838 | ) | $ | — | $ | — | $ | (3,261,978 | ) | $ | — | $ | (10,398,816 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Subsequent events
As of June 30, 2019, GMO ended its voluntary waiver for the management fee for GMO U.S. Treasury Fund.
Effective June 30, 2019, GMO Opportunistic Income Fund will no longer charge a purchase premium or redemption fee.
For additional information regarding the Funds, please see the Funds’ most recent annual or semiannual shareholder report available on the Securities and Exchange Commission’s website, www.sec.gov, or visit GMO’s website at www.gmo.com.
GMO Climate Change Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Climate Change Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Climate Change Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Emerging Domestic Opportunities Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Emerging Domestic Opportunities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Emerging Domestic Opportunities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
Additional information on each restricted security is as follows:
| Issuer Description |
Acquisition Date | Cost | Value as a Percentage of Fund’s Net Assets |
Value as of May 31, 2019 |
||||||||
| NCH Eagle Fund LP | 4/6/09 | $ | — | 0.00% | $ | — | (h) | |||||
|
|
|
|||||||||||
A summary of outstanding financial instruments at May 31, 2019 is as follows:
Futures Contracts
| Number of Contracts + |
Type |
Expiration Date |
Notional Amount ($) |
Value/Net Unrealized Appreciation (Depreciation) ($) |
||||||||
| Buys | ||||||||||||
| 1,760 | Mini MSCI Emerging Markets | June 2019 | $ | 88,017,600 | $ | (3,171,856 | ) | |||||
|
|
|
|
|
|||||||||
| + | Buys - Fund is long the futures contract. |
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
Swap Contracts
OTC Total Return Swaps
| Fund Pays |
Fund Receives |
Counterparty |
Notional Amount |
Expiration Date |
Periodic |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
||||||||||||||||||||
| Depreciation of Total Return on Asustek Computer Inc + (Daily Fed Funds Rate minus 0.25%) |
Appreciation of Total Return on Asustek Computer Inc | MSCI | USD | 11,645,067 | 06/13/2019 | At Maturity | $ | — | $ | (262,093) | $ | (262,093) | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||
As of May 31, 2019, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover commitments or collateral requirements, if any, of the relevant broker or exchange.
GMO Foreign Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Foreign Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Foreign Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Foreign Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
As of May 31, 2019, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover commitments or collateral requirements, if any, of the relevant broker or exchange.
GMO Foreign Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
GMO International Equity Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO International Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO International Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO International Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO International Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
As of May 31, 2019, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover commitments or collateral requirements, if any, of the relevant broker or exchange.
GMO Quality Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Quality Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Resources Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Resources Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Resources Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Risk Premium Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
A summary of outstanding financial instruments at May 31, 2019 is as follows:
Written Options – Puts
Index Options
| Description |
Exercise Price |
Expiration Date |
Number of Contracts |
Notional Amount |
Value ($) | |||||||||||||||||||
| FTSE 100 Index |
7,300.00 | 06/21/19 | 426 | GBP | 30,508,885 | (999,228 | ) | |||||||||||||||||
| FTSE 100 Index |
7,350.00 | 06/21/19 | 315 | GBP | 22,559,387 | (895,022 | ) | |||||||||||||||||
| FTSE 100 Index |
7,275.00 | 06/21/19 | 100 | GBP | 7,161,710 | (211,901 | ) | |||||||||||||||||
| S&P 500 Index |
2,785.00 | 06/05/19 | 69 | USD | 18,989,214 | (288,420 | ) | |||||||||||||||||
| S&P 500 Index |
2,855.00 | 06/21/19 | 557 | USD | 153,289,742 | (6,143,710 | ) | |||||||||||||||||
| S&P 500 Index |
2,755.00 | 06/07/19 | 140 | USD | 38,528,840 | (419,440 | ) | |||||||||||||||||
| S&P 500 Index |
2,805.00 | 06/03/19 | 69 | USD | 18,989,214 | (363,147 | ) | |||||||||||||||||
| S&P 500 Index |
2,755.00 | 06/21/19 | 143 | USD | 39,354,458 | (662,090 | ) | |||||||||||||||||
| S&P 500 Index |
2,805.00 | 06/21/19 | 68 | USD | 18,714,008 | (494,360 | ) | |||||||||||||||||
| S&P 500 Index |
2,785.00 | 06/21/19 | 76 | USD | 20,915,656 | (464,360 | ) | |||||||||||||||||
|
|
|
|||||||||||||||||||||||
| |
TOTAL WRITTEN INDEX OPTIONS – PUTS (Premiums $5,879,217) |
|
$ | (10,941,678 | ) | |||||||||||||||||||
|
|
|
|||||||||||||||||||||||
As of May 31, 2019, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover commitments or collateral requirements, if any, of the relevant broker or exchange.
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
As of May 31, 2019, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover commitments or collateral requirements, if any, of the relevant broker or exchange.
GMO U.S. Equity Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO U.S. Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO U.S. Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO U.S. Equity Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
As of May 31, 2019, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover commitments or collateral requirements, if any, of the relevant broker or exchange.
Each Fund has elected to be treated or intends to elect to be treated and intends to qualify each tax year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. Each Fund intends to distribute its net investment income, if any, and 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. As of May 31, 2019, the approximate total cost, aggregate investment-level gross/net unrealized appreciation (depreciation) in the value of total investments (including total securities sold short, if any), and the net unrealized appreciation (depreciation) of outstanding financial instruments for U.S. federal income tax purposes were as follows:
| Total Investments | Outstanding Financial Instruments |
|||||||||||||||||||
| Fund Name | Aggregate Cost ($) |
Gross Unrealized Appreciation ($) |
Gross Unrealized (Depreciation) ($) |
Net Unrealized Appreciation (Depreciation) ($) |
Net Unrealized Appreciation (Depreciation) ($) |
|||||||||||||||
| Climate Change Fund |
117,613,387 | 4,696,828 | (15,501,277) | (10,804,449 | ) | — | ||||||||||||||
| Emerging Domestic Opportunities Fund |
1,499,771,217 | 52,337,092 | (74,843,078) | (22,505,986 | ) | — | ||||||||||||||
| Emerging Markets Fund |
3,149,351,064 | 292,858,616 | (271,258,742) | 21,599,874 | (3,433,949 | ) | ||||||||||||||
| Foreign Small Companies Fund |
19,538,934 | 775,630 | (3,380,454) | (2,604,824 | ) | (2,052 | ) | |||||||||||||
|
International Equity Fund |
3,700,750,186 | 185,323,021 | (493,943,604) | (308,620,583 | ) | (236,730 | ) | |||||||||||||
| Quality Fund |
4,225,368,376 | 2,111,964,562 | (82,015,059) | 2,029,949,503 | — | |||||||||||||||
| Resources Fund |
482,532,342 | 53,901,241 | (40,990,718) | 12,910,523 | — | |||||||||||||||
| Risk Premium Fund |
396,903,340 | 193,098 | (55,232) | 137,866 | (5,062,461 | ) | ||||||||||||||
| Tax-Managed International Equities Fund |
38,768,917 | 6,610,045 | (1,460,247) | 5,149,798 | (13,434 | ) | ||||||||||||||
| U.S. Equity Fund |
812,495,704 | 54,273,702 | (52,771,064) | 1,502,638 | (264,140 | ) | ||||||||||||||
Investments in affiliated companies and other Funds of the Trust
An affiliated company for the purposes of this disclosure is a company in which a Fund has or had direct ownership of at least 5% of the issuer’s voting securities or an investment in other funds of GMO Trust (“underlying funds”). A summary of the Funds’ transactions involving companies that are or were affiliates during the period ended May 31, 2019 is set forth below:
| Affiliate | Value, beginning of period |
Purchases | Sales Proceeds |
Dividend Income* |
Net Realized Gain (Loss) |
Net Increase/ Decrease in Unrealized Appreciation/ Depreciation |
Value, end of period |
|||||||||||||||||||||
| Climate Change Fund |
||||||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 4,595,622 | $ | 36,151,276 | $ | 34,378,598 | $ | 22,368 | ** | $ | (4 | ) | $ | 5 | $ | 6,368,301 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Emerging Domestic Opportunities Fund |
| |||||||||||||||||||||||||||
| CMI Ltd |
$ | 2,100,445 | $ | — | $ | 302,450 | $ | — | $ | (407,653 | ) | $ | 562,815 | $ | 1,953,157 | |||||||||||||
| Gayatri Projects Ltd |
23,320,306 | — | — | — | — | 5,579,471 | 28,899,777 | |||||||||||||||||||||
| GMO U.S. Treasury Fund |
26,772,924 | 198,324,829 | 165,640,000 | 284,825 | (1,941 | ) | 1,941 | 59,457,753 | ||||||||||||||||||||
| iShares MSCI Saudi Arabia ETF |
— | # | 29,021,458 | 31,136,038 | — | (12,200 | ) | 5,720 | — | ## | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Totals |
$ | 52,193,675 | $ | 227,346,287 | $ | 197,078,488 | $ | 284,825 | $ | (421,794 | ) | $ | 6,149,947 | $ | 90,310,687 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Emerging Markets Fund |
||||||||||||||||||||||||||||
| Anilana Hotels & Properties Ltd |
$ | 520,683 | $ | — | $ | — | $ | — | $ | — | $ | 10,052 | $ | 530,735 | ||||||||||||||
| Gayatri Highways Ltd |
143,172 | — | 6,251 | — | (47,050 | ) | 51,915 | 141,786 | ||||||||||||||||||||
| Gayatri Projects Ltd |
35,390,143 | — | — | — | — | 8,467,226 | 43,857,369 | |||||||||||||||||||||
| GMO U.S. Treasury Fund |
65,931,221 | 185,743,397 | 206,420,000 | 242,064 | — | — | 45,254,618 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Totals |
$ | 101,985,219 | $ | 185,743,397 | $ | 206,426,251 | $ | 242,064 | $ | (47,050 | ) | $ | 8,529,193 | $ | 89,784,508 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Foreign Small Companies Fund |
||||||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 434,353 | $ | 401,964 | $ | 430,000 | $ | 1,980 | $ | — | $ | — | $ | 406,317 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| International Equity Fund |
||||||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 64,555,168 | $ | 80,000,000 | $ | 113,000,000 | $ | 212,659 | $ | — | $ | — | $ | 31,555,168 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Affiliate | Value, beginning of period |
Purchases | Sales Proceeds |
Dividend Income* |
Net Realized Gain (Loss) |
Net Increase/ Decrease in Unrealized Appreciation/ Depreciation |
Value, end of period |
|||||||||||||||||||||
| Quality Fund |
|
|||||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 15,705,319 | $ | — | $ | — | $ | 100,589 | $ | — | $ | — | $ | 15,705,319 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Resources Fund |
|
|||||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 5,233,701 | $ | 74,533,773 | $ | 67,605,219 | $ | 73,022 | ** | $ | — | $ | — | $ | 12,162,255 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Tax-Managed International Equities Fund |
| |||||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 846,701 | $ | 2,320,000 | $ | 2,310,000 | $ | 3,183 | $ | 24 | $ | (24 | ) | $ | 856,701 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| U.S. Equity Fund |
|
|||||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 21,833,340 | $ | 26,650,000 | $ | 38,750,000 | $ | 73,348 | $ | — | $ | — | $ | 9,733,340 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| * | The table above includes estimated sources of all distributions paid by the underlying funds during the period March 1, 2019 through May 31, 2019. The actual tax characterization of distributions paid by the underlying funds will be determined at the end of the fiscal year ending February 29, 2020. |
| ** | Excludes income from investment of cash collateral from securities lending in GMO U.S. Treasury Fund (see Securities lending note). Income from investment of cash collateral from securities lending in GMO U.S. Treasury Fund was $62,456 and $174,666 in Climate Change Fund and Resources Fund, respectively, during the period. |
| # | Security was not an affiliate at the beginning of the period. |
| ## | No longer an affiliate at period end. |
Basis of presentation
The preparation of the Schedule of Investments in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires Grantham, Mayo, Van Otterloo & Co. LLC (“GMO”) to make estimates and assumptions that affect the reported amounts and disclosures in the Schedule of Investments during the reporting period. GMO believes the estimates and security valuations are appropriate; however, actual results may differ from those estimates, and the security valuations reflected in the Schedule of Investments may differ from the value a Fund ultimately realizes upon the sale of those securities.
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 GMO 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 that 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 price quoted (which may be based on a model) by the relevant clearing house. If an updated quote for a cleared derivative is not available when a Fund calculates its net asset value, the derivative will generally be valued using an industry standard model, which may differ from the model used by the relevant clearing house. Over-the-counter (“OTC”) derivatives are generally valued at the price determined by an industry standard model. Unlisted securities 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 of GMO Trust (“Trustees”) or persons acting at their direction pursuant to procedures approved by the Trustees. Because of the uncertainty inherent in fair value pricing, the price determined for a particular security may be materially different from the value realized upon its sale. The Funds and/or the underlying funds classify such securities as Level 3 (levels defined below). For the period ended May 31, 2019, the Funds did not reduce the value of any of their OTC derivatives contracts, if any, based on the creditworthiness of their counterparties. See “Derivative financial instruments” for a further discussion on valuation of derivatives.
The foregoing valuation methodologies are modified for equities that trade in non-U.S. securities markets that close before the close of the New York Stock Exchange (“NYSE”) due to time zone differences, including the value of equities 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 price will generally be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by the Trustees that are intended to reflect valuation changes through the NYSE close. 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).
“Quoted price” typically means the bid price for securities held long and the ask price for securities sold short. If a market quotation for a security does not involve a bid or an ask, the “quoted price” may be the price provided by a market participant or other
third-party pricing source in accordance with the market practice for that security. If an updated quoted price for a security is not available when a Fund calculates its net asset value, the Fund will generally use the last quoted price so long as GMO believes that the last quoted price continues to represent that security’s fair value.
In the case of derivatives, prices determined by a model may reflect an estimate of the average of bid and ask prices, regardless of whether a Fund has a long position or a short position.
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 methodologies 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.
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; 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 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; certain securities that are valued at the local price and adjusted by applying a premium or discount when the holdings exceed foreign ownership limitations; 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 equity securities valued based on the last traded exchange price adjusted for the movement in a relevant index and/or a security type conversion discount; certain securities that are valued using a price from a comparable security related to the same issuer; and certain recently acquired equity securities that have yet to begin trading that are valued at cost.
The following is a summary of the respective levels assigned to the Funds’ direct securities and derivatives, if any, as of May 31, 2019:
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Climate Change Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Argentina |
$ | 1,077,652 | $ | — | $ | — | $ | 1,077,652 | ||||||||
| Australia |
— | 1,759,691 | 0 | § | 1,759,691 | |||||||||||
| Brazil |
— | 2,366,122 | — | 2,366,122 | ||||||||||||
| Canada |
2,400,290 | — | — | 2,400,290 | ||||||||||||
| China |
153,252 | 2,902,138 | — | 3,055,390 | ||||||||||||
| Denmark |
— | 3,138,083 | — | 3,138,083 | ||||||||||||
| Finland |
— | 321,835 | — | 321,835 | ||||||||||||
| France |
— | 8,347,833 | — | 8,347,833 | ||||||||||||
| Germany |
— | 4,799,136 | — | 4,799,136 | ||||||||||||
| India |
— | 232,118 | — | 232,118 | ||||||||||||
| Israel |
— | 1,793,454 | — | 1,793,454 | ||||||||||||
| Italy |
— | 2,642,315 | — | 2,642,315 | ||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Climate Change Fund (continued) |
||||||||||||||||
| Asset Valuation Inputs (continued) |
||||||||||||||||
| Japan |
$ | — | $ | 10,142,674 | $ | — | $ | 10,142,674 | ||||||||
| Malaysia |
— | 82,625 | — | 82,625 | ||||||||||||
| Mexico |
1,219,829 | — | — | 1,219,829 | ||||||||||||
| Netherlands |
— | 1,167,048 | — | 1,167,048 | ||||||||||||
| Norway |
— | 3,971,220 | — | 3,971,220 | ||||||||||||
| Pakistan |
— | 853,345 | — | 853,345 | ||||||||||||
| Poland |
— | 1,912,318 | — | 1,912,318 | ||||||||||||
| Portugal |
— | 952,676 | — | 952,676 | ||||||||||||
| Russia |
— | 4,743,979 | — | 4,743,979 | ||||||||||||
| South Africa |
— | 22,550 | — | 22,550 | ||||||||||||
| South Korea |
— | 823,549 | — | 823,549 | ||||||||||||
| Spain |
13,139 | 3,428,993 | — | 3,442,132 | ||||||||||||
| Sweden |
— | 288,196 | — | 288,196 | ||||||||||||
| Switzerland |
— | 887,519 | — | 887,519 | ||||||||||||
| Taiwan |
— | 675,792 | — | 675,792 | ||||||||||||
| Thailand |
— | 106,775 | — | 106,775 | ||||||||||||
| Ukraine |
— | 824,681 | — | 824,681 | ||||||||||||
| United Kingdom |
— | 4,352,193 | — | 4,352,193 | ||||||||||||
| United States |
28,305,804 | — | — | 28,305,804 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
33,169,966 | 63,538,858 | 0 | § | 96,708,824 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Chile |
3,469,752 | — | — | 3,469,752 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
3,469,752 | — | — | 3,469,752 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
6,368,301 | — | — | 6,368,301 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
6,368,301 | — | — | 6,368,301 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
262,061 | — | — | 262,061 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
43,270,080 | 63,538,858 | 0 | § | 106,808,938 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 43,270,080 | $ | 63,538,858 | $ | 0 | § | $ | 106,808,938 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Emerging Domestic Opportunities Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Belgium |
$ | — | $ | 18,340,414 | $ | — | $ | 18,340,414 | ||||||||
| Brazil |
— | 45,971,778 | — | 45,971,778 | ||||||||||||
| China |
88,808,797 | 262,219,690 | — | 351,028,487 | ||||||||||||
| France |
— | 16,713,344 | — | 16,713,344 | ||||||||||||
| Germany |
— | 3,764,731 | — | 3,764,731 | ||||||||||||
| Hong Kong |
— | 29,716,125 | — | 29,716,125 | ||||||||||||
| India |
— | 158,317,167 | — | 158,317,167 | ||||||||||||
| Indonesia |
— | 47,327,443 | — | 47,327,443 | ||||||||||||
| Japan |
— | 5,055,298 | — | 5,055,298 | ||||||||||||
| Mexico |
20,458,092 | — | — | 20,458,092 | ||||||||||||
| Peru |
7,694,692 | — | — | 7,694,692 | ||||||||||||
| Philippines |
— | 21,275,265 | — | 21,275,265 | ||||||||||||
| Poland |
— | 5,322,370 | — | 5,322,370 | ||||||||||||
| Russia |
5,269,464 | 34,878,120 | — | 40,147,584 | ||||||||||||
| South Africa |
— | 25,239,389 | — | 25,239,389 | ||||||||||||
| South Korea |
— | 97,999,257 | — | 97,999,257 | ||||||||||||
| Switzerland |
— | 37,695,814 | — | 37,695,814 | ||||||||||||
| Taiwan |
2,665,325 | 155,710,094 | — | 158,375,419 | ||||||||||||
| Thailand |
— | 77,526,585 | — | 77,526,585 | ||||||||||||
| Turkey |
— | 4,281,700 | — | 4,281,700 | ||||||||||||
| United Arab Emirates |
— | 5,432,902 | — | 5,432,902 | ||||||||||||
| United Kingdom |
— | 24,755,269 | — | 24,755,269 | ||||||||||||
| Vietnam |
— | 6,942,319 | — | 6,942,319 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
124,896,370 | 1,084,485,074 | — | 1,209,381,444 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Emerging Domestic Opportunities Fund (continued) |
| |||||||||||||||
| Asset Valuation Inputs (continued) |
||||||||||||||||
| Preferred Stocks |
||||||||||||||||
| Brazil |
$ | — | $ | 48,981,524 | $ | — | $ | 48,981,524 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
— | 48,981,524 | — | 48,981,524 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Investment Funds |
||||||||||||||||
| Mexico |
8,541,080 | — | — | 8,541,080 | ||||||||||||
| Thailand |
— | 52,658,728 | — | 52,658,728 | ||||||||||||
| United States |
59,379,105 | — | — | 59,379,105 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL INVESTMENT FUNDS |
67,920,185 | 52,658,728 | — | 120,578,913 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Debt Obligations |
||||||||||||||||
| United States |
9,997,658 | — | — | 9,997,658 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
9,997,658 | — | — | 9,997,658 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
59,457,753 | — | — | 59,457,753 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
59,457,753 | — | — | 59,457,753 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
28,867,939 | — | — | 28,867,939 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
291,139,905 | 1,186,125,326 | — | 1,477,265,231 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 291,139,905 | $ | 1,186,125,326 | $ | — | $ | 1,477,265,231 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Emerging Markets Fund |
| |||||||||||||||
| Asset Valuation Inputs |
| |||||||||||||||
| Common Stocks |
||||||||||||||||
| Brazil |
$ | — | $ | 21,109,838 | $ | — | $ | 21,109,838 | ||||||||
| Chile |
— | 882,430 | — | 882,430 | ||||||||||||
| China |
35,367,684 | 945,939,419 | 679,753 | 981,986,856 | ||||||||||||
| Czech Republic |
— | 2,595,285 | — | 2,595,285 | ||||||||||||
| Greece |
— | 443,977 | — | 443,977 | ||||||||||||
| India |
5,312,160 | 97,258,378 | — | 102,570,538 | ||||||||||||
| Indonesia |
— | 17,814,540 | — | 17,814,540 | ||||||||||||
| Malaysia |
— | 1,023,996 | — | 1,023,996 | ||||||||||||
| Mexico |
2,154,677 | — | — | 2,154,677 | ||||||||||||
| Pakistan |
— | 10,951,698 | — | 10,951,698 | ||||||||||||
| Peru |
44,760 | — | — | 44,760 | ||||||||||||
| Philippines |
— | 13,692,406 | — | 13,692,406 | ||||||||||||
| Poland |
— | 116,062,548 | — | 116,062,548 | ||||||||||||
| Qatar |
— | 46,403,817 | — | 46,403,817 | ||||||||||||
| Russia |
6,877,950 | 513,385,595 | — | 520,263,545 | ||||||||||||
| South Africa |
— | 178,614,962 | — | 178,614,962 | ||||||||||||
| South Korea |
— | 43,048,179 | — | 43,048,179 | ||||||||||||
| Sri Lanka |
— | 530,735 | — | 530,735 | ||||||||||||
| Taiwan |
38,250,674 | 497,117,202 | — | 535,367,876 | ||||||||||||
| Thailand |
— | 29,938,803 | — | 29,938,803 | ||||||||||||
| Turkey |
— | 310,229,854 | — | 310,229,854 | ||||||||||||
| United Arab Emirates |
— | 15,717,746 | — | 15,717,746 | ||||||||||||
| United Kingdom |
— | 23,588,779 | — | 23,588,779 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
88,007,905 | 2,886,350,187 | 679,753 | 2,975,037,845 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Colombia |
1,253,851 | — | — | 1,253,851 | ||||||||||||
| Russia |
— | 46,084,128 | — | 46,084,128 | ||||||||||||
| South Korea |
— | 50,923,106 | — | 50,923,106 | ||||||||||||
| Taiwan |
— | — | 1,229,189 | 1,229,189 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
1,253,851 | 97,007,234 | 1,229,189 | 99,490,274 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Investment Funds |
||||||||||||||||
| Russia |
— | — | 0 | § | 0 | § | ||||||||||
| Thailand |
— | 10,254,394 | — | 10,254,394 | ||||||||||||
| United States |
36,679,123 | — | — | 36,679,123 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL INVESTMENT FUNDS |
36,679,123 | 10,254,394 | 0 | § | 46,933,517 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Emerging Markets Fund (continued) |
||||||||||||||||
| Asset Valuation Inputs (continued) |
||||||||||||||||
| Rights/Warrants |
||||||||||||||||
| Sri Lanka |
$ | — | $ | — | $ | 0 | § | $ | 0 | § | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL RIGHTS/WARRANTS |
— | — | 0 | § | 0 | § | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
45,254,618 | — | — | 45,254,618 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
45,254,618 | — | — | 45,254,618 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
4,234,684 | — | — | 4,234,684 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
175,430,181 | 2,993,611,815 | 1,908,942 | 3,170,950,938 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 175,430,181 | $ | 2,993,611,815 | $ | 1,908,942 | $ | 3,170,950,938 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs | ||||||||||||||||
| Derivatives^ |
||||||||||||||||
| Futures Contracts |
||||||||||||||||
| Equity Risk |
$ | (3,171,856 | ) | $ | — | $ | — | $ | (3,171,856 | ) | ||||||
| Swap Contracts |
||||||||||||||||
| Equity Risk |
— | (262,093 | ) | — | (262,093 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (3,171,856 | ) | $ | (262,093 | ) | $ | — | $ | (3,433,949 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| Foreign Small Companies Fund |
| |||||||||||||||
| Asset Valuation Inputs |
| |||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 657,473 | $ | — | $ | 657,473 | ||||||||
| Belgium |
— | 181,147 | — | 181,147 | ||||||||||||
| Brazil |
— | 140,649 | — | 140,649 | ||||||||||||
| Canada |
761,466 | — | — | 761,466 | ||||||||||||
| China |
— | 239,721 | — | 239,721 | ||||||||||||
| Denmark |
— | 77,315 | — | 77,315 | ||||||||||||
| Finland |
— | 40,841 | — | 40,841 | ||||||||||||
| France |
— | 966,465 | — | 966,465 | ||||||||||||
| Germany |
— | 741,038 | — | 741,038 | ||||||||||||
| Hong Kong |
— | 259,463 | — | 259,463 | ||||||||||||
| Hungary |
— | 17,137 | — | 17,137 | ||||||||||||
| India |
— | 266,402 | — | 266,402 | ||||||||||||
| Israel |
— | 18,685 | — | 18,685 | ||||||||||||
| Italy |
— | 571,089 | — | 571,089 | ||||||||||||
| Japan |
— | 3,456,731 | — | 3,456,731 | ||||||||||||
| Malaysia |
— | 156,648 | — | 156,648 | ||||||||||||
| Mexico |
17,468 | — | — | 17,468 | ||||||||||||
| Netherlands |
— | 265,873 | — | 265,873 | ||||||||||||
| Norway |
— | 460,064 | — | 460,064 | ||||||||||||
| Poland |
— | 111,161 | — | 111,161 | ||||||||||||
| Portugal |
— | 252,126 | — | 252,126 | ||||||||||||
| Singapore |
— | 522,813 | — | 522,813 | ||||||||||||
| South Africa |
— | 159,867 | — | 159,867 | ||||||||||||
| South Korea |
— | 1,086,160 | — | 1,086,160 | ||||||||||||
| Spain |
— | 392,447 | — | 392,447 | ||||||||||||
| Sweden |
— | 514,041 | — | 514,041 | ||||||||||||
| Switzerland |
— | 776,370 | — | 776,370 | ||||||||||||
| Taiwan |
— | 241,814 | — | 241,814 | ||||||||||||
| Turkey |
— | 29,452 | — | 29,452 | ||||||||||||
| United Kingdom |
— | 2,941,606 | — | 2,941,606 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
778,934 | 15,544,598 | — | 16,323,532 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Brazil |
— | 54,726 | — | 54,726 | ||||||||||||
| Germany |
— | 44,003 | — | 44,003 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
— | 98,729 | — | 98,729 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Foreign Small Companies Fund (continued) |
||||||||||||||||
| Asset Valuation Inputs (continued) |
||||||||||||||||
| Rights/Warrants |
||||||||||||||||
| Spain |
$ | 1,906 | $ | — | $ | — | $ | 1,906 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL RIGHTS/WARRANTS |
1,906 | — | — | 1,906 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
406,317 | — | — | 406,317 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
406,317 | — | — | 406,317 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
103,626 | — | — | 103,626 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
1,290,783 | 15,643,327 | — | 16,934,110 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 1,290,783 | $ | 15,643,327 | $ | — | $ | 16,934,110 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs | ||||||||||||||||
| Derivatives^ |
||||||||||||||||
| Futures Contracts |
||||||||||||||||
| Equity Risk |
$ | (2,052 | ) | $ | — | $ | — | $ | (2,052 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| International Equity Fund |
| |||||||||||||||
| Asset Valuation Inputs |
| |||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 131,156,286 | $ | — | $ | 131,156,286 | ||||||||
| Austria |
— | 2,317,903 | — | 2,317,903 | ||||||||||||
| Belgium |
— | 9,292,337 | — | 9,292,337 | ||||||||||||
| Denmark |
15,855,755 | 20,302,459 | — | 36,158,214 | ||||||||||||
| Finland |
— | 35,324,095 | — | 35,324,095 | ||||||||||||
| France |
32,063,642 | 277,336,014 | — | 309,399,656 | ||||||||||||
| Germany |
— | 267,720,024 | — | 267,720,024 | ||||||||||||
| Hong Kong |
— | 83,225,335 | — | 83,225,335 | ||||||||||||
| Ireland |
5,367,325 | 617,456 | — | 5,984,781 | ||||||||||||
| Israel |
811,130 | 2,470,312 | — | 3,281,442 | ||||||||||||
| Italy |
48,308,401 | 126,413,970 | — | 174,722,371 | ||||||||||||
| Japan |
— | 887,297,176 | — | 887,297,176 | ||||||||||||
| Malta |
— | — | 0 | § | 0 | § | ||||||||||
| Netherlands |
— | 197,026,687 | — | 197,026,687 | ||||||||||||
| New Zealand |
— | 1,603,294 | — | 1,603,294 | ||||||||||||
| Norway |
— | 108,615,797 | — | 108,615,797 | ||||||||||||
| Portugal |
— | 12,072,166 | — | 12,072,166 | ||||||||||||
| Singapore |
— | 19,439,048 | — | 19,439,048 | ||||||||||||
| Spain |
— | 105,546,685 | — | 105,546,685 | ||||||||||||
| Sweden |
— | 180,959,936 | — | 180,959,936 | ||||||||||||
| Switzerland |
— | 188,457,135 | — | 188,457,135 | ||||||||||||
| United Kingdom |
25,597,085 | 549,112,900 | 0 | § | 574,709,985 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
128,003,338 | 3,206,307,015 | 0 | § | 3,334,310,353 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Germany |
— | 15,984,107 | — | 15,984,107 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
— | 15,984,107 | — | 15,984,107 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Rights/Warrants |
||||||||||||||||
| Spain |
18,910 | — | — | 18,910 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL RIGHTS/WARRANTS |
18,910 | — | — | 18,910 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
31,555,168 | — | — | 31,555,168 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
31,555,168 | — | — | 31,555,168 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
10,261,065 | — | — | 10,261,065 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
169,838,481 | 3,222,291,122 | 0 | § | 3,392,129,603 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 169,838,481 | $ | 3,222,291,122 | $ | 0 | § | $ | 3,392,129,603 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| International Equity Fund (continued) |
| |||||||||||||||
| Liability Valuation Inputs |
| |||||||||||||||
| Derivatives^ |
||||||||||||||||
| Futures Contracts |
||||||||||||||||
| Equity Risk |
$ | (236,730 | ) | $ | — | $ | — | $ | (236,730 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Quality Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Germany |
$ | — | $ | 197,881,012 | $ | — | $ | 197,881,012 | ||||||||
| Switzerland |
— | 458,594,308 | — | 458,594,308 | ||||||||||||
| Taiwan |
— | 135,685,195 | — | 135,685,195 | ||||||||||||
| United Kingdom |
— | 329,540,430 | — | 329,540,430 | ||||||||||||
| United States |
5,062,129,108 | — | — | 5,062,129,108 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
5,062,129,108 | 1,121,700,945 | — | 6,183,830,053 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Debt Obligations |
||||||||||||||||
| United States |
45,998,225 | — | — | 45,998,225 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
45,998,225 | — | — | 45,998,225 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
15,705,319 | — | — | 15,705,319 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
15,705,319 | — | — | 15,705,319 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
9,784,282 | — | — | 9,784,282 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
5,133,616,934 | 1,121,700,945 | — | 6,255,317,879 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 5,133,616,934 | $ | 1,121,700,945 | $ | — | $ | 6,255,317,879 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Resources Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Argentina |
$ | 4,809,280 | $ | — | $ | — | $ | 4,809,280 | ||||||||
| Australia |
— | 21,057,156 | — | 21,057,156 | ||||||||||||
| Austria |
— | 4,355,355 | — | 4,355,355 | ||||||||||||
| Brazil |
— | 10,332,696 | — | 10,332,696 | ||||||||||||
| Canada |
10,967,231 | — | — | 10,967,231 | ||||||||||||
| China |
— | 6,547,911 | — | 6,547,911 | ||||||||||||
| Colombia |
3,084,820 | — | — | 3,084,820 | ||||||||||||
| Denmark |
— | 7,115,516 | — | 7,115,516 | ||||||||||||
| France |
— | 21,926,374 | — | 21,926,374 | ||||||||||||
| Germany |
— | 2,589,863 | — | 2,589,863 | ||||||||||||
| Hungary |
— | 3,834,387 | — | 3,834,387 | ||||||||||||
| India |
— | 4,620,224 | — | 4,620,224 | ||||||||||||
| Indonesia |
— | 662,787 | — | 662,787 | ||||||||||||
| Israel |
— | 14,534,044 | — | 14,534,044 | ||||||||||||
| Italy |
— | 658,207 | — | 658,207 | ||||||||||||
| Japan |
— | 19,676,758 | — | 19,676,758 | ||||||||||||
| Mexico |
1,362,254 | — | — | 1,362,254 | ||||||||||||
| Norway |
— | 24,891,788 | — | 24,891,788 | ||||||||||||
| Pakistan |
— | 2,795,149 | — | 2,795,149 | ||||||||||||
| Poland |
— | 9,330,325 | — | 9,330,325 | ||||||||||||
| Russia |
— | 69,706,091 | — | 69,706,091 | ||||||||||||
| Singapore |
— | — | 0 | § | 0 | § | ||||||||||
| South Africa |
— | 3,447,273 | — | 3,447,273 | ||||||||||||
| South Korea |
— | 4,006,703 | — | 4,006,703 | ||||||||||||
| Spain |
33,787 | 9,216,895 | — | 9,250,682 | ||||||||||||
| Sweden |
— | 9,084,063 | — | 9,084,063 | ||||||||||||
| Switzerland |
— | 971,514 | — | 971,514 | ||||||||||||
| Thailand |
— | 10,538,647 | — | 10,538,647 | ||||||||||||
| Turkey |
— | 1,432,709 | — | 1,432,709 | ||||||||||||
| Ukraine |
— | 3,243,940 | — | 3,243,940 | ||||||||||||
| United Kingdom |
— | 78,117,341 | — | 78,117,341 | ||||||||||||
| United States |
73,499,126 | — | — | 73,499,126 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
93,756,498 | 344,693,716 | 0 | § | 438,450,214 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Resources Fund (continued) |
||||||||||||||||
| Asset Valuation Inputs (continued) |
||||||||||||||||
| Preferred Stocks |
||||||||||||||||
| Brazil |
$ | — | $ | 20,492,738 | $ | — | $ | 20,492,738 | ||||||||
| Chile |
14,852,965 | — | — | 14,852,965 | ||||||||||||
| Russia |
— | 8,427,296 | — | 8,427,296 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
14,852,965 | 28,920,034 | — | 43,772,999 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Rights/Warrants |
||||||||||||||||
| Singapore |
— | — | 0 | § | 0 | § | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL RIGHTS/WARRANTS |
— | — | 0 | § | 0 | § | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
12,162,255 | — | — | 12,162,255 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
12,162,255 | — | — | 12,162,255 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
1,057,397 | — | — | 1,057,397 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
121,829,115 | 373,613,750 | 495,442,865 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 121,829,115 | $ | 373,613,750 | $ | 0 | § | $ | 495,442,865 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Risk Premium Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Debt Obligations |
||||||||||||||||
| United States |
$ | 321,500,831 | $ | — | $ | — | $ | 321,500,831 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
321,500,831 | — | — | 321,500,831 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
75,540,375 | — | — | 75,540,375 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
397,041,206 | — | — | 397,041,206 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 397,041,206 | $ | — | $ | — | $ | 397,041,206 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives^ |
||||||||||||||||
| Written Options |
||||||||||||||||
| Equity Risk |
$ | (8,835,527 | ) | $ | (2,106,151 | ) | $ | — | $ | (10,941,678 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Tax-Managed International Equities Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 1,689,850 | $ | — | $ | 1,689,850 | ||||||||
| Austria |
— | 56,660 | — | 56,660 | ||||||||||||
| Belgium |
— | 167,784 | — | 167,784 | ||||||||||||
| Brazil |
— | 759,881 | — | 759,881 | ||||||||||||
| Canada |
1,229,301 | — | — | 1,229,301 | ||||||||||||
| China |
— | 982,754 | — | 982,754 | ||||||||||||
| Denmark |
99,120 | 139,346 | — | 238,466 | ||||||||||||
| Finland |
— | 558,508 | — | 558,508 | ||||||||||||
| France |
56,602 | 4,308,933 | — | 4,365,535 | ||||||||||||
| Germany |
— | 2,090,010 | — | 2,090,010 | ||||||||||||
| Hong Kong |
— | 776,512 | — | 776,512 | ||||||||||||
| Hungary |
— | 75,358 | — | 75,358 | ||||||||||||
| India |
— | 310,051 | — | 310,051 | ||||||||||||
| Ireland |
21,945 | 179,631 | — | 201,576 | ||||||||||||
| Italy |
369,766 | 1,394,104 | — | 1,763,870 | ||||||||||||
| Japan |
— | 10,546,000 | — | 10,546,000 | ||||||||||||
| Malta |
— | — | 0 | § | 0 | § | ||||||||||
| Mexico |
5,876 | — | — | 5,876 | ||||||||||||
| Netherlands |
38,780 | 1,789,862 | — | 1,828,642 | ||||||||||||
| Norway |
— | 685,316 | — | 685,316 | ||||||||||||
| Philippines |
— | 12,690 | — | 12,690 | ||||||||||||
| Poland |
— | 10,746 | — | 10,746 | ||||||||||||
| Portugal |
— | 89,939 | — | 89,939 | ||||||||||||
| Russia |
— | 632,955 | — | 632,955 | ||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
|
Tax-Managed International Equities Fund (continued) |
||||||||||||||||
| Asset Valuation Inputs (continued) |
||||||||||||||||
| Singapore |
$ | — | $ | 166,516 | $ | — | $ | 166,516 | ||||||||
| South Africa |
— | 217,673 | — | 217,673 | ||||||||||||
| South Korea |
95,243 | 769,723 | — | 864,966 | ||||||||||||
| Spain |
— | 1,496,929 | — | 1,496,929 | ||||||||||||
| Sweden |
— | 1,730,591 | — | 1,730,591 | ||||||||||||
| Switzerland |
— | 2,234,631 | — | 2,234,631 | ||||||||||||
| Taiwan |
— | 451,846 | — | 451,846 | ||||||||||||
| Thailand |
— | 68,520 | — | 68,520 | ||||||||||||
| Turkey |
— | 36,578 | — | 36,578 | ||||||||||||
| United Kingdom |
308,925 | 5,929,372 | — | 6,238,297 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
2,225,558 | 40,359,269 | 0 | § | 42,584,827 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Brazil |
— | 13,921 | — | 13,921 | ||||||||||||
| Germany |
— | 305,643 | — | 305,643 | ||||||||||||
| South Korea |
— | 816 | — | 816 | ||||||||||||
| Sweden |
— | 16,917 | — | 16,917 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
— | 337,297 | — | 337,297 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Rights/Warrants |
||||||||||||||||
| Spain |
618 | — | — | 618 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL RIGHTS/WARRANTS |
618 | — | — | 618 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
856,701 | — | — | 856,701 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
856,701 | — | — | 856,701 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
139,272 | — | — | 139,272 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
3,222,149 | 40,696,566 | 0 | § | 43,918,715 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 3,222,149 | $ | 40,696,566 | $ | 0 | § | $ | 43,918,715 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs | ||||||||||||||||
| Derivatives^ |
||||||||||||||||
| Futures Contracts |
||||||||||||||||
| Equity Risk |
$ | (13,434 | ) | $ | — | $ | — | $ | (13,434 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| U.S. Equity Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
$ | 802,525,165 | $ | — | $ | — | $ | 802,525,165 | ||||||||
| Mutual Funds |
9,733,340 | — | — | 9,733,340 | ||||||||||||
| Short-Term Investments |
1,739,837 | — | — | 1,739,837 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
813,998,342 | — | — | 813,998,342 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 813,998,342 | $ | — | $ | — | $ | 813,998,342 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs | ||||||||||||||||
| Derivatives^ |
||||||||||||||||
| Futures Contracts |
||||||||||||||||
| Equity Risk |
$ | (264,140 | ) | $ | — | $ | — | $ | (264,140 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
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.
