File Nos. 2-98772
811-4347
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON JANUARY 13, 1997
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ---- / /
---
Post-Effective Amendment No. 33 / X /
---- ---
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 35 / X /
---- ---
GMO TRUST
----------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
40 Rowes Wharf, Boston, Massachusetts 02110
----------------------------------------------------------------------
(Address of principal executive offices)
617-330-7500
----------------------------------------------------------------------
(Registrant's telephone number, including area code)
with a copy to:
R. Jeremy Grantham J.B. Kittredge, Esq.
GMO Trust Ropes & Gray
40 Rowes Wharf One International Place
Boston, Massachusetts 02110 Boston, Massachusetts 02110
----------------------------------------------------------------------
(Name and address of agents for service)
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant has registered an indefinite number or amount of its shares of
beneficial interest. The Registrant has filed a Rule 24f-2 Notice with respect
to the Registrant's fiscal year ended February 29, 1996 on April 26, 1996.
It is proposed that this filing will become effective:
/ / Immediately upon filing pursuant to paragraph (b), or
-----
/ / 60 days after filing pursuant to paragraph (a)(1), or
-----
/ / On ________________, pursuant to paragraph (b), or
-----
/ X / 75 days after filing pursuant to paragraph (a)(2), of Rule 485.
-----
================================================================================
GMO TRUST
(For all Series except Pelican Fund)
CROSS REFERENCE SHEET
N-1A Item No. Location
------------ --------
PART A
------
Item 1. Cover Page . . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . . . . . Schedule of Fees and
Expenses
Item 3. Condensed Financial
Information. . . . . . . . . . . . . . . . . Financial Highlights
Item 4. General Description of
Registrant . . . . . . . . . . . . . . . . . Organization and
Capitalization of
the Trust;
Investment
Objectives and
Policies;
Description and
Risks of Fund
Investments; Cover
Page
Item 5. Management of the Fund . . . . . . . . . . . Management of the
Trust
Item 5A. Management's Discussion
of Fund Performance . . . . . . . . . . . . Financial Highlights
(referencing the
Trust's Annual
Reports)
Item 6. Capital Stock and Other
Securities . . . . . . . . . . . . . . . . . Organization and
Capitalization of
the Trust; Back
Cover (Shareholder
Inquiries)
Item 7. Purchase of Securities Being
Offered . . . . . . . . . . . . . . . . . . Purchase of Shares;
Determination of Net
Asset Value
Item 8. Redemption or Repurchase . . . . . . . . . . Redemption of
Shares;
Determination of Net
Asset Value
Item 9. Pending Legal Proceedings . . . . . . . . . None
Part B
------
Item 10. Cover Page . . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . . . . . . . . Table of Contents
Item 12. General Information and
History . . . . . . . . . . . . . . . Not Applicable
Item 13. Investment Objectives
and Policies . . . . . . . . . . . . . Investment
Objectives and
Policies; Investment
Restrictions
Item 14. Management of the Fund . . . . . . . . . . . Management of the
Trust
Item 15. Control Persons and Principal
Holders of Securities . . . . . . . . Description of the
Trust and Ownership
of Shares
Item 16. Investment Advisory and Other
Services . . . . . . . . . . . . . . Investment Advisory
and Other Services
Item 17. Brokerage Allocation and Other
Practices . . . . . . . . . . . . . . Portfolio
Transactions
Item 18. Capital Stock and Other
Securities . . . . . . . . . . . . . Description of the
Trust and Ownership
of Shares
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered . . . . . See in Part A
Purchase of Shares;
Redemption of
Shares;
Determination of Net
Asset Value;
Specimen Price-Make-
Up Sheet
Item 20. Tax Status . . . . . . . . . . . . . . . . . Income Dividends,
Distributions and
Tax Status
Item 21. Underwriters . . . . . . . . . . . . . . . . Not Applicable
Item 22. Calculation of Performance
Data . . . . . . . . . . . . . . . . Not Applicable
Item 23. Financial Statements . . . . . . . . . . . . Financial Statements
Part C
------
Information to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.
The following documents are incorporated herein by reference:
(1) The Prospectus relating to the Pelican Fund, a series of GMO Trust,
contained in Post- Effective Amendment No. 29 to the Trust's
Registration Statement (File Nos. 2-98772, 811-4347) filed with the
Securities and Exchange Commission on June 28, 1996;
(2) The Statement of Additional Information (including the audited
financial highlights contained therein and the audited financial
statements incorporated by reference therein) relating to the Pelican
Fund, a series of GMO Trust, contained in Post-Effective Amendment No.
29 to the Trust's Registration Statement (File Nos. 2-98772, 811-4347)
filed with the Securities and Exchange Commission on June 28, 1996.
(3) The Statement of Additional Information (including the audited and
unaudited financial highlights contained therein and the audited and
unaudited financial statements incorporated by reference therein)
relating to all of the funds of GMO Trust except the Pelican Fund,
contained in Post- Effective Amendment No. 32 to the Trust's
Registration Statement (File Nos. 2-98772, 811-4347) filed with the
Securities and Exchange Commission on November 27, 1996.
GMO TRUST
GMO TRUST (the "Trust"), 40 Rowes Wharf, Boston, Massachusetts 02110,
is an open-end management investment company offering twenty-nine (29) separate
portfolios with this prospectus (collectively, the "FUNDS"). The Trust offers
one additional portfolio, the Pelican Fund, pursuant to a separate prospectus.
Each Fund has its own investment objective and strategies. GRANTHAM, MAYO, VAN
OTTERLOO & CO. LLC (the "MANAGER" or "GMO") is the investment manager of all
Funds. The Manager has a Consulting Agreement with Dancing Elephant, Ltd. (the
"Consultant") with respect to management of the GMO Emerging Markets Fund. The
Trust offers "diversified" and "non-diversified" portfolios, as defined in the
Investment Company Act of 1940 (the "1940 Act"). The definition and potential
risks of "non-diversified" portfolios are discussed under "Description and Risks
of Fund Investments -- Diversified and Non-Diversified Portfolios" on page 54. A
TABLE OF CONTENTS APPEARS ON PAGE 7 OF THIS PROSPECTUS. Brief descriptions of
the Funds begin on page 2.
<TABLE>
<CAPTION>
GMO FUNDS
<S> <C> <C> <C>
DOMESTIC EQUITY FUNDS INTERNATIONAL EQUITY FUNDS FIXED INCOME FUNDS ASSET ALLOCATION FUNDS
Core Fund International Core Fund Short-Term Income Fund International Equity Allocation
Tobacco-Free Core Fund Currency Hedged International Global Hedged Equity Fund Fund
Value Fund Core Fund Domestic Bond Fund World Equity Allocation Fund
Growth Fund Foreign Fund International Bond Fund Global (U.S.+) Equity Allocation
U.S. Sector Fund Global Fund Currency Hedged International Fund
Small Cap Value Fund International Small Companies Fund Bond Fund Global Balanced Allocation Fund
Small Cap Growth Fund Japan Fund Global Bond Fund
Fundamental Value Fund Emerging Markets Fund Emerging Country Debt Fund
REIT Fund Global Properties Fund Inflation Indexed Bond Fund
</TABLE>
MULTIPLE CLASSES
Each Fund (except the Short-Term Income Fund) offers three CLASSES of
shares: CLASS I, CLASS II AND CLASS III. The Short-Term Income Fund offers only
Class III Shares. Eligibility for the classes is generally based on the total
amount of assets that a client has invested with GMO (with Class I requiring the
least total assets and Class III the most), all as described more fully herein.
See "Multiple Classes--Eligibility for Classes" on pages 68 and 69. In addition,
the Core Fund, Value Fund, Growth Fund, U.S. Sector Fund, International Core
Fund and Emerging Markets Fund each offer three additional classes, CLASS IV,
CLASS V AND CLASS VI Shares, designed to accommodate clients who have very large
amounts of total assets under GMO's management. Eligibility requirements for
investing in Class IV, Class V and Class VI Shares are described in greater
detail herein. See "Multiple Classes -- Eligibility for Classes."