| ^ | In the tables above derivatives are based on market values, rather than the notional amounts of derivatives, except for forward currency contracts which are based on unrealized appreciation/(depreciation). 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. Excludes purchased options, fully funded total return swaps and rights/warrants, if any, which are included in investments. |
| § | Represents the interest in securities that were determined to have a value of zero at May 31, 2019. |
The underlying funds held at period end are classified above as Level 1. Certain 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 which may have been valued using significant unobservable inputs. For a summary of the levels assigned to the underlying funds’ direct securities and derivatives, if any, please refer to the underlying funds’ portfolio valuation notes which are available on the Securities and Exchange Commission’s website at www.sec.gov or on GMO’s website at www.gmo.com.
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). At May 31, 2019, there were no material Level 3 classes of investments or derivatives with significant unobservable inputs subject to this additional disclosure.
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, 2019 |
Purchases | Sales | Accrued Discounts/ Premiums |
Total Realized Gain/ (Loss) |
Change in Unrealized Appreciation (Depreciation) |
Transfer into Level 3 |
Transfer out of Level 3 |
Balances May 31, 2019 |
Net Change in Unrealized Appreciation (Depreciation) from Investments Still Held as of May 31, 2019 |
|||||||||||||||||||||||||||||||||||
| Emerging Markets Fund |
|
|||||||||||||||||||||||||||||||||||||||||||
| Common Stocks |
||||||||||||||||||||||||||||||||||||||||||||
| China |
$ | 678,870 | $ | — | $ | — | $ | — | $ | — | $ | 883 | $ | — | $ | — | $ | 679,753 | $ | 883 | ||||||||||||||||||||||||
| Preferred Stocks |
||||||||||||||||||||||||||||||||||||||||||||
| Taiwan |
— | — | — | — | — | — | 1,229,189 | ‡ | — | 1,229,189 | — | |||||||||||||||||||||||||||||||||
| Investment Funds |
|
|||||||||||||||||||||||||||||||||||||||||||
| Russia |
103,243 | — | (99,504 | ) | — | (3,115,188 | ) | 3,111,449 | — | — | 0 | § | 3,111,449 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Total Investments |
$ | 782,113 | $ | — | $ | (99,504 | ) | $ | — | $ | (3,115,188 | ) | $ | 3,112,332 | $ | 1,229,189 | $ | — | $ | 1,908,942 | $ | 3,112,332 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Foreign Small Companies Fund |
|
|||||||||||||||||||||||||||||||||||||||||||
| Common Stocks |
||||||||||||||||||||||||||||||||||||||||||||
| United Kingdom |
$ | 2,872 | $ | — | $ | (3,739 | ) | $ | — | $ | (1,220 | ) | $ | 2,087 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Total Investments |
$ | 2,872 | $ | — | $ | (3,739 | ) | $ | — | $ | (1,220 | ) | $ | 2,087 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Tax-Managed International Equities Fund |
|
|||||||||||||||||||||||||||||||||||||||||||
| Common Stocks |
||||||||||||||||||||||||||||||||||||||||||||
| India |
$ | 3,578 | $ | — | $ | — | $ | — | $ | — | $ | 772 | $ | — | $ | (4,350 | )‡ | $ | — | $ | — | |||||||||||||||||||||||
| United Kingdom |
5,655 | — | — | — | — | (3,513 | ) | — | (2,142 | )‡ | — | — | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Total Investments |
$ | 9,233 | $ | — | $ | — | $ | — | $ | — | $ | (2,741 | ) | $ | — | $ | (6,492 | ) | $ | — | $ | — | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| ‡ | Financial assets transferred between levels were due to a change in observable and/or unobservable inputs. |
| § | Represents the interest in securities that were determined to have a value of zero at May 31, 2019. |
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 Eastern 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 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.
Securities lending
The Funds may make secured loans of its portfolio securities amounting to not more than one-third of its total assets. Securities loans are required to be collateralized by cash with a value equal to at least 100% of the market value of the loaned securities (marked to market daily). Funds participating in securities lending receive compensation for lending their securities from any net investment income earned on the investment of cash collateral, net of fee rebates paid to the borrower and fees paid to the lending agent. Cash collateral received is generally invested in GMO U.S. Treasury Fund. State Street Bank and Trust Company serves as the Funds’ lending agent.
A Fund that lends its portfolio securities bears the risk of delay in the recovery of loaned securities, including possible impairment of a Fund’s ability to vote the securities, and of loss of rights in the collateral should the borrower fail financially. A Fund also bears the risk that the value of investments made with collateral may decline. A Fund bears the risk of total loss with respect to the investment of collateral.
At May 31, 2019, securities on loan at value and cash collateral from securities on loaned are listed below:
| Fund Name | Value of securities on loan |
Cash collateral |
||||||
| Climate Change Fund |
$4,947,224 | $5,143,295 | ||||||
| Resources Fund |
$5,487,757 | $5,938,555 | ||||||
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 some of 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 0.12% of the Fund’s total net assets as of May 31, 2019. 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 GMO Trust’s Board of Trustees. Any costs in respect of this matter will be borne by EMF.
Recently-issued accounting guidance
In March 2017, the Financial Accounting Standards Board issued ASU 2017-08, Premium Amortization of Purchased Callable Debt Securities, which amends the amortization period for certain purchased callable debt securities. Under this ASU, the premium amortization of purchased callable debt securities that have explicit, non-contingent call features, and are callable at fixed prices, will be amortized to the earliest call date. The guidance will be applied on a modified retrospective basis. It is in effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.
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.
| Climate Change Fund |
Emerging Domestic Opportunities Fund |
Emerging Markets Fund |
Foreign Small Companies Fund |
International Equity Fund |
Quality Fund |
Resources Fund |
Risk Premium Fund |
Tax-Managed International Equities Fund |
U.S. Equity Fund | |||||||||||
| Commodities Risk | X | X | ||||||||||||||||||
| Counterparty Risk | X | X | X | X | X | X | X | X | X | X | ||||||||||
| Credit Risk | X | X | ||||||||||||||||||
| Currency Risk | X | X | X | X | X | X | X | X | X | |||||||||||
| Derivatives and Short Sales Risk | X | X | X | X | X | X | X | X | X | X | ||||||||||
| Focused Investment Risk | X | X | X | X | X | X | X | X | X | X | ||||||||||
| Fund of Funds Risk | X | X | ||||||||||||||||||
| Illiquidity Risk | X | X | X | X | X | X | X | X | X | X | ||||||||||
| Large Shareholder Risk | X | X | X | X | X | X | X | X | X | X | ||||||||||
| Leveraging Risk | X | X | X | X | X | X | X | X | X | |||||||||||
| Management and Operational Risk | 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 | ||||||||||
| Market Risk – Equities | X | X | X | X | X | X | X | X | X | X | ||||||||||
| Market Risk – Fixed Income | X | X | ||||||||||||||||||
| Climate Change Fund |
Emerging Domestic Opportunities Fund |
Emerging Markets Fund |
Foreign Small Companies Fund |
International Equity Fund |
Quality Fund |
Resources Fund |
Risk Premium Fund |
Tax-Managed International Equities Fund |
U.S. Equity Fund | |||||||||||
| Merger Arbitrage Risk | X | X | ||||||||||||||||||
| Non-Diversified Funds | X | X | X | X | X | X | X | |||||||||||||
| Non-U.S. Investment Risk | X | X | X | X | X | X | X | X | X | |||||||||||
| Small Company Risk | 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 GMO 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 or other investment companies (collectively, “Underlying Funds”) is exposed to the risks to which the Underlying Funds in which it invests are exposed, as well as the risk that the Underlying Funds will not perform as expected. 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 Underlying Funds.
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.
• COMMODITIES RISK. Commodity prices can be extremely volatile and are affected by many factors. Exposure to commodities can cause the value of a Fund’s shares to decline or fluctuate in a rapid and unpredictable manner. In addition, the value of commodity-related derivatives or indirect investments in commodities may fluctuate more than the commodity, commodities or commodity index to which they relate. See “Derivatives and Short Sales Risk” for a discussion of specific risks of a Fund’s derivatives investments, including commodity-related derivatives.
• 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 be forced to hold investments it would prefer to sell, resulting in losses for the Fund. In addition, a Fund may suffer losses if a counterparty fails to comply with applicable laws, regulations or other requirements. The Funds are not subject to any limit on their exposure to any one counterparty nor to a requirement that counterparties with whom they enter into contracts maintain a specific rating by a nationally recognized rating organization. Counterparty risk is pronounced during unusually adverse market conditions and is particularly acute in environments in which financial services firms are exposed (as they were in 2008) 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 (whether or not the obligation is collateralized), 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 during which events may occur that prevent settlement. Counterparty risk also is greater when a Fund has entered into derivatives contracts with a single or small group of counterparties as it sometimes does as a result of its use of swaps and other OTC derivatives. Funds that use swap contracts are subject, in particular, to the creditworthiness of the counterparties because some types of swap contracts have terms longer than six months (and, in some cases, decades). The creditworthiness of a counterparty can be expected to 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 if the Fund’s interest in the collateral is not perfected or additional collateral is not posted promptly as required. GMO’s view with respect to a particular counterparty is subject to change. The fact, however, that it changes adversely (whether due to external events or otherwise) does not mean that a Fund’s existing transactions with that counterparty will necessarily be terminated or modified. In addition, a Fund may enter into new transactions with a counterparty that GMO no longer considers a desirable counterparty (for example, re-establishing the transaction with a lower notional amount or entering into a countervailing trade with the same
counterparty). Counterparty risk also will be greater if a counterparty’s obligations exceed the value of the collateral held by the Fund (if any).
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 has been and will continue to be affected by new rules and regulations relating to the derivatives market. As described under “Derivatives and Short Sales Risk,” 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. 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. Also, in the event of a counterparty’s (or its affiliate’s) insolvency, the possibility exists that the Funds’ ability to exercise remedies, such as the termination of transactions, netting of obligations or realization on collateral, could be stayed or eliminated under new special resolution regimes adopted in the United States, the European Union and various other jurisdictions. Such regimes provide governmental authorities broad authority to intervene when a financial institution is experiencing financial difficulty. In particular, in the European Union, governmental authorities could reduce, eliminate, or convert to equity the liabilities to the Funds of a counterparty experiencing financial difficulties (sometimes referred to as a “bail in”).
• CREDIT RISK. This is the risk that the issuer or guarantor of a fixed income investment or the obligors of obligations underlying an asset-backed security will be unable or unwilling to satisfy their obligation to pay principal and interest or otherwise to honor their obligations in a timely manner. The market price of a fixed income investment will normally decline as a result (and/or in anticipation) of the issuer’s, guarantor’s, or obligors’ failure to meet their payment obligations or a downgrading of the credit rating of the investment. This risk is particularly acute in environments in which financial services firms are exposed (as they were in 2008) to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Fixed income investments also are subject to illiquidity risk. See “Illiquidity Risk.”
All fixed income investments 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, a government or government entity, 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 term of a fixed income investment. 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 or quasi-sovereign debt involve the risk that the governmental entities responsible for repayment will be unable or unwilling to pay interest and repay principal when due. A governmental entity’s ability and willingness to pay interest and repay principal in a timely manner can be expected to 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. Investments in quasi-sovereign issuers are subject to the additional risk that the issuer will default independently of its sovereign. Sovereign debt risk is greater for fixed income securities issued or guaranteed by emerging countries.
In many cases, the credit risk and market price of a fixed income investment are reflected in its credit ratings, and a Fund holding a rated investment is subject to the risk that the investment’s rating will be downgraded, resulting in a decrease in the market price of the fixed income investment.
Securities issued by the U.S. government historically have presented minimal credit risk. However, events in 2011 led several major rating agencies to downgrade the long-term credit rating of U.S. bonds and introduced greater uncertainty about the repayment by the United States of its obligations. A further credit rating downgrade could decrease, and a default in the payment of principal or interest on U.S. government securities would decrease, the market price of a Fund’s investments and increase the volatility of a Fund’s portfolio.
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 obligations of issuers also may be 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 and Short Sales Risk” for more information regarding risks associated with the use of credit default swaps.
The extent to which the market price of a fixed income investment changes in response to a credit event depends on many factors and can be difficult to predict. For example, even though the effective duration of a long-term floating rate security is very short, an adverse credit event or change in the perceived creditworthiness of its issuer could cause its market price to decline much more than its effective duration would suggest.
Credit risk is particularly pronounced for below investment grade investments (commonly referred to as “high yield” or “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 investments have speculative characteristics, often are less liquid than higher quality investments, present a greater risk of default and are more susceptible to real or perceived adverse industry conditions. Investments in distressed or defaulted or other low quality debt instruments generally are considered speculative and typically involve substantial risks not normally associated with investments in higher quality investments, including adverse business, financial or economic conditions that lead to payment defaults and insolvency proceedings on the part of their issuers. In particular, distressed or defaulted obligations might be repaid, if at all, only after lengthy workout or bankruptcy proceedings, during which the issuer does not make any interest or other payments and a Fund incurs additional expenses in seeking recovery. If GMO’s assessment of the eventual recovery value of a distressed or defaulted debt instrument proves incorrect, a Fund is likely to lose a substantial portion or all of its investment or may be required to accept cash or instruments worth less than its original investment. In the event of a default of sovereign debt, the Funds may be unable to pursue legal action against the issuer.
• 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 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. 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 is likely to realize a loss on both the hedging instrument and the currency being hedged. Currency exchange rates can fluctuate significantly for many reasons. See “Market Disruption and Geopolitical Risk.”
Many of the Funds use derivatives to take currency positions that are under- or over-weighted (in some cases significantly) relative to the currency exposure of their portfolios and their benchmarks. If the exchange rates of the currencies involved do not move as expected, a Fund could lose money on both its holdings of a particular currency and the derivative. See also “Non-U.S. Investment Risk.”
Some currencies are illiquid (e.g., some emerging country currencies), and a Fund may not be able to convert them into U.S. dollars or may only be able to do so at an unfavorable exchange rate. Exchange rates for many currencies are affected by exchange control regulations.
Derivative transactions in foreign currencies (such as futures, forwards, options, and swaps) may involve leveraging risk in addition to currency risk, as described 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”).
• DERIVATIVES AND SHORT SALES 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, such as securities, commodities or currencies, reference rates, such as interest rates, currency exchange rates or inflation rates, or indices. Derivatives involve the risk that their value may not change as expected relative to changes in the value of the assets, rates, or indices they are designed to track. Derivatives include, but are not limited to, futures contracts, forward contracts, foreign currency contracts, swap contracts, contracts for differences, options on securities and indices, options on futures contracts, options on swap contracts, interest rate caps, floors and collars, reverse repurchase agreements, and other OTC contracts.
The use of derivatives involves risks that are in addition to, and potentially greater than, the risks of investing directly in securities. 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, or the position transferred, only with the consent of the other party to the contract. If the counterparty defaults, the Fund will still 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 the cost and unpredictability of legal proceedings. The Fund, therefore, runs the risk of being unable to obtain payments GMO believes are owed to it under an OTC derivatives contract or of those payments being delayed or made only after the Fund has incurred the cost of litigation.
A Fund may invest in derivatives that (i) do not require the counterparty to post collateral (e.g., foreign 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 fundamental fair (or 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 a greater risk of not being able to recover what it is owed if the counterparty defaults. Derivatives also present other risks described in this section, including market risk, illiquidity 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 and exposes the Funds to the risk that the pricing models used do 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, there is a risk that inaccurate valuations will result in increased cash payments to counterparties, under-collateralization 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 cost 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.
Swap contracts and other OTC derivatives are highly susceptible to illiquidity risk (see “Illiquidity Risk”) and counterparty risk (see “Counterparty Risk”). These derivatives also are subject to documentation risk, which is the risk that ambiguities, inconsistencies or errors in the documentation relating to a derivative transaction will lead to a dispute with the counterparty or unintended investment results. In addition, see “Commodities Risk” for a discussion of risks specific to commodity-related derivatives. 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 could result in a loss substantially greater than the amount invested in the derivative itself. See “Leveraging Risk.”
Special tax rules apply to a Fund’s transactions in derivatives, which could increase the taxes payable by shareholders subject to U.S. income taxation. In particular, a Fund’s derivative transactions potentially could cause a substantial portion of the Fund’s distributions to be taxable at ordinary income tax rates. In addition, the tax treatment of a Fund’s use of derivatives will sometimes be unclear. See the Funds’ Prospectus and Statement of Additional Information for more information.
The Securities and Exchange Commission has proposed a rule under the Investment Company Act of 1940, as amended (the “1940 Act”), regulating the use by registered investment companies of derivatives and many related instruments. That rule, if adopted as proposed, would, among other things, restrict a Fund’s ability to engage in derivatives transactions or so increase the cost of derivatives transactions that GMO would be unable to implement a Fund’s investment strategy.
Derivatives Regulation. The U.S. government has enacted legislation that provides for regulation of the derivatives market, including clearing, margin, reporting, and registration requirements. The European Union (and some other countries) have adopted similar requirements, which affect a Fund when it enters into a derivatives transaction with a counterparty subject to those requirements. Because these U.S. and European Union requirements are evolving, their impact on the Funds remains unclear.
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 hold cleared derivatives through accounts at clearing members. In cleared derivative positions, the Funds 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 some ways, cleared derivative arrangements are less favorable to mutual funds than bilateral arrangements, for example, by requiring that funds provide more margin for their cleared derivative positions. Also, as a general matter, in contrast to a bilateral derivative position, following a period of notice to a Fund, a clearing member at any time can require termination of an existing cleared derivative position or an increase in the margin required at the outset of a transaction. Clearing houses also have broad rights to increase the margin required for existing positions or to terminate those positions at any time. Any increase in margin requirements or termination of existing cleared derivative positions 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 margin for cleared derivative positions in excess of a clearing house’s margin requirements typically is held by the clearing member (see “Counterparty Risk”). Also, a Fund is subject to risk if it enters into a derivatives transaction that is required to be cleared (or that GMO 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 position might have to be terminated, and the Fund could lose some or all of the benefit of the position, including loss of an increase in the value of the position and 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 the documentation for typical bilateral derivatives. 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. Also, such documentation typically does not provide the Funds any remedies if the clearing member defaults or becomes
insolvent. While futures contracts entail similar risks, the risks are likely to be more pronounced for cleared derivatives due to their more limited liquidity and market history.
Some types of cleared derivatives are required to be executed on an exchange or on a swap execution facility. A swap execution facility is a trading platform where multiple market participants can execute derivatives by accepting bids and offers made by multiple other participants in the platform. While this execution requirement is designed to increase transparency and liquidity in the cleared derivatives market, trading on a swap execution facility can create additional costs for the Funds. For example, swap execution facilities typically charge fees, and if a Fund executes derivatives on a swap execution facility through a broker intermediary, the intermediary may impose fees as well. Also, a Fund may be required to indemnify a swap execution facility, or a broker intermediary who executes cleared derivatives on a swap execution facility on the Fund’s behalf, against any losses or costs that may be incurred as a result of the Fund’s transactions on the swap execution facility.
If a Fund wishes to execute a package of transactions that include a swap that is required to be executed on a swap execution facility as well as other transactions (for example, a transaction that includes both a security and an interest rate swap that hedges interest rate exposure with respect to such security), the Fund may be unable to execute all components of the package on the swap execution facility. In that case, the Fund would need to trade some components of the package on the swap execution facility and other components in another manner, which could subject the Fund to the risk that some components would be executed successfully and others would not, or that the components would be executed at different times, leaving the Fund with an unhedged position for a period of time.
The U.S. government and the European Union have adopted mandatory minimum margin requirements for bilateral derivatives. New variation margin requirements became effective in March 2017 and new initial margin requirements will become effective in 2020. Such requirements could increase the amount of margin a Fund needs to post in connection with its derivatives transactions and, therefore, make derivatives transactions more expensive.
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 or otherwise limiting liquidity. The implementation of the clearing requirement has increased the cost of derivatives transactions for the Funds, since the Funds have to pay fees to their clearing members and are typically required to post more margin for cleared derivatives than they historically posted for bilateral derivatives. The cost of derivatives transactions is expected to increase further as clearing members raise their fees to cover the cost of additional capital requirements and other regulatory changes applicable to the clearing members. These rules and regulations are evolving, and, therefore, their potential impact on the Funds and the financial system are not yet known. While the new rules and 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 they will achieve that result, and in the meantime, as noted above, central clearing and related requirements expose the Funds to new kinds of costs and risks.
Options. The Funds, particularly Risk Premium Fund, are permitted to write options. The market price of an option is affected by many factors, including changes in the market prices or dividend rates of underlying securities (or in the case of indices, the securities in such indices); the time remaining before expiration; changes in interest rates or exchange rates; and changes in the actual or perceived volatility of the relevant stock market and underlying securities. 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 at any time before the option’s expiration, the writer of an American-style option has no control over when it will be required to fulfill its obligations as a writer of the option. (The writer of a European-style option is not subject to this risk because the holder may only exercise the option on its expiration date.)
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, GMO, and other funds advised by GMO likely constitute such a group. When applicable, these limits 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-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.
Short Investment Exposure. Some Funds may sell securities or currencies short as part of their investment programs in an attempt to increase their returns or for hedging purposes. Short sales expose a Fund to the risk that it will be required to acquire, convert, or exchange a security or currency to replace the borrowed security or currency when the security or currency sold short has appreciated in value, thus resulting in a loss to the Fund. Purchasing a security or currency to close out a short position can itself cause the price of the security or currency to rise further, thereby exacerbating any losses. A Fund that sells short a security or currency it does not own typically pays borrowing fees to a broker and is required to pay the broker any dividends or interest it receives on a borrowed security.
A Fund also may create short investment exposure by taking a derivative position in which the value of the derivative moves in the opposite direction from the price of an underlying asset, pool of assets, rate, currency or index.
Short sales of securities or currencies a Fund does not own and “short” derivative positions involve forms of investment leverage, and the amount of the Fund’s potential loss is theoretically unlimited. A 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 or takes “short” derivative positions.
• FOCUSED INVESTMENT RISK. Funds with investments that are focused in a limited number of asset classes, sectors, industries, issuers, currencies, countries, or regions (or in sectors within a country or region) that are subject to the same or similar risk factors and Funds with investments whose prices are closely correlated are subject to greater overall risk than Funds with investments that are more diversified or whose prices are not as closely correlated.
A Fund that invests in the securities of a small number of issuers has greater exposure to adverse developments affecting those issuers and to a decline in the market price of those issuers’ securities than Funds investing in the securities of a larger number of issuers. 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 a particular geographic region, country, or market (e.g., emerging markets), or to sectors within a region, country, or market (e.g., Russian oil) have more exposure to regional and country economic risks than funds making 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 the value of the currency of 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.”
Because Resources Fund concentrates its investments in the natural resources sector, it 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 are often more volatile (particularly in the short term) 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 the supplies they purchase and the products they sell, which can affect their profitability, and are often capital-intensive and use significant amounts of leverage. Projects in the natural resources sector may take extended periods of time to complete, and companies cannot ensure that the market will be favorable at the time the project begins production. Companies in the natural resources sector also may be subject to special risks associated with natural or man-made disasters. In addition, companies in 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, companies in the natural resources sector can be significantly affected by import controls, worldwide competition and cartels, and 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.