NOTE: CLASS III SHARES ARE THE CONTINUATION OF THE TRUST'S SINGLE CLASS
OF SHARES THAT EXISTED PRIOR TO JUNE 1, 1996, AND BEAR THE SAME TOTAL OPERATING
EXPENSES AS THAT ORIGINAL CLASS OF SHARES.
The classes differ solely with regard to (i) whether GMO or the GMO
FUNDS DIVISION provides client service and reporting to shareholders of the
class and (ii) the level of SHAREHOLDER SERVICE FEE borne by the class. These
differences are described briefly below and in more detail elsewhere in this
Prospectus. ALL CLASSES OF A FUND HAVE AN INTEREST IN THE SAME UNDERLYING
ASSETS, ARE MANAGED BY GMO, AND PAY THE SAME INVESTMENT MANAGEMENT FEE.
<TABLE>
<CAPTION>
INVESTMENT MANAGER
GMO
Grantham, Mayo, Van Otterloo & Co. LLC
CLIENT SERVICE PROVIDER SHAREHOLDER SERVICE FEE
<S> <C> <C>
GMO GMO FUNDS DIVISION The level of Shareholder Service Fee for
Class III, Class IV, Class V each class is set forth at the bottom of
and Class VI Shares Class I and Class II Shares the following page and described more
Tel.: (617) 330-7500 Tel.: (617) 790-5000 fully under "Multiple Classes --
Fax: (617) 439-4192 Fax: (617) 439-4290 Shareholder Service Fees".
</TABLE>
- -------------------------
This Prospectus concisely describes the information which investors
ought to know before investing. Please read this Prospectus carefully and keep
it for further reference. A Statement of Additional Information dated December
1, 1996, as revised from time to time, is available free of charge by writing to
GMO Funds Division, 40 Rowes Wharf, Boston, Massachusetts 02110 or by calling
(617) 790-5000. The Statement, which contains more detailed information about
each Fund, has been filed with the Securities and Exchange Commission ("SEC")
and is incorporated by reference into this Prospectus.
THE EMERGING COUNTRY DEBT FUND MAY INVEST WITHOUT LIMIT, THE
INTERNATIONAL BOND, INFLATION INDEXED BOND AND CURRENCY HEDGED INTERNATIONAL
BOND FUNDS MAY INVEST UP TO 25% OF THEIR NET ASSETS AND THE DOMESTIC BOND, REIT,
CURRENCY HEDGED INTERNATIONAL CORE, GLOBAL, GLOBAL PROPERTIES AND FOREIGN FUNDS
MAY INVEST UP TO 5% OF THEIR NET ASSETS IN LOWER-RATED BONDS, COMMONLY KNOWN AS
"JUNK BONDS." INVESTMENTS OF THIS TYPE ARE SUBJECT TO A GREATER RISK OF LOSS OF
PRINCIPAL AND NON-PAYMENT OF INTEREST. INVESTORS SHOULD CAREFULLY ASSESS THE
RISKS ASSOCIATED WITH AN INVESTMENT IN THESE FUNDS. PLEASE SEE "DESCRIPTION AND
RISKS OF FUND INVESTMENTS -- LOWER RATED SECURITIES."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTUS MARCH 29, 1997
GMO MUTUAL FUNDS
The Funds offered by this Prospectus are described briefly below and in more
detail throughout this Prospectus. GMO Mutual Funds can generally be classified
as Domestic Equity Funds, International Equity Funds and Fixed Income Funds. The
Trust also offers four Asset Allocation Funds that invest in varying amounts in
other Funds of the Trust.
DOMESTIC EQUITY FUNDS
The Trust offers the following nine domestic equity portfolios which are
collectively referred to as the "DOMESTIC EQUITY FUNDS."
GMO CORE FUND (the "CORE FUND") is a diversified portfolio that seeks a
total return greater than that of the Standard & Poor's 500 Stock Index (the
"S&P 500") through investment of substantially all of its assets in common
stocks chosen from the Wilshire 5000 Index (the "Wilshire 5000") and primarily
in common stocks chosen from among the 1,200 companies with the largest equity
capitalization whose securities are listed on a United States national
securities exchange (the "Large Cap 1200").
GMO TOBACCO-FREE CORE FUND (the "TOBACCO-FREE CORE FUND") is a diversified
portfolio that seeks a total return greater than that of the S&P 500 through
investment of substantially all of its assets in common stocks chosen from the
Wilshire 5000 and primarily in common stocks chosen from the Large Cap 1200
which are not Tobacco Producing Issuers. A "Tobacco Producing Issuer" is an
issuer which derives more than 10% of its gross revenues from the production of
tobacco-related products.
GMO VALUE FUND (the"VALUE FUND") is a non-diversified portfolio that seeks a
total return greater than that of the S&P 500 through investment of
substantially all of its assets in common stocks chosen from the Wilshire 5000
and primarily in common stocks chosen from the Large Cap 1200. Strong
consideration is given to common stocks whose current prices, in the opinion of
the Manager, do not adequately reflect the on-going business value of the
underlying company.
GMO GROWTH FUND (the "GROWTH FUND") is a non-diversified portfolio that
seeks long-term growth of capital through investment of substantially all of its
assets in common stocks chosen from the Wilshire 5000 and primarily in the
equity securities of companies chosen from the Large Cap 1200. Current income is
only an incidental consideration.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSES AND FEES
<S> <C> <C>
ALL FUNDS (EXCEPT ELIGIBILITY
ASSET ALLOCATION FUNDS) REQUIREMENT* SHAREHOLDER SERVICE FEE**
- ----------------------- ----------- -----------------------
Class I $1 million 0.28%
Class II $10 million 0.22%
Class III $35 million 0.15%
ASSET ALLOCATION FUNDS ONLY
- ---------------------------
Class I $1 million 0.13%***
Class II $10 million 0.07%***
Class III $35 million 0.00%***
CORE FUND, VALUE FUND, GROWTH FUND AND U.S. SECTOR FUND
- -------------------------------------------------------
Class IV $150 million/$300 million 0.12%
Class V $300 million/$500 million 0.09%
Class VI $500 million/$800 million 0.07%
GMO INTERNATIONAL CORE FUND ONLY
- --------------------------------
Class IV $150 million/$300 million 0.11%
Class V $300 million/$500 million 0.07%
Class VI $500 million/$800 million 0.04%
GMO EMERGING MARKETS FUND ONLY
- ------------------------------
Class IV $50 million/$300 million 0.10%
Class V $100 million/$500 million 0.05%
Class VI $150 million/$800 million 0.02%
- ------------------------------
</TABLE>
* More detailed explanation of eligibility criteria is provided on
page 6 and under "Multiple Classes -- Eligibility for Classes."
** As noted above, all classes of shares of a Fund pay the same
investment management fee.
*** The Asset Allocation Funds will indirectly bear a Shareholder
Service Fee of 0.15%. Thus, the total Shareholder Service Fee
borne by Class I, Class II and Class III Shares of the Asset
Allocation Funds is the same as that borne by Class I, Class II or
Class III Shares, respectively, of the other Funds. See "Asset
Allocation Funds."
-2-
GMO U.S. SECTOR FUND (the "U.S. SECTOR FUND") is a non-diversified
portfolio that seeks a total return greater than that of the S&P 500 through
investment of substantially all of its assets in common stocks chosen from the
Wilshire 5000 and primarily in common stocks chosen from among the 1,800
companies with the largest equity capitalization whose securities are listed on
a United States national securities exchange.
GMO SMALL CAP VALUE FUND (the "SMALL CAP VALUE FUND") (formerly the GMO
Core II Secondaries Fund) is a diversified portfolio that seeks long-term growth
of capital through investment primarily in companies whose equity capitalization
ranks in the lower two-thirds of the 1,800 companies with the largest equity
capitalization whose securities are listed on a United States national
securities exchange. Current income is only an incidental consideration.
GMO SMALL CAP GROWTH FUND (the "SMALL CAP GROWTH FUND") is a
non-diversified portfolio that seeks long- term growth of capital through
investment primarily in companies whose equity capitalization ranks in the lower
two-thirds of the 1,800 companies with the largest equity capitalization whose
securities are listed on a United States national securities exchange. Current
income is only an incidental consideration.
GMO FUNDAMENTAL VALUE FUND (the "FUNDAMENTAL VALUE FUND") is a
diversified portfolio that seeks long-term capital growth through investment
primarily in equity securities. Consideration of current income is secondary to
this principal objective.
GMO REIT FUND (the "REIT FUND") is a non- diversified portfolio that
seeks maximum total return through investment primarily in real estate
investment trusts ("REITs").
INTERNATIONAL EQUITY FUNDS
The Trust offers the following eight international equity portfolios
which are collectively referred to as the "INTERNATIONAL EQUITY FUNDS."
GMO INTERNATIONAL CORE FUND (the "INTERNATIONAL CORE FUND") is a
diversified portfolio that seeks maximum total return through investment in a
portfolio of common stocks of non-U.S. issuers.
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND (the "CURRENCY HEDGED
INTERNATIONAL CORE FUND") is a non- diversified portfolio that seeks maximum
total return through investment in a portfolio of common stocks of non-U.S.
issuers and through management of the Fund's foreign currency positions. The
Fund has similar policies to the International Core Fund, except that the
Currency Hedged International Core Fund will maintain currency hedges with
respect to a substantial portion of the foreign currency exposure represented in
the Fund's benchmark while the International Core Fund will generally hedge only
a limited portion of the currency exposure of that benchmark.
GMO FOREIGN FUND (the "FOREIGN FUND") is a non- diversified portfolio
that seeks maximum total return through investment in a portfolio of equity
securities of non-U.S. issuers.
GMO GLOBAL FUND (the "GLOBAL FUND") is a non- diversified portfolio
that seeks maximum total return through investment in a portfolio of equity
securities of U.S. and non-U.S. issuers.
GMO INTERNATIONAL SMALL COMPANIES FUND (the "INTERNATIONAL SMALL
COMPANIES FUND") is a diversified portfolio that seeks maximum total return
through investment primarily in equity securities of foreign issuers whose
equity securities are traded on a major stock exchange of a foreign country
("foreign stock exchange companies") and whose equity capitalization at the time
of investment, when aggregated with the equity capitalizations of all foreign
stock exchange companies in that country whose equity capitalizations are
smaller than that of such company, is less than 50% of the aggregate equity
capitalization of all foreign stock exchange companies in such country.
GMO JAPAN FUND (the "JAPAN FUND") is a non- diversified portfolio that
seeks maximum total return through investment in Japanese securities, primarily
in common stocks of Japanese companies.
GMO EMERGING MARKETS FUND (the "EMERGING MARKETS FUND") is a
non-diversified portfolio that seeks long term capital appreciation consistent
with what the Manager believes to be a prudent level of risk through investment
in equity and equity-related securities traded in the securities markets of
newly industrializing countries in Asia, Latin America, the Middle East,
Southern Europe, Eastern Europe and Africa.
GMO GLOBAL PROPERTIES FUND (the "GLOBAL PROPERTIES FUND") is a
non-diversified portfolio that seeks long term capital growth primarily through
investment in securities of issuers throughout the world which are engaged in or
related to the real estate industry or which own significant real estate assets.
Consideration of current income is secondary to this principal objective. The
Fund invests at least 65% of its total assets in securities of real estate
companies principally traded in the securities markets of at least three
countries, one of which may be the United States.
FIXED INCOME FUNDS
The Trust offers the following eight domestic and international fixed
income portfolios which are collectively referred to as the "FIXED INCOME
FUNDS."
GMO SHORT-TERM INCOME FUND (the "SHORT-TERM INCOME FUND") is a
non-diversified portfolio that seeks current income to the extent consistent
with the preservation of capital and liquidity through investment in a portfolio
of high quality short-term instruments. The Short-Term Income Fund intends to
invest in short-term securities, but it is not a "money market fund."
GMO GLOBAL HEDGED EQUITY FUND (the "GLOBAL HEDGED EQUITY FUND") is a
non-diversified portfolio that seeks total return consistent with minimal
exposure to general equity market risk.
GMO DOMESTIC BOND FUND (the "DOMESTIC BOND FUND") is a non-diversified
portfolio that seeks high total return through
-3-
investment primarily in U.S. Government Securities. The Fund may also invest a
significant portion of its assets in other investment grade bonds (including
convertible bonds) denominated in U.S. dollars. The Fund's portfolio will
generally have a duration of approximately four to six years (excluding
short-term investments).
GMO INTERNATIONAL BOND FUND (the "INTERNATIONAL BOND FUND") is a
non-diversified portfolio that seeks high total return by investing primarily in
investment grade bonds (including convertible bonds) denominated in various
currencies including U.S. dollars or in multicurrency units. The Fund seeks to
provide a total return greater than that provided by the international fixed
income securities market generally.
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND (the "CURRENCY HEDGED
INTERNATIONAL BOND FUND") is a non- diversified portfolio with the same
investment objectives and policies as the International Bond Fund except that
the Currency Hedged International Bond Fund will generally attempt to hedge
substantially all of its foreign currency risk while the International Bond Fund
will generally not hedge any of its foreign currency risk. Despite the otherwise
identical objectives and policies, the composition of the two portfolios may
differ substantially at any given time.
GMO GLOBAL BOND FUND (the "GLOBAL BOND FUND") is a non-diversified
portfolio that seeks high total return by investing primarily in investment
grade bonds (including convertible bonds) denominated in various currencies
including U.S. dollars or in multicurrency units. The Fund seeks to provide a
total return greater than that provided by the global fixed income securities
market generally.
GMO EMERGING COUNTRY DEBT FUND (the "EMERGING COUNTRY DEBT FUND") is a
non-diversified portfolio that seeks high total return by investing primarily in
sovereign debt (bonds and loans) of countries in Asia, Latin America, the Middle
East, Southern Europe, Eastern Europe and Africa.
GMO INFLATION INDEXED BOND FUND (the "INFLATION INDEXED BOND FUND") is
a non-diversified portfolio that seeks maximum total return by investing
primarily in foreign and U.S. government bonds that are indexed or otherwise
linked to general measures of inflation in the country of issue. The
availability of such bonds is currently limited to a small number of countries.
ASSET ALLOCATION FUNDS
The Trust offers the following four asset allocation portfolios (the
"ALLOCATION FUNDS"). The Allocation Funds operate as "funds-of-funds" in that,
pursuant to management provided by the Manager, these Funds make investments in
other Funds of the Trust.
GMO INTERNATIONAL EQUITY ALLOCATION FUND (the "INTERNATIONAL EQUITY
ALLOCATION FUND") is a diversified portfolio that seeks a total return greater
than the return of the EAFE-lite Extended Index benchmark. The Fund will pursue
its objective by investing to varying extents primarily in Class III Shares of
the various International Equity Funds of the Trust. The Fund may also invest up
to 15% of its net assets in Class III Shares of the various Fixed Income Funds
of the Trust.
GMO WORLD EQUITY ALLOCATION FUND (the "WORLD EQUITY ALLOCATION FUND")
is a diversified portfolio that seeks a total return greater than the return of
the World Lite Extended Index benchmark. The Fund will pursue its objective by
investing to varying extents primarily in Class III Shares of the various
Domestic Equity and International Equity Funds of the Trust. The Fund may also
invest up to 15% of its net assets in Class III Shares of the various Fixed
Income Funds of the Trust.
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND (the "GLOBAL (U.S.+) EQUITY
ALLOCATION FUND") is a diversified portfolio that seeks a total return greater
than the return of the GMO Global (U.S.+) Equity Index benchmark, which has a
greater weighting of U.S. stocks (S&P 500) than the World Lite Extended Index.