Because Climate Change Fund focuses its investments in securities of companies involved in climate change-related industries, the Fund will be more susceptible to events or factors affecting these companies, and the market prices of its portfolio securities may be more volatile than those of mutual funds that are more diversified. Climate Change Fund is particularly exposed to such developments as changes in global and regional climates, environmental protection regulatory actions, changes in government standards and subsidy levels, changes in taxation and other domestic and international political, regulatory and economic developments (such as potential cut-backs on funding for the Environmental Protection Agency and other policies and actions by the Trump administration). Companies involved in alternative fuels also may be adversely affected by the increased use of, or decreases in prices for, oil or other fossil fuels. In addition, scientific developments, such as breakthroughs in the remediation of global warming, and changes in governmental policies relating to the effects of pollution may affect investments in pollution control, which could in turn affect these companies. Such companies also may be significantly affected by technological changes in industries focusing on energy, pollution control and mitigation of global warming. Because society’s focus on climate change is relatively new, the emphasis and direction of governmental policies is subject to significant change, and rapid technological change could render even new approaches and products obsolete. Some companies involved in climate change-related industries have more limited operating histories and smaller market capitalizations on average than companies in other sectors. As a result of these and other factors, the market prices of securities of companies involved in climate change-related industries tend to be considerably more volatile than those of companies in more established sectors and industries.
Because Risk Premium Fund may hold a limited number of options contracts relating to relatively few stock indices, the Fund is subject to focused investment risk.
• FUND OF FUNDS RISK. Funds that invest in Underlying Funds (including underlying GMO Funds) are exposed to the risk that the Underlying Funds will not perform as expected. The Funds also are indirectly exposed to all of the risks to which the Underlying Funds are exposed.
Because, absent reimbursement, a Fund bears the fees and expenses of an Underlying Fund (including purchase premiums and redemption fees, if any) in which it invests, the Fund will incur additional expenses when investing in an Underlying Fund. 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.
In addition, to the extent a Fund invests in shares of underlying GMO Funds, it is indirectly subject to Large Shareholder Risk when an underlying GMO Fund has large shareholders (e.g., other GMO Funds). See “Large Shareholder Risk.”
At any particular time, one Underlying Fund may be purchasing securities of an issuer whose securities are being sold by another Underlying Fund, resulting in a Fund that holds each Underlying Fund indirectly incurring the costs associated with the two transactions without changing its exposure to those securities.
Investments in exchange-traded funds (“ETFs”) involve the risk that an ETF’s performance will not track the performance of the index it is designed to track. In addition, ETFs often use derivatives to track the performance of an index, and, therefore, investments in those ETFs are subject to the same derivatives risks discussed in “Derivatives and Short Sales Risk.” ETFs are investment companies that typically hold a portfolio of securities designed to track the price, performance, and dividend yield of a particular securities market index (or sector of an index). As investment companies, ETFs incur their own management and other fees and expenses, such as trustee fees, operating expenses, registration fees, and marketing expenses, and a Fund that invests in ETFs bears a proportionate share of such fees and expenses. As a result, an investment by a Fund in an ETF could result in higher expenses and lower returns than if the Fund were to invest directly in the securities underlying the ETF.
A Fund’s investments in one or more Underlying Funds could affect the amount, timing and character of its distributions and could cause the Fund to recognize taxable income in excess of the cash generated by such investments, requiring the Fund in turn to liquidate investments at disadvantageous times to generate cash needed to make required distributions.
• ILLIQUIDITY RISK. Illiquidity 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, delays or prevents a Fund from selling particular securities or closing derivative positions at desirable prices. In addition to these risks, a Fund is exposed to illiquidity 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). To the extent a Fund’s investments include asset-backed securities, distressed, defaulted or other low quality debt securities, emerging country debt or equity securities or securities of companies with smaller market capitalizations or smaller total float-adjusted market capitalizations, it is subject to increased illiquidity risk. 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 price at which they were valued when held by the Fund. Illiquidity risk also tends to be greater in times of financial stress. For example, inflation-protected securities issued by the U.S. Treasury (“TIPS”) have experienced periods of greatly reduced liquidity during disruptions in fixed income markets, such as the events surrounding the bankruptcy of Lehman Brothers in 2008. Less liquid securities are often more susceptible than other securities to price declines when market prices decline generally.
A Fund may buy securities or other investments that are less liquid than those in its benchmark. The more illiquid investments a Fund has, the greater the likelihood of its paying redemption proceeds in-kind.
The Securities and Exchange Commission has adopted Rule 22e-4 under the 1940 Act, which requires each Fund to adopt a liquidity risk management program to assess and manage its illiquidity risk. Under its program, each Fund will be required to classify its investments into specific liquidity categories and monitor compliance with limits on investments on illiquid investments. The term “illiquid investments” for purposes of the program means investments that GMO reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the investments. The Funds do not expect Rule 22e-4 to have a significant effect on investment operations. While the liquidity risk management program attempts to assess and manage illiquidity risk, there is no guarantee it will be effective in reducing the illiquidity risk inherent in a Fund’s investments.
Historically, credit markets have experienced periods characterized by a significant lack of liquidity, and they may experience similar periods in the future. If a Fund is required to sell illiquid investments to satisfy collateral posting requirements or to meet redemptions, those sales could put significant downward price pressure on the market price of the securities being sold.
A Fund’s, and particularly Risk Premium Fund’s, ability to use options as part of its investment program depends on the liquidity of the options market. That market may not be liquid when a Fund seeks to close out an option position, and the hours of trading for options on an exchange may not conform to the hours during which the underlying securities 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 those securities that are not immediately reflected in the options markets. If a Fund receives a redemption request and is unable to close out an option it has sold, the Fund would temporarily be leveraged in relation to its assets.
• LARGE SHAREHOLDER RISK. To the extent 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 by forcing the Fund to sell portfolio securities, at disadvantageous prices to raise the cash needed to satisfy the redemption request. In addition, the Funds and other accounts over which GMO has investment discretion that invest in the Funds are not limited in how often they may sell Fund shares. The Asset Allocation Funds and separate accounts managed by GMO for its clients hold substantial percentages of the outstanding shares of many Funds, and asset allocation decisions by GMO may result in substantial redemptions from (or investments in) those Funds, adversely affecting the Fund’s performance to the extent that the Fund is required to sell investments when it would not have otherwise done so. Redemptions of a large number of shares also may increase transaction costs or, by necessitating a sale of portfolio securities, have adverse tax consequences for Fund shareholders. Further, from time to time a Fund may trade in anticipation of a purchase or redemption order that ultimately is not received or differs in size from the actual order, leading to temporary underexposure or overexposure to the Fund’s intended investment program. In addition, redemptions and purchases of shares by a large shareholder or group of shareholders could limit the use of any capital loss carryforwards to offset future realized capital gains (if any) and other losses that would otherwise reduce distributable net investment income. In addition, large shareholders may limit or prevent a Fund’s use of equalization for U.S. federal tax purposes.
To the extent a Fund invests in other GMO Funds subject to large shareholder risk, the Fund is indirectly subject to this risk.
• LEVERAGING RISK. The use of traditional borrowing (including to meet redemption requests) 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, similar to short sales, have the potential for unlimited loss, regardless of the size of the initial investment. Similarly, a Fund’s portfolio will be leveraged and can incur losses if the value of the Fund’s assets declines between the time a redemption request is received or deemed to be received by a Fund (which in some cases is the business day prior to actual receipt by the Fund of the redemption request) and the time at which the Fund liquidates assets to meet redemption requests. Such a decline in the value of a Fund’s assets is more likely in the case of Funds managed from GMO’s non-U.S. offices for which the time period between the determination of net asset value and corresponding liquidation of assets could be longer due to time zone differences. In the case of redemptions representing a significant portion of a Fund’s portfolio, the leverage effects described above can be significant and could expose a Fund and non-redeeming shareholders to material losses.
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.
Some Funds are permitted to purchase securities on margin or to sell securities short, either of which creates leverage. To the extent the market prices of securities pledged to counterparties to secure a Fund’s margin account or short sale decline, the Fund may be required to deposit additional funds with the counterparty to avoid having the pledged securities liquidated.
• MANAGEMENT AND OPERATIONAL RISK. Each Fund is subject to management risk because it relies on GMO to achieve its investment objective. Each Fund runs the risk that GMO’s investment techniques will fail to produce desired results and cause the Fund to incur significant losses. GMO also may fail to use derivatives effectively, choosing to hedge or not to hedge positions at disadvantageous times. In the case of Tax-Managed International Equities Fund, GMO’s tax-management strategies may be ineffective or limited by market conditions, the timing of cash flows into and out of the Fund, and current or future changes in tax legislation and regulation.
For many Funds, GMO uses quantitative models as part of its investment process and in making investment decisions for those Funds. Those Funds run the risk that GMO’s models will not accurately predict future market movements or characteristics. In addition, those models are based on assumptions that can limit their effectiveness, and they rely on data that is subject to limitations (e.g., inaccuracies, staleness) that could adversely affect their predictive value. The Funds also run the risk that GMO’s assessment of an investment (including a security’s fundamental fair (or intrinsic) value) is wrong.
The usefulness of GMO’s models may be diminished by the faulty incorporation of mathematical models into computer code, by reliance on proprietary and third-party technology that includes errors, omissions, bugs, or viruses, and by the retrieval of limited or imperfect data for processing by the model. These risks are more likely to occur when GMO is making changes to its models. Any of these risks could adversely affect a Fund’s performance.
There can be no assurance that key GMO personnel will continue to be employed by GMO. The loss of their services could have an adverse impact on GMO’s ability to achieve the Funds’ investment objectives.
The Funds also are subject to a risk of loss resulting from other services provided by GMO and other service providers, including pricing, administrative, accounting, tax, legal, custody, transfer agency, and other operational 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 could prevent a Fund from benefiting from investment gains or avoiding losses. In addition, a service provider may be unable to provide a net asset value for a Fund or share class on a timely basis. GMO is not contractually liable to the Funds for losses associated with operational risk absent its 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 contractual limitations on their liability to the Funds for losses resulting from their errors.
The Funds and their service providers (including GMO) are susceptible to cyber-attacks and to technological malfunctions that have effects similar to those of a cyber-attack. Cyber-attacks include, among others, stealing or corrupting data maintained online or digitally, preventing legitimate users from accessing information or services on a website, releasing confidential information without authorization, and disrupting operations. Successful cyber-attacks against, or security breakdowns of, a Fund, GMO, a sub-adviser, or a custodian, transfer agent, or other service provider may adversely affect the Fund or its shareholders. For instance, cyber-attacks may interfere with the processing of shareholder transactions, affect a Fund’s ability to calculate its net asset value, cause the release or misappropriation of private shareholder information or confidential Fund information, impede trading, cause reputational damage, and subject the Fund to regulatory fines, penalties or financial losses, and additional compliance costs. The Funds’ service providers regularly experience cyber-attacks and expect they will continue to do so. While GMO has established business continuity plans and systems designed to prevent, detect and respond to cyber-attacks, those plans and systems have inherent limitations. Similar types of cyber security risks also are present for issuers of securities in which the Funds invest, which could have material adverse consequences for those issuers and result in a decline in the market price of their securities. Furthermore, as a result of cyber-attacks, technological disruptions, malfunctions, or failures, an exchange or market may close or suspend trading in specific securities or the entire market, which could prevent the Funds from, among other things, buying or selling securities or accurately pricing their investments. The Funds cannot directly control cyber security plans and systems of their service providers, the Funds’ counterparties, issuers of securities in which the Funds invest, or securities markets and exchanges.
• MARKET DISRUPTION AND GEOPOLITICAL RISK. The Funds are subject to the risk that geopolitical and other events (e.g., wars and terrorism) will disrupt securities markets and adversely affect global economies and markets, thereby reducing the value of the Funds’ investments. Sudden or significant changes in the supply or prices of commodities or in other economic inputs (e.g., the marked decline in oil prices in late 2014) may have material and unexpected effects on both global securities markets and individual countries, regions, sectors, companies, or industries. Terrorism in the United States and around the world 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 or other fraudulent trading practices, which could disrupt their orderly functioning or reduce the prices of securities traded on them, including securities held by the Funds. Fraud and other deceptive practices committed by an issuer of securities held by a Fund undermine GMO’s due diligence efforts and, when discovered, will likely cause a steep decline in the market price of those securities and thus negatively affect the value of the Fund’s investments. In addition, when discovered, financial fraud may contribute to overall market volatility, which can negatively affect a Fund’s investment program.
While the U.S. government has always honored its credit obligations, a default by the U.S. government (as has been threatened in recent years) would be highly disruptive to the U.S. and global securities markets and could significantly reduce the value of the Funds’ investments. Similarly, political events within the United States have resulted, and may in the future result, in shutdowns of government services, which could adversely affect the U.S. economy, reduce the value of many Fund investments, and impair the operation of the U.S. or other securities markets. Uncertainty over the sovereign debt of several European Union countries, as well as uncertainty over the continued existence of the European Union itself, has disrupted and may continue to disrupt markets in the United States and around the world. If a country changes its currency or if the European Union dissolves, the world’s securities markets likely will be significantly disrupted. In June 2016, the United Kingdom approved a referendum to leave the European Union (commonly known as “Brexit”). In March 2017, the United Kingdom commenced the formal process of withdrawing from the European Union, which provided the United Kingdom with two years to negotiate an exit agreement with the European Union, with a deadline of March 29, 2019. On November 25, 2018, European Union leaders approved the terms of the United Kingdom’s withdrawal from the European Union, which the United Kingdom’s Parliament subsequently rejected. The European Union has agreed to delay the United Kingdom’s exit until October 31, 2019. While negotiations continue, it remains unclear whether a negotiated withdrawal agreement can be reached. If the United Kingdom leaves the European Union
without finalizing agreements on trade, finance and other key elements, the withdrawal may lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European Union laws to replicate or replace. The potential implications of a “no deal” scenario include a shrinking United Kingdom economy and far-reaching disruptions to world securities markets. Brexit has resulted in volatility in European and global markets and could have a negative long-term effect on financial markets in the United Kingdom and throughout Europe. The consequences of the United Kingdom’s or another country’s exit from the European Union also could threaten the stability of the euro for remaining countries and could negatively affect the financial markets of other countries in the European region and beyond.
War, terrorism, economic uncertainty, and related geopolitical events, such as sanctions, tariffs, the imposition of exchange controls or other cross-border trade barriers, 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. For example, the U.S. has imposed economic sanctions, which consist of asset freezes, restrictions on dealings in debt and equity, and certain industry-specific restrictions. These types of sanctions have recently been applied against the Venezuelan and Russian governments, as well as against certain Russian and Venezuelan officials and institutions. These sanctions, any additional sanctions or intergovernmental actions, or even the threat of further sanctions, may result in a decline of the value and liquidity of Russian and Venezuelan securities, a weakening of the Russian and Venezuelan currencies or other adverse consequences to their respective economies. Sanctions impair
the ability of the Funds to buy, sell, receive or deliver those securities and/or assets that are within the scope of the sanctions. In addition, 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 market price 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 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 a Fund has focused its investments in the stock index of a particular region, adverse geopolitical and other events in that region could have a disproportionate impact on the Fund.
• MARKET RISK. All of the Funds are subject to market risk, which is the risk that the market price of their holdings will decline. Market risks include:
Equities — Funds that invest in equities run the risk that the market price of an equity will decline. That decline may be attributable to factors affecting the issuer, such as a failure to keep up with technological advances or reduced demand for its goods or services, or to factors affecting a particular industry, such as a decline in demand, labor or raw material shortages, or increased production costs. A decline also may result from 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. The market prices of equities are volatile and can decline in a rapid or unpredictable manner. If a Fund purchases an equity for what GMO believes is less than its fundamental fair (or intrinsic) value, the Fund runs the risk that the market price of the equity will not appreciate or will decline due to GMO’s incorrect assessment. 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 writing put options on stock indices, GMO expects the Fund’s net asset value to decline 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 relative to those indices when the markets associated with those indices rise sharply because of the Fund’s lack of exposure to the upside of those markets.
Fixed Income — Funds that invest in fixed income investments (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 market-related factors, including rising interest rates and widening credit spreads, or decreased liquidity due to market 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 uncertainty about their credit quality and the reliability of their payment streams. Some fixed income investments 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 investment. When interest rates rise, fixed income investments also may be repaid more slowly than anticipated, causing a decrease in their market price. During periods of economic uncertainty and change, the market price of a Fund’s investments in below investment grade investments (commonly referred to as “high yield” or “junk bonds”) may be particularly volatile. Often, below investment grade investments are subject to greater sensitivity to interest rate and economic changes than higher rated investments 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 price at which they were valued when held by the Fund. See “Credit Risk” and “Illiquidity Risk” for more information about these risks.
A risk run by each Fund with significant investment in fixed income investments 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 greater for Funds investing in fixed income investments with longer durations. In addition, in managing some Funds, GMO may seek to evaluate potential investments in part by considering the volatility of interest rates. The value of a Fund’s investments would likely be significantly reduced if GMO’s assessment proves incorrect.
The extent to which the market price of a fixed income investment 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 its fixed rate is locked in for a longer period of time. Floating-rate or variable-rate investments, 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 investments have durations that move in the opposite direction from short-term interest rates and thus tend to underperform fixed rate investments when interest rates rise but outperform them when interest rates decline. Fixed income investments paying no interest, such as zero coupon and principal-only securities, are subject to additional interest rate risk.
The market price of inflation-indexed bonds (including TIPS) typically declines during periods of rising real interest rates (i.e. nominal interest rate minus inflation) and increases during periods of declining real 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.
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 GMO waives or reduces its management fees.
Fixed income securities denominated in foreign currencies also are subject to currency risk. See “Currency Risk.”
In response to government intervention, economic or market developments, or other factors, markets for fixed income investments may experience periods of high volatility, reduced liquidity or both. During those periods, a Fund could have unusually high shareholder redemptions, requiring it to generate cash by selling portfolio investments when it would otherwise not do so, including at unfavorable prices. Moreover, fixed income investments will be difficult to value during such periods. During the last ten years, central banks and governmental financial regulators, including the U.S. Federal Reserve, kept interest rates historically low. However, more recently, the U.S. Federal Reserve has increased interest rates. A substantial increase in interest rates could have an adverse effect on prices for fixed income investments and on the performance of the Funds. Other actions by central banks or regulators (such as intervention in foreign currency markets or currency controls) also could have a material adverse effect on the Funds.
• MERGER ARBITRAGE RISK. Some Funds engage in transactions in which the Fund purchases securities at prices below the value of the consideration GMO expects the Fund to receive upon consummation of a proposed merger, exchange offer, tender offer, or other similar transaction (“merger arbitrage transactions”). The purchase price paid by the Fund may substantially exceed the market price of the securities before the announcement of the transaction.
If a Fund engages in merger arbitrage and the merger later appears unlikely to be consummated or, in fact, is not consummated or is delayed, the market price of the securities purchased by the Fund is likely to decline sharply, resulting in losses to the Fund. The risk/reward payout of merger arbitrage strategies typically is asymmetric, with the losses in failed transactions often far exceeding the gains in successful transactions. A proposed merger can fail to be consummated for many reasons, including regulatory and antitrust restrictions, industry weakness, company specific events, failed financings, and general market declines.
Merger arbitrage strategies are subject to the risk of overall market movements, and a Fund may experience losses even if a transaction is consummated. A Fund’s investments in derivatives or short sales of securities to hedge or otherwise adjust long or short investment exposure in connection with a merger arbitrage may not perform as GMO expected or may otherwise reduce the Fund’s gains or increase its losses. Also, a Fund may be unable to hedge against market fluctuations or other risks. In addition, a Fund may sell securities short when GMO expects the Fund to receive the securities upon consummation of a transaction; if the Fund does not actually receive the securities, the Fund will have an unintended “naked” short position and may be required to cover its short position at a time when the securities sold short have appreciated in value, thus resulting in a loss. A Fund’s merger arbitrage transactions could result in tax inefficiencies, including larger distributions of net investment income and net realized capital gains than otherwise would be the case.
• 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. As a result, they are likely to be subject to greater credit, market and other risks than if their investments were more diversified, and poor performance by a single investment is likely to have a greater impact on their performance.
The following Funds are not “diversified” investment companies within the meaning of the 1940 Act:
| • | Climate Change Fund |
| • | Emerging Domestic Opportunities Fund |
| • | Emerging Markets Fund |
| • | Quality Fund |
| • | Resources Fund |
| • | Risk Premium Fund |
| • | Tax-Managed International Equities Fund |
• NON-U.S. INVESTMENT RISK. Funds that invest in non-U.S. securities are subject to more risks than Funds that invest only in U.S. securities. Many non-U.S. securities markets list securities of only a small number of companies in a small number of industries. As a result, the market prices of securities traded on those markets (particularly in emerging markets) often fluctuate more than those of U.S. securities. In addition, issuers of non-U.S. securities (particularly those tied economically to emerging countries) often are not subject to as much regulation as U.S. issuers, and the reporting, accounting, custody, and auditing standards to which those issuers are subject often are not as rigorous as U.S. standards. Transactions in non-U.S. securities generally involve higher commission rates, transfer taxes, and custodial costs. In addition, some countries limit a Fund’s ability to profit from short-term trading (as defined in that country).
A Fund may be subject to non-U.S. taxation, including potentially on a retroactive basis, on (i) capital gains it realizes or dividends, interest, or other amounts it realizes or accrues in respect of non-U.S. investments; (ii) transactions in those investments; and (iii) repatriation of proceeds generated from the sale or other disposition of those investments. A Fund may seek a refund of taxes paid, but its efforts may not be successful, in which case the Fund will have incurred additional expenses for no benefit. In addition, a Fund’s pursuit of a tax refund may subject it to administrative and judicial proceedings in the country where it is seeking the refund. A Fund’s decision to seek a refund is in its sole discretion, and, particularly in light of the cost involved, it may decide not to seek a refund, even if it is entitled to one. The outcome of a Fund’s efforts to obtain a refund is inherently unpredictable. In some cases, the amount of a refund could be material to a Fund’s net asset value. Accordingly, a refund is not typically reflected in the Fund’s net asset value until it is received or until GMO is confident that it will be received. Generally, absent a determination that a refund is collectible and free from significant contingencies, a refund is not reflected in a Fund’s net asset value. For information on possible special Singapore tax consequences of an investment in a Fund, see the Funds’ Prospectus and Statement of Additional Information.
Investing in non-U.S. securities also exposes a Fund to the risk of nationalization, expropriation, or confiscatory taxation of assets of their issuers, government involvement in every country, including the U.S., or in the affairs of specific companies or industries (including wholly or partially state-owned enterprises), 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, including the imposition of economic sanctions.
In some non-U.S. securities markets, custody arrangements for securities provide significantly less protection than custody arrangements in U.S. securities 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 United States. Fluctuations in currency exchange rates also affect the market prices of a Fund’s non-U.S. securities (see “Currency Risk”).
The Funds need a license to invest directly in securities traded in many non-U.S. securities 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 to invest in a particular market is terminated or suspended, to obtain exposure to that 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 GMO’s clients may preclude a Fund from obtaining a similar license. In addition, the activities of a GMO client could cause the suspension or revocation of a Fund’s license.
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); increased risk of nationalization, expropriation, or other confiscation of issuer assets; greater governmental involvement in the economy or in the affairs of specific companies or industries (including wholly or partially state-owned enterprises); less governmental supervision and regulation of securities markets and participants in those markets; controls on 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; less rigorous auditing and financial reporting standards and resulting unavailability of reliable information about issuers; slower clearance and settlement; difficulties in obtaining and enforcing legal judgments; and significantly smaller market capitalizations of issuers. In addition, the economies of
emerging countries may depend predominantly on only a few industries or revenues from particular commodities and often are more volatile than the economies of developed countries.
• SMALL COMPANY RISK. Companies with smaller market capitalizations tend to have limited product lines, markets, or financial resources, lack the competitive strength of larger companies, have less experienced managers and depend on fewer key employees than larger companies. 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. Market risk and illiquidity risk are particularly pronounced for the securities of these companies.
Temporary Defensive Positions. Temporary defensive positions are positions that are inconsistent with a Fund’s principal investment strategies and are taken in response to adverse market, economic, political or other conditions. 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.
Derivative financial instruments
Derivatives are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices that are used 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 indices, and include foreign currency contracts, swap contracts, reverse repurchase agreements, and other exchange-traded and OTC contracts.
The Funds may use derivatives to gain long investment exposure to 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 GMO 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 GMO 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, 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 currencies in which its equities are traded.
The Funds may use derivatives to effect transactions intended as substitutes for securities lending.
Each of the Funds may have investment exposures in excess of its net assets (i.e. the Fund may be leveraged). While GMO 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 Risk Premium 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 is subject to heightened risk of loss. Risk Premium 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.
A Fund’s foreign currency exposure may differ significantly from the currencies in which its equities are traded.
Certain derivatives transactions that may be 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, if any, through clearing members, who are members of derivatives clearing houses. Certain other derivatives, including futures and certain options, are transacted on exchanges. The Funds hold exchange-traded derivatives through clearing brokers that are typically members of the exchanges. In contrast to bilateral derivatives transactions, following a period of advance notice to the Fund, clearing brokers generally can require termination of existing cleared or exchange-traded derivatives transactions at any time and increases in margin above the margin that it required at the beginning of a transaction. Clearing houses and exchanges 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 GMO 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 May 31, 2019, the following table shows how the Fund used these derivatives (marked with an X):
| Type of Derivative and Objective for Use |
Climate Change Fund |
Emerging Domestic Opportunities Fund |
Emerging Markets Fund |
Foreign Small |
International Equity Fund |
Resources Fund |
Risk Premium Fund |
Tax-Managed Equities |
U.S. Fund | |||||||||
| Forward currency contracts | ||||||||||||||||||
| 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 | X | ||||||||||||
| Maintain the diversity and liquidity of the portfolio |
X | X | X | X | ||||||||||||||
| Options (Written) | ||||||||||||||||||
| Substitute for direct equity investment |
X | |||||||||||||||||
| Swap contracts | ||||||||||||||||||
| Substitute for direct equity investment |
X | |||||||||||||||||
| Achieve returns comparable to holding and lending a direct equity position |
X | |||||||||||||||||
| Rights and/or warrants | ||||||||||||||||||
| Received as a result of corporate actions |
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 price 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 settled.
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 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 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 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. 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. “Quanto” options are cash-settled options in which the underlying asset (often an index) is denominated in a currency other than the currency in which the option is settled. 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, if any, which is disclosed in the Schedule of Investments, 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, 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.
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 market of 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 industry models and inputs provided by primary pricing sources.
Swap contracts
The Funds may directly or indirectly use various swap contracts, including, without limitation, swaps on securities and securities indices, total return swaps, interest rate swaps, basis swaps, currency swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps, municipal swaps, dividend swaps, volatility swaps, correlation 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. A liquidation payment received or made at the termination of the swap contract is recorded as realized gain or loss. The periodic frequency of payments received may differ from periodic payment frequencies made and their frequencies could be monthly, quarterly, semiannually, annually or at maturity.
Interest rate swap contracts involve an exchange by the parties of their respective commitments to pay or rights 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). Basis swaps are interest rate swaps that involve the exchange of two floating interest rate payments and may involve the exchange of two different currencies.
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. 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.
The values assigned to swap contracts may differ significantly from the values 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 as of May 31, 2019:
The risks referenced in the tables below 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.
| Credit Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate Contracts |
Other Contracts |
Total | |||||||||||||||||||
| Emerging Markets Fund |
||||||||||||||||||||||||
| Asset Derivatives |
||||||||||||||||||||||||
| Investments, at value (rights and/or warrants) |
$ | — | $ | 0 | § | $ | — | $ | — | $ | — | $ | 0 | § | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 0 | § | $ | — | $ | — | $ | — | $ | 0 | § | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liability Derivatives |
||||||||||||||||||||||||
| Unrealized Depreciation on Futures Contracts |
$ | — | $ | (3,171,856 | ) | $ | — | $ | — | $ | — | $ | (3,171,856 | ) | ||||||||||
| Swap Contracts, at value |
— | (262,093 | ) | — | — | — | (262,093 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (3,433,949 | ) | $ | — | $ | — | $ | — | $ | (3,433,949 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Foreign Small Companies Fund |
||||||||||||||||||||||||
| Asset Derivatives |
||||||||||||||||||||||||
| Investments, at value (rights and/or warrants) |
$ | — | $ | 1,906 | $ | — | $ | — | $ | — | $ | 1,906 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 1,906 | $ | — | $ | — | $ | — | $ | 1,906 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liability Derivatives |
||||||||||||||||||||||||
| Unrealized Depreciation on Futures Contracts |
$ | — | $ | (2,052 | ) | $ | — | $ | — | $ | — | $ | (2,052 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (2,052 | ) | $ | — | $ | — | $ | — | $ | (2,052 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| International Equity Fund |
||||||||||||||||||||||||
| Asset Derivatives |
||||||||||||||||||||||||
| Investments, at value (rights and/or warrants) |
$ | — | $ | 18,910 | $ | — | $ | — | $ | — | $ | 18,910 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 18,910 | $ | — | $ | — | $ | — | $ | 18,910 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liability Derivatives |
||||||||||||||||||||||||
| Unrealized Depreciation on Futures Contracts |
$ | — | $ | (236,730 | ) | $ | — | $ | — | $ | — | $ | (236,730 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (236,730 | ) | $ | — | $ | — | $ | — | $ | (236,730 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Resources Fund |
||||||||||||||||||||||||
| Asset Derivatives |
||||||||||||||||||||||||
| Investments, at value (rights and/or warrants) |
$ | — | $ | 0 | § | $ | — | $ | — | $ | — | $ | 0 | § | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 0 | § | $ | — | $ | — | $ | — | $ | 0 | § | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Risk Premium Fund |
||||||||||||||||||||||||
| Liability Derivatives |
||||||||||||||||||||||||
| Written Options, at value |
$ | — | $ | (10,941,678 | ) | $ | — | $ | — | $ | — | $ | (10,941,678 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (10,941,678 | ) | $ | — | $ | — | $ | — | $ | (10,941,678 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Tax-Managed International Equities Fund |
| |||||||||||||||||||||||
| Asset Derivatives |
||||||||||||||||||||||||
| Investments, at value (rights and/or warrants) |
$ | — | $ | 618 | $ | — | $ | — | $ | — | $ | 618 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | 618 | $ | — | $ | — | $ | — | $ | 618 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liability Derivatives |
||||||||||||||||||||||||
| Unrealized Depreciation on Futures Contracts |
$ | — | $ | (13,434 | ) | $ | — | $ | — | $ | — | $ | (13,434 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (13,434 | ) | $ | — | $ | — | $ | — | $ | (13,434 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| U.S. Equity Fund |
||||||||||||||||||||||||
| Liability Derivatives |
||||||||||||||||||||||||
| Unrealized Depreciation on Futures Contracts |
$ | — | $ | (264,140 | ) | $ | — | $ | — | $ | — | $ | (264,140 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | — | $ | (264,140 | ) | $ | — | $ | — | $ | — | $ | (264,140 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| § | Represents the interest in securities that were determined to have a value of zero at May 31, 2019. |
Subsequent events
In June 2019, the Board of Trustees approved the termination of GMO Foreign Small Companies Fund. The Fund is expected to liquidate on or about July 31, 2019.
Subsequent to May 31, 2019, GMO Emerging Domestic Opportunities Fund and GMO U.S. Equity Fund received redemption requests in the amount of $417,130,020 and $218,531,504, respectively.
For additional information regarding the Funds, please see the Funds’ most recent annual or semiannual shareholder report available on the Securities and Exchange Commission’s website, www.sec.gov, or visit GMO’s website at www.gmo.com.
GMO Alpha Only Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Alpha Only Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Alpha Only Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Alpha Only Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Alpha Only Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Alpha Only Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Alpha Only Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Alpha Only Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
A summary of outstanding financial instruments at May 31, 2019 is as follows:
As of May 31, 2019, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover commitments or collateral requirements, if any, of the relevant broker or exchange.
GMO Alpha Only Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
GMO Alternative Allocation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
PURCHASED OPTIONS — 0.0%
| Description | Exercise Price |
Expiration Date |
Number of Contracts |
Notional Amount |
Value ($) | |||||||||||||||||||
| Index Options – Puts — 0.0% |
||||||||||||||||||||||||
| S&P 500 Index |
2,700.00 | 07/19/19 | USD | 4 | USD | 400 | 19,120 | |||||||||||||||||
|
| ||||||||||||||||||||||||
| TOTAL PURCHASED OPTIONS (COST $6,804) |
|
19,120 | ||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| TOTAL INVESTMENTS — 111.8% (Cost $181,186,234) |
|
179,303,674 | ||||||||||||||||||||||
|
| ||||||||||||||||||||||||
GMO Alternative Allocation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
A summary of outstanding financial instruments at May 31, 2019 is as follows:
Forward Currency Contracts
GMO Alternative Allocation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
Futures Contracts
Written Options
Equity Options
| Description |
Exercise Price |
Expiration Date |
Number of Contracts |
Notional Amount |
Value ($) | |||||||||||||||||
| Equity Options – Calls |
||||||||||||||||||||||
| Nielsen Holdings Plc (c) |
25.00 | 08/16/19 | (214 | ) | USD | (55,286,134 | ) | (22,470 | ) | |||||||||||||
| Viacom, Inc. (c) |
27.50 | 09/20/19 | (245 | ) | USD | (711,235 | ) | (68,600 | ) | |||||||||||||
| Liberty Global Plc (c) |
25.00 | 10/18/19 | (605 | ) | USD | (1,488,300 | ) | (111,925 | ) | |||||||||||||
| Centene Corp. (c) |
55.00 | 12/20/19 | (198 | ) | USD | (114,345 | ) | (174,240 | ) | |||||||||||||
| Viacom, Inc. (c) |
30.00 | 12/20/19 | (247 | ) | USD | (717,041 | ) | (51,870 | ) | |||||||||||||
| Centene Corp. (c) |
50.00 | 12/20/19 | (247 | ) | USD | (1,426,425 | ) | (298,870 | ) | |||||||||||||
|
|
|
|||||||||||||||||||||
| TOTAL WRITTEN EQUITY OPTIONS – CALLS | $ | (727,975 | ) | |||||||||||||||||||
|
|
|
|||||||||||||||||||||
| Equity Options – Puts |
||||||||||||||||||||||
| Nielsen Holdings Plc (c) |
24.00 | 06/21/19 | (320 | ) | USD | (727,360 | ) | (73,600 | ) | |||||||||||||
| Liberty Global Plc (c) |
22.50 | 10/18/19 | (403 | ) | USD | (991,380 | ) | (56,420 | ) | |||||||||||||
| Liberty Global Plc (c) |
25.00 | 10/18/19 | (202 | ) | USD | (496,920 | ) | (51,510 | ) | |||||||||||||
| Viacom, Inc. (c) |
27.50 | 12/20/19 | (247 | ) | USD | (717,041 | ) | (51,870 | ) | |||||||||||||
|
|
|
|||||||||||||||||||||
| TOTAL WRITTEN EQUITY OPTIONS – PUTS | $ | (233,400 | ) | |||||||||||||||||||
|
|
|
|||||||||||||||||||||
GMO Alternative Allocation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
Index Options – Puts
| Description |
Counterparty | Exercise Price |
Expiration Date |
Number of Contracts |
Notional Amount |
Value ($) | ||||||||||||||||||
| S&P 500 Index |
MSLC | 2,805.00 | 06/03/19 | (3 | ) | USD | (825,618 | ) | (15,789 | ) | ||||||||||||||
| S&P 500 Index |
MSLC | 2,785.00 | 06/05/19 | (3 | ) | USD | (825,618 | ) | (12,540 | ) | ||||||||||||||
| S&P 500 Index |
MSLC | 2,755.00 | 06/07/19 | (6 | ) | USD | (1,651,236 | ) | (17,976 | ) | ||||||||||||||
| FTSE 100 Index |
MSLC | 7,300.00 | 06/21/19 | (17 | ) | GBP | (1,217,491 | ) | (39,875 | ) | ||||||||||||||
| S&P 500 Index |
MSLC | 2,855.00 | 06/21/19 | (23 | ) | USD | (6,329,738 | ) | (253,690 | ) | ||||||||||||||
| S&P 500 Index |
MSLC | 2,755.00 | 06/21/19 | (6 | ) | USD | (1,651,236 | ) | (27,780 | ) | ||||||||||||||
| S&P 500 Index |
MSLC | 2,805.00 | 06/21/19 | (3 | ) | USD | (825,618 | ) | (21,810 | ) | ||||||||||||||
| FTSE 100 Index |
MSLC | 7,275.00 | 06/21/19 | (4 | ) | GBP | (286,468 | ) | (8,476 | ) | ||||||||||||||
| FTSE 100 Index |
MSLC | 7,350.00 | 06/21/19 | (14 | ) | GBP | (1,002,639 | ) | (39,779 | ) | ||||||||||||||
| S&P 500 Index |
MSLC | 2,785.00 | 06/21/19 | (3 | ) | USD | (825,618 | ) | (18,330 | ) | ||||||||||||||
|
|
|
|||||||||||||||||||||||
| TOTAL INDEX OPTIONS – PUTS |
$ | (456,045 | ) | |||||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| TOTAL WRITTEN OPTIONS (Premiums $1,025,523) |
$ | (1,417,420 | ) | |||||||||||||||||||||
|
|
|
|||||||||||||||||||||||
Swap Contracts
Centrally Cleared Interest Rate Swaps
| Fund Pays |
Fund Receives | Notional |
Expiration Date |
Periodic |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
|||||||||||||||||||
| 2.12% |
3 Month CAD LIBOR | CAD | 5,845,000 | 06/18/2029 | Semi-Annually | — | (74,345 | ) | (74,345 | ) | ||||||||||||||||
| 3 Month CAD LIBOR |
2.18% | CAD | 57,500,000 | 06/18/2029 | Semi-Annually | 63,230 | 979,589 | 916,359 | ||||||||||||||||||
| 3 Month SEK STIBOR |
0.78% | SEK | 27,257,000 | 06/19/2029 | Quarterly | 5,244 | 24,451 | 19,207 | ||||||||||||||||||
| 3 Month SEK STIBOR |
0.78% | SEK | 45,451,000 | 06/19/2029 | Quarterly | — | 41,240 | 41,240 | ||||||||||||||||||
| 2.21% |
3 Month USD LIBOR | USD | 1,808,000 | 06/20/2029 | Quarterly | — | (18,784 | ) | (18,784 | ) | ||||||||||||||||
| 2.28% |
3 Month USD LIBOR | USD | 3,197,000 | 06/20/2029 | Quarterly | — | (53,754 | ) | (53,754 | ) | ||||||||||||||||
| 2.31% |
3 Month USD LIBOR | USD | 3,107,000 | 06/20/2029 | Quarterly | — | (60,452 | ) | (60,452 | ) | ||||||||||||||||
| 2.34% |
3 Month USD LIBOR | USD | 4,497,000 | 06/20/2029 | Quarterly | — | (98,767 | ) | (98,767 | ) | ||||||||||||||||
| 2.42% |
3 Month USD LIBOR | USD | 3,506,000 | 06/20/2029 | Quarterly | — | (104,160 | ) | (104,160 | ) | ||||||||||||||||
| 2.45% |
3 Month USD LIBOR | USD | 4,649,000 | 06/20/2029 | Quarterly | — | (150,193 | ) | (150,193 | ) | ||||||||||||||||
| 3 Month USD LIBOR |
2.52% | USD | 1,338,000 | 06/20/2029 | Quarterly | — | 51,883 | 51,883 | ||||||||||||||||||
| 3 Month USD LIBOR |
2.37% | USD | 3,592,000 | 06/20/2029 | Quarterly | — | 90,348 | 90,348 | ||||||||||||||||||
| 3 Month USD LIBOR |
2.50% | USD | 40,200,000 | 06/20/2029 | Quarterly | (13,364 | ) | 1,481,893 | 1,495,257 | |||||||||||||||||
| 3 Month CAD LIBOR |
2.12% | CAD | 12,192,000 | 09/17/2029 | Semi-Annually | (900 | ) | 148,992 | 149,892 | |||||||||||||||||
| 3 Month NZD Bank Bill Rate |
1.99% | NZD | 27,502,000 | 09/18/2029 | Quarterly | — | 71,190 | 71,190 | ||||||||||||||||||
| 3 Month NZD Bank Bill Rate |
1.98% | NZD | 19,770,000 | 09/18/2029 | Quarterly | (4,030 | ) | 42,925 | 46,955 | |||||||||||||||||
| 1.91% |
6 Month AUD BBSW | AUD | 4,629,000 | 06/19/2029 | Semi-Annually | 2,388 | (53,549 | ) | (55,937 | ) | ||||||||||||||||
| 6 Month CHF LIBOR |
(0.00)% | CHF | 3,956,000 | 06/19/2029 | Semi-Annually | — | 44,752 | 44,752 | ||||||||||||||||||
| 0.53% |
6 Month EURIBOR | EUR | 14,500,000 | 06/20/2029 | Semi-Annually | 1,424 | (303,641 | ) | (305,065 | ) | ||||||||||||||||
| 1.23% |
6 Month GBP LIBOR | GBP | 7,704,000 | 06/20/2029 | Semi-Annually | 2,678 | (111,997 | ) | (114,675 | ) | ||||||||||||||||
| 1.25% |
6 Month GBP LIBOR | GBP | 2,580,000 | 06/20/2029 | Semi-Annually | — | (42,050 | ) | (42,050 | ) | ||||||||||||||||
| 6 Month EURIBOR |
0.43% | EUR | 3,390,000 | 06/20/2029 | Semi-Annually | — | 31,043 | 31,043 | ||||||||||||||||||
| 1.78% |
6 Month AUD BBSW | AUD | 34,414,000 | 09/18/2029 | Semi-Annually | — | (54,814 | ) | (54,814 | ) | ||||||||||||||||
| 1.81% |
6 Month AUD BBSW | AUD | 34,875,000 | 09/18/2029 | Semi-Annually | — | (130,848 | ) | (130,848 | ) | ||||||||||||||||
| 1.83% |
6 Month AUD BBSW | AUD | 4,441,000 | 09/18/2029 | Semi-Annually | — | (21,486 | ) | (21,486 | ) | ||||||||||||||||
| 1.14% |
6 Month GBP LIBOR | GBP | 2,582,000 | 09/19/2029 | Semi-Annually | — | (3,297 | ) | (3,297 | ) | ||||||||||||||||
| 1.21% |
6 Month GBP LIBOR | GBP | 2,941,000 | 09/19/2029 | Semi-Annually | — | (28,529 | ) | (28,529 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||
| $ | 56,670 | $ | 1,697,640 | $ | 1,640,970 | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||
GMO Alternative Allocation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
OTC Total Return Swaps
| Fund Pays |
Fund Receives | Counterparty |
Notional Amount |
Expiration Date |
Periodic Payment Frequency |
Premiums Paid/ (Received) ($) |
Value ($) |
Net Unrealized Appreciation/ (Depreciation) ($) |
||||||||||||||||||||||||
| Total Return on Bloomberg Commodity Index (e) |
1 Month Fed Funds Rate minus 1.50% |
MSCI | USD | 711,719 | 01/10/2020 | Monthly | $ | — | $ | 16,989 | $ | 16,989 | ||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
As of May 31, 2019, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover commitments or collateral requirements, if any, of the relevant broker or exchange.
GMO Benchmark-Free Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
A summary of outstanding financial instruments at May 31, 2019 is as follows:
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
Reverse Repurchase Agreements
| Average balance outstanding | $ | (13,875,000 | ) | |
| Average interest rate (net) |
(2.59 | )% | ||
| Maximum balance outstanding | $ | (13,875,000 | ) | |
Average balance outstanding was calculated based on daily face value balances outstanding during the period that the Fund had entered into reverse repurchase agreements. Average interest rate was calculated based on interest received and/or paid during the period that the Fund had entered into the reverse repurchase agreements. The Fund had no reverse repurchase agreements at the end of the period.
Swap Contracts
OTC Total Return Swaps
| Fund Pays |
Fund Receives | Counterparty | Notional Amount |
Expiration Date |
Periodic Payment Frequency |
Premiums Paid/ (Received) ($) |
Value ($) |
Net Unrealized Appreciation/ (Depreciation) ($) |
||||||||||||||||||||||||||
| Total Return on Equity Basket (i) |
|
1 Month Federal Funds Rate minus 1.00% |
|
MORD | USD | 902,798 | 05/18/2020 | Monthly | — | (32,105 | ) | (32,105 | ) | |||||||||||||||||||||
| Total Return on Equity Basket (i) |
|
1 Month Federal Funds Rate minus 1.00% |
|
MORD | USD | 7,804,186 | 05/18/2020 | Monthly | — | 19,226 | 19,226 | |||||||||||||||||||||||
| Total Return on Equity Basket (i) |
|
1 Month Federal Funds Rate minus 0.40% |
|
MORD | USD | 6,494,482 | 05/18/2020 | Monthly | — | (122,533 | ) | (122,533 | ) | |||||||||||||||||||||
| Total Return on Equity Basket (i) |
|
1 Month Federal Funds Rate minus 1.75% |
|
MORD | USD | 2,568,780 | 05/18/2020 | Monthly | — | (4,112 | ) | (4,112 | ) | |||||||||||||||||||||
| Total Return on Equity Basket (i) |
|
1 Month Federal Funds Rate minus 0.40% |
|
MORD | USD | 1,463,460 | 05/18/2020 | Monthly | — | (24,150 | ) | (24,150 | ) | |||||||||||||||||||||
| Total Return on Equity Basket (i) |
|
1 Month Federal Funds Rate minus 0.75% |
|
MORD | USD | 263,813 | 05/18/2020 | Monthly | — | 19,418 | 19,418 | |||||||||||||||||||||||
| Total Return on Equity Basket (i) |
|
1 Month Federal Funds Rate minus 0.75% |
|
MORD | USD | 32,893 | 05/18/2020 | Monthly | — | (416 | ) | (416 | ) | |||||||||||||||||||||
| Total Return on Equity Basket (i) |
|
1 Month Federal Funds Rate minus 0.40% |
|
MORD | USD | 607,276 | 05/18/2020 | Monthly | — | (7,953 | ) | (7,953 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| $ | — | $ | (152,625 | ) | $ | (152,625 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
As of May 31, 2019, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover commitments or collateral requirements, if any, of the relevant broker or exchange.
GMO Benchmark-Free Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
GMO Global Asset Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Global Developed Equity Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Global Equity Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
PURCHASED OPTIONS — 0.0%
| Description | Exercise Price |
Expiration Date |
Number of Contracts |
Notional Amount |
Value ($) | |||||||||||||||
| Index Options – Puts — 0.0% |
|
|||||||||||||||||||
| S&P 500 E-Mini |
2,700.00 | 07/19/19 | 50 | USD | 13,760,300 | 239,000 | ||||||||||||||
|
|
|
|||||||||||||||||||
| |
TOTAL PURCHASED OPTIONS (COST $327,667) |
239,000 | ||||||||||||||||||
|
|
|
|||||||||||||||||||
| |
TOTAL INVESTMENTS — 101.0% (Cost $8,867,567,149) |
8,581,813,457 | ||||||||||||||||||
|
|
|
|||||||||||||||||||
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
A summary of outstanding financial instruments at May 31, 2019 is as follows:
Forward Currency Contracts
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
Reverse Repurchase Agreements(n)
| Description |
Value ($) | |||||||||
| USD | 2,922,149 | Barclays Bank plc, (2.50)%, dated 03/04/19 (collateral: Ferrellgas LP/Ferrellgas Finance Corp., 6.75%, due 06/15/23), to be repurchased on demand at face value plus accrued interest. | (2,922,149 | ) | ||||||
|
|
|
|||||||||
| Average balance outstanding | $ | (6,706,521 | ) | |
| Average interest rate (net) |
(0.30 | )% | ||
| Maximum balance outstanding | $ | (29,762,783 | ) | |
Average balance outstanding was calculated based on daily face value balances outstanding during the period that the Fund had entered into reverse repurchase agreements. Average interest rate was calculated based on interest received and/or paid during the period that the Fund had entered into the reverse repurchase agreements.
Written Options
Equity Options
| Description |
Exercise Price |
Expiration |
Number of Contracts |
Notional Amount |
Value ($) |
|||||||||||||||||
| Equity Options – Calls |
||||||||||||||||||||||
| Nielsen Holdings Plc (e) |
25.00 | 08/16/19 | (2,178 | ) | USD | (4,950,594 | ) | (228,690 | ) | |||||||||||||
| Viacom, Inc. (e) |
27.50 | 09/20/19 | (2,500 | ) | USD | (7,257,500 | ) | (700,000 | ) | |||||||||||||
| Liberty Global Plc (e) |
25.00 | 10/18/19 | (6,150 | ) | USD | (14,907,600 | ) | (1,137,750 | ) | |||||||||||||
| Centene Corp. (e) |
50.00 | 12/20/19 | (2,500 | ) | USD | (14,437,500 | ) | (3,025,000 | ) | |||||||||||||
| Viacom, Inc. (e) |
30.00 | 12/20/19 | (2,500 | ) | USD | (7,257,500 | ) | (525,000 | ) | |||||||||||||
| Centene Corp. (e) |
55.00 | 12/20/19 | (2,000 | ) | USD | (11,550,000 | ) | (1,760,000 | ) | |||||||||||||
|
|
|
|||||||||||||||||||||
| Total Written Equity Options – Calls | $ | (7,376,440 | ) | |||||||||||||||||||
|
|
|
|||||||||||||||||||||
| Equity Options – Puts |
||||||||||||||||||||||
| Nielsen Holdings Plc (e) |
24.00 | 06/21/19 | (3,250 | ) | USD | (7,387,250 | ) | (747,500 | ) | |||||||||||||
| Liberty Global Plc (e) |
22.50 | 10/18/19 | (4,100 | ) | USD | (9,938,400 | ) | (574,000 | ) | |||||||||||||
| Liberty Global Plc (e) |
25.00 | 10/18/19 | (2,050 | ) | USD | (4,969,200 | ) | (522,750 | ) | |||||||||||||
| Viacom, Inc. (e) |
27.50 | 12/20/19 | (2,500 | ) | USD | (7,257,500 | ) | (525,000 | ) | |||||||||||||
|
|
|
|||||||||||||||||||||
| Total Written Equity Options – Puts | $ | (2,369,250 | ) | |||||||||||||||||||
|
|
|
|||||||||||||||||||||
| |
TOTAL WRITTEN OPTIONS (Premiums $7,662,544) |
$ | (9,745,690 | ) | ||||||||||||||||||
|
|
|
|||||||||||||||||||||
Swap Contracts
OTC Credit Default Swaps
| Reference Entity |
Counterparty |
Notional Amount |
Annual Premium |
Implied Credit Spread (1) |
Maximum Potential Amount of Future Payments by the Fund Under the Contract (2) |
Expiration Date |
Periodic Payment Frequency |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
||||||||||||||||||||||||||||||
| Buy Protection^: |
||||||||||||||||||||||||||||||||||||||||
| Chesapeake Energy Corp. |
CITI | USD | 1,528,000 | 5.00% | 5.82% | N/A | 12/20/2021 | Quarterly | 45,840 | 30,170 | (15,670 | ) | ||||||||||||||||||||||||||||
| Sell Protection^: |
||||||||||||||||||||||||||||||||||||||||
| J.C. Penney Corporation, Inc. |
MORD | USD | 625,000 | 5.00% | 38.50% | 625,000 USD | 06/20/2020 | Quarterly | (118,750 | ) | (176,250 | ) | (57,500 | ) | ||||||||||||||||||||||||||
| J.C. Penney Corporation, Inc. |
GS | USD | 1,017,000 | 5.00% | 38.50% | 1,017,000 USD | 06/20/2020 | Quarterly | (177,975 | ) | (286,875 | ) | (108,900 | ) | ||||||||||||||||||||||||||
| J.C. Penney Corporation, Inc. |
GS | USD | 625,000 | 5.00% | 38.50% | 625,000 USD | 06/20/2020 | Quarterly | (131,250 | ) | (176,255 | ) | (45,005 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
| $ | (382,135 | ) | $ | (609,210 | ) | $ | (227,075 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
| ^ | Buy Protection - Fund pays a premium and buys credit protection. If a credit event occurs the Fund will, depending on the terms of the particular swap contract, either (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. |
| Sell Protection - Fund receives a premium and sells credit protection. If a credit event occurs the Fund will, depending on the terms of the particular swap contract, either (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. |
| (1) | As of May 31, 2019, implied credit spreads in absolute terms, calculated using a model, and utilized in determining the market value of credit default swap contracts on the reference security, 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. |
Centrally Cleared Interest Rate Swaps
| Fund Pays |
Fund Receives | Notional |
Expiration Date |
Periodic Payment Frequency |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
|||||||||||||||||||
| 3 Month NZD Bank Bill Rate |
2.07% | NZD | 122,521,000 | 06/19/2024 | Quarterly | — | 1,974,816 | 1,974,816 | ||||||||||||||||||
| 2.12% |
3 Month CAD LIBOR | CAD | 12,961,000 | 06/18/2029 | Semi-Annually | — | (164,856 | ) | (164,856 | ) | ||||||||||||||||
| 3 Month CAD LIBOR |
2.25% | CAD | 100,261,000 | 06/18/2029 | Semi-Annually | (16,415 | ) | 2,171,817 | 2,188,232 | |||||||||||||||||
| 3 Month CAD LIBOR |
2.05% | CAD | 106,245,000 | 06/18/2029 | Semi-Annually | — | 863,596 | 863,596 | ||||||||||||||||||
| 3 Month CAD LIBOR |
2.16% | CAD | 22,230,000 | 06/18/2029 | Semi-Annually | — | 349,776 | 349,776 | ||||||||||||||||||
| 3 Month CAD LIBOR |
2.17% | CAD | 20,927,000 | 06/18/2029 | Semi-Annually | — | 336,444 | 336,444 | ||||||||||||||||||
| 3 Month CAD LIBOR |
2.26% | CAD | 27,546,000 | 06/18/2029 | Semi-Annually | — | 610,848 | 610,848 | ||||||||||||||||||
| 3 Month SEK STIBOR |
0.78% | SEK | 219,603,000 | 06/19/2029 | Quarterly | 42,249 | 196,997 | 154,748 | ||||||||||||||||||
| 3 Month SEK STIBOR |
0.78% | SEK | 150,786,000 | 06/19/2029 | Quarterly | — | 136,816 | 136,816 | ||||||||||||||||||
| 2.21% |
3 Month USD LIBOR | USD | 9,038,000 | 06/20/2029 | Quarterly | — | (93,897 | ) | (93,897 | ) | ||||||||||||||||
| 2.28% |
3 Month USD LIBOR | USD | 16,322,000 | 06/20/2029 | Quarterly | — | (274,438 | ) | (274,438 | ) | ||||||||||||||||
| 2.31% |
3 Month USD LIBOR | USD | 15,866,000 | 06/20/2029 | Quarterly | — | (308,702 | ) | (308,702 | ) | ||||||||||||||||
| 2.34% |
3 Month USD LIBOR | USD | 22,850,000 | 06/20/2029 | Quarterly | — | (501,853 | ) | (501,853 | ) | ||||||||||||||||
| 2.42% |
3 Month USD LIBOR | USD | 17,982,000 | 06/20/2029 | Quarterly | — | (534,230 | ) | (534,230 | ) | ||||||||||||||||
| 2.45% |
3 Month USD LIBOR | USD | 21,338,000 | 06/20/2029 | Quarterly | — | (689,354 | ) | (689,354 | ) | ||||||||||||||||
| 3 Month USD LIBOR |
2.52% | USD | 16,727,000 | 06/20/2029 | Quarterly | — | 642,522 | 642,522 | ||||||||||||||||||
| 3 Month USD LIBOR |
2.51% | USD | 12,045,000 | 06/20/2029 | Quarterly | — | 458,834 | 458,834 | ||||||||||||||||||
| 3 Month USD LIBOR |
2.52% | USD | 18,822,000 | 06/20/2029 | Quarterly | — | 729,857 | 729,857 | ||||||||||||||||||
| 3 Month USD LIBOR |
2.37% | USD | 18,416,000 | 06/20/2029 | Quarterly | — | 463,209 | 463,209 | ||||||||||||||||||
| 3 Month USD LIBOR |
2.55% | USD | 161,690,000 | 06/20/2029 | Quarterly | (141,380 | ) | 6,697,138 | 6,838,518 | |||||||||||||||||
| 3 Month CAD LIBOR |
2.12% | CAD | 62,390,000 | 09/17/2029 | Semi-Annually | (4,603 | ) | 762,438 | 767,041 | |||||||||||||||||
| 3 Month NZD Bank Bill Rate |
1.99% | NZD | 104,523,000 | 09/18/2029 | Quarterly | — | 270,563 | 270,563 | ||||||||||||||||||
| 3 Month NZD Bank Bill Rate |
1.98% | NZD | 75,134,000 | 09/18/2029 | Quarterly | (15,316 | ) | 163,134 | 178,450 | |||||||||||||||||
| 0.07% |
6 Month CHF LIBOR | CHF | 22,905,000 | 06/19/2029 | Semi-Annually | — | (436,360 | ) | (436,360 | ) | ||||||||||||||||
| 0.10% |
6 Month CHF LIBOR | CHF | 8,539,000 | 06/19/2029 | Semi-Annually | — | (188,933 | ) | (188,933 | ) | ||||||||||||||||
| 1.91% |
6 Month AUD BBSW | AUD | 23,729,000 | 06/19/2029 | Semi-Annually | 14,383 | (274,503 | ) | (288,886 | ) | ||||||||||||||||
| 6 Month CHF LIBOR |
0.18% | CHF | 33,793,000 | 06/19/2029 | Semi-Annually | 16,968 | 1,014,410 | 997,442 | ||||||||||||||||||
| 6 Month CHF LIBOR |
(0.00)% | CHF | 17,655,000 | 06/19/2029 | Semi-Annually | — | 199,716 | 199,716 | ||||||||||||||||||
| 0.52% |
6 Month EURIBOR | EUR | 9,710,000 | 06/20/2029 | Semi-Annually | — | (188,079 | ) | (188,079 | ) | ||||||||||||||||
| 0.56% |
6 Month EURIBOR | EUR | 6,386,000 | 06/20/2029 | Semi-Annually | — | (153,436 | ) | (153,436 | ) | ||||||||||||||||
| 0.57% |
6 Month EURIBOR | EUR | 12,459,000 | 06/20/2029 | Semi-Annually | — | (314,732 | ) | (314,732 | ) | ||||||||||||||||
| 0.60% |
6 Month EURIBOR | EUR | 14,358,000 | 06/20/2029 | Semi-Annually | — | (407,014 | ) | (407,014 | ) | ||||||||||||||||
| 0.61% |
6 Month EURIBOR | EUR | 21,414,000 | 06/20/2029 | Semi-Annually | — | (635,872 | ) | (635,872 | ) | ||||||||||||||||
| 0.63% |
6 Month EURIBOR | EUR | 17,132,000 | 06/20/2029 | Semi-Annually | — | (546,213 | ) | (546,213 | ) | ||||||||||||||||
| 1.23% |
6 Month GBP LIBOR | GBP | 39,320,000 | 06/20/2029 | Semi-Annually | 8,743 | (571,614 | ) | (580,357 | ) | ||||||||||||||||
| 1.25% |
6 Month GBP LIBOR | GBP | 13,233,000 | 06/20/2029 | Semi-Annually | — | (215,682 | ) | (215,682 | ) | ||||||||||||||||
| 6 Month EURIBOR |
0.54% | EUR | 9,138,000 | 06/20/2029 | Semi-Annually | — | 199,561 | 199,561 | ||||||||||||||||||
| 6 Month EURIBOR |
0.43% | EUR | 15,729,000 | 06/20/2029 | Semi-Annually | — | 144,035 | 144,035 | ||||||||||||||||||
| 1.78% |
6 Month AUD BBSW | AUD | 175,864,000 | 09/18/2029 | Semi-Annually | — | (280,113 | ) | (280,113 | ) | ||||||||||||||||
| 1.81% |
6 Month AUD BBSW | AUD | 178,797,000 | 09/18/2029 | Semi-Annually | — | (670,830 | ) | (670,830 | ) | ||||||||||||||||
| 1.83% |
6 Month AUD BBSW | AUD | 22,731,000 | 09/18/2029 | Semi-Annually | — | (109,973 | ) | (109,973 | ) | ||||||||||||||||
| 1.14% |
6 Month GBP LIBOR | GBP | 13,323,000 | 09/19/2029 | Semi-Annually | — | (17,013 | ) | (17,013 | ) | ||||||||||||||||
| 1.21% |
6 Month GBP LIBOR | GBP | 15,041,000 | 09/19/2029 | Semi-Annually | — | (145,906 | ) | (145,906 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||
| $ | (95,371 | ) | $ | 10,662,924 | $ | 10,758,295 | ||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
OTC Total Return Swaps
| Fund Pays |
Fund Receives | Counterparty |
Notional Amount |
Expiration Date |
Periodic Payment Frequency |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
||||||||||||||||||||||||
| Total Return on Equity Basket (o) |
1 Month Federal Funds Rate minus 0.40% |
MORD | USD | 22,493,854 | 05/18/2020 | Monthly | — | (480,163 | ) | (480,163 | ) | |||||||||||||||||||||
| Total Return on Equity Basket (o) |
1 Month Federal Funds Rate minus 1.75% |
MORD | USD | 10,054,076 | 05/18/2020 | Monthly | — | (96,752 | ) | (96,752 | ) | |||||||||||||||||||||
| Total Return on Equity Basket (o) |
1 Month Federal Funds Rate minus 0.75% |
MORD | USD | 830,380 | 05/18/2020 | Monthly | — | 61,122 | 61,122 | |||||||||||||||||||||||
| Total Return on Equity Basket (o) |
1 Month Federal Funds Rate minus 0.90% |
MORD | USD | 2,346,137 | 05/18/2020 | Monthly | — | 22,010 | 22,010 | |||||||||||||||||||||||
| Total Return on Equity Basket (o) |
1 Month Federal Funds Rate minus 1.00% |
MORD | USD | 24,863,963 | 05/18/2020 | Monthly | — | (45,230 | ) | (45,230 | ) | |||||||||||||||||||||
| Total Return on Equity Basket (o) |
1 Month Federal Funds Rate minus 1.00% |
MORD | USD | 4,321,025 | 05/18/2020 | Monthly | — | (248,023 | ) | (248,023 | ) | |||||||||||||||||||||
| Total Return on Equity Basket (o) |
1 Month Federal Funds Rate minus 0.40% |
MORD | USD | 18,787,838 | 10/15/2021 | Monthly | — | (19,928 | ) | (19,928 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
| $ | — | $ | (806,964 | ) | $ | (806,964 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
As of May 31, 2019, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover commitments or collateral requirements, if any, of the relevant broker or exchange.
GMO Implementation Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
GMO International Developed Equity Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO SGM Major Markets Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO SGM Major Markets Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
A summary of outstanding financial instruments at May 31, 2019 is as follows:
GMO SGM Major Markets Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
As of May 31, 2019, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover commitments or collateral requirements, if any, of the relevant broker or exchange.