The Fund will pursue its objective by investing to varying extents primarily in
Class III Shares of the various Domestic Equity and International Equity Funds
of the Trust. The Fund may also invest up to 15% of its net assets in Class III
Shares of the various Fixed Income Funds of the Trust.
GMO GLOBAL BALANCED ALLOCATION FUND (the "GLOBAL BALANCED ALLOCATION
FUND") is a diversified portfolio that seeks a total return greater than the
return of the GMO Global Balanced Index benchmark. The Fund will pursue its
objective by investing to varying extents primarily in Class III Shares of the
various Domestic Equity, International Equity and Fixed Income Funds of the
Trust.
- --------------------------------------------------------------------------------
Investors should consider the risks associated with an investment in
the Funds. For information concerning the types of investment practices in which
a particular Fund may engage, see "Investment Objectives and Policies". For more
information concerning such investment practices and their associated risks, see
"Description and Risks of Fund Investments."
- --------------------------------------------------------------------------------
-4-
BENCHMARKS AND INDEXES
----------------------
As is evident throughout this Prospectus, many of the Funds are managed,
and/or meant to be measured, relative to a specified index or benchmark. Some
general information about these benchmarks and indexes is provided in the table
below. While Funds may be managed relative to these benchmarks or indexes, it is
important to note that none of the Funds is managed as an "index fund" or
"index-plus fund", and the actual composition of a Fund's portfolio may differ
substantially from that of its benchmark.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Abbreviation Full Name Sponsor or Publisher Description
- ------------ --------- -------------------- -----------
S&P 500 Standard & Poor's 500 Stock Index Standard & Poor's Well-known,independently maintained and
Corporation published U.S. large capitalization stock
Wilshire 5000 Wilshire 5000 Stock Index Wilshire Associates, Inc. Independently maintained and published
broadly populated U.S. stock index
Lehman Brothers Lehman Brothers Government Bond Lehman Brothers Well-known, independently maintained and
Government Index published government bond index, regularly
used as a comparative fixed income
benchmark
EAFE Morgan Stanley Capital International Morgan Stanley Capital Well-known, independently maintained and
Europe, Australia and Far East Index International published large capitalization international
stock index
EAFE-Lite GMO EAFE-Lite GMO A modification of EAFE where GMO reduces the
market capitalization of Japan by 40%
relative to EAFE
EAFE-Lite Extended GMO EAFE-Lite Extended GMO A modification of EAFE-Lite where GMO adds
those additional countries represented in
the IFC Investable Index
MSCI World Morgan Stanley Capital Morgan Stanley Capital An independently maintained and published
International World Index International global (including U.S.) equity index
World-Lite Extended GMO World-Lite Extended GMO A modification of MSCI World where GMO
reduces the market capitalization of Japan
by 40% relative to MSCI World and adds those
additional countries represented in the IFC
Investable Index
GMO Global GMO Global (U.S.+) Equity Index GMO
(U.S.+) Equity A composite benchmark computed by GMO and
Index comprised 75% by S&P 500 and 25% by EAFE-
Lite Extended
GMO Global GMO Global Balanced Index GMO A composite benchmark computed by GMO and
Balanced Index comprised 48.75% by S&P 500, 16.25% by EAFE-
Lite Extended and 35% by Lehman Brothers
Government
</TABLE>
-5-
CLASS ELIGIBILITY
For full details of the class eligibility criteria summarized below and an
explanation of how conversions between classes will occur, see "Multiple Classes
- - Eligibility for Classes" and "Multiple Classes - Conversions Between Classes",
beginning on page 68.
CLASS I AND CLASS II SHARES:
Recognizing that institutional and individual investors with assets under
GMO's management totalling less than $35 million have different service and
reporting needs than larger client relationships, GMO has created the GMO Funds
Division. GMO Funds Division delivers institutional-quality client services to
clients investing between $1 million and $35 million. These services include
professional and informative reporting, and access to meaningful analysis and
explanation.
Class I Shares. Class I Shares are available to any investor who commits (after
May 31, 1996) assets to GMO management to establish a "Total Investment" (as
defined) with GMO of between $1 million and $10 million. In addition, all
defined contribution retirement or pension plans are eligible only for Class I
shares regardless of the size of their investment. Class I Shares will receive
client service and reporting from GMO Funds Division and will bear a Shareholder
Service Fee of 0.28%.
Class II Shares. Class II Shares are available to any investor who (i) has less
than $7 million (but more than $0) under the management of GMO as of May 31,
1996, or (ii) commits (after May 31, 1996) assets to GMO management to establish
a "Total Investment" (as defined) with GMO of between $10 million and $35
million. Class II Shares will receive client service and reporting from GMO
Funds Division and will bear a Shareholder Service Fee of 0.22%.
Purchasers of Class I and Class II Shares should follow purchase
instructions for such classes described under "Purchase of Shares" and direct
questions to the Trust at (617) 790-5000.
CLASS III, CLASS IV, CLASS V AND CLASS VI SHARES:
GMO provides direct client service and reporting to owners of Class III,
Class IV, Class V and Class VI Shares. These clients generally must have a
"Total Investment" (as defined) with GMO of at least $35 million (and
substantially more to be eligible for Class IV, Class V or Class VI Shares).
Class eligibility requirements for existing clients of GMO as of May 31, 1996
are governed by special rules described in this Prospectus.
Class III Shares. Class III Shares are available to any investor who (i) has at
least $7 million under the management of GMO as of May 31, 1996, or (ii) commits
(after May 31, 1996) assets to GMO management to establish a "Total Investment"
(as defined) with GMO of at least $35 million. Class III Shares of the Short
Term Income Fund are available to any investor with a "Total Investment" of at
least $1 million. Class III Shares will receive client service and reporting
directly from GMO, and will bear a Shareholder Service Fee of 0.15% of average
net assets. Note: Class III Shares are a redesignation of the single class of
shares that has been offered by each Fund since inception. Class III Shares bear
the same rate of total operating expenses as they did before the redesignation.
Class IV, Class V and Class VI Shares. Three additional classes of shares are
available for each of the Core Fund, Value Fund, Growth Fund, U.S. Sector Fund,
International Core Fund and Emerging Markets Fund to accommodate clients who
have very large amounts under GMO's management. Class IV, V and VI Shares bear
substantially lower Shareholder Service Fees than Class III Shares to reflect
the lower cost of servicing such large accounts as a percentage of assets. See
"Multiple Classes - Eligibility for Classes" and "Multiple Classes - Conversions
Between Classes" for full details of the eligibility criteria for the Class IV,
V and VI Shares and for an explanation of how conversions between classes will
occur.
Purchasers of Class III, Class IV, Class V and Class VI Shares should follow
purchase instructions described under "Purchase of Shares" and direct questions
to the Trust at (617) 330-7500.