Counterparty Abbreviations:
Currency Abbreviations:
GMO Special Opportunities Fund
(A Series of GMO Trust)
Consolidated Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Strategic Opportunities Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Strategic Opportunities Allocation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Strategic Opportunities Allocation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Strategic Opportunities Allocation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Strategic Opportunities Allocation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Strategic Opportunities Allocation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Strategic Opportunities Allocation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Strategic Opportunities Allocation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
GMO Strategic Opportunities Allocation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
(showing percentage of total net assets)
May 31, 2019 (Unaudited)
A summary of outstanding financial instruments at May 31, 2019 is as follows:
Swap Contracts
OTC Total Return Swaps
| Fund Pays |
Fund Receives | Counterparty |
Notional Amount |
Expiration |
Periodic Payment Frequency |
Premiums Paid/ (Received) ($) |
Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
||||||||||||||||||||||
| Total Return on Equity Basket (g) |
1 Month Federal Funds Rate minus 1.00% |
MORD | USD | 1,353,803 | 05/18/2020 | Monthly | — | 5,703 | 5,703 | |||||||||||||||||||||
| Total Return on Equity Basket (g) |
1 Month Federal Funds Rate minus 2.38% |
MORD | USD | 32,708 | 05/18/2020 | Monthly | — | 2,394 | 2,394 | |||||||||||||||||||||
| Total Return on Equity Basket (g) |
1 Month Federal Funds Rate minus 1.75% |
MORD | USD | 743,726 | 05/18/2020 | Monthly | — | (14,281 | ) | (14,281 | ) | |||||||||||||||||||
| Total Return on Equity Basket (g) |
1 Month Federal Funds Rate minus 0.40% |
MORD | USD | 1,042,142 | 05/18/2020 | Monthly | — | (38,339 | ) | (38,339 | ) | |||||||||||||||||||
| Total Return on Equity Basket (g) |
1 Month Federal Funds Rate minus 1.06% |
MORD | USD | 288,324 | 05/18/2020 | Monthly | — | (344 | ) | (344 | ) | |||||||||||||||||||
| Total Return on Equity Basket (g) |
1 Month Federal Funds Rate minus 0.40% |
MORD | USD | 183,930 | 03/18/2021 | Monthly | — | (683 | ) | (683 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| $ | — | $ | (45,550 | ) | $ | (45,550 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||
As of May 31, 2019, for the above contracts and/or agreements, the Fund had sufficient cash and/or securities to cover commitments or collateral requirements, if any, of the relevant broker or exchange.
GMO Strategic Opportunities Allocation Fund
(A Series of GMO Trust)
Schedule of Investments — (Continued)
May 31, 2019 (Unaudited)
Each Fund has elected to be treated or intends to elect to be treated and intends to qualify each tax year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. Each Fund intends to distribute its net investment income, if any, and 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. As of May 31, 2019, the approximate total cost, aggregate investment-level gross/net unrealized appreciation (depreciation) in the value of total investments (including total securities sold short, if any), and the net unrealized appreciation (depreciation) of outstanding financial instruments for U.S. federal income tax purposes were as follows:
| Total Investments | Outstanding Financial Instruments |
|||||||||||||||||||
| Fund Name | Aggregate Cost ($) |
Gross Unrealized Appreciation ($) |
Gross Unrealized (Depreciation) ($) |
Net Unrealized Appreciation (Depreciation) ($) |
Net Unrealized Appreciation (Depreciation) ($) |
|||||||||||||||
| Alpha Only Fund |
89,645,546 | 2,623,632 | (9,998,784) | (7,375,152) | 366,865 | |||||||||||||||
|
Consolidated Alternative Allocation Fund |
158,595,748 | 2,264,826 | (5,750,630) | (3,485,804) | 1,322,770 | |||||||||||||||
|
Benchmark-Free Allocation Fund |
10,881,544,575 | 44,822,545 | (244,145,744) | (199,323,199) | — | |||||||||||||||
|
Benchmark-Free Fund |
2,900,232,577 | 142,037,055 | (197,601,212) | (55,564,157) | 786,489 | |||||||||||||||
| Global Asset Allocation Fund |
1,853,400,671 | 29,187,978 | (140,692,291) | (111,504,313) | — | |||||||||||||||
| Global Developed Equity Allocation Fund |
472,382,724 | 10,077,422 | (51,415,787) | (41,338,365) | — | |||||||||||||||
| Global Equity Allocation Fund |
1,714,193,760 | 25,552,220 | (228,013,568) | (202,461,348) | — | |||||||||||||||
|
Consolidated Implementation Fund |
8,538,253,492 | 408,271,579 | (744,314,525) | (336,042,946) | 10,800,064 | |||||||||||||||
|
International Developed Equity Allocation Fund |
672,809,463 | 4,190,158 | (143,601,575) | (139,411,417) | — | |||||||||||||||
|
International Equity Allocation Fund |
1,005,323,780 | 14,951,871 | (159,305,365) | (144,353,494) | — | |||||||||||||||
|
Consolidated SGM Major Markets Fund |
1,130,779,150 | 99,401,896 | (89,016,045) | 10,385,851 | (6,217,915) | |||||||||||||||
|
Consolidated Special Opportunities Fund |
273,023,448 | 98,938,907 | (21,794,530) | 77,144,377 | — | |||||||||||||||
| Strategic Opportunities Allocation Fund |
900,901,106 | 31,434,927 | (57,798,130) | (26,363,203) | (45,550) | |||||||||||||||
Investments in affiliated companies and other Funds of the Trust
An affiliated company for the purposes of this disclosure is a company in which a Fund has or had direct ownership of at least 5% of the issuer’s voting securities or an investment in other funds of GMO Trust (“underlying funds”). A summary of the Funds’ transactions involving companies that are or were affiliates during the period ended May 31, 2019 is set forth below:
| Affiliate | Value, beginning of period |
Purchases | Sales Proceeds |
Dividend Income* |
Net Realized Gain (Loss) |
Net Increase/ Decrease in Unrealized Appreciation/ Depreciation |
Value, end of period |
|||||||||||||||||||||
| Alpha Only Fund |
| |||||||||||||||||||||||||||
| GMO U.S. Treasury Fund |
$ | 19,030,041 | $ | 13,570,215 | $ | 28,963,680 | $ | 20,548 | $ | — | $ | — | $ | 3,636,576 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Consolidated Alternative Allocation Fund |
| |||||||||||||||||||||||||||
| GMO Alpha Only Fund, Class IV |
$ | — | $ | 16,120,000 | $ | — | $ | — | $ | — | $ | (49,907 | ) | $ | 16,070,093 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Benchmark-Free Allocation Fund |
| |||||||||||||||||||||||||||
| GMO Emerging Country Debt Fund, Class IV |
$ | 455,898,632 | $ | 786,827 | $ | 37,679,353 | $ | — | $ | (1,617,138 | ) | $ | 8,158,417 | $ | 425,547,385 | |||||||||||||
| GMO High Yield Fund, Class VI |
149,579,077 | — | — | — | — | 1,628,273 | 151,207,350 | |||||||||||||||||||||
| GMO Implementation Fund |
8,726,210,310 | 39,352,281 | 395,452,748 | — | 526,347 | (107,142,652 | ) | 8,263,493,538 | ||||||||||||||||||||
| GMO Opportunistic Income Fund, Class VI |
551,229,863 | 16,019,929 | 44,890,557 | — | 3,666,387 | 6,551,407 | 532,577,029 | |||||||||||||||||||||
| GMO Risk Premium Fund, Class VI |
286,420,244 | 594,704 | 22,644,479 | — | 25,281 | 41,205 | 264,436,955 | |||||||||||||||||||||
| GMO SGM Major Markets Fund, Class VI |
840,481,004 | — | 54,281,871 | — | 3,169,943 | 636,820 | 790,005,896 | |||||||||||||||||||||
| GMO Special Opportunities Fund, Class VI |
294,753,740 | 2,350,834 | 37,084,442 | — | 474,237 | (11,886,528 | ) | 248,607,841 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Totals |
$ | 11,304,572,870 | $ | 59,104,575 | $ | 592,033,450 | $ | — | $ | 6,245,057 | $ | (102,013,058 | ) | $ | 10,675,875,994 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Affiliate | Value, beginning of period |
Purchases | Sales Proceeds |
Dividend Income* |
Net Realized Gain (Loss) |
Net Increase/ Decrease in Unrealized Appreciation/ Depreciation |
Value, end of period |
|||||||||||||||||||||
| Benchmark-Free Fund |
| |||||||||||||||||||||||||||
| GMO Emerging Country Debt Fund, Class IV |
$ | 152,403,763 | $ | — | $ | 26,000,000 | $ | — | $ | (912,998 | ) | $ | 2,898,757 | $ | 128,389,522 | |||||||||||||
| GMO Emerging Markets Fund, Class VI |
382,252,830 | — | 35,500,000 | — | 3,074,756 | (12,512,432 | ) | 337,315,154 | ||||||||||||||||||||
| GMO Opportunistic Income Fund, Class VI |
187,691,229 | — | 7,127,000 | — | 658,095 | 2,807,042 | 184,029,366 | |||||||||||||||||||||
| GMO Risk Premium Fund, Class VI |
111,153,978 | — | 20,563,000 | — | (113,399 | ) | 208,857 | 90,686,436 | ||||||||||||||||||||
| GMO SGM Major Markets Fund, Class VI |
134,030,636 | — | 6,225,000 | — | 420,266 | 52,381 | 128,278,283 | |||||||||||||||||||||
| GMO Special Opportunities Fund, Class VI |
109,380,816 | — | 15,700,000 | — | 369,003 | (5,186,722 | ) | 88,863,097 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Totals |
$ | 1,076,913,252 | $ | — | $ | 111,115,000 | $ | — | $ | 3,495,723 | $ | (11,732,117 | ) | $ | 957,561,858 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Global Asset Allocation Fund |
| |||||||||||||||||||||||||||
| GMO Alpha Only Fund, Class IV |
$ | 55,140,779 | $ | — | $ | 35,156,021 | $ | — | $ | (7,138,200 | ) | $ | 5,107,250 | $ | 17,953,808 | |||||||||||||
| GMO Alternative Allocation Fund, Class VI |
— | 161,156,171 | — | — | — | (966,937 | ) | 160,189,234 | ||||||||||||||||||||
| GMO Asset Allocation Bond Fund, Class VI |
227,286,993 | — | 54,869,148 | — | (7,416,057 | ) | 14,996,560 | 179,998,348 | ||||||||||||||||||||
| GMO Core Plus Bond Fund, Class IV |
282,224,826 | 499,000 | 24,241,179 | — | (177,713 | ) | 12,476,002 | 270,780,936 | ||||||||||||||||||||
| GMO Emerging Country Debt Fund, Class IV |
65,866,747 | — | 3,198,103 | — | (105,310 | ) | 1,082,875 | 63,646,209 | ||||||||||||||||||||
| GMO Emerging Markets Fund, Class VI |
358,618,059 | 1,666,336 | 25,030,161 | — | 2,370,118 | (10,867,851 | ) | 326,756,501 | ||||||||||||||||||||
| GMO International Equity Fund, Class IV |
410,667,438 | 4,594,971 | 29,762,394 | — | (6,781,888 | ) | (7,730,873 | ) | 370,987,254 | |||||||||||||||||||
| GMO Opportunistic Income Fund, Class VI |
36,987,265 | — | 1,139,566 | — | 62,755 | 629,162 | 36,539,616 | |||||||||||||||||||||
| GMO Quality Fund, Class VI |
140,373,291 | — | 5,115,150 | — | 546,375 | 1,429,392 | 137,233,908 | |||||||||||||||||||||
| GMO Risk Premium Fund, Class VI |
48,646,796 | — | 31,892,974 | — | (81,580 | ) | 848,202 | 17,520,444 | ||||||||||||||||||||
| GMO SGM Major Markets Fund, Class VI |
57,183,044 | — | 58,772,599 | — | 3,049,584 | (1,460,029 | ) | — | ||||||||||||||||||||
| GMO U.S. Equity Fund, Class VI |
143,172,153 | — | 6,587,498 | — | (594,699 | ) | (4,004,929 | ) | 131,985,027 | |||||||||||||||||||
| GMO U.S. Treasury Fund |
83,433,020 | 18,968,617 | 74,351,830 | 300,206 | (1,913 | ) | 1,913 | 28,049,807 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Totals |
$ | 1,909,600,411 | $ | 186,885,095 | $ | 350,116,623 | $ | 300,206 | $ | (16,268,528 | ) | $ | 11,540,737 | $ | 1,741,641,092 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Global Developed Equity Allocation Fund |
| |||||||||||||||||||||||||||
| GMO Emerging Markets Fund, Class VI |
$ | 45,675,429 | $ | — | $ | 1,222,856 | $ | — | $ | 140,529 | $ | (1,386,858 | ) | $ | 43,206,244 | |||||||||||||
| GMO International Equity Fund, Class IV |
212,821,229 | — | 3,440,097 | — | (329,519 | ) | (8,087,188 | ) | 200,964,425 | |||||||||||||||||||
| GMO Quality Fund, Class VI |
91,967,553 | — | — | — | — | 1,155,786 | 93,123,339 | |||||||||||||||||||||
| GMO U.S. Equity Fund, Class VI |
97,294,103 | — | 354,623 | — | (42,789 | ) | (3,328,398 | ) | 93,568,293 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Totals |
$ | 447,758,314 | $ | — | $ | 5,017,576 | $ | — | $ | (231,779 | ) | $ | (11,646,658 | ) | $ | 430,862,301 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Global Equity Allocation Fund |
| |||||||||||||||||||||||||||
| GMO Emerging Markets Fund, Class VI |
$ | 432,155,290 | $ | — | $ | 4,197,503 | $ | — | $ | 56,501 | $ | (11,978,042 | ) | $ | 416,036,246 | |||||||||||||
| GMO International Equity Fund, Class IV |
677,968,641 | — | 32,459,638 | — | (10,030,638 | ) | (16,275,910 | ) | 619,202,455 | |||||||||||||||||||
| GMO Quality Fund, Class VI |
237,080,031 | — | 26,538,230 | — | 2,260,912 | 1,200,820 | 214,003,533 | |||||||||||||||||||||
| GMO U.S. Equity Fund, Class VI |
290,040,276 | 398,685 | 18,847,329 | — | (2,623,248 | ) | (7,019,273 | ) | 261,949,111 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Totals |
$ | 1,637,244,238 | $ | 398,685 | $ | 82,042,700 | $ | — | $ | (10,336,473 | ) | $ | (34,072,405 | ) | $ | 1,511,191,345 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| International Developed Equity Allocation Fund |
| |||||||||||||||||||||||||||
| GMO Emerging Markets Fund, Class VI |
$ | 57,057,016 | $ | 2,059,738 | $ | 3,071,840 | $ | — | $ | 340,021 | $ | (1,859,623 | ) | $ | 54,525,312 | |||||||||||||
| GMO International Equity Fund, Class IV |
515,607,672 | 7,948,294 | 25,297,880 | — | (5,278,308 | ) | (14,429,672 | ) | 478,550,106 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Totals |
$ | 572,664,688 | $ | 10,008,032 | $ | 28,369,720 | $ | — | $ | (4,938,287 | ) | $ | (16,289,295 | ) | $ | 533,075,418 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| International Equity Allocation Fund |
| |||||||||||||||||||||||||||
| GMO Emerging Markets Fund, Class VI |
$ | 322,997,438 | $ | — | $ | 10,697,190 | $ | — | $ | 940,681 | $ | (9,429,856 | ) | $ | 303,811,073 | |||||||||||||
| GMO International Equity Fund, Class IV |
606,692,593 | — | 26,919,661 | — | (5,180,208 | ) | (17,752,689 | ) | 556,840,035 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Totals |
$ | 929,690,031 | $ | — | $ | 37,616,851 | $ | — | $ | (4,239,527 | ) | $ | (27,182,545 | ) | $ | 860,651,108 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Consolidated Special Opportunities Fund |
| |||||||||||||||||||||||||||
| Eventbrite, Inc. – Class A |
$ | — | # | $ | — | $ | 1,200,055 | $ | — | $ | (80,978 | ) | $ | (11,821,167 | ) | $ | — | ## | ||||||||||
| Jagercor Energy Corp |
45,594 | — | — | — | — | (1,202 | ) | 44,392 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Totals |
$ | 45,594 | $ | — | $ | 1,200,055 | $ | — | $ | (80,978 | ) | $ | (11,822,369 | ) | $ | 44,392 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Affiliate | Value, beginning of period |
Purchases | Sales Proceeds |
Dividend Income* |
Net Realized Gain (Loss) |
Net Increase/ Decrease in Unrealized Appreciation/ Depreciation |
Value, end of period |
|||||||||||||||||||||
| Strategic Opportunities Allocation Fund |
| |||||||||||||||||||||||||||
| GMO Core Plus Bond Fund, Class IV |
$ | 90,334,045 | $ | — | $ | 2,484,421 | $ | — | $ | 35,183 | $ | 4,063,065 | $ | 91,947,872 | ||||||||||||||
| GMO Emerging Country Debt Fund, Class IV |
31,398,277 | — | 1,276,201 | — | (22,947 | ) | 494,188 | 30,593,317 | ||||||||||||||||||||
| GMO Emerging Markets Fund, Class VI |
206,302,480 | — | 4,598,062 | — | 481,517 | (6,171,226 | ) | 196,014,709 | ||||||||||||||||||||
| GMO International Equity Fund, Class IV |
228,072,858 | — | — | — | — | (9,104,929 | ) | 218,967,929 | ||||||||||||||||||||
| GMO Opportunistic Income Fund, Class VI |
23,830,200 | — | — | — | — | 454,602 | 24,284,802 | |||||||||||||||||||||
| GMO Quality Fund, Class VI |
80,218,024 | — | 16,031,568 | — | 1,024,507 | (48,902 | ) | 65,162,061 | ||||||||||||||||||||
| GMO U.S. Equity Fund, Class VI |
48,300,438 | — | 14,233,671 | — | (1,919,936 | ) | 644,480 | 32,791,311 | ||||||||||||||||||||
| GMO U.S. Treasury Fund |
24,214,549 | 20,049,765 | 21,574,000 | 125,758 | — | — | 22,690,314 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Totals |
$ | 732,670,871 | $ | 20,049,765 | $ | 60,197,923 | $ | 125,758 | $ | (401,676 | ) | $ | (9,668,722 | ) | $ | 682,452,315 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| * | The table above includes estimated sources of all distributions paid by the underlying funds during the period March 1, 2019 through May 31, 2019. The actual tax characterization of distributions paid by the underlying funds will be determined at the end of the fiscal year ending February 29, 2020. |
| # | Security not an affiliate at the beginning of the period. |
| ## | No longer an affiliate at period end. |
GMO Alternative Allocation Fund commenced operations on May 1, 2019.
Basis of presentation
The preparation of the Schedule of Investments in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires Grantham, Mayo, Van Otterloo & Co. LLC (“GMO”) to make estimates and assumptions that affect the reported amounts and disclosures in the Schedule of Investments during the reporting period. GMO believes the estimates and security valuations are appropriate; however, actual results may differ from those estimates, and the security valuations reflected in the Schedule of Investments may differ from the value a Fund ultimately realizes upon the sale of those securities.
Basis of presentation and principles of consolidation: Alternative Allocation Fund, Implementation Fund, Special Opportunities Fund and SGM Major Markets Fund
Alternative Allocation Fund, Implementation Fund, Special Opportunities Fund and SGM Major Markets Fund include the accounts of their wholly-owned subsidiaries Alternative Allocation SPC Ltd., Implementation SPC Ltd., Special Opportunities SPC Ltd. and Alternative Asset SPC Ltd. (each a “wholly-owned subsidiary”), respectively, and the accompanying schedules of investments have been consolidated for those accounts. The consolidated schedules of investments include all of the assets and liabilities of each wholly-owned subsidiary.
Portfolio valuation
Shares of the underlying funds and other open-end registered investment companies are valued at their most recent net asset value. Direct 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 GMO 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 that 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 price quoted (which may be based on a model) by the relevant clearing house. If an updated quote for a cleared derivative is not available when a Fund calculates its net asset value, the derivative will generally be valued using an industry standard model, which may differ from the model used by the relevant clearing house. Over-the-counter (“OTC”) derivatives are generally valued at the price determined by an industry standard model. Unlisted securities 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 of GMO Trust (“Trustees”) or persons acting at their direction pursuant to procedures approved by the Trustees. Because of the uncertainty inherent in fair value pricing, the price determined for a particular security may be materially different from the value realized upon its sale. The Funds and/or the underlying funds classify such securities as Level 3 (levels defined below). For the period ended May 31, 2019, the Funds did not reduce the value of any of their OTC derivatives contracts, if any, based on the creditworthiness of their counterparties. See “Derivative financial instruments” for a further discussion on valuation of derivatives.
The foregoing valuation methodologies are modified for equities that trade in non-U.S. securities markets that close before the close of the New York Stock Exchange (“NYSE”) due to time zone differences, including the value of equities 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 price will generally be adjusted, to the extent practicable and available, based on inputs from an independent pricing service approved by
the Trustees that are intended to reflect valuation changes through the NYSE close. 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) and are described in the disclosures of the underlying funds.
Typically, the Funds and the underlying funds value fixed income securities at the most recent price supplied by a pricing source determined by GMO. GMO evaluates pricing sources on an ongoing basis and may change a pricing source at any time. GMO 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 source) when it believes that the price supplied is not reliable. Alternative pricing sources are often but not always available for securities held by the Funds and the underlying funds.
“Quoted price” typically means the bid price for securities held long and the ask price for securities sold short. If a market quotation for a security does not involve a bid or an ask, the “quoted price” may be the price provided by a market participant or other third-party pricing source in accordance with the market practice for that security. If an updated quoted price for a security is not available when a Fund calculates its net asset value, the Fund will generally use the last quoted price so long as GMO believes that the last quoted price continues to represent that security’s fair value.
In the case of derivatives, prices determined by a model may reflect an estimate of the average of bid and ask prices, regardless of whether a Fund has a long position or a short position.
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 methodologies 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.
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; 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 certain U.S. government agency securities, mortgage-backed securities, asset-backed securities, certain sovereign debt obligations, and corporate bonds valued using vendor prices or 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; 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 debt obligations, such as collateralized loan obligations, that have yet to begin trading that are valued at cost; 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, certain debt securities (such as asset-backed, mortgage-backed, loans and sovereign debt) and derivatives even though they may be 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 relevant index; certain securities that are valued using a price from a comparable security related to the same issuer; and certain recently acquired equity securities that have yet to begin trading that are valued at cost.
The following is a summary of the respective levels assigned to the Funds’ direct securities and derivatives, if any, as of May 31, 2019:
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Alpha Only Fund |
||||||||||||||||
| Asset Valuation Inputs | ||||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 931,293 | $ | — | $ | 931,293 | ||||||||
| Austria |
— | 63,271 | — | 63,271 | ||||||||||||
| Belgium |
— | 40,599 | — | 40,599 | ||||||||||||
| Brazil |
— | 2,467,165 | — | 2,467,165 | ||||||||||||
| China |
59,330 | 7,858,552 | — | 7,917,882 | ||||||||||||
| Denmark |
— | 19,264 | — | 19,264 | ||||||||||||
| Finland |
— | 175,999 | — | 175,999 | ||||||||||||
| France |
— | 1,260,199 | — | 1,260,199 | ||||||||||||
| Germany |
— | 1,870,643 | — | 1,870,643 | ||||||||||||
| Greece |
— | — | 0 | § | 0 | § | ||||||||||
| Hong Kong |
— | 268,907 | — | 268,907 | ||||||||||||
| Hungary |
— | 37,602 | — | 37,602 | ||||||||||||
| India |
— | 1,527,020 | — | 1,527,020 | ||||||||||||
| Indonesia |
— | 26,616 | — | 26,616 | ||||||||||||
| Ireland |
— | 4,383 | — | 4,383 | ||||||||||||
| Israel |
— | 153,490 | — | 153,490 | ||||||||||||
| Italy |
22,716 | 1,016,449 | — | 1,039,165 | ||||||||||||
| Japan |
— | 5,590,059 | — | 5,590,059 | ||||||||||||
| Malaysia |
— | 38,228 | 0 | § | 38,228 | |||||||||||
| Mexico |
607,251 | — | — | 607,251 | ||||||||||||
| Netherlands |
— | 956,999 | — | 956,999 | ||||||||||||
| New Zealand |
— | 16,099 | — | 16,099 | ||||||||||||
| Norway |
— | 740,159 | — | 740,159 | ||||||||||||
| Poland |
— | 90,574 | — | 90,574 | ||||||||||||
| Portugal |
— | 127,510 | — | 127,510 | ||||||||||||
| Russia |
— | 1,243,838 | — | 1,243,838 | ||||||||||||
| Singapore |
— | 108,796 | — | 108,796 | ||||||||||||
| South Africa |
— | 1,830,363 | — | 1,830,363 | ||||||||||||
| South Korea |
411,171 | 2,718,049 | — | 3,129,220 | ||||||||||||
| Spain |
— | 899,293 | — | 899,293 | ||||||||||||
| Sweden |
— | 891,872 | — | 891,872 | ||||||||||||
| Switzerland |
— | 385,062 | — | 385,062 | ||||||||||||
| Taiwan |
— | 3,219,539 | — | 3,219,539 | ||||||||||||
| Thailand |
— | 1,011,418 | — | 1,011,418 | ||||||||||||
| Turkey |
— | 512,586 | — | 512,586 | ||||||||||||
| United Kingdom |
897,804 | 3,341,541 | — | 4,239,345 | ||||||||||||
| United States |
26,551,526 | — | — | 26,551,526 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
28,549,798 | 41,443,437 | 0 | § | 69,993,235 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Brazil |
— | 121,052 | — | 121,052 | ||||||||||||
| Colombia |
674 | — | — | 674 | ||||||||||||
| Germany |
— | 150,082 | — | 150,082 | ||||||||||||
| South Korea |
— | 352,960 | — | 352,960 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
674 | 624,094 | — | 624,768 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Debt Obligations |
||||||||||||||||
| United States |
7,497,095 | — | — | 7,497,095 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
7,497,095 | — | — | 7,497,095 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Rights/Warrants |
||||||||||||||||
| Spain |
348 | — | — | 348 | ||||||||||||
| Thailand |
98 | — | — | 98 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL RIGHTS/WARRANTS |
446 | — | — | 446 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
3,636,576 | — | — | 3,636,576 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
3,636,576 | — | — | 3,636,576 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Alpha Only Fund (continued) |
||||||||||||||||
| Asset Valuation Inputs (continued) |
||||||||||||||||
| Short-Term Investments |
$ | 518,274 | $ | — | $ | — | $ | 518,274 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
40,202,863 | 42,067,531 | 0 | § | 82,270,394 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives^ |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | 128,725 | — | 128,725 | ||||||||||||
| Futures Contracts |
||||||||||||||||
| Equity Risk |
479,394 | — | — | 479,394 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 40,682,257 | $ | 42,196,256 | $ | — | $ | 82,878,513 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives^ |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
$ | — | $ | (241,254 | ) | $ | — | $ | (241,254 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Consolidated Alternative Allocation Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| United States |
$ | 36,509,869 | $ | — | $ | — | $ | 36,509,869 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
36,509,869 | — | — | 36,509,869 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Investment Funds |
||||||||||||||||
| United States |
5,333,920 | — | — | 5,333,920 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL INVESTMENT FUNDS |
5,333,920 | — | — | 5,333,920 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Debt Obligations |
||||||||||||||||
| United States |
59,884,737 | — | — | 59,884,737 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
59,884,737 | — | — | 59,884,737 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
16,070,093 | — | — | 16,070,093 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
16,070,093 | — | — | 16,070,093 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
466,235 | 61,019,700 | — | 61,485,935 | ||||||||||||
| Purchased Options |
19,120 | — | — | 19,120 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
118,283,974 | 61,019,700 | — | 179,303,674 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives^ |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | 970,491 | — | 970,491 | ||||||||||||
| Futures Contracts |
||||||||||||||||
| Equity Risk |
841,305 | 132,245 | — | 973,550 | ||||||||||||
| Interest Rate Risk |
33,348 | — | — | 33,348 | ||||||||||||
| Swap Contracts |
||||||||||||||||
| Interest Rate Risk |
— | 3,008,306 | — | 3,008,306 | ||||||||||||
| Physical Commodity Contract Risk |
— | 16,989 | — | 16,989 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 119,158,627 | $ | 65,147,731 | $ | — | $ | 184,306,358 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| China |
$ | (4,599,745 | ) | $ | — | $ | — | $ | (4,599,745 | ) | ||||||
| United States |
(19,593,985 | ) | — | — | (19,593,985 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
(24,193,730 | ) | — | — | (24,193,730 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives^ |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | (499,975 | ) | — | (499,975 | ) | ||||||||||
| Futures Contracts |
||||||||||||||||
| Equity Risk |
(525,278 | ) | (582,151 | ) | — | (1,107,429 | ) | |||||||||
| Interest Rate Risk |
(279,299 | ) | — | — | (279,299 | ) | ||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Consolidated Alternative Allocation Fund (continued) |
|
|||||||||||||||
| Liability Valuation Inputs (continued) |
||||||||||||||||
| Written Options |
||||||||||||||||
| Equity Risk |
$ | (1,283,534 | ) | $ | (133,886 | ) | $ | — | $ | (1,417,420 | ) | |||||
| Swap Contracts |
||||||||||||||||
| Interest Rate Risk |
— | (1,310,666 | ) | — | (1,310,666 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (26,281,841 | ) | $ | (2,526,678 | ) | $ | — | $ | (28,808,519 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| Benchmark-Free Allocation Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Mutual Funds |
$ | 10,675,875,994 | $ | — | $ | — | $ | 10,675,875,994 | ||||||||
| Short-Term Investments |
6,345,382 | — | — | 6,345,382 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
$ | 10,682,221,376 | $ | — | $ | — | $ | 10,682,221,376 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Benchmark-Free Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 26,647,795 | $ | — | $ | 26,647,795 | ||||||||
| Austria |
— | 1,084,960 | — | 1,084,960 | ||||||||||||
| Belgium |
— | 3,808,377 | — | 3,808,377 | ||||||||||||
| Brazil |
807,437 | 53,723,124 | — | 54,530,561 | ||||||||||||
| Canada |
42,967,669 | — | — | 42,967,669 | ||||||||||||
| Chile |
76,704 | 26,233 | — | 102,937 | ||||||||||||
| China |
1,670,992 | 172,287,047 | — | 173,958,039 | ||||||||||||
| Colombia |
538,926 | — | — | 538,926 | ||||||||||||
| Czech Republic |
— | 28,059 | — | 28,059 | ||||||||||||
| Denmark |
2,397,760 | 2,589,393 | — | 4,987,153 | ||||||||||||
| Finland |
— | 11,158,515 | — | 11,158,515 | ||||||||||||
| France |
5,208,914 | 52,902,760 | — | 58,111,674 | ||||||||||||
| Germany |
— | 49,410,695 | — | 49,410,695 | ||||||||||||
| Greece |
— | — | 0 | § | 0 | § | ||||||||||
| Hong Kong |
— | 9,750,377 | — | 9,750,377 | ||||||||||||
| Hungary |
— | 1,049,455 | — | 1,049,455 | ||||||||||||
| India |
297,258 | 33,913,130 | — | 34,210,388 | ||||||||||||
| Indonesia |
— | 1,413,064 | — | 1,413,064 | ||||||||||||
| Ireland |