-6-
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C> <C>
SCHEDULE OF FEES AND EXPENSES 9 Hedging 59
Investment Purposes 59
FINANCIAL HIGHLIGHTS 17 Synthetic Sales and Purchases 60
Swap Contracts and Other Two-Party Contracts 60
INVESTMENT OBJECTIVES AND POLICIES 31 Swap Contracts 60
DOMESTIC EQUITY FUNDS 31 Interest Rate and Currency Swap Contracts 60
Core Fund 31 Equity Swap Contracts and Contracts for
Tobacco-Free Core Fund 31 Differences 60
Value Fund 32 Interest Rate Caps, Floors and Collars 61
Growth Fund 33 Foreign Currency Transactions 61
U.S. Sector Fund 33 Repurchase Agreements 62
Small Cap Value Fund 34 Debt and Other Fixed Income Securities
Small Cap Growth Fund 34 Generally 63
Fundamental Value Fund 35 Temporary High Quality Cash Items 63
REIT Fund 36 U.S. Government Securities and Foreign
INTERNATIONAL EQUITY FUNDS 37 Government Securities 63
International Core Fund 37 Mortgage-Backed and Other Asset-Backed
Currency Hedged International Core Securities 63
Fund 38 Collateralized Mortgage Obligations
Foreign Fund 39 ("CMOs"); Strips and Residuals 64
Global Fund 39
Commercial Mortgage-Related
Securities 64
Adjustable Rate Securities 64
International Small Companies Fund 40 Lower Rated Securities 64
Japan Fund 41 Brady Bonds 65
Emerging Markets Fund 41 Zero Coupon Securities 65
Global Properties Fund 43 Indexed Securities 65
FIXED INCOME FUNDS 43 Firm Commitments 65
Short-Term Income Fund 44 Loans, Loan Participations and Assignments 66
Global Hedged Equity Fund 45 Reverse Repurchase Agreements and Dollar
Domestic Bond Fund 47 Roll Agreements 66
International Bond Fund 48 Illiquid Securities 67
Currency Hedged International Special Allocation Fund Considerations 67
Bond Fund 49
Global Bond Fund 49 MULTIPLE CLASSES 67
Emerging Country Debt Fund 50 Shareholder Service Fees 67
Inflation Indexed Bond Fund 51 Client Service - GMO and GMO Funds 68
ASSET ALLOCATION FUNDS 51 Eligibility for Classes 68
International Equity Allocation Fund 52 Conversions Between Classes 69
World Equity Allocation Fund 52
Global (U.S.+) Equity Allocation Fund 53 PURCHASE OF SHARES 69
Global Balanced Allocation Fund 53 Purchase Procedures 71
DESCRIPTION AND RISKS OF FUND INVESTMENTS 53 REDEMPTION OF SHARES 71
Portfolio Turnover 54
Diversified and Non-Diversified Portfolios 54 DETERMINATION OF NET ASSET VALUE 72
Certain Risks of Foreign Investments 54
General 54 DISTRIBUTIONS 73
Emerging Markets 54
Direct Investment in Russian Securities 55 TAXES 73
Securities Lending 55 Withholding on Distributions to Foreign
Depository Receipts 55 Investors 74
Convertible Securities 55 Foreign Tax Credits 74
Futures and Options 56 Loss of Regulated Investment Company Status 74
Options 56
Writing Covered Options 56 MANAGEMENT OF THE TRUST 74
Futures 57
Index Futures 58 ORGANIZATION AND CAPITALIZATION OF THE TRUST 76
Interest Rate Futures 58
Options on Futures Contracts 58 CERTAIN FINANCIAL INFORMATION RELATING
Uses of Options, Futures and Options TO THE GMO FOREIGN FUND 76
on Futures 58
Risk Management 58 Appendix A 78
</TABLE>
-7-
RISKS AND LIMITATIONS OF OPTIONS, FUTURES
AND SWAPS 78
Limitations on the Use of
Options and Futures
Portfolio Strategies 78
Risk Factors in Options Transactions 78
Risk Factors in Futures Transactions 78
Risk Factors in Swap Contracts, OTC Options
and other Two-Party Contracts 79
Additional Regulatory Limitations on the Use of
Futures and Related Options, Interest Rate Floors,
Caps and Collars and Interest Rate and
Currency Swap Contracts 79
Appendix B 79
COMMERCIAL PAPER AND CORPORATE DEBT
RATINGS 81
Commercial Paper Ratings 81
Corporate Debt Ratings 81
Standard & Poor's Corporation 81
Moody's Investors Service, Inc. 81
-8-
SCHEDULE OF FEES AND EXPENSES
<TABLE>
<CAPTION>
Shareholder
GMO Fund Name Transaction Expenses Annual Operating Expenses Examples
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
You would pay the
following expenses on
Cash Purchase Redemption Inv. a $1,000 investment You would pay the
Premium (as a Fees (as a Mgmt. Share- assuming 5% annual following expenses
percentage of percentage Fees holder TOTAL return with redemption on the same
amount of amount after Fee Service Other OPERATING at the end of each time investment assuming
invested)1 redeemed)1 Waiver9 Fee3 Expenses9 EXPENSES9 period: no redemption:
1Yr. 3Yr. 5Yr. 10Yr. 1Yr. 3Yr. 5Yr. 10Yr.
DOMESTIC EQUITY
FUNDS
Core Fund
---------
Class I .14%4 None .30% .28% .03% .61% $8 $21 $35 $78 $8 $21 $35 $78
Class II .14%4 None .30% .22% .03% .55% $7 $19 $32 $70 $7 $19 $32 $70
Class III .14%4 None .30% .15% .03% .48% $6 $17 $28 $62 $6 $17 $28 $62
Class IV .14%4 None .30% .12% .03% .45% $6 $16 $27 $58 $6 $16 $27 $58
Class V .14%4 None .30% .09% .03% .42% $6 $15 $25 $54 $6 $15 $25 $54
Class VI .14%4 None .30% .07% .03% .40% $5 $14 $24 $52 $5 $14 $24 $52
Tobacco-Free
Core Fund
---------
Class I .14%4 None .15% .28% .18% .61% $8 $21 $35 $78 $8 $21 $35 $78
Class II .14%4 None .15% .22% .18% .55% $7 $19 $32 $70 $7 $19 $32 $70
Class III .14%4 None .15% .15% .18% .48% $6 $17 $28 $62 $6 $17 $28 $62
Value Fund
----------
Class I .14%4 None .41% .28% .05% .74% $9 $25 $42 $93 $9 $25 $42 $93
Class II .14%4 None .41% .22% .05% .68% $8 $23 $39 $86 $8 $23 $39 $86
Class III .14%4 None .41% .15% .05% .61% $8 $21 $35 $78 $8 $21 $35 $78
Class IV .14%4 None .41% .12% .05% .58% $7 $20 $34 $74 $7 $20 $34 $74
Class V .14%4 None .41% .09% .05% .55% $7 $19 $32 $70 $7 $19 $32 $70
Class VI .14%4 None .41% .07% .05% .53% $7 $18 $31 $68 $7 $18 $31 $68
Growth Fund
-----------
Class I .14%4 None .28% .28% .05% .61% $8 $21 $35 $78 $8 $21 $35 $78
Class II .14%4 None .28% .22% .05% .55% $7 $19 $32 $70 $7 $19 $32 $70
Class III .14%4 None .28% .15% .05% .48% $6 $17 $28 $62 $6 $17 $28 $62
Class IV .14%4 None .28% .12% .05% .45% $6 $16 $27 $58 $6 $16 $27 $58
Class V .14%4 None .28% .09% .05% .42% $6 $15 $25 $54 $6 $15 $25 $54
Class VI .14%4 None .28% .07% .05% .40% $5 $14 $24 $52 $5 $14 $24 $52
</TABLE>
Footnotes begin on page 14 and are important to understanding this table.
Unless otherwise noted, Annual Operating Expenses shown are based on actual
expenses for the year ended February 29, 1996.
The purpose of the foregoing tables is to assist in understanding the various
costs and expenses of each Fund that are borne by holders of Fund shares. THE
FIVE PERCENT ANNUAL RETURN AND EXPENSE NUMBERS USED ARE NOT REPRESENTATIONS OF
FUTURE PERFORMANCE OR EXPENSES. SUBJECT TO THE MANAGER'S UNDERTAKING TO WAIVE
ITS FEE AND/OR BEAR CERTAIN EXPENSES FOR EACH FUND AS DESCRIBED IN THE TABLES,
ACTUAL PERFORMANCE AND/OR EXPENSES MAY BE MORE OR LESS THAN SHOWN. Where a
purchase premium and/or redemption fee is indicated as being charged by a Fund
in certain instances, the foregoing examples assume the payment of such purchase
premium and/or redemption fee even though such purchase premium and/or
redemption fee is not applicable in all cases. (See "Purchase of Shares" and
"Redemption of Shares").