1,244,273 | 17,914 | — | 1,262,187 | ||||||||||||
| Israel |
— | 1,692,782 | — | 1,692,782 | ||||||||||||
| Italy |
4,143,146 | 22,633,603 | — | 26,776,749 | ||||||||||||
| Japan |
— | 157,879,415 | — | 157,879,415 | ||||||||||||
| Malaysia |
— | 1,691,665 | — | 1,691,665 | ||||||||||||
| Mexico |
15,557,498 | — | — | 15,557,498 | ||||||||||||
| Netherlands |
2,426,520 | 34,277,405 | — | 36,703,925 | ||||||||||||
| New Zealand |
— | 1,101,832 | — | 1,101,832 | ||||||||||||
| Norway |
— | 20,451,715 | — | 20,451,715 | ||||||||||||
| Pakistan |
— | 275,882 | — | 275,882 | ||||||||||||
| Philippines |
— | 923,043 | — | 923,043 | ||||||||||||
| Poland |
— | 6,381,826 | — | 6,381,826 | ||||||||||||
| Portugal |
— | 3,095,072 | — | 3,095,072 | ||||||||||||
| Qatar |
— | 1,286,342 | — | 1,286,342 | ||||||||||||
| Russia |
248,140 | 53,927,275 | — | 54,175,415 | ||||||||||||
| Singapore |
— | 5,258,539 | — | 5,258,539 | ||||||||||||
| South Africa |
— | 39,480,407 | — | 39,480,407 | ||||||||||||
| South Korea |
7,098,470 | 55,073,777 | — | 62,172,247 | ||||||||||||
| Spain |
— | 29,861,299 | — | 29,861,299 | ||||||||||||
| Sweden |
— | 32,120,684 | — | 32,120,684 | ||||||||||||
| Switzerland |
34,542 | 30,495,614 | — | 30,530,156 | ||||||||||||
| Taiwan |
3,667,871 | 71,964,929 | — | 75,632,800 | ||||||||||||
| Thailand |
— | 11,195,722 | — | 11,195,722 | ||||||||||||
| Turkey |
— | 19,336,957 | — | 19,336,957 | ||||||||||||
| United Arab Emirates |
— | 464,692 | — | 464,692 | ||||||||||||
| United Kingdom |
8,936,462 | 92,150,378 | — | 101,086,840 | ||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Benchmark-Free Fund (continued) |
||||||||||||||||
| Asset Valuation Inputs (continued) |
||||||||||||||||
| United States |
$ | 143,260,708 | $ | — | $ | — | $ | 143,260,708 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
240,583,290 | 1,112,831,753 | 0 | § | 1,353,415,043 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Brazil |
— | 5,475,569 | — | 5,475,569 | ||||||||||||
| Colombia |
36,343 | — | — | 36,343 | ||||||||||||
| Germany |
— | 2,452,057 | — | 2,452,057 | ||||||||||||
| Russia |
— | 3,795,801 | — | 3,795,801 | ||||||||||||
| South Korea |
— | 11,180,231 | — | 11,180,231 | ||||||||||||
| Sweden |
— | 86,184 | — | 86,184 | ||||||||||||
| Taiwan |
— | — | 29,365 | 29,365 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
36,343 | 22,989,842 | 29,365 | 23,055,550 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Rights/Warrants |
||||||||||||||||
| Singapore |
— | — | 65 | 65 | ||||||||||||
| Spain |
14,034 | — | — | 14,034 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL RIGHTS/WARRANTS |
14,034 | — | 65 | 14,099 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Investment Funds |
||||||||||||||||
| United States |
635,515 | — | — | 635,515 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL INVESTMENT FUNDS |
635,515 | — | — | 635,515 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Debt Obligations |
||||||||||||||||
| United States |
— | 403,439,320 | — | 403,439,320 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
— | 403,439,320 | — | 403,439,320 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
957,561,858 | — | — | 957,561,858 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
957,561,858 | — | — | 957,561,858 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
7,175,688 | 131,319,166 | — | 138,494,854 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
1,206,006,728 | 1,670,580,081 | 29,430 | 2,876,616,239 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives^ |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | 411,758 | — | 411,758 | ||||||||||||
| Futures Contracts |
||||||||||||||||
| Equity Risk |
1,465,511 | — | — | 1,465,511 | ||||||||||||
| Swap Contracts |
||||||||||||||||
| Equity Risk |
— | 38,644 | — | 38,644 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 1,207,472,239 | $ | 1,671,030,483 | $ | 29,430 | $ | 2,878,532,152 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Austria |
$ | — | $ | (218,498 | ) | $ | — | $ | (218,498 | ) | ||||||
| Brazil |
(5,182,722 | ) | — | — | (5,182,722 | ) | ||||||||||
| Canada |
(3,696,985 | ) | — | — | (3,696,985 | ) | ||||||||||
| Denmark |
— | (2,443,732 | ) | — | (2,443,732 | ) | ||||||||||
| France |
— | (394,727 | ) | — | (394,727 | ) | ||||||||||
| Germany |
(662,592 | ) | (1,594,935 | ) | — | (2,257,527 | ) | |||||||||
| Israel |
(344,190 | ) | — | — | (344,190 | ) | ||||||||||
| Italy |
— | (2,862,534 | ) | — | (2,862,534 | ) | ||||||||||
| Japan |
— | (7,373,363 | ) | — | (7,373,363 | ) | ||||||||||
| Netherlands |
(1,083,537 | ) | — | — | (1,083,537 | ) | ||||||||||
| Norway |
— | (33,982 | ) | — | (33,982 | ) | ||||||||||
| Peru |
(613,886 | ) | — | — | (613,886 | ) | ||||||||||
| Singapore |
— | (97,079 | ) | — | (97,079 | ) | ||||||||||
| Spain |
— | (812,498 | ) | — | (812,498 | ) | ||||||||||
| Sweden |
(1,167,894 | ) | — | — | (1,167,894 | ) | ||||||||||
| Switzerland |
— | (775,987 | ) | — | (775,987 | ) | ||||||||||
| United Kingdom |
— | (2,588,659 | ) | — | (2,588,659 | ) | ||||||||||
| United States |
(19 | ) | — | — | (19 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
(12,751,825 | ) | (19,195,994 | ) | — | (31,947,819 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Benchmark-Free Fund (continued) |
||||||||||||||||
| Liability Valuation Inputs (continued) |
||||||||||||||||
| Derivatives^ |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
$ | — | $ | (837,023 | ) | $ | — | $ | (837,023 | ) | ||||||
| Futures Contracts |
||||||||||||||||
| Equity Risk |
(101,132 | ) | — | — | (101,132 | ) | ||||||||||
| Swap Contracts |
||||||||||||||||
| Equity Risk |
— | (191,269 | ) | — | (191,269 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (12,852,957 | ) | $ | (20,224,286 | ) | $ | — | $ | (33,077,243 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| Global Asset Allocation Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Mutual Funds |
$ | 1,741,641,092 | $ | — | $ | — | $ | 1,741,641,092 | ||||||||
| Debt Obligations |
||||||||||||||||
| Asset-Backed Securities |
— | 46,121 | — | 46,121 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
— | 46,121 | — | 46,121 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
209,145 | — | — | 209,145 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
$ | 1,741,850,237 | $ | 46,121 | $ | — | $ | 1,741,896,358 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Global Developed Equity Allocation Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Mutual Funds |
$ | 430,862,301 | $ | — | $ | — | $ | 430,862,301 | ||||||||
| Short-Term Investments |
182,058 | — | — | 182,058 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
$ | 431,044,359 | $ | — | $ | — | $ | 431,044,359 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Global Equity Allocation Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Mutual Funds |
$ | 1,511,191,345 | $ | — | $ | — | $ | 1,511,191,345 | ||||||||
| Short-Term Investments |
541,067 | — | — | 541,067 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
$ | 1,511,732,412 | $ | — | $ | — | $ | 1,511,732,412 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Consolidated Implementation Fund |
||||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 90,920,669 | $ | — | $ | 90,920,669 | ||||||||
| Austria |
— | 6,876,286 | — | 6,876,286 | ||||||||||||
| Belgium |
— | 10,014,340 | — | 10,014,340 | ||||||||||||
| Brazil |
5,927,110 | 170,858,817 | — | 176,785,927 | ||||||||||||
| Canada |
137,295,743 | — | — | 137,295,743 | ||||||||||||
| Chile |
404,294 | — | — | 404,294 | ||||||||||||
| China |
19,429,009 | 855,544,832 | — | 874,973,841 | ||||||||||||
| Colombia |
1,578,935 | — | — | 1,578,935 | ||||||||||||
| Czech Republic |
— | 378,079 | — | 378,079 | ||||||||||||
| Denmark |
7,226,320 | 6,948,086 | — | 14,174,406 | ||||||||||||
| Finland |
— | 35,801,064 | — | 35,801,064 | ||||||||||||
| France |
12,896,760 | 172,144,287 | — | 185,041,047 | ||||||||||||
| Germany |
— | 157,719,241 | — | 157,719,241 | ||||||||||||
| Greece |
— | 144,007 | — | 144,007 | ||||||||||||
| Hong Kong |
— | 27,945,834 | — | 27,945,834 | ||||||||||||
| Hungary |
— | 3,230,496 | — | 3,230,496 | ||||||||||||
| India |
899,396 | 113,259,553 | — | 114,158,949 | ||||||||||||
| Indonesia |
— | 9,988,375 | — | 9,988,375 | ||||||||||||
| Ireland |
4,583,052 | 139,343 | — | 4,722,395 | ||||||||||||
| Israel |
307,670 | 4,437,698 | — | 4,745,368 | ||||||||||||
| Italy |
12,973,663 | 85,757,905 | — | 98,731,568 | ||||||||||||
| Japan |
— | 544,487,079 | — | 544,487,079 | ||||||||||||
| Malaysia |
— | 4,658,662 | — | 4,658,662 | ||||||||||||
| Mexico |
50,655,276 | — | — | 50,655,276 | ||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Consolidated Implementation Fund (continued) |
|
|||||||||||||||
| Asset Valuation Inputs (continued) |
||||||||||||||||
| Netherlands |
$ | 6,465,180 | $ | 114,660,794 | $ | — | $ | 121,125,974 | ||||||||
| New Zealand |
— | 1,977,625 | — | 1,977,625 | ||||||||||||
| Norway |
— | 68,043,141 | — | 68,043,141 | ||||||||||||
| Pakistan |
53,752 | 4,754,649 | — | 4,808,401 | ||||||||||||
| Philippines |
— | 8,693,188 | — | 8,693,188 | ||||||||||||
| Poland |
— | 68,560,892 | — | 68,560,892 | ||||||||||||
| Portugal |
— | 9,637,339 | — | 9,637,339 | ||||||||||||
| Qatar |
— | 25,136,230 | — | 25,136,230 | ||||||||||||
| Russia |
2,894,587 | 352,284,333 | — | 355,178,920 | ||||||||||||
| Singapore |
— | 25,298,825 | — | 25,298,825 | ||||||||||||
| South Africa |
— | 195,586,600 | — | 195,586,600 | ||||||||||||
| South Korea |
21,027,147 | 204,087,104 | — | 225,114,251 | ||||||||||||
| Spain |
6,241,607 | 99,169,519 | — | 105,411,126 | ||||||||||||
| Sweden |
— | 108,400,021 | 130,131 | 108,530,152 | ||||||||||||
| Switzerland |
116,731 | 104,076,834 | — | 104,193,565 | ||||||||||||
| Taiwan |
33,415,237 | 419,235,978 | — | 452,651,215 | ||||||||||||
| Thailand |
— | 49,341,843 | — | 49,341,843 | ||||||||||||
| Turkey |
352,440 | 182,206,639 | — | 182,559,079 | ||||||||||||
| United Arab Emirates |
— | 6,295,986 | — | 6,295,986 | ||||||||||||
| United Kingdom |
49,895,608 | 297,144,410 | — | 347,040,018 | ||||||||||||
| United States |
1,055,670,260 | 1,079,508 | 18,615,578 | 1,075,365,346 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
1,430,309,777 | 4,646,926,111 | 18,745,709 | 6,095,981,597 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Brazil |
— | 17,977,091 | — | 17,977,091 | ||||||||||||
| Colombia |
344,962 | — | — | 344,962 | ||||||||||||
| Germany |
— | 10,238,066 | — | 10,238,066 | ||||||||||||
| Russia |
— | 25,985,933 | — | 25,985,933 | ||||||||||||
| South Korea |
— | 38,311,321 | 7,462 | 38,318,783 | ||||||||||||
| Sweden |
— | 558,855 | — | 558,855 | ||||||||||||
| Taiwan |
— | — | 408,660 | 408,660 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
344,962 | 93,071,266 | 416,122 | 93,832,350 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Rights/Warrants |
||||||||||||||||
| Spain |
46,192 | — | — | 46,192 | ||||||||||||
| United States |
— | — | 130,841 | 130,841 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL RIGHTS/WARRANTS |
46,192 | — | 130,841 | 177,033 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Investment Funds |
||||||||||||||||
| United States |
63,974,531 | — | — | 63,974,531 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL INVESTMENT FUNDS |
63,974,531 | — | — | 63,974,531 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Debt Obligations |
||||||||||||||||
| Italy |
— | 3,275,599 | — | 3,275,599 | ||||||||||||
| Jamaica |
— | 6,152,512 | — | 6,152,512 | ||||||||||||
| Luxembourg |
— | — | 7,205,018 | 7,205,018 | ||||||||||||
| Puerto Rico |
— | 14,680,244 | — | 14,680,244 | ||||||||||||
| Saint Lucia |
— | — | 4,910,041 | 4,910,041 | ||||||||||||
| United Kingdom |
— | 1,372,500 | — | 1,372,500 | ||||||||||||
| United States |
423,721,019 | 1,385,566,157 | 92,951,469 | 1,902,238,645 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
423,721,019 | 1,411,047,012 | 105,066,528 | 1,939,834,559 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
104,890,326 | 282,884,061 | — | 387,774,387 | ||||||||||||
| Purchased Options |
239,000 | — | — | 239,000 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
2,023,525,807 | 6,433,928,450 | 124,359,200 | 8,581,813,457 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives^ |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | 7,831,791 | — | 7,831,791 | ||||||||||||
| Futures Contracts |
||||||||||||||||
| Equity Risk |
6,827,147 | — | — | 6,827,147 | ||||||||||||
| Swap Contracts |
||||||||||||||||
| Credit Risk |
— | 30,170 | — | 30,170 | ||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Consolidated Implementation Fund (continued) |
|
|||||||||||||||
| Asset Valuation Inputs (continued) |
||||||||||||||||
| Equity Risk |
$ | — | $ | 83,132 | $ | — | $ | 83,132 | ||||||||
| Interest Rate Risk |
— | 18,386,527 | — | 18,386,527 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
2,030,352,954 | 6,460,260,070 | 124,359,200 | 8,614,972,224 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Austria |
— | (596,816 | ) | — | (596,816 | ) | ||||||||||
| Belgium |
— | (30,323 | ) | — | (30,323 | ) | ||||||||||
| Brazil |
(16,834,360 | ) | — | — | (16,834,360 | ) | ||||||||||
| Canada |
(11,019,885 | ) | — | — | (11,019,885 | ) | ||||||||||
| China |
(53,379,705 | ) | — | — | (53,379,705 | ) | ||||||||||
| Denmark |
— | (7,200,457 | ) | — | (7,200,457 | ) | ||||||||||
| France |
— | (3,698,005 | ) | — | (3,698,005 | ) | ||||||||||
| Germany |
(1,386,112 | ) | (6,626,195 | ) | — | (8,012,307 | ) | |||||||||
| Israel |
(940,190 | ) | — | — | (940,190 | ) | ||||||||||
| Italy |
— | (8,098,711 | ) | — | (8,098,711 | ) | ||||||||||
| Japan |
— | (21,808,611 | ) | — | (21,808,611 | ) | ||||||||||
| Netherlands |
(2,867,319 | ) | — | — | (2,867,319 | ) | ||||||||||
| Peru |
(1,909,118 | ) | — | — | (1,909,118 | ) | ||||||||||
| Singapore |
— | (208,007 | ) | — | (208,007 | ) | ||||||||||
| Spain |
— | (1,173,773 | ) | — | (1,173,773 | ) | ||||||||||
| Sweden |
(2,787,876 | ) | — | — | (2,787,876 | ) | ||||||||||
| Switzerland |
— | (1,344,210 | ) | — | (1,344,210 | ) | ||||||||||
| United Kingdom |
— | (9,488,312 | ) | — | (9,488,312 | ) | ||||||||||
| United States |
(203,136,849 | ) | — | — | (203,136,849 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
(294,261,414 | ) | (60,273,420 | ) | — | (354,534,834 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Debt Obligations |
||||||||||||||||
| United States |
— | (25,068,077 | ) | — | (25,068,077 | ) | ||||||||||
| Derivatives^ |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | (10,146,964 | ) | — | (10,146,964 | ) | ||||||||||
| Futures Contracts |
||||||||||||||||
| Equity Risk |
(1,353,020 | ) | — | — | (1,353,020 | ) | ||||||||||
| Written Options |
||||||||||||||||
| Equity Risk |
(9,745,690 | ) | — | — | (9,745,690 | ) | ||||||||||
| Swap Contracts |
||||||||||||||||
| Credit Risk |
— | (639,380 | ) | — | (639,380 | ) | ||||||||||
| Equity Risk |
— | (890,096 | ) | — | (890,096 | ) | ||||||||||
| Interest Rate Risk |
— | (7,723,603 | ) | — | (7,723,603 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (305,360,124 | ) | $ | (104,741,540 | ) | $ | — | $ | (410,101,664 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| International Developed Equity Allocation Fund |
|
|||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Mutual Funds |
$ | 533,075,418 | $ | — | $ | — | $ | 533,075,418 | ||||||||
| Short-Term Investments |
322,628 | — | — | 322,628 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
$ | 533,398,046 | $ | — | $ | — | $ | 533,398,046 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| International Equity Allocation Fund |
|
|||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Mutual Funds |
$ | 860,651,108 | $ | — | $ | — | $ | 860,651,108 | ||||||||
| Short-Term Investments |
319,178 | — | — | 319,178 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
$ | 860,970,286 | $ | — | $ | — | $ | 860,970,286 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Consolidated SGM Major Markets Fund |
|
|||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Debt Obligations |
||||||||||||||||
| U.S. Government |
$ | 645,405,434 | $ | — | $ | — | $ | 645,405,434 | ||||||||
| U.S. Government Agency |
227,833,531 | — | — | 227,833,531 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
873,238,965 | — | — | 873,238,965 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
96,749,380 | 171,176,656 | — | 267,926,036 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
969,988,345 | 171,176,656 | — | 1,141,165,001 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives^ |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
— | 6,881,473 | — | 6,881,473 | ||||||||||||
| Futures Contracts |
||||||||||||||||
| Equity Risk |
1,775,099 | 4,728,524 | — | 6,503,623 | ||||||||||||
| Interest Rate Risk |
1,125,256 | — | — | 1,125,256 | ||||||||||||
| Physical Commodity Contract Risk |
8,290,233 | — | — | 8,290,233 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 981,178,933 | $ | 182,786,653 | $ | — | $ | 1,163,965,586 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Derivatives^ |
||||||||||||||||
| Forward Currency Contracts |
||||||||||||||||
| Foreign Currency Risk |
$ | — | $ | (5,074,251 | ) | $ | — | $ | (5,074,251 | ) | ||||||
| Futures Contracts |
||||||||||||||||
| Equity Risk |
(4,918,908 | ) | (3,787,773 | ) | — | (8,706,681 | ) | |||||||||
| Interest Rate Risk |
(6,947,335 | ) | — | — | (6,947,335 | ) | ||||||||||
| Physical Commodity Contract Risk |
(6,485,710 | ) | — | — | (6,485,710 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (18,351,953 | ) | $ | (8,862,024 | ) | $ | — | $ | (27,213,977 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| Consolidated Special Opportunities Fund |
|
|||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Canada |
$ | — | $ | — | $ | 44,392 | $ | 44,392 | ||||||||
| Netherlands |
16,953,300 | — | — | 16,953,300 | ||||||||||||
| Sweden |
2,742,667 | — | — | 2,742,667 | ||||||||||||
| United Kingdom |
— | 17,107,045 | — | 17,107,045 | ||||||||||||
| United States |
259,311,288 | — | — | 259,311,288 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
279,007,255 | 17,107,045 | 44,392 | 296,158,692 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Debt Obligations |
||||||||||||||||
| United States |
20,827,734 | — | — | 20,827,734 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
20,827,734 | — | — | 20,827,734 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
33,181,399 | — | — | 33,181,399 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
$ | 333,016,388 | $ | 17,107,045 | $ | 44,392 | $ | 350,167,825 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Strategic Opportunities Allocation Fund |
|
|||||||||||||||
| Asset Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Australia |
$ | — | $ | 517,530 | $ | — | $ | 517,530 | ||||||||
| Belgium |
— | 32,841 | — | 32,841 | ||||||||||||
| Brazil |
— | 2,737,961 | — | 2,737,961 | ||||||||||||
| Canada |
543,607 | — | — | 543,607 | ||||||||||||
| China |
— | 4,425,441 | — | 4,425,441 | ||||||||||||
| Denmark |
415,360 | — | — | 415,360 | ||||||||||||
| France |
339,548 | 1,898,056 | — | 2,237,604 | ||||||||||||
| Germany |
— | 579,697 | — | 579,697 | ||||||||||||
| Hong Kong |
— | 182,702 | — | 182,702 | ||||||||||||
| India |
99,086 | 220,497 | — | 319,583 | ||||||||||||
| Ireland |
31,350 | — | — | 31,350 | ||||||||||||
| Italy |
271,330 | 1,116,714 | — | 1,388,044 | ||||||||||||
| Japan |
— | 6,682,152 | — | 6,682,152 | ||||||||||||
| Luxembourg |
15,822 | — | — | 15,822 | ||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Strategic Opportunities Allocation Fund (continued) |
|
|||||||||||||||
| Asset Valuation Inputs (continued) |
||||||||||||||||
| Malta |
$ | — | $ | — | $ | 0 | § | $ | 0 | § | ||||||
| Mexico |
33,900 | — | — | 33,900 | ||||||||||||
| Netherlands |
— | 999,275 | — | 999,275 | ||||||||||||
| Norway |
— | 595,729 | — | 595,729 | ||||||||||||
| Philippines |
— | 14,562 | — | 14,562 | ||||||||||||
| Portugal |
— | 128,803 | — | 128,803 | ||||||||||||
| Russia |
— | 851,128 | — | 851,128 | ||||||||||||
| Singapore |
— | 39,416 | — | 39,416 | ||||||||||||
| South Africa |
— | 888,752 | — | 888,752 | ||||||||||||
| South Korea |
771,987 | 1,138,449 | — | 1,910,436 | ||||||||||||
| Spain |
— | 1,287,753 | — | 1,287,753 | ||||||||||||
| Sweden |
— | 2,042,491 | — | 2,042,491 | ||||||||||||
| Switzerland |
— | 288,141 | — | 288,141 | ||||||||||||
| Taiwan |
— | 1,536,788 | — | 1,536,788 | ||||||||||||
| Turkey |
— | 167,409 | — | 167,409 | ||||||||||||
| United Kingdom |
128,279 | 4,199,948 | — | 4,328,227 | ||||||||||||
| United States |
101,561,749 | — | — | 101,561,749 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
104,212,018 | 32,572,235 | 0 | § | 136,784,253 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Preferred Stocks |
||||||||||||||||
| Germany |
— | 28,588 | — | 28,588 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL PREFERRED STOCKS |
— | 28,588 | — | 28,588 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Rights/Warrants |
||||||||||||||||
| Spain |
819 | — | — | 819 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL RIGHTS/WARRANTS |
819 | — | — | 819 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Debt Obligations |
||||||||||||||||
| United States |
— | 68,798,036 | — | 68,798,036 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL DEBT OBLIGATIONS |
— | 68,798,036 | — | 68,798,036 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Mutual Funds |
||||||||||||||||
| United States |
682,452,315 | — | — | 682,452,315 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL MUTUAL FUNDS |
682,452,315 | — | — | 682,452,315 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Short-Term Investments |
1,278,341 | — | — | 1,278,341 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
787,943,493 | 101,398,859 | 0 | § | 889,342,352 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives^ |
||||||||||||||||
| Swap Contracts |
||||||||||||||||
| Equity Risk |
— | 8,097 | — | 8,097 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 787,943,493 | $ | 101,406,956 | $ | 0 | § | $ | 889,350,449 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liability Valuation Inputs |
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Austria |
$ | — | $ | (28,991 | ) | $ | — | $ | (28,991 | ) | ||||||
| Brazil |
(656,410 | ) | — | — | (656,410 | ) | ||||||||||
| Canada |
(572,516 | ) | — | — | (572,516 | ) | ||||||||||
| Denmark |
— | (267,396 | ) | — | (267,396 | ) | ||||||||||
| France |
— | (45,818 | ) | — | (45,818 | ) | ||||||||||
| Germany |
— | (505,470 | ) | — | (505,470 | ) | ||||||||||
| Israel |
(17,880 | ) | — | — | (17,880 | ) | ||||||||||
| Japan |
— | (938,633 | ) | — | (938,633 | ) | ||||||||||
| Netherlands |
— | (41,401 | ) | — | (41,401 | ) | ||||||||||
| Peru |
(215,872 | ) | — | — | (215,872 | ) | ||||||||||
| Portugal |
— | (64,098 | ) | — | (64,098 | ) | ||||||||||
| Spain |
— | (1,056 | ) | — | (1,056 | ) | ||||||||||
| Switzerland |
— | (277,431 | ) | — | (277,431 | ) | ||||||||||
| United Kingdom |
— | (294,794 | ) | — | (294,794 | ) | ||||||||||
| United States |
(10,876,683 | ) | — | — | (10,876,683 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| TOTAL COMMON STOCKS |
(12,339,361 | ) | (2,465,088 | ) | — | (14,804,449 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Strategic Opportunities Allocation Fund (continued) |
|
|||||||||||||||
| Liability Valuation Inputs (continued) |
||||||||||||||||
| Derivatives^ |
||||||||||||||||
| Swap Contracts |
||||||||||||||||
| Equity Risk |
$ | — | $ | (53,647 | ) | $ | — | $ | (53,647 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | (12,339,361 | ) | $ | (2,518,735 | ) | $ | — | $ | (14,858,096 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
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.
| ^ | In the tables above derivatives are based on market values, rather than the notional amounts of derivatives, except for forward currency contracts which are based on unrealized appreciation/(depreciation). 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. Excludes purchased options and rights/warrants, if any, which are included in investments. |
| § | Represents the interest in securities that were determined to have a value of zero at May 31, 2019. |
The underlying funds held at period end are classified above as Level 1. Certain 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 which may have been valued using significant unobservable inputs. For a summary of the levels assigned to the underlying funds’ direct securities and derivatives, if any, please refer to the underlying funds’ portfolio valuation notes which are available on the Securities and Exchange Commission’s website at www.sec.gov or on GMO’s website at www.gmo.com.
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). Other than Funds with investments valued using unadjusted prices supplied by a third-party pricing source (e.g., broker quotes, vendor), there were no other Funds with classes of investments or derivatives with direct material Level 3 holdings at May 31, 2019.
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, 2019 |
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 May 31, 2019 |
Net Change in Unrealized Appreciation (Depreciation) from Investments Still Held as of May 31, 2019 |
|||||||||||||||||||||||||||||||
| Alpha Only Fund |
|
|||||||||||||||||||||||||||||||||||||||
| Common Stocks |
||||||||||||||||||||||||||||||||||||||||
| India |
$ | 8,854 | $ | — | $ | — | $ | — | $ | — | $ | 1,909 | $ | — | $ | (10,763 | )‡ | $ | — | $ | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total Investments |
$ | 8,854 | $ | — | $ | — | $ | — | $ | — | $ | 1,909 | $ | — | $ | (10,763 | ) | $ | — | $ | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Benchmark-Free Fund |
|
|||||||||||||||||||||||||||||||||||||||
| Common Stocks |
||||||||||||||||||||||||||||||||||||||||
| India |
$ | 24,669 | $ | — | $ | — | $ | — | $ | — | $ | 5,319 | $ | — | $ | (29,988 | )‡ | $ | — | $ | — | |||||||||||||||||||
| Preferred Stocks |
||||||||||||||||||||||||||||||||||||||||
| Taiwan |
— | — | — | — | — | — | 29,365 | ‡ | — | 29,365 | — | |||||||||||||||||||||||||||||
| Rights/Warrants |
||||||||||||||||||||||||||||||||||||||||
| Singapore |
— | — | — | — | — | 65 | — | — | 65 | 65 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total Investments |
$ | 24,669 | $ | — | $ | — | $ | — | $ | — | $ | 5,384 | $ | 29,365 | $ | (29,988 | ) | $ | 29,430 | $ | 65 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Consolidated Implementation Fund |
|
|||||||||||||||||||||||||||||||||||||||
| Common Stocks |
||||||||||||||||||||||||||||||||||||||||
| Sweden |
$ | 133,660 | $ | — | $ | — | $ | — | $ | — | $ | (3,529 | ) | $ | — | $ | — | $ | 130,131 | $ | (3,529 | ) | ||||||||||||||||||
| United States |
18,574,603 | 1,736,484 | — | — | (9 | ) | (1,695,500 | ) | — | — | 18,615,578 | (1,695,500 | ) | |||||||||||||||||||||||||||
| Preferred Stocks |
||||||||||||||||||||||||||||||||||||||||
| South Korea |
9,731 | — | — | — | — | (2,269 | ) | — | — | 7,462 | (2,269 | ) | ||||||||||||||||||||||||||||
| Taiwan |
— | — | — | — | — | — | 408,660 | ‡ | — | 408,660 | — | |||||||||||||||||||||||||||||
| Rights/Warrants |
||||||||||||||||||||||||||||||||||||||||
| United States |
130,841 | — | — | — | — | — | — | — | 130,841 | — | ||||||||||||||||||||||||||||||
| Balances as of February 28, 2019 |
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 May 31, 2019 |
Net Change in Unrealized Appreciation (Depreciation) from Investments Still Held as of May 31, 2019 |
|||||||||||||||||||||||||||||||
| Consolidated Implementation Fund (continued) |
|
|||||||||||||||||||||||||||||||||||||||
| Debt Obligations |
||||||||||||||||||||||||||||||||||||||||
| Luxembourg |
$ | 6,881,968 | $ | — | $ | (22,380 | ) | $ | 27,688 | $ | — | $ | 317,742 | $ | — | $ | — | $ | 7,205,018 | $ | 317,742 | |||||||||||||||||||
| Saint Lucia |
4,785,000 | — | (13,920 | ) | 13,933 | — | 125,028 | — | — | 4,910,041 | 125,028 | |||||||||||||||||||||||||||||
| Spain |
2,611,123 | 56,155 | (2,662,858 | ) | (29,223 | ) | 46,599 | (21,796 | ) | — | — | — | — | |||||||||||||||||||||||||||
| United States |
84,701,174 | 24,805,118 | (15,591,277 | ) | 244,535 | 442,599 | (1,650,680 | ) | — | — | 92,951,469 | (1,204,920 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total Investments |
$ | 117,828,100 | $ | 26,597,757 | $ | (18,290,435 | )# | $ | 256,933 | $ | 489,189 | $ | (2,931,004 | ) | $ | 408,660 | $ | — | $ | 124,359,200 | $ | (2,463,448 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Consolidated Special Opportunities Fund |
|
|||||||||||||||||||||||||||||||||||||||
| Common Stocks |
||||||||||||||||||||||||||||||||||||||||
| Canada |
$ | 45,594 | $ | — | $ | — | $ | — | $ | — | $ | (1,202 | ) | $ | — | $ | — | $ | 44,392 | $ | (1,202 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total Investments |
$ | 45,594 | $ | — | $ | — | $ | — | $ | — | $ | (1,202 | ) | $ | — | $ | — | $ | 44,392 | $ | (1,202 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| ‡ | Financial assets transferred between levels were due to a change in observable and/or unobservable inputs. |
| # | Includes $7,424,585 of proceeds received from partial calls and/or principal paydowns as applicable. |
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 Eastern 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 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 assignments and participations
Certain Funds may invest in direct debt instruments, which are interests in amounts owed to lenders or lending syndicates, to suppliers of goods or services, or to other parties by corporate, governmental or other borrower. Such “loans” may include bank loans, promissory notes, and loan participations, or in the case of suppliers of goods or services, trade claims or other receivables. A loan is often administered by a bank or other financial institution that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. Unless, under the terms of the loan or other indebtedness a Fund has direct recourse against the borrower, it may have to rely on the agent to enforce its rights against the borrower. 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. Loan assignments and participations 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 with banks and brokers. 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. 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 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 each applicable Fund’s Schedule of Investments.