-9-
<TABLE>
<CAPTION>
Shareholder
GMO Fund Name Transaction Expenses Annual Operating Expenses Examples
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
You would pay the
following expenses on
Cash Purchase Redemption Inv. a $1,000 investment You would pay the
Premium (as a Fees (as a Mgmt. Share- assuming 5% annual following expenses
percentage of percentage Fees holder TOTAL return with redemption on the same
amount of amount after Fee Service Other OPERATING at the end of each time investment assuming
invested)1 redeemed)1 Waiver9 Fee3 Expenses9 EXPENSES9 period: no redemption:
1Yr. 3Yr. 5Yr. 10Yr. 1Yr. 3Yr. 5Yr. 10Yr.
U.S. Sector
Fund
-----------
Class I .14%4 None .27% .28% .06% .61% $8 $21 $35 $78 $8 $21 $35 $78
Class II .14%4 None .27% .22% .06% .55% $7 $19 $32 $70 $7 $19 $32 $70
Class III .14%4 None .27% .15% .06% .48% $6 $17 $28 $62 $6 $17 $28 $62
Class IV .14%4 None .27% .12% .06% .45% $6 $16 $27 $58 $6 $16 $27 $58
Class V .14%4 None .27% .09% .06% .42% $6 $15 $25 $54 $6 $15 $25 $54
Class VI .14%4 None .27% .07% .06% .40% $5 $14 $24 $52 $5 $14 $24 $52
Small Cap
Value Fund
----------
Class I .50%4 .50%4 .22% .28% .11% .61% $16 $30 $45 $88 $11 $24 $39 $81
Class II .50%4 .50%4 .22% .22% .11% .55% $16 $28 $42 $81 $11 $23 $36 $74
Class III .50%4 .50%4 .22% .15% .11% .48% $15 $26 $38 $73 $10 $20 $32 $65
Small Cap
Growth Fund
-----------
Class I .50%4 .50%4 .27% .28% .06%12 .61% $16 $30 $11 $24
Class II .50%4 .50%4 .27% .22% .06%12 .55% $16 $28 $11 $23
Class III .50%4 .50%4 .27% .15% .06%12 .48% $15 $26 $10 $20
Fundamental
Value Fund
-----------
Class I .15%2 None .55% .28% .05% .88% $10 $30 $50 $110 $10 $30 $50 $110
Class II .15%2 None .55% .22% .05% .82% $10 $28 $47 $103 $10 $28 $47 $100
Class III .15%2 None .55% .15% .05% .75% $9 $25 $43 $94 $9 $25 $43 $94
REIT Fund
---------
Class I .75%4 .75%4 .28% .28% .26%12 .82% $24 $42 $16 $33
Class II .75%4 .75%4 .28% .22% .26%12 .76% $23 $40 $15 $32
Class III .75%4 .75%4 .28% .15% .26%12 .69% $22 $38 $15 $29
INTERNATIONAL EQUITY FUNDS
International
Core Fund
-------------
Class I .60%4 None .45%14 .28% .10%15 .83%14, $14 $32 $52 $108 $14 $32 $52 $108
15
Class II .60%4 None .45%14 .22% .10%15 .77%14, $14 $30 $49 $101 $14 $30 $49 $101
15
Class III .60%4 None .45%14 .15% .10%15 .70%14, $13 $28 $45 $93 $13 $28 $45 $93
15
</TABLE>
Footnotes begin on page 14 and are important to understanding this table.
Unless otherwise noted, Annual Operating Expenses shown are based on actual
expenses for the year ended February 29, 1996.
The purpose of the foregoing tables is to assist in understanding the various
costs and expenses of each Fund that are borne by holders of Fund shares. THE
FIVE PERCENT ANNUAL RETURN AND EXPENSE NUMBERS USED ARE NOT REPRESENTATIONS OF
FUTURE PERFORMANCE OR EXPENSES. SUBJECT TO THE MANAGER'S UNDERTAKING TO WAIVE
ITS FEE AND/OR BEAR CERTAIN EXPENSES FOR EACH FUND AS DESCRIBED IN THE TABLES,
ACTUAL PERFORMANCE AND/OR EXPENSES MAY BE MORE OR LESS THAN SHOWN. Where a
purchase premium and/or redemption fee is indicated as being charged by a Fund
in certain instances, the foregoing examples assume the payment of such purchase
premium and/or redemption fee even though such purchase premium and/or
redemption fee is not applicable in all cases. (See "Purchase of Shares" and
"Redemption of Shares").
-10-
<TABLE>
<CAPTION>
Shareholder
GMO Fund Name Transaction Expenses Annual Operating Expenses Examples
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
You would pay the
following expenses on
Cash Purchase Redemption Inv. a $1,000 investment You would pay the
Premium (as a Fees (as a Mgmt. Share- assuming 5% annual following expenses
percentage of percentage Fees holder TOTAL return with redemption on the same
amount of amount after Fee Service Other OPERATING at the end of each time investment assuming
invested)1 redeemed)1 Waiver9 Fee3 Expenses9 EXPENSES9 period: no redemption:
1Yr. 3Yr. 5Yr. 10Yr. 1Yr. 3Yr. 5Yr. 10Yr.
Class IV .60%4 None .45%14 .11% .10%15 .66%14, $13 $27 $43 $88 $13 $27 $43 $88
15
Class V .60%4 None .45%14 .07% .10%15 .62%14, $12 $26 $40 $83 $12 $26 $40 $83
15
Class VI .60%4 None .45%14 .04% .10%15 .59%14, $12 $25 $39 $79 $12 $25 $39 $79
15
Currency Hedged
International
Core Fund
---------------
Class I .60%4 None .41% .28% .13%12 .82% $14 $32 $14 $32
Class II .60%4 None .41% .22% .13%12 .76% $14 $30 $14 $30
Class III .60%4 None .41% .15% .13%12 .69% $13 $28 $13 $28
Foreign Fund
------------
Class I None None .44% .28% .16%12 .88% $9 $28 $9 $28
Class II None None .44% .22% .16%12 .82% $8 $26 $8 $26
Class III None None .44% .15% .16%12 .75% $8 $24 $8 $24
Global Fund
-----------
Class I None None .34% .28% .26%12 .88% $9 $28 $9 $28
Class II None None .34% .22% .26%12 .82% $8 $26 $8 $26
Class III None None .34% .15% .26%12 .75% $8 $24 $8 $24
International Small
Companies Fund
-------------------
Class I 1.00%4 .60%4 .41% .28% .20%15 .89%15 $25 $45 $66 $127 $19 $38 $59 $119
Class II 1.00%4 .60%4 .41% .22% .20%15 .83%15 $25 $43 $63 $120 $18 $36 $56 $112
Class III 1.00%4 .60%4 .41% .15% .20%15 .76%15 $24 $41 $59 $112 $18 $34 $52 $103
Japan Fund
----------
Class I .40%2 .61%2 .23%11 .28% .31% .82%11 $19 $37 $57 $114 $12 $30 $49 $105
Class II .40%2 .61%2 .23%11 .22% .31% .76%11 $18 $35 $54 $107 $12 $28 $46 $98
Class III .40%2 .61%2 .23%11 .15% .31% .69%11 $17 $33 $50 $99 $11 $26 $42 $90
Emerging Markets
Fund
----------------
Class I 1.60%5 .40%5,7 .77%16 .28% .37% 1.42%16 $34 $65 $97 $189 $30 $60 $92 $184
Class II 1.60%5 .40%5,7 .77%16 .22% .37% 1.36%16 $34 $63 $94 $183 $30 $58 $89 $177
Class III 1.60%5 .40%5,7 .77%16 .15% .37% 1.29%16 $33 $61 $90 $175 $29 $56 $86 $169
Class IV 1.60%5 .40%5,7 .77%16 .10% .37% 1.24%16 $32 $59 $87 $168 $28 $54 $83 $163
Class V 1.60%5 .40%5,7 .77%16 .05% .37% 1.19%16 $32 $57 $85 $163 $28 $53 $80 $157
</TABLE>
Footnotes begin on page 14 and are important to understanding this table.
Unless otherwise noted, Annual Operating Expenses shown are based on actual
expenses for the year ended February 29, 1996.
The purpose of the foregoing tables is to assist in understanding the various
costs and expenses of each Fund that are borne by holders of Fund shares. THE
FIVE PERCENT ANNUAL RETURN AND EXPENSE NUMBERS USED ARE NOT REPRESENTATIONS OF
FUTURE PERFORMANCE OR EXPENSES. SUBJECT TO THE MANAGER'S UNDERTAKING TO WAIVE
ITS FEE AND/OR BEAR CERTAIN EXPENSES FOR EACH FUND AS DESCRIBED IN THE TABLES,
ACTUAL PERFORMANCE AND/OR EXPENSES MAY BE MORE OR LESS THAN SHOWN. Where a
purchase premium and/or redemption fee is indicated as being charged by a Fund
in certain instances, the foregoing examples assume the payment of such purchase
premium and/or redemption fee even though such purchase premium and/or
redemption fee is not applicable in all cases. (See "Purchase of Shares" and
"Redemption of Shares").
-11-
<TABLE>
<CAPTION>
Shareholder
GMO Fund Name Transaction Expenses Annual Operating Expenses Examples
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
You would pay the
following expenses on
Cash Purchase Redemption Inv. a $1,000 investment You would pay the
Premium (as a Fees (as a Mgmt. Share- assuming 5% annual following expenses
percentage of percentage Fees holder TOTAL return with redemption on the same
amount of amount after Fee Service Other OPERATING at the end of each time investment assuming
invested)1 redeemed)1 Waiver9 Fee3 Expenses9 EXPENSES9 period: no redemption:
1Yr. 3Yr. 5Yr. 10Yr. 1Yr. 3Yr. 5Yr. 10Yr.
Class VI 1.60%5 .40%5, 7 .77%16 .02% .37% 1.16%16 $32 $56 $83 $159 $28 $52 $78 $154
Global Properties
Fund
-----------------
Class I .60%19 .30%19 .48% .28% .24%12 1.00% $19 $41 $16 $38
Class II .60%19 .30%19 .48% .22% .24%12 .94% $19 $39 $16 $36
Class III .60%19 .30%19 .48% .15% .24%12 .87% $18 $37 $15 $34
FIXED INCOME FUNDS
Short-Term Income
Fund
-----------------
Class III None None .00%13 .15% .05% .20%13 $2 $6 $11 $26 $2 $6 $11 $26
Global Hedged
Equity Fund
- -------------
Class I .50%4 1.40%6 .44% .28% .19% .91% $29 $50 $72 $137 $14 $34 $55 $116
Class II .50%4 1.40%6 .44% .22% .19% .85% $28 $48 $69 $130 $14 $32 $52 $109
Class III .50%4 1.40%6 .44% .15% .19% .78% $27 $46 $65 $122 $13 $30 $48 $101
Domestic Bond Fund
------------------
Class I None None .04% .28% .06% .38% $4 $12 $21 $48 $4 $12 $21 $48
Class II None None .04% .22% .06% .32% $3 $10 $18 $41 $3 $10 $18 $41
Class III None None .04% .15% .06% .25% $3 $8 $14 $32 $3 $8 $14 $32
International Bond
Fund
------------------
Class I .15%5 None .12% .28% .13% .53% $7 $18 $31 $68 $7 $18 $31 $68
Class II .15%5 None .12% .22% .13% .47% $6 $17 $28 $61 $6 $17 $28 $61
Class III .15%5 None .12% .15% .13% .40% $6 $14 $24 $52 $6 $14 $24 $52
Currency Hedged
International Bond Fund
-----------------------
Class I .15%5 None .11% .28% .14% .53% $7 $18 $31 $68 $7 $18 $31 $68
Class II .15%5 None .11% .22% .14% .47% $6 $17 $28 $61 $6 $17 $28 $61
Class III .15%5 None .11% .15% .14% .40% $6 $14 $24 $52 $6 $14 $24 $52
Global Bond Fund
----------------
Class I .15%5 None .00% .28% .19%12 .47% $6 $17 $28 $61 $6 $17 $28 $61
Class II .15%5 None .00% .22% .19%12 .41% $6 $15 $24 $53 $6 $15 $24 $53
Class III .15%5 None .00% .15% .19%12 .34% $5 $12 $21 $45 $5 $12 $21 $45
</TABLE>
Footnotes begin on page 14 and are important to understanding this table.
Unless otherwise noted, Annual Operating Expenses shown are based on actual
expenses for the year ended February 29, 1996.
The purpose of the foregoing tables is to assist in understanding the various
costs and expenses of each Fund that are borne by holders of Fund shares. THE
FIVE PERCENT ANNUAL RETURN AND EXPENSE NUMBERS USED ARE NOT REPRESENTATIONS OF
FUTURE PERFORMANCE OR EXPENSES. SUBJECT TO THE MANAGER'S UNDERTAKING TO WAIVE
ITS FEE AND/OR BEAR CERTAIN EXPENSES FOR EACH FUND AS DESCRIBED IN THE TABLES,
ACTUAL PERFORMANCE AND/OR EXPENSES MAY BE MORE OR LESS THAN SHOWN. Where a
purchase premium and/or redemption fee is indicated as being charged by a Fund
in certain instances, the foregoing examples assume the payment of such purchase
premium and/or redemption fee even though such purchase premium and/or
redemption fee is not applicable in all cases. (See "Purchase of Shares" and
"Redemption of Shares").
-12-
<TABLE>
<CAPTION>
Shareholder
GMO Fund Name Transaction Expenses Annual Operating Expenses Examples
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
You would pay the
following expenses on
Cash Purchase Redemption Inv. a $1,000 investment You would pay the
Premium (as a Fees (as a Mgmt. Share- assuming 5% annual following expenses
percentage of percentage Fees holder TOTAL return with redemption on the same
amount of amount after Fee Service Other OPERATING at the end of each time investment assuming
invested)1 redeemed)1 Waiver9 Fee3 Expenses9 EXPENSES9 period: no redemption:
1Yr. 3Yr. 5Yr. 10Yr. 1Yr. 3Yr. 5Yr. 10Yr.
Emerging Country
Debt Fund
----------------
Class I .50%5 .25%5, 8 .30%10 .28% .16% .74%10 $15 $31 $49 $100 $13 $29 $46 $96
Class II .50%5 .25%5, 8 .30%10 .22% .16% .68%10 $15 $29 $46 $93 $12 $27 $43 $89
Class III .50%5 .25%5, 8 .30%10 .15% .16% .61%10 $14 $27 $42 $85 $11 $24 $39 $81
Inflation Indexed
Bond Fund
-----------------
Class I .10% .10% .00% .28% .13%12 .38% $6 $14 $5 $13
Class II .10% .10% .00% .22% .13%12 .32% $5 $12 $4 $11
Class III .10% .10% .00% .15% .13%12 .25% $5 $10 $4 $9
ASSET ALLOCATION FUNDS
International Equity
Allocation Fund
--------------------
Class I .80%17 .10%17 .00%18 .13%18 .00%18 .13%18 $11 $15 $10 $14
Class II .80%17 .10%17 .00%18 .07%18 .00%18 .07%18 $10 $13 $9 $12
Class III .80%17 .10%17 .00%18 .00%18 .00%18 .00%18 $10 $11 $9 $10
World Equity
Allocation Fund
---------------
Class I .69%17 .09%17 .00%18 .13%18 .00%18 .13%18 $9 $14 $10 $13
Class II .69%17 .09%17 .00%18 .07%18 .00%18 .07%18 $9 $12 $8 $11
Class III .69%17 .09%17 .00%18 .00%18 .00%18 .00%18 $8 $10 $7 $9
Global (U.S.+) Equity
Allocation Fund
---------------------
Class I .42%17 .05%17 .00%18 .13%18 .00%18 .13%18 $7 $11 $6 $10
Class II .42%17 .05%17 .00%18 .07%18 .00%18 .07%18 $6 $9 $5 $8
Class III .42%17 .05%17 .00%18 .00%18 .00%18 .00%18 $5 $6 $5 $6
Global Balanced
Allocation Fund
---------------
Class I .31%17 .03%17 .00%18 .13%18 .00%18 .13%18 $5 $9 $5 $9
Class II .31%17 .03%17 .00%18 .07%18 .00%18 .07%18 $5 $7 $4 $7
Class III .31%17 .03%17 .00%18 .00%18 .00%18 .00%18 $4 $5 $4 $5
</TABLE>
Footnotes begin on page 14 and are important to understanding this table.