Reverse repurchase agreements
The Funds may enter into reverse repurchase agreements with banks and brokers to enhance return. 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 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. As of May 31, 2019, the Funds listed below had entered into reverse repurchase agreements.
| Fund Name | Received from reverse repurchase agreements ($) |
Market value of securities plus accrued interest ($) | ||
|
Implementation Fund |
2,922,149 | 2,878,160 | ||
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
Certain 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/deflation. Two structures are common. The U.S. Treasury and some other issuers use a structure that accrues inflation/deflation into the principal value of the bond. Many other issuers adjust the coupon accruals for inflation related changes.
The market price 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. Coupon payments received by a Fund from inflation-indexed bonds are generally included in the Fund’s gross income for the period in which they accrue. In addition, any increase/decrease in the principal amount of an inflation-indexed bond is generally included in the Fund’s gross income 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.
Short sales
Certain Funds may enter into short sales transactions. A short sale is a transaction in which a Fund sells securities it may not own in anticipation of a decline in the fair market value of the securities. Securities sold in short sale transactions and the interest payable on such securities, if any, are reflected as a liability. A Fund is obligated to deliver securities at the trade price at the time the short position is closed. Possible losses from short sales may be unlimited, whereas losses from purchases cannot exceed the total amount invested. Short sales outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Some Funds may loan their portfolio securities through an “enhanced custody” program offered by the Funds’ custodian to facilitate the borrowing of securities for the Funds’ short sales. Under the program, a Fund borrows securities from the custodian and sells short those borrowed securities. The Fund may utilize various ways of collateralizing its obligation to return the borrowed securities, including by pledging securities held in the Fund’s custodial account to the custodian, or by lending securities held in the Fund’s custodial account to the custodian. For its participation in the enhanced custody program, the Fund will pay the custodian a securities borrow fee and a financing charge. The following table provides the value of securities on loan under this program as of May 31, 2019:
| Fund Name | Value of securities on loan ($) |
|||
|
Consolidated Alternative Allocation Fund |
12,251,410 | |||
|
Benchmark-Free Fund |
27,248,316 | |||
|
Consolidated Implementation Fund |
90,222,108 | |||
| Strategic Opportunities Allocation Fund |
14,002,625 | |||
Municipal obligations
Municipal obligations are issued by or on behalf of states, territories and possessions of the United States and their political subdivisions, agencies and instrumentalities and the District of Columbia to obtain funds for various public purposes. Municipal notes are generally used to provide for short-term capital needs, such as to finance working capital needs of municipalities or to provide various interim or construction financing, and generally have maturities of one year or less. Municipal bonds, which meet longer-term capital needs and generally have maturities of more than one year when issued, have two principal classifications: “general obligation” bonds and “revenue” bonds. Issuers of general obligation bonds include states, counties, cities, towns and regional districts. The basic security behind general obligation bonds is the issuer’s pledge of its full faith, credit, and taxing power for the payment of principal and interest. Revenue bonds have been issued to fund a wide variety of capital projects. The principal security for a revenue bond is generally the net revenues derived from a particular facility or group of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source. Although the principal security behind these bonds varies widely, many provide additional security in the form of a debt service reserve fund whose monies also may be used to make principal and interest payments on the issuer’s obligations. Municipal obligations at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Trade claims
Certain Funds may purchase trade claims against companies, including companies in bankruptcy or reorganization proceedings. Trade claims generally include claims of suppliers for goods delivered and not paid, claims for unpaid services rendered, claims for contract rejection damages and claims related to litigation. Trade claims are illiquid instruments which generally do not pay interest and there can be no guarantee that the debtor will ever be able to satisfy the obligation on the trade claim. Such claims are typically unsecured and may be subordinated to other unsecured obligations of a debtor, and generally are subject to defenses of the debtor with respect to the underlying transaction giving rise to the trade claim. Trade claims outstanding at the end of the period, if any, are listed in each applicable Fund’s Schedule of Investments.
Recently-issued accounting guidance
In March 2017, the Financial Accounting Standards Board issued ASU 2017-08, Premium Amortization of Purchased Callable Debt Securities, which amends the amortization period for certain purchased callable debt securities. Under this ASU, the premium amortization of purchased callable debt securities that have explicit, non-contingent call features, and are callable at fixed prices, will be amortized to the earliest call date. The guidance will be applied on a modified retrospective basis. It is in effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.
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 Allocation Fund |
Benchmark-Free Allocation Fund |
Benchmark-Free Fund |
Global Asset Allocation Fund |
Global Developed Equity Allocation Fund | Global Equity Allocation Fund | Implementation Fund | International Developed Equity Allocation Fund |
International Equity Allocation Fund |
SGM Major Markets Fund |
Special Opportunities Fund |
Strategic Opportunities Allocation Fund | ||||||||||||||
| Commodities Risk | X | X | X | X | X | X | X | X | ||||||||||||||||||
| Counterparty Risk | X | 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 | |||||||||||||
| Currency Risk | X | X | X | X | X | X | X | X | X | X | X | X | X | |||||||||||||
| Derivatives and Short Sales Risk | X | 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 | X | X | |||||||||||||
| Fund of Funds Risk | X | X | X | X | X | X | X | X | X | X | X | X | X | |||||||||||||
| Futures Contracts Risk | X | X | X | X | X | X | ||||||||||||||||||||
| Illiquidity 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 | |||||||||||||
| Leveraging 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 | |||||||||||||
| Market Disruption and Geopolitical Risk | 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 | |||||||||||||||||||
| Market Risk – Equities | X | X | X | X | X | X | X | X | X | X | X | X | X | |||||||||||||
| Market Risk – Fixed Income | X | X | X | X | X | X | X | X | X | X | X | X | X | |||||||||||||
| Merger Arbitrage Risk | X | X | X | X | ||||||||||||||||||||||
| Non-Diversified Funds | X | 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 | X | |||||||||||||
| Small Company Risk | 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 GMO 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, other investment companies or in a wholly-owned subsidiary (collectively, “Underlying Funds”) is exposed to the risks to which the Underlying Funds in which it invests are exposed, as well as the risk that the Underlying Funds will not perform as expected. 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 Underlying Funds.
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.
• COMMODITIES RISK. Commodity prices can be extremely volatile and are affected by many factors. Exposure to commodities can cause the value of a Fund’s shares to decline or fluctuate in a rapid and unpredictable manner. In addition, the value of commodity-related derivatives or indirect investments in commodities may fluctuate more than the commodity, commodities or commodity index to which they relate. See “Derivatives and Short Sales Risk” for a discussion of specific risks of a Fund’s derivatives investments, including commodity-related derivatives.
• 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 be forced to hold investments it would prefer to sell, resulting in losses for the Fund. In addition, a Fund may suffer losses if a counterparty fails to comply with applicable laws, regulations or other requirements. The Funds are not subject to any limit on their exposure to any one counterparty nor to a requirement that counterparties with whom they enter into contracts maintain a specific rating by a nationally recognized rating organization. Counterparty risk is pronounced during unusually adverse market conditions and is particularly acute in environments in which financial services firms are exposed (as they were in 2008) 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 (whether or not the obligation is collateralized), 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 during which events may occur that prevent settlement. Counterparty risk also is greater when a Fund has entered into derivatives contracts with a single or small group of counterparties as it sometimes does as a result of its use of swaps and other OTC derivatives. Funds that use swap contracts are subject, in particular, to the creditworthiness of the counterparties because some types of swap contracts have terms longer than six months (and, in some cases, decades). The creditworthiness of a counterparty can be expected to 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 if the Fund’s interest in the collateral is not perfected or additional collateral is not posted promptly as required. GMO’s view with respect to a particular counterparty is subject to change. The fact, however, that it changes adversely (whether due to external events or otherwise) does not mean that a Fund’s existing transactions with that counterparty will necessarily be terminated or modified. In addition, a Fund may enter into new transactions with a counterparty that GMO no longer considers a desirable counterparty (for example, re-establishing the transaction with a lower notional amount or entering into a countervailing trade with the same counterparty). Counterparty risk also will be greater if a counterparty’s obligations exceed the value of the collateral held by the Fund (if any).
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 has been and will continue to be affected by new rules and regulations relating to the derivatives market. As described under “Derivatives and Short Sales Risk,” 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. 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. Also, in the event of a counterparty’s (or its affiliate’s) insolvency, the possibility exists that the Funds’ ability to exercise remedies, such as the termination of transactions,
netting of obligations or realization on collateral, could be stayed or eliminated under new special resolution regimes adopted in the United States, the European Union and various other jurisdictions. Such regimes provide governmental authorities broad authority to intervene when a financial institution is experiencing financial difficulty. In particular, in the European Union, governmental authorities could reduce, eliminate, or convert to equity the liabilities to the Funds of a counterparty experiencing financial difficulties (sometimes referred to as a “bail in”).
• CREDIT RISK. This is the risk that the issuer or guarantor of a fixed income investment or the obligors of obligations underlying an asset-backed security will be unable or unwilling to satisfy their obligation to pay principal and interest or otherwise to honor their obligations in a timely manner. The market price of a fixed income investment will normally decline as a result (and/or in anticipation) of the issuer’s, guarantor’s, or obligors’ failure to meet their payment obligations or a downgrading of the credit rating of the investment. This risk is particularly acute in environments in which financial services firms are exposed (as they were in 2008) to systemic risks of the type evidenced by the insolvency of Lehman Brothers and subsequent market disruptions. Fixed income investments also are subject to illiquidity risk. See “Illiquidity Risk.”
All fixed income investments 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, a government or government entity, 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 term of a fixed income investment. 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 or quasi-sovereign debt involve the risk that the governmental entities responsible for repayment will be unable or unwilling to pay interest and repay principal when due. A governmental entity’s ability and willingness to pay interest and repay principal in a timely manner can be expected to 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. Investments in quasi-sovereign issuers are subject to the additional risk that the issuer will default independently of its sovereign. Sovereign debt risk is greater for fixed income securities issued or guaranteed by emerging countries.
In many cases, the credit risk and market price of a fixed income investment are reflected in its credit ratings, and a Fund holding a rated investment is subject to the risk that the investment’s rating will be downgraded, resulting in a decrease in the market price of the fixed income investment.
Securities issued by the U.S. government historically have presented minimal credit risk. However, events in 2011 led several major rating agencies to downgrade the long-term credit rating of U.S. bonds and introduced greater uncertainty about the repayment by the United States of its obligations. A further credit rating downgrade could decrease, and a default in the payment of principal or interest on U.S. government securities would decrease, the market price of a Fund’s investments and increase the volatility of a Fund’s portfolio.
As described under “Market Risk — Asset-Backed Securities,” 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 under “Market Risk — Asset-Backed Securities.” The obligations of issuers also may be 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 and Short Sales Risk” for more information regarding risks associated with the use of credit default swaps.
The extent to which the market price of a fixed income investment changes in response to a credit event depends on many factors and can be difficult to predict. For example, even though the effective duration of a long-term floating rate security is very short, an adverse credit event or change in the perceived creditworthiness of its issuer could cause its market price to decline much more than its effective duration would suggest.
Credit risk is particularly pronounced for below investment grade investments (commonly referred to as “high yield” or “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 investments have speculative characteristics, often are less liquid than higher quality investments, present a greater risk of default and are more susceptible to real or perceived adverse industry conditions. Investments in distressed or defaulted or other low quality debt instruments generally are
considered speculative and typically involve substantial risks not normally associated with investments in higher quality investments, including adverse business, financial or economic conditions that lead to payment defaults and insolvency proceedings on the part of their issuers. In particular, distressed or defaulted obligations might be repaid, if at all, only after lengthy workout or bankruptcy proceedings, during which the issuer does not make any interest or other payments and a Fund incurs additional expenses in seeking recovery. If GMO’s assessment of the eventual recovery value of a distressed or defaulted debt instrument proves incorrect, a Fund is likely to lose a substantial portion or all of its investment or may be required to accept cash or instruments worth less than its original investment. In the event of a default of sovereign debt, the Funds may be unable to pursue legal action against the issuer.
• 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 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. 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 is likely to realize a loss on both the hedging instrument and the currency being hedged. Currency exchange rates can fluctuate significantly for many reasons. See “Market Disruption and Geopolitical Risk.”
Many of the Funds use derivatives to take currency positions that are under- or over-weighted (in some cases significantly) relative to the currency exposure of their portfolios and their benchmarks. If the exchange rates of the currencies involved do not move as expected, a Fund could lose money on both its holdings of a particular currency and the derivative. See also “Non-U.S. Investment Risk.”
Some currencies are illiquid (e.g., some emerging country currencies), and a Fund may not be able to convert them into U.S. dollars or may only be able to do so at an unfavorable exchange rate. Exchange rates for many currencies are affected by exchange control regulations.
Derivative transactions in foreign currencies (such as futures, forwards, options, and swaps) may involve leveraging risk in addition to currency risk, as described 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”).
• DERIVATIVES AND SHORT SALES 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, such as securities, commodities or currencies, reference rates, such as interest rates, currency exchange rates or inflation rates, or indices. Derivatives involve the risk that their value may not change as expected relative to changes in the value of the assets, rates, or indices they are designed to track. Derivatives include, but are not limited to, futures contracts, forward contracts, foreign currency contracts, swap contracts, contracts for differences, options on securities and indices, options on futures contracts, options on swap contracts, interest rate caps, floors and collars, reverse repurchase agreements, and other OTC contracts.
The use of derivatives involves risks that are in addition to, and potentially greater than, the risks of investing directly in securities. 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, or the position transferred, only with the consent of the other party to the contract. If the counterparty defaults, the Fund will still 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 the cost and unpredictability of legal proceedings. The Fund, therefore, runs the risk of being unable to obtain payments GMO believes are owed to it under an OTC derivatives contract or of those payments being delayed or made only after the Fund has incurred the cost of litigation.
A Fund may invest in derivatives that (i) do not require the counterparty to post collateral (e.g., foreign 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 fundamental fair (or 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 a greater risk of not being able to recover what it is owed if the counterparty defaults. Derivatives also present other risks described in this section, including market risk, illiquidity 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 and exposes the Funds to the risk that the pricing models used do 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, there is a risk that inaccurate valuations will result in increased cash payments to counterparties, under-collateralization 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 cost 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.
Swap contracts and other OTC derivatives are highly susceptible to illiquidity risk (see “Illiquidity Risk”) and counterparty risk (see “Counterparty Risk”). These derivatives also are subject to documentation risk, which is the risk that ambiguities, inconsistencies or errors in the documentation relating to a derivative transaction will lead to a dispute with the counterparty or unintended investment results. In addition, see “Commodities Risk” for a discussion of risks specific to commodity-related derivatives. 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 could result in a loss substantially greater than the amount invested in the derivative itself. See “Leveraging Risk.”
Special tax rules apply to a Fund’s transactions in derivatives, which could increase the taxes payable by shareholders subject to U.S. income taxation. In particular, a Fund’s derivative transactions potentially could cause a substantial portion of the Fund’s distributions to be taxable at ordinary income tax rates. In addition, the tax treatment of a Fund’s use of derivatives will sometimes be unclear. See the Funds’ Prospectus and Statement of Additional Information for more information.
The Securities and Exchange Commission has proposed a rule under the Investment Company Act of 1940, as amended (the “1940 Act”), regulating the use by registered investment companies of derivatives and many related instruments. That rule, if adopted as proposed, would, among other things, restrict a Fund’s ability to engage in derivatives transactions or so increase the cost of derivatives transactions that GMO would be unable to implement a Fund’s investment strategy.
Derivatives Regulation. The U.S. government has enacted legislation that provides for regulation of the derivatives market, including clearing, margin, reporting, and registration requirements. The European Union (and some other countries) have adopted similar requirements, which affect a Fund when it enters into a derivatives transaction with a counterparty subject to those requirements. Because these U.S. and European Union requirements are evolving, their impact on the Funds remains unclear.
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 hold cleared derivatives through accounts at clearing members. In cleared derivative positions, the Funds 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 some ways, cleared derivative arrangements are less favorable to mutual funds than bilateral arrangements, for example, by requiring that funds provide more margin for their cleared derivative positions. Also, as a general matter, in contrast to a bilateral derivative position, following a period of notice to a Fund, a clearing member at any time can require termination of an existing cleared derivative position or an increase in the margin required at the outset of a transaction. Clearing houses also have broad rights to increase the margin required for existing positions or to terminate those positions at any time. Any increase in margin requirements or termination of existing cleared derivative positions 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 margin for cleared derivative positions in excess of a clearing house’s margin requirements typically is held by the clearing member (see “Counterparty Risk”). Also, a Fund is subject to risk if it enters into a derivatives transaction that is required to be cleared (or that GMO 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 position might have to be terminated, and the Fund could lose some or all of the benefit of the position, including loss of an increase in the value of the position and 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 the documentation for typical bilateral derivatives. 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. Also, such documentation typically does not provide the Funds any remedies if the clearing member defaults or becomes insolvent. While futures contracts entail similar risks, the risks are likely to be more pronounced for cleared derivatives due to their more limited liquidity and market history.
Some types of cleared derivatives are required to be executed on an exchange or on a swap execution facility. A swap execution facility is a trading platform where multiple market participants can execute derivatives by accepting bids and offers made by multiple other participants in the platform. While this execution requirement is designed to increase transparency and liquidity in the cleared derivatives market, trading on a swap execution facility can create additional costs for the Funds. For example, swap execution facilities typically charge fees, and if a Fund executes derivatives on a swap execution facility through a broker intermediary, the
intermediary may impose fees as well. Also, a Fund may be required to indemnify a swap execution facility, or a broker intermediary who executes cleared derivatives on a swap execution facility on the Fund’s behalf, against any losses or costs that may be incurred as a result of the Fund’s transactions on the swap execution facility.
If a Fund wishes to execute a package of transactions that include a swap that is required to be executed on a swap execution facility as well as other transactions (for example, a transaction that includes both a security and an interest rate swap that hedges interest rate exposure with respect to such security), the Fund may be unable to execute all components of the package on the swap execution facility. In that case, the Fund would need to trade some components of the package on the swap execution facility and other components in another manner, which could subject the Fund to the risk that some components would be executed successfully and others would not, or that the components would be executed at different times, leaving the Fund with an unhedged position for a period of time.
The U.S. government and the European Union have adopted mandatory minimum margin requirements for bilateral derivatives. New variation margin requirements became effective in March 2017 and new initial margin requirements will become effective in 2020. Such requirements could increase the amount of margin a Fund needs to post in connection with its derivatives transactions and, therefore, make derivatives transactions more expensive.
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 or otherwise limiting liquidity. The implementation of the clearing requirement has increased the cost of derivatives transactions for the Funds, since the Funds have to pay fees to their clearing members and are typically required to post more margin for cleared derivatives than they historically posted for bilateral derivatives. The cost of derivatives transactions is expected to increase further as clearing members raise their fees to cover the cost of additional capital requirements and other regulatory changes applicable to the clearing members. These rules and regulations are evolving, and, therefore, their potential impact on the Funds and the financial system are not yet known. While the new rules and 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 they will achieve that result, and in the meantime, as noted above, central clearing and related requirements expose the Funds to new kinds of costs and risks.
Options. Some Funds are permitted to write options. The market price of an option is affected by many factors, including changes in the market prices or dividend rates of underlying securities (or in the case of indices, the securities in such indices); the time remaining before expiration; changes in interest rates or exchange rates; and changes in the actual or perceived volatility of the relevant stock market and underlying securities. 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 at any time before the option’s expiration, the writer of an American-style option has no control over when it will be required to fulfill its obligations as a writer of the option. (The writer of a European-style option is not subject to this risk because the holder may only exercise the option on its expiration date.)
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, GMO, and other funds advised by GMO likely constitute such a group. When applicable, these limits 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-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.
Short Investment Exposure. Some Funds may sell securities or currencies short as part of their investment programs in an attempt to increase their returns or for hedging purposes. Short sales expose a Fund to the risk that it will be required to acquire, convert, or exchange a security or currency to replace the borrowed security or currency when the security or currency sold short has appreciated in value, thus resulting in a loss to the Fund. Purchasing a security or currency to close out a short position can itself cause the price of the security or currency to rise further, thereby exacerbating any losses. A Fund that sells short a security or currency it does not own typically pays borrowing fees to a broker and is required to pay the broker any dividends or interest it receives on a borrowed security.
A Fund also may create short investment exposure by taking a derivative position in which the value of the derivative moves in the opposite direction from the price of an underlying asset, pool of assets, rate, currency or index.
Short sales of securities or currencies a Fund does not own and “short” derivative positions involve forms of investment leverage, and the amount of the Fund’s potential loss is theoretically unlimited. A 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 or takes “short” derivative positions.
• FOCUSED INVESTMENT RISK. Funds with investments that are focused in a limited number of asset classes, sectors, industries, issuers, currencies, countries, or regions (or in sectors within a country or region) that are subject to the same or similar risk factors and Funds with investments whose prices are closely correlated are subject to greater overall risk than Funds with investments that are more diversified or whose prices are not as closely correlated.
A Fund that invests in the securities of a small number of issuers has greater exposure to adverse developments affecting those issuers and to a decline in the market price of those issuers’ securities than Funds investing in the securities of a larger number of issuers. 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 a particular geographic region, country, or market (e.g., emerging markets), or to sectors within a region, country, or market (e.g., Russian oil) have more exposure to regional and country economic risks than funds making 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 the value of the currency of 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.”
• FUND OF FUNDS RISK. Funds that invest in Underlying Funds (including underlying GMO Funds or a wholly-owned subsidiary) are exposed to the risk that the Underlying Funds or wholly-owned subsidiary will not perform as expected. The Funds also are indirectly exposed to all of the risks to which the Underlying Funds or a wholly-owned subsidiary are exposed.
Because, absent reimbursement, a Fund bears the fees and expenses of an Underlying Fund (including purchase premiums and redemption fees, if any) and the expenses of a wholly-owned subsidiary in which it invests, the Fund will incur additional expenses when investing in an Underlying Fund or wholly-owned subsidiary. 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.
Because some underlying GMO 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 mutual fund groups and therefore are subject to greater fund of funds risk. In addition, to the extent a Fund invests in shares of underlying GMO Funds, it is indirectly subject to Large Shareholder Risk when an underlying GMO Fund has large shareholders (e.g., other GMO Funds). See “Large Shareholder Risk.”
At any particular time, one Underlying Fund may be purchasing securities of an issuer whose securities are being sold by another Underlying Fund, resulting in a Fund that holds each Underlying Fund indirectly incurring the costs associated with the two transactions without changing its exposure to those securities.
Investments in exchange-traded funds (“ETFs”) involve the risk that an ETF’s performance will not track the performance of the index it is designed to track. In addition, ETFs often use derivatives to track the performance of an index, and, therefore, investments in those ETFs are subject to the same derivatives risks discussed in “Derivatives and Short Sales Risk.” ETFs are investment companies that typically hold a portfolio of securities designed to track the price, performance, and dividend yield of a particular securities market index (or sector of an index). As investment companies, ETFs incur their own management and other fees and expenses, such as trustee fees, operating expenses, registration fees, and marketing expenses, and a Fund that invests in ETFs bears a proportionate share of such fees and expenses. As a result, an investment by a Fund in an ETF could result in higher expenses and lower returns than if the Fund were to invest directly in the securities underlying the ETF.
A Fund’s investments in one or more Underlying Funds or a wholly-owned subsidiary could affect the amount, timing and character of its distributions and could cause the Fund to recognize taxable income in excess of the cash generated by such investments, requiring the Fund in turn to liquidate investments at disadvantageous times to generate cash needed to make required distributions.
• FUTURES CONTRACTS RISK. The risk of loss to a Fund resulting from its use of futures contracts (or “futures”) is potentially unlimited. Futures markets are highly volatile, and the use of futures contracts may increase the volatility of the Fund’s net asset value. A Fund’s ability to establish and close out positions in futures contracts is subject to the development and maintenance of a liquid secondary market. A liquid secondary market may not exist for any particular futures contract at any particular time, and a Fund might be unable to effect closing transactions to terminate its exposure to the contract. In using futures contracts, a Fund relies on GMO’s ability to predict market and price movements correctly. The skills needed to use futures contracts successfully are different from those needed for traditional portfolio management. If a Fund uses futures contracts for hedging purposes, it runs the risk that changes in the prices of the contracts will not correlate perfectly with changes in the securities, index, or other asset underlying the contracts or movements in the prices of the Fund’s investments that are the subject of the hedge.
A Fund typically will be required to post margin with its futures commission merchant in connection with its positions in futures contracts. If the Fund has insufficient cash to meet margin requirements, the Fund typically will have to sell other investments at disadvantageous times. A Fund also runs the risk of being unable to reenter or be delayed in recovering margin or other amounts deposited with a futures commission merchant or futures clearinghouse. For example, should the futures commission merchant become insolvent, a Fund may be unable to recover all (or any) of the margin it has deposited or realize the value of any increase in the price of its positions.
The Commodity Futures Trading Commission (the “CFTC”) and the various exchanges have established limits (referred to as “speculative position limits”) on the maximum net long or net short positions that any person and certain of its affiliated entities may hold or control in a particular futures contract. In addition, an exchange may impose trading limits on the number of contracts a person may trade on a particular day. An exchange may order the liquidation of positions found to be in violation of these limits, and it may impose sanctions or restrictions. In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act requires the CFTC to establish speculative position limits on listed futures and economically equivalent OTC derivatives, and those limits may adversely affect the market liquidity of those futures and derivatives. As a result of such limits, positions held by other GMO clients or by GMO or its affiliates could prevent GMO from taking positions on behalf of a Fund in a particular futures contract or OTC derivative.
Futures contracts traded on markets outside the United States are not subject to regulation by the CFTC or other U.S. regulators. U.S. regulators neither regulate the activities of a foreign exchange nor have the power to compel enforcement of the rules of a foreign exchange or the laws of the country where the exchange is located. In addition, foreign futures contracts may be less liquid and more volatile than U.S. contracts.
• ILLIQUIDITY RISK. Illiquidity 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, delays or prevents a Fund from selling particular securities or closing derivative positions at desirable prices. In addition to these risks, a Fund is exposed to illiquidity 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). To the extent a Fund’s investments include asset-backed securities, distressed, defaulted or other low quality debt securities, emerging country debt or equity securities or securities of companies with smaller market capitalizations or smaller total float-adjusted market capitalizations, it is subject to increased illiquidity risk. 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 price at which they were valued when held by the Fund. Illiquidity risk also tends to be greater in times of financial stress. For example, inflation-protected securities issued by the U.S. Treasury (“TIPS”) have experienced periods of greatly reduced liquidity during disruptions in fixed income markets, such as the events surrounding the bankruptcy of Lehman Brothers in 2008. Less liquid securities are often more susceptible than other securities to price declines when market prices decline generally.
A Fund may buy securities or other investments that are less liquid than those in its benchmark. The more illiquid investments a Fund has, the greater the likelihood of its paying redemption proceeds in-kind.
The Securities and Exchange Commission has adopted Rule 22e-4 under the 1940 Act, which requires each Fund to adopt a liquidity risk management program to assess and manage its illiquidity risk. Under its program, each Fund will be required to classify its investments into specific liquidity categories and monitor compliance with limits on investments on illiquid investments. The term “illiquid investments” for purposes of the program means investments that GMO reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the investments. The Funds do not expect Rule 22e-4 to have a significant effect on investment operations. While the liquidity risk management program attempts to assess and manage illiquidity risk, there is no guarantee it will be effective in reducing the illiquidity risk inherent in a Fund’s investments.
Historically, credit markets have experienced periods characterized by a significant lack of liquidity, and they may experience similar periods in the future. If a Fund is required to sell illiquid investments to satisfy collateral posting requirements or to meet redemptions, those sales could put significant downward price pressure on the market price of the securities being sold.
A Fund’s, and particularly Risk Premium Fund’s, ability to use options as part of its investment program depends on the liquidity of the options market. That market may not be liquid when a Fund seeks to close out an option position, and the hours of trading for options on an exchange may not conform to the hours during which the underlying securities 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 those securities that are not immediately reflected in the options markets. If a Fund receives a redemption request and is unable to close out an option it has sold, the Fund would temporarily be leveraged in relation to its assets.
• LARGE SHAREHOLDER RISK. To the extent 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 by forcing the Fund to sell portfolio securities, at disadvantageous prices to raise the cash needed to satisfy the redemption request. In addition, the Funds and other accounts over which GMO has investment
discretion that invest in the Funds are not limited in how often they may sell Fund shares. The Asset Allocation Funds and separate accounts managed by GMO for its clients hold substantial percentages of the outstanding shares of many Funds, and asset allocation decisions by GMO may result in substantial redemptions from (or investments in) those Funds, adversely affecting the Fund’s performance to the extent that the Fund is required to sell investments when it would not have otherwise done so. Redemptions of a large number of shares also may increase transaction costs or, by necessitating a sale of portfolio securities, have adverse tax consequences for Fund shareholders. Further, from time to time a Fund may trade in anticipation of a purchase or redemption order that ultimately is not received or differs in size from the actual order, leading to temporary underexposure or overexposure to the Fund’s intended investment program. In addition, redemptions and purchases of shares by a large shareholder or group of shareholders could limit the use of any capital loss carryforwards to offset future realized capital gains (if any) and other losses that would otherwise reduce distributable net investment income. In addition, large shareholders may limit or prevent a Fund’s use of equalization for U.S. federal tax purposes.
To the extent a Fund invests in other GMO Funds subject to large shareholder risk, the Fund is indirectly subject to this risk.
• LEVERAGING RISK. The use of traditional borrowing (including to meet redemption requests) 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, similar to short sales, have the potential for unlimited loss, regardless of the size of the initial investment. Similarly, a Fund’s portfolio will be leveraged and can incur losses if the value of the Fund’s assets declines between the time a redemption request is received or deemed to be received by a Fund (which in some cases is the business day prior to actual receipt by the Fund of the redemption request) and the time at which the Fund liquidates assets to meet redemption requests. Such a decline in the value of a Fund’s assets is more likely in the case of Funds managed from GMO’s non-U.S. offices for which the time period between the determination of net asset value and corresponding liquidation of assets could be longer due to time zone differences. In the case of redemptions representing a significant portion of a Fund’s portfolio, the leverage effects described above can be significant and could expose a Fund and non-redeeming shareholders to material losses.
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.
Some Funds are permitted to purchase securities on margin or to sell securities short, either of which creates leverage. To the extent the market prices of securities pledged to counterparties to secure a Fund’s margin account or short sale decline, the Fund may be required to deposit additional funds with the counterparty to avoid having the pledged securities liquidated.
• MANAGEMENT AND OPERATIONAL RISK. Each Fund is subject to management risk because it relies on GMO to achieve its investment objective. Each Fund runs the risk that GMO’s investment techniques will fail to produce desired results and cause the Fund to incur significant losses. GMO also may fail to use derivatives effectively, choosing to hedge or not to hedge positions at disadvantageous times.
For many Funds, GMO uses quantitative models as part of its investment process and in making investment decisions for those Funds. Those Funds run the risk that GMO’s models will not accurately predict future market movements or characteristics. In addition, those models are based on assumptions that can limit their effectiveness, and they rely on data that is subject to limitations (e.g., inaccuracies, staleness) that could adversely affect their predictive value. The Funds also run the risk that GMO’s assessment of an investment (including a security’s fundamental fair (or intrinsic) value) is wrong.
The usefulness of GMO’s models may be diminished by the faulty incorporation of mathematical models into computer code, by reliance on proprietary and third-party technology that includes errors, omissions, bugs, or viruses, and by the retrieval of limited or imperfect data for processing by the model. These risks are more likely to occur when GMO is making changes to its models. Any of these risks could adversely affect a Fund’s performance.
There can be no assurance that key GMO personnel will continue to be employed by GMO. The loss of their services could have an adverse impact on GMO’s ability to achieve the Funds’ investment objectives.
The Funds also are subject to a risk of loss resulting from other services provided by GMO and other service providers, including pricing, administrative, accounting, tax, legal, custody, transfer agency, and other operational 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 could prevent a Fund from benefiting from investment gains or avoiding losses. In addition, a service provider may be unable to provide a net asset value for a Fund or share class on a timely basis. GMO is not contractually liable to the Funds for losses associated with operational risk absent its 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 contractual limitations on their liability to the Funds for losses resulting from their errors.
The Funds and their service providers (including GMO) are susceptible to cyber-attacks and to technological malfunctions that have effects similar to those of a cyber-attack. Cyber-attacks include, among others, stealing or corrupting data maintained online or digitally, preventing legitimate users from accessing information or services on a website, releasing confidential information without authorization, and disrupting operations. Successful cyber-attacks against, or security breakdowns of, a Fund, GMO, a sub-adviser, or a custodian, transfer agent, or other service provider may adversely affect the Fund or its shareholders. For instance, cyber-attacks may interfere with the processing of shareholder transactions, affect a Fund’s ability to calculate its net asset value, cause the release or misappropriation of private shareholder information or confidential Fund information, impede trading, cause reputational damage, and subject the Fund to regulatory fines, penalties or financial losses and additional compliance costs. The Funds’ service providers regularly experience cyber-attacks and expect they will continue to do so. While GMO has established business continuity plans and systems designed to prevent, detect and respond to cyber-attacks, those plans and systems have inherent limitations. Similar types of cyber security risks also are present for issuers of securities in which the Funds invest, which could have material adverse consequences for those issuers and result in a decline in the market price of their securities. Furthermore, as a result of cyber-attacks, technological disruptions, malfunctions, or failures, an exchange or market may close or suspend trading in specific securities or the entire market, which could prevent the Funds from, among other things, buying or selling securities or accurately pricing their investments. The Funds cannot directly control cyber security plans and systems of their service providers, the Funds’ counterparties, issuers of securities in which the Funds invest, or securities markets and exchanges.
• MARKET DISRUPTION AND GEOPOLITICAL RISK. The Funds are subject to the risk that geopolitical and other events (e.g., wars and terrorism) will disrupt securities markets and adversely affect global economies and markets, thereby reducing the value of the Funds’ investments. Sudden or significant changes in the supply or prices of commodities or in other economic inputs (e.g., the marked decline in oil prices in late 2014) may have material and unexpected effects on both global securities markets and individual countries, regions, sectors, companies, or industries. Terrorism in the United States and around the world 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 or other fraudulent trading practices, which could disrupt their orderly functioning or reduce the prices of securities traded on them, including securities held by the Funds. Fraud and other deceptive practices committed by an issuer of securities held by a Fund undermine GMO’s due diligence efforts and, when discovered, will likely cause a steep decline in the market price of those securities and thus negatively affect the value of the Fund’s investments. In addition, when discovered, financial fraud may contribute to overall market volatility, which can negatively affect a Fund’s investment program.
While the U.S. government has always honored its credit obligations, a default by the U.S. government (as has been threatened in recent years) would be highly disruptive to the U.S. and global securities markets and could significantly reduce the value of the Funds’ investments. Similarly, political events within the United States have resulted, and may in the future result, in shutdowns of government services, which could adversely affect the U.S. economy, reduce the value of many Fund investments, and impair the operation of the U.S. or other securities markets. Uncertainty over the sovereign debt of several European Union countries, as well as uncertainty over the continued existence of the European Union itself, has disrupted and may continue to disrupt markets in the United States and around the world. If a country changes its currency or if the European Union dissolves, the world’s securities markets likely will be significantly disrupted. In June 2016, the United Kingdom approved a referendum to leave the European Union (commonly known as “Brexit”). In March 2017, the United Kingdom commenced the formal process of withdrawing from the European Union, which provided the United Kingdom with two years to negotiate an exit agreement with the European Union, with a deadline of March 29, 2019. On November 25, 2018, European Union leaders approved the terms of the United Kingdom’s withdrawal from the European Union, which the United Kingdom’s Parliament subsequently rejected. The European Union has agreed to delay the United Kingdom’s exit until October 31, 2019. While negotiations continue, it remains unclear whether a negotiated withdrawal agreement can be reached. If the United Kingdom leaves the European Union without finalizing agreements on trade, finance and other key elements, the withdrawal may lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European Union laws to replicate or replace. The potential implications of a “no deal” scenario include a shrinking United Kingdom economy and far-reaching disruptions to world securities markets. Brexit has resulted in volatility in European and global markets and could have a negative long-term effect on financial markets in the United Kingdom and throughout Europe. The consequences of the United Kingdom’s or another country’s exit from the European Union also could threaten the stability of the euro for remaining countries and could negatively affect the financial markets of other countries in the European region and beyond.
War, terrorism, economic uncertainty, and related geopolitical events, such as sanctions, tariffs, the imposition of exchange controls or other cross-border trade barriers, 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. For example, the U.S. has imposed economic sanctions, which consist of asset freezes, restrictions on dealings in debt and equity, and certain industry-specific restrictions. These types of sanctions have recently been applied against the Venezuelan and Russian governments, as well as against certain Russian and Venezuelan officials and institutions. These sanctions, any additional sanctions or intergovernmental actions, or even the threat of further sanctions, may result in a decline of the value and liquidity of Russian and Venezuelan securities, a weakening of the Russian and Venezuelan currencies or other adverse consequences to their respective economies. Sanctions impair the ability of the Funds to buy, sell, receive or deliver those securities and/or assets that are within the scope of the sanctions. In addition, 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 market price 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 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 a Fund has focused its investments in the stock index of a particular region, adverse geopolitical and other events in that region could have a disproportionate impact on the Fund.
• MARKET RISK. All of the Funds are subject to market risk, which is the risk that the market price of their holdings will decline. Market risks include:
Asset-Backed Securities — Investments in asset-backed securities not only are subject to all of the market risks described under “Market Risk — Fixed Income,” but to other market risks as well.
Asset-backed securities are often exposed to greater risk of severe credit downgrades, illiquidity, and defaults than many other types of fixed income investments. These risks become particularly acute during periods of adverse market conditions, such as those that occurred in 2008.
As described under “Market Risk — Fixed Income” the market price of asset-backed securities, like that of other fixed income investments with complex structures, can decline for a variety of reasons, 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., the amount of underlying assets or other support available 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 performance of other service providers with access to the payment stream. A problem in any of these factors can lead to a reduction in the payment stream GMO expected a Fund to receive when the Fund purchased the asset-backed security. Principal repayments of asset-backed securities are at risk if obligors of the underlying obligations default and the value of the defaulted obligations exceeds whatever credit support the securities have. Asset-backed securities backed by sub-prime mortgage loans, in particular, expose a Fund to potentially greater declines in value due to defaults because sub-prime mortgage loans are typically made to less creditworthy borrowers and thus have a higher risk of default than conventional mortgage loans. 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” for more information about credit risk.
When worldwide economic and liquidity conditions deteriorated 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 asset-backed (as well as others) fixed income securities. These events reduced liquidity and contributed to substantial declines in the market prices of asset-backed (and other) fixed income securities, and they 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 depends in part on the servicing of its underlying assets and is, therefore, subject to risks associated with the negligence or defalcation of its servicer. The mishandling of documentation for underlying assets also can affect the rights of holders of those underlying assets. The insolvency of a servicer is likely to result in a decline in the market price of the securities it is servicing, 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, the obligations underlying asset-backed securities may be repaid more slowly than anticipated, and the market price of those securities may decrease.
The existence of insurance on an asset-backed security does not guarantee that the principal and interest will be paid because the insurer could default on its obligations.
The risk of investing in asset-backed securities has increased since 2008 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” for more information about risks of investing in correlated sectors. A single financial institution may serve as a servicer for many asset-backed securities. As a result, a disruption in that institution’s business would likely have a material impact on the many asset-backed securities it services.
Equities — Funds that invest in equities run the risk that the market price of an equity will decline. That decline may be attributable to factors affecting the issuer, such as a failure to keep up with technological advances or reduced demand for its goods or services, or to factors affecting a particular industry, such as a decline in demand, labor or raw material shortages, or increased production costs. A decline also may result from 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. The market prices of equities are volatile and can decline in a rapid or unpredictable manner. If a Fund purchases an equity for what GMO believes is less than its fundamental fair (or intrinsic) value, the Fund runs the risk that the market price of the equity will not appreciate or will decline due to GMO’s incorrect assessment. 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.
To the extent a Fund invests in GMO Risk Premium Fund (“Risk Premium Fund”), the Fund is exposed to Risk Premium Fund’s market risk with respect to equities. Because of Risk Premium Fund’s emphasis on writing put options on stock indices, GMO expects the Fund’s net asset value to decline 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 relative to those indices when the markets associated with those indices rise sharply because of the Fund’s lack of exposure to the upside of those markets.
Fixed Income — Funds that invest in fixed income investments (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 market-related factors, including rising interest rates and widening credit spreads, or decreased liquidity due to market 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 uncertainty about their credit quality and the reliability of their payment streams. Some fixed income investments 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 investment. When interest rates rise, fixed income investments also may be repaid more slowly than anticipated, causing a decrease in their market price. During periods of economic uncertainty and change, the market price of a Fund’s investments in below investment grade investments (commonly referred to as “high yield” or “junk bonds”) may be particularly volatile. Often, below investment grade investments are subject to greater sensitivity to interest rate and economic changes than higher rated investments 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 price at which they were valued when held by the Fund. See “Credit Risk” and “Illiquidity Risk” for more information about these risks.
A risk run by each Fund with significant investment in fixed income investments 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 greater for Funds investing in fixed income investments with longer durations. In addition, in managing some Funds, GMO may seek to evaluate potential investments in part by considering the volatility of interest rates. The value of a Fund’s investments would likely be significantly reduced if GMO’s assessment proves incorrect.
The extent to which the market price of a fixed income investment 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 its fixed rate is locked in for a longer period of time. Floating-rate or variable-rate investments 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 investments have durations that move in the opposite direction from short-term interest rates and thus tend to underperform fixed rate investments when interest rates rise but outperform them when interest rates decline. Fixed income investments paying no interest, such as zero coupon and principal-only securities, are subject to additional interest rate risk.
The market price of inflation-indexed bonds (including TIPS) typically declines during periods of rising real interest rates (i.e. nominal interest rate minus inflation) and increases during periods of declining real 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.
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 GMO waives or reduces its management fees.
Fixed income securities denominated in foreign currencies also are subject to currency risk. See “Currency Risk.”
In response to government intervention, economic or market developments, or other factors, markets for fixed income investments may experience periods of high volatility, reduced liquidity or both. During those periods, a Fund could have unusually high shareholder redemptions, requiring it to generate cash by selling portfolio investments when it would otherwise not do so, including at unfavorable prices. Moreover, fixed income investments will be difficult to value during such periods. During the last ten years, central banks and governmental financial regulators, including the U.S. Federal Reserve, kept interest rates historically low. However, more recently, the U.S. Federal Reserve has increased interest rates. A substantial increase in interest rates could have an adverse
effect on prices for fixed income investments and on the performance of the Funds. Other actions by central banks or regulators (such as intervention in foreign currency markets or currency controls) also could have a material adverse effect on the Funds.
• MERGER ARBITRAGE RISK. Some Funds engage in transactions in which the Fund purchases securities at prices below the value of the consideration GMO expects the Fund to receive upon consummation of a proposed merger, exchange offer, tender offer, or other similar transaction (“merger arbitrage transactions”). The purchase price paid by the Fund may substantially exceed the market price of the securities before the announcement of the transaction.
If a Fund engages in merger arbitrage and the merger later appears unlikely to be consummated or, in fact, is not consummated or is delayed, the market price of the securities purchased by the Fund is likely to decline sharply, resulting in losses to the Fund. The risk/reward payout of merger arbitrage strategies typically is asymmetric, with the losses in failed transactions often far exceeding the gains in successful transactions. A proposed merger can fail to be consummated for many reasons, including regulatory and antitrust restrictions, industry weakness, company specific events, failed financings, and general market declines.
Merger arbitrage strategies are subject to the risk of overall market movements, and a Fund may experience losses even if a transaction is consummated. A Fund’s investments in derivatives or short sales of securities to hedge or otherwise adjust long or short investment exposure in connection with a merger arbitrage may not perform as GMO expected or may otherwise reduce the Fund’s gains or increase its losses. Also, a Fund may be unable to hedge against market fluctuations or other risks. In addition, a Fund may sell securities short when GMO expects the Fund to receive the securities upon consummation of a transaction; if the Fund does not actually receive the securities, the Fund will have an unintended “naked” short position and may be required to cover its short position at a time when the securities sold short have appreciated in value, thus resulting in a loss. A Fund’s merger arbitrage transactions could result in tax inefficiencies, including larger distributions of net investment income and net realized capital gains than otherwise would be the case.
• 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. As a result, they are likely to be subject to greater credit, market and other risks than if their investments were more diversified, and poor performance by a single investment is likely to have a greater impact on their performance.
The following Funds are not diversified investment companies within the meaning of the 1940 Act:
| • | Alpha Only Fund |
| • | Alternative Allocation Fund |
| • | Implementation Fund |
| • | SGM Major Markets Fund |
| • | Special Opportunities Fund |
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 GMO Funds that are not “diversified.”
• NON-U.S. INVESTMENT RISK. Funds that invest in non-U.S. securities are subject to more risks than Funds that invest only in U.S. securities. Many non-U.S. securities markets list securities of only a small number of companies in a small number of industries. As a result, the market prices of securities traded on those markets (particularly in emerging markets) often fluctuate more than those of U.S. securities. In addition, issuers of non-U.S. securities (particularly those tied economically to emerging countries) often are not subject to as much regulation as U.S. issuers, and the reporting, accounting, custody, and auditing standards to which those issuers are subject often are not as rigorous as U.S. standards. Transactions in non-U.S. securities generally involve higher commission rates, transfer taxes, and custodial costs. In addition, some countries limit a Fund’s ability to profit from short-term trading (as defined in that country).
A Fund may be subject to non-U.S. taxation, including potentially on a retroactive basis, on (i) capital gains it realizes or dividends, interest, or other amounts it realizes or accrues in respect of non-U.S. investments; (ii) transactions in those investments; and (iii) repatriation of proceeds generated from the sale or other disposition of those investments. A Fund may seek a refund of taxes paid, but its efforts may not be successful, in which case the Fund will have incurred additional expenses for no benefit. In addition, a Fund’s pursuit of a tax refund may subject it to administrative and judicial proceedings in the country where it is seeking the refund.
A Fund’s decision to seek a refund is in its sole discretion, and, particularly in light of the cost involved, it may decide not to seek a refund, even if it is entitled to one. The outcome of a Fund’s efforts to obtain a refund is inherently unpredictable. In some cases, the amount of a refund could be material to a Fund’s net asset value. Accordingly, a refund is not typically reflected in the Fund’s net asset value until it is received or until GMO is confident that it will be received. Generally, absent a determination that a refund is collectible and free from significant contingencies, a refund is not reflected in a Fund’s net asset value. For information on possible special Australian tax consequences of an investment in a Fund, see the Funds’ Prospectus and Statement of Additional Information.
Investing in non-U.S. securities also exposes a Fund to the risk of nationalization, expropriation, or confiscatory taxation of assets of their issuers, government involvement in every country, including the U.S., or in the affairs of specific companies or industries (including wholly or partially state-owned enterprises), 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, including the imposition of economic sanctions.
In some non-U.S. securities markets, custody arrangements for securities provide significantly less protection than custody arrangements in U.S. securities 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 United States. Fluctuations in currency exchange rates also affect the market prices of a Fund’s non-U.S. securities (see “Currency Risk”).
The Funds need a license to invest directly in securities traded in many non-U.S. securities 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 to invest in a particular market is terminated or suspended, to obtain exposure to that 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 GMO’s clients may preclude a Fund from obtaining a similar license. In addition, the activities of a GMO client could cause the suspension or revocation of a Fund’s license.
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); increased risk of nationalization, expropriation, or other confiscation of issuer assets; greater governmental involvement in the economy or in the affairs of specific companies or industries (including wholly or partially state-owned enterprises); less governmental supervision and regulation of securities markets and participants in those markets; controls on 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; less rigorous auditing and financial reporting standards and resulting unavailability of reliable information about issuers; slower clearance and settlement; difficulties in obtaining and enforcing legal judgments; and significantly smaller market capitalizations of issuers. In addition, the economies of emerging countries may depend predominantly on only a few industries or revenues from particular commodities and often are more volatile than the economies of developed countries.
• SMALL COMPANY RISK. Companies with smaller market capitalizations tend to have limited product lines, markets, or financial resources, lack the competitive strength of larger companies, have less experienced managers and depend on fewer key employees than larger companies. 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. Market risk and illiquidity risk are particularly pronounced for the securities of these companies.
Temporary Defensive Positions. Temporary defensive positions are positions that are inconsistent with a Fund’s principal investment strategies and are taken in response to adverse market, economic, political, or other conditions.
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.
Derivative financial instruments
During the period ended May 31, 2019, only Alpha Only Fund, Alternative Allocation Fund, Benchmark-Free Fund, Implementation Fund, SGM Major Markets Fund and Strategic Opportunities Allocation Fund held derivative financial instruments directly. For a listing of derivative financial instruments, if any, held by the underlying funds, 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 Allocation Fund, Benchmark-Free Fund, Implementation Fund, SGM Major Markets Fund, Special Opportunities Fund and Strategic Opportunities Allocation Fund (or their respective wholly-owned subsidiary, if any).
Derivatives are financial contracts whose value depends on, or is derived from, the value of underlying assets, reference rates, or indices, that are used 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 indices, and include foreign currency contracts, swap contracts, reverse repurchase agreements, and other exchange-traded and OTC contracts.
Consolidated Alternative Allocation Fund may use derivatives in some or all of the ways described below.
Use of Derivatives by Alpha Only Fund and Consolidated Special Opportunities Fund
Alpha Only Fund’s investment program involves having both long and short investment exposures. Alpha Only Fund seeks to construct a portfolio in which it has long investment exposure to asset classes and sub-asset classes that GMO expects will outperform relative to the asset classes and sub-asset classes to which it has short investment exposure.
The Funds may use derivatives to gain long or short investment exposure to 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, cross currency basis swaps and options) to gain exposure to a given currency. In addition, Special Opportunities Fund may use derivatives to gain investment exposure to commodities, including the use of exchange-traded futures and forward foreign exchange contracts to gain exposure to a range of global equity, bond, currency, and commodity markets.
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 GMO 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 GMO 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 exposures, the Funds also may use currency derivatives in an attempt to adjust their currency exposure, seeking currency exposure that is different (in some cases, significantly different) from the currencies in which their equities are traded.
The Funds may use derivatives to effect transactions intended as substitutes for securities lending.
Alpha Only Fund is not limited in the use of derivatives or in the total notional value of its derivative positions. As a result of its derivative positions, Alpha Only 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. Alpha Only Fund’s performance can depend substantially, if not primarily, on the performance of assets or indices underlying its derivatives even though they do not own those assets or indices.
A Fund’s foreign currency exposure may differ significantly from the currencies in which its equities are traded.
Use of Derivatives by Benchmark-Free Fund, Consolidated Implementation Fund and Strategic Opportunities Allocation Fund
The Funds may use derivatives to gain long investment exposure to securities, commodities 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 exchange-traded futures and forward foreign exchange contracts to gain exposure to a range of global equity, bond, currency, and commodity markets and 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 such as futures, options, and swap contracts, 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 or may use a bond futures contract to short the bond market of a particular country. A Fund also may use currency derivatives in an attempt to reduce (which may result in a reduction below zero) some aspect of the currency exposure in its portfolio. For these purposes, the Funds may use an instrument denominated in a different currency that GMO believes is highly correlated with the relevant currency. Implementation Fund uses exchange-traded futures and forward contracts as an integral part of its investment program.
The Funds may use derivatives in an attempt to adjust elements of their 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 a Fund holds a large proportion of a certain type of security or commodity and GMO 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 those stocks) 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 adjusting investment exposures, each 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. Each Fund’s foreign currency exposure may differ significantly from the currency exposure represented by its investments.
The Funds may use derivatives to effect transactions intended as substitutes for securities lending.
Each of the Funds is not limited in its use of derivatives or in the total notional value of its derivative positions. As a result of their derivative positions, the Funds may have gross investment exposures in excess of their net assets (i.e. the Funds may be leveraged) and therefore are subject to heightened risk of loss. Each 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 Consolidated SGM Major Markets Fund
The Fund may use derivatives to gain long and/or short investment exposure to securities, 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 adjust its investment exposures. 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 GMO believes is highly correlated with the relevant currency.
The Fund may use derivatives, such as futures, 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 GMO 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, GMO 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 currencies in which their equities are traded.
The Fund is not limited in its use of derivatives or in the total notional 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.
***
Certain derivatives transactions that may be 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, if any, through clearing members, who are members of derivatives clearing houses. Certain other derivatives, including futures and certain options, are transacted on exchanges. The Funds hold exchange-traded derivatives through clearing brokers that are typically members of the exchanges. In contrast to bilateral derivatives transactions, following a period of advance notice to the Fund, clearing brokers generally can require termination of existing cleared or exchange-traded derivatives transactions at any time and increases in margin above the margin that it required at the beginning of a transaction. Clearing houses and exchanges 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 GMO 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 May 31, 2019, 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 Allocation Fund * |
Benchmark- Free Fund |
Consolidated Implementation Fund* |
Consolidated SGM Major Markets Fund* |
Strategic Opportunities Allocation Fund | ||||||
| Forward currency contracts | ||||||||||||
| Adjust currency exchange rate risk |
X | |||||||||||
| Adjust exposure to foreign currencies |
X | X | X | X | X | |||||||
| Manage against anticipated currency exchange rate changes |
X | X | ||||||||||
| Futures contracts | ||||||||||||
| Adjust exposure to certain securities markets |
X | X | X | X | ||||||||
| Substitute for direct investment |
X | |||||||||||
| Adjust interest rate exposure |
X | X | ||||||||||
| Maintain the diversity and liquidity of the portfolio |
X | X | X | X | ||||||||
| Hedge some or all of the broad market exposure of the underlying funds and/or assets in which the Fund invests |
X | |||||||||||
| Options (Purchased) | ||||||||||||
| Substitute for direct equity investment |
X | X | ||||||||||
| Options (Written) | ||||||||||||
| Substitute for direct equity investment |
X | X | ||||||||||
| Swap contracts | ||||||||||||
| Adjust interest rate exposure |
X | X | ||||||||||
| Substitute for direct investment in securities |
X | X | X | X | ||||||||
| Achieve exposure to a reference entity’s credit |
X | |||||||||||
| Rights and/or warrants | ||||||||||||
| Received as a result of corporate actions |
X | X | X | X | ||||||||
| * | Certain derivatives may be held by the 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 price 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 settled.
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 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 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 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. 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. “Quanto” options are cash-settled options in which the underlying asset (often an index) is denominated in a currency other than the currency in which the option is settled. 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, if any, which is disclosed in the Schedule of Investments, 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, 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 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.
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 market of 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 industry models and inputs provided by primary pricing sources.
Swap contracts
The Funds may directly or indirectly use various swap contracts, including, without limitation, swaps on securities and securities indices, total return swaps, interest rate swaps, basis swaps, currency swaps, credit default swaps, variance swaps, commodity swaps, inflation swaps, municipal swaps, dividend swaps, volatility swaps, correlation 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. A liquidation payment received or made at the termination of the swap contract is recorded as realized gain or loss. The periodic frequency of payments received may differ from periodic payment frequencies made and their frequencies could be monthly, quarterly, semiannually, annually or at maturity.
Interest rate swap contracts involve an exchange by the parties of their respective commitments to pay or rights 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). Basis swaps are interest rate swaps that involve the exchange of two floating interest rate payments and may involve the exchange of two different currencies.
Inflation swaps involve the exchange of a floating rate linked to an index for a fixed rate interest payment with respect to a notional amount or 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.
Correlation swaps involve receiving a stream of payments based on the actual average correlation between or among the price movements of two or more underlying variables over a period of time, in exchange for making a regular stream of payments based on a fixed “strike” correlation level (or vice versa), where both payment streams are based on a notional amount. The underlying variables may include, without limitation, commodity prices, exchange rates, interest rates and stock indices.
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.
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. A 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 a 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. The 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 the 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. 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.
The values assigned to swap contracts may differ significantly from the values 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 as of May 31, 2019:
The risks referenced in the tables below 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.
| Credit Contracts |
Commodity Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate Contracts |
Other Contracts |
Total | ||||||||||||||||||||||
| Alpha Only Fund |
| |||||||||||||||||||||||||||
| Asset Derivatives |
| |||||||||||||||||||||||||||
| Investments, at value (rights and/or warrants) |
$ | — | $ | — | $ | 446 | $ | — | $ | — | $ | — | $ | 446 | ||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
— | — | — | 128,725 | — | — | 128,725 | |||||||||||||||||||||
| Unrealized Appreciation on Futures Contracts |
— | — | 479,394 | — | — | — | 479,394 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | 479,840 | $ | 128,725 | $ | — | $ | — | $ | 608,565 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Liability Derivatives |
| |||||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | (241,254 | ) | $ | — | $ | — | $ | (241,254 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | — | $ | (241,254 | ) | $ | — | $ | — | $ | (241,254 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Consolidated Alternative Allocation Fund |
| |||||||||||||||||||||||||||
| Asset Derivatives |
| |||||||||||||||||||||||||||
| Investments, at value (purchased options) |
$ | — | $ | — | $ | 19,120 | $ | — | $ | — | $ | — | $ | 19,120 | ||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
— | — | — | 970,491 | — | — | 970,491 | |||||||||||||||||||||
| Unrealized Appreciation on Futures Contracts |
— | — | 973,550 | — | 33,348 | — | 1,006,898 | |||||||||||||||||||||
| Swap Contracts, at value |
— | 16,989 | — | — | 3,008,306 | — | 3,025,295 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | 16,989 | $ | 992,670 | $ | 970,491 | $ | 3,041,654 | $ | — | $ | 5,021,804 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Liability Derivatives |
| |||||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | (499,975 | ) | $ | — | $ | — | $ | (499,975 | ) | ||||||||||||
| Unrealized Depreciation on Futures Contracts |
— | — | (1,107,429 | ) | — | (279,299 | ) | — | (1,386,728 | ) | ||||||||||||||||||
| Written Options, at value |
— | — | (1,417,420 | ) | — | — | — | (1,417,420 | ) | |||||||||||||||||||
| Swap Contracts, at value |
— | — | — | — | (1,310,666 | ) | — | (1,310,666 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | (2,524,849 | ) | $ | (499,975 | ) | $ | (1,589,965 | ) | $ | — | $ | (4,614,789 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Credit Contracts |
Commodity Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate Contracts |
Other Contracts |
Total | ||||||||||||||||||||||
| Benchmark-Free Fund |
| |||||||||||||||||||||||||||
| Asset Derivatives |
| |||||||||||||||||||||||||||
| Investments, at value (rights and/or warrants) |
$ | — | $ | — | $ | 14,099 | $ | — | $ | — | $ | — | $ | 14,099 | ||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
— | — | — | 411,758 | — | — | 411,758 | |||||||||||||||||||||
| Unrealized Appreciation on Futures Contracts |
— | — | 1,465,511 | — | — | — | 1,465,511 | |||||||||||||||||||||
| Swap Contracts, at value |
— | — | 38,644 | — | — | — | 38,644 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | 1,518,254 | $ | 411,758 | $ | — | $ | — | $ | 1,930,012 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Liability Derivatives |
| |||||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | (837,023 | ) | $ | — | $ | — | $ | (837,023 | ) | ||||||||||||
| Unrealized Depreciation on Futures Contracts |
— | — | (101,132 | ) | — | — | — | (101,132 | ) | |||||||||||||||||||
| Swap Contracts, at value |
— | — | (191,269 | ) | — | — | — | (191,269 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | (292,401 | ) | $ | (837,023 | ) | $ | — | $ | — | $ | (1,129,424 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Consolidated Implementation Fund |
| |||||||||||||||||||||||||||
| Asset Derivatives |
| |||||||||||||||||||||||||||
| Investments, at value (purchased options) |
$ | — | $ | — | $ | 239,000 | $ | — | $ | — | $ | — | $ | 239,000 | ||||||||||||||
| Investments, at value (rights and/or warrants) |
— | — | 177,033 | — | — | — | 177,033 | |||||||||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
— | — | — | 7,831,791 | — | — | 7,831,791 | |||||||||||||||||||||
| Unrealized Appreciation on Futures Contracts |
— | — | 6,827,147 | — | — | — | 6,827,147 | |||||||||||||||||||||
| Swap Contracts, at value |
30,170 | — | 83,132 | — | 18,386,527 | — | 18,499,829 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | 30,170 | $ | — | $ | 7,326,312 | $ | 7,831,791 | $ | 18,386,527 | $ | — | $ | 33,574,800 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Liability Derivatives |
| |||||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | (10,146,964 | ) | $ | — | $ | — | $ | (10,146,964 | ) | ||||||||||||
| Unrealized Depreciation on Futures Contracts |
— | — | (1,353,020 | ) | — | — | — | (1,353,020 | ) | |||||||||||||||||||
| Written Options, at value |
— | — | (9,745,690 | ) | — | — | — | (9,745,690 | ) | |||||||||||||||||||
| Swap Contracts, at value |
(639,380 | ) | — | (890,096 | ) | — | (7,723,603 | ) | — | (9,253,079 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | (639,380 | ) | $ | — | $ | (11,988,806 | ) | $ | (10,146,964 | ) | $ | (7,723,603 | ) | $ | — | $ | (30,498,753 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Consolidated SGM Major Markets Fund |
| |||||||||||||||||||||||||||
| Asset Derivatives |
| |||||||||||||||||||||||||||
| Unrealized Appreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | 6,881,473 | $ | — | $ | — | $ | 6,881,473 | ||||||||||||||
| Unrealized Appreciation on Futures Contracts |
— | 8,290,233 | 6,503,623 | — | 1,125,256 | — | 15,919,112 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | 8,290,233 | $ | 6,503,623 | $ | 6,881,473 | $ | 1,125,256 | $ | — | $ | 22,800,585 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Liability Derivatives |
| |||||||||||||||||||||||||||
| Unrealized Depreciation on Forward Currency Contracts |
$ | — | $ | — | $ | — | $ | (5,074,251 | ) | $ | — | $ | — | $ | (5,074,251 | ) | ||||||||||||
| Unrealized Depreciation on Futures Contracts |
— | (6,485,710 | ) | (8,706,681 | ) | — | (6,947,335 | ) | — | (22,139,726 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | (6,485,710 | ) | $ | (8,706,681 | ) | $ | (5,074,251 | ) | $ | (6,947,335 | ) | $ | — | $ | (27,213,977 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Credit Contracts |
Commodity Contracts |
Equity Contracts |
Foreign Currency Contracts |
Interest Rate Contracts |
Other Contracts |
Total | ||||||||||||||||||||||
| Strategic Opportunities Allocation Fund |
| |||||||||||||||||||||||||||
| Asset Derivatives |
| |||||||||||||||||||||||||||
| Investments, at value (rights and/or warrants) |
$ | — | $ | — | $ | 819 | $ | — | $ | — | $ | — | $ | 819 | ||||||||||||||
| Swap Contracts, at value |
— | — | 8,097 | — | — | — | 8,097 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | 8,916 | $ | — | $ | — | $ | — | $ | 8,916 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Liability Derivatives |
| |||||||||||||||||||||||||||
| Swap Contracts, at value |
$ | — | $ | — | $ | (53,647 | ) | $ | — | $ | — | $ | — | $ | (53,647 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | — | $ | — | $ | (53,647 | ) | $ | — | $ | — | $ | — | $ | (53,647 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
For additional information regarding the Funds, please see the Funds’ most recent annual or semiannual shareholder report available on the Securities and Exchange Commission’s website, www.sec.gov, or visit GMO’s website at www.gmo.com.