Unless otherwise noted, Annual Operating Expenses shown are based on actual
expenses for the year ended February 29, 1996.
The purpose of the foregoing tables is to assist in understanding the various
costs and expenses of each Fund that are borne by holders of Fund shares. THE
FIVE PERCENT ANNUAL RETURN AND EXPENSE NUMBERS USED ARE NOT REPRESENTATIONS OF
FUTURE PERFORMANCE OR EXPENSES. SUBJECT TO THE MANAGER'S UNDERTAKING TO WAIVE
ITS FEE AND/OR BEAR CERTAIN EXPENSES FOR EACH FUND AS DESCRIBED IN THE TABLES,
ACTUAL PERFORMANCE AND/OR EXPENSES MAY BE MORE OR LESS THAN SHOWN. Where a
purchase premium and/or redemption fee is indicated as being charged by a Fund
in certain instances, the foregoing examples assume the payment of such purchase
premium and/or redemption fee even though such purchase premium and/or
redemption fee is not applicable in all cases. (See "Purchase of Shares" and
"Redemption of Shares").
-13-
NOTES TO SCHEDULE OF FEES AND EXPENSES
1. Purchase premiums and redemption fees apply only to cash transactions
as set forth under "Purchase of Shares" and "Redemption of Shares"
respectively. These fees are paid to and retained by the Fund itself
and are designed to allocate transaction costs caused by shareholder
activity to the shareholder generating the activity, rather than to the
Fund as a whole. As described in greater detail in footnotes below, for
certain Funds the Manager may reduce purchase premiums and/or
redemption fees if the Manager determines there are minimal brokerage
and/or other transaction costs caused by the purchase or occur under
redemption. Generally, however, these fees are not waivable even when
there are offsetting transactions.
Normally, no purchase premium is charged with respect to in-kind
purchases of Fund shares. However, in the case of in-kind purchases
involving transfers of large positions in markets where the costs of
re-registration and/or other transfer expenses are high, the
International Core Fund, Currency Hedged International Core Fund,
International Small Companies Fund, Japan Fund and Global Hedged Equity
Fund may each charge a premium of 0.10%, and the Emerging Markets Fund
may charge a premium of 0.20%.
2. The Manager may waive purchase premiums and/or redemption fees for this
Fund if there are minimal brokerage and transaction costs incurred in
connection with a transaction.
3. Shareholder Service Fee ("SSF") paid to GMO for providing client
services and reporting services. For Class III Shares, the SSF is 0.15%
of daily net assets. Class III Shares are a redesignation of the single
class of shares that has been offered by each Fund since inception.
Total Operating Expenses for Class III Shares are capped at the same
levels as for the single class of shares that existed prior to such
redesignation and the creation of additional classes. The expense caps
are detailed in footnote 9 below.
The level of SSF is the sole economic distinction between the various
classes of Fund shares. A lower SSF for larger investments reflects
that the cost of servicing client accounts is lower for larger accounts
when expressed as a percentage of the account. See "Multiple Classes
Shareholder Service Fees" for more information.
4. After May 31, 1996, the purchase premium and/or redemption fee for this
Fund may not be waived in any circumstance. Accordingly, the amount of
the stated purchase premium and/or redemption fee is lower than the
premium or fee charged prior to May 31, 1996, when the charges could be
waived if, generally due to offsetting transactions, a purchase or
redemption resulted in minimal brokerage and/or other transaction
costs. The new approach allows all purchasers or sellers to benefit
proportionately by offsetting transactions and other circumstances that
mitigate transaction costs, rather than tracking the savings back to
the particular buyers and sellers.
5. After May 31, 1996, the stated purchase premium and/or redemption fee
will always be charged in full except that the relevant purchase
premium or redemption fee will be reduced by 50% with respect to any
portion of a purchase or redemption that is offset by a corresponding
redemption or purchase, respectively, occurring on the same day. The
Manager examines each purchase and redemption of shares eligible for
such treatment to determine if circumstances exist to waive a portion
of the purchase premium or redemption fee. Absent a clear determination
that transaction costs will be reduced or absent for the purchase or
redemption, the full premium or fee will be charged.
6. May be eliminated if it is not necessary to incur costs relating to the
early termination of hedging transactions to meet redemption requests.
7. Applies only to shares acquired on or after June 1, 1995 (including
shares acquired by reinvestment of dividends or other distributions on
or after such date).
8. Applies only to shares acquired on or after July 1, 1995 (including
shares acquired by reinvestment of dividends or other distributions on
or after such date).
9. The Manager has voluntarily undertaken to reduce its management fees
and to bear certain expenses with respect to each Fund until further
notice to the extent that a Fund's total annual operating expenses
(excluding Shareholder Service Fees, brokerage commissions and other
investment-related costs, hedging transaction fees, extraordinary,
non-recurring and certain other unusual expenses (including taxes),
securities lending fees and expenses and transfer taxes; and, in the
case of the Emerging Markets Fund, Emerging Country Debt Fund, Global
Hedged Equity Fund and Global Properties Fund, excluding custodial
fees; and, in the case of the Asset Allocation Funds, excluding
expenses indirectly incurred by investment in other Funds of the Trust)
would otherwise exceed the percentage of that Fund's daily net assets
specified below. Therefore, so long as the
-14-
Manager agrees so to reduce its fees and bear certain expenses, total
annual operating expenses (subject to such exclusions) of the Fund will
not exceed these stated limitations. Absent such undertakings,
management fees for each Fund and the annual operating expenses for
each class would be as shown below.
<TABLE>
<CAPTION>
Total Class
Voluntary Management Operating Expenses
Expense Fee (Absent (Absent Waiver)
Fund Limit Waiver)
- ------------------------------------------------------------------------------------------------------------------------------------
Class I Class II Class III Class IV Class V Class VI
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Core Fund .33% .525% .835% .775% .705% .675% .645% .625%
Tobacco-Free Core Fund .33% .50% .96% .90% .83% -- -- --
Value Fund .46% .70% 1.03% .97% .90% .87% .84% .82%
Growth Fund .33% .50% .83% .77% .70% .67% .64% .62%
U.S. Sector Fund .33% .49% .83% .77% .70% .67% .64% .62%
Small Cap Value Fund .33% .50% .89% .83% .76% -- -- --
Fundamental Value Fund .60% .75% 1.08% 1.02% .95% -- -- --
REIT Fund .54% .75% 1.29% 1.23% 1.16% -- -- --
Small Cap Growth Fund .33% .50% .84% .78% .71% -- -- --
International Core Fund .54% .75% 1.13% 1.07% 1.00% .96% .92% .89%
Currency Hedged International Core .54% .75% 1.16% 1.10% 1.03% -- -- --
Fund
Foreign Fund .60% .75% 1.19% 1.13% 1.06% -- -- --
Global Fund .60% .75% 1.29% 1.23% 1.16% -- -- --
International Small Companies Fund .60% 1.25% 1.73% 1.67% 1.60% -- -- --
Japan Fund .54% .75% 1.34% 1.28% 1.21% -- -- --
Emerging Markets Fund .81% 1.00% 1.65% 1.59% 1.52% 1.47% 1.42% 1.39%
Global Properties Fund .60% .75% 1.27% 1.21% 1.14% -- -- --
Short-Term Income Fund .05% .25% -- -- .45% -- -- --
Global Hedged Equity Fund .50% .65% 1.12% 1.06% .99% -- -- --
Domestic Bond Fund .10% .25% .59% .53% .46% -- -- --
International Bond Fund .25% .40% .81% .75% .68% -- -- --
Currency Hedged International Bond .25% .50% .92% .86% .79% -- -- --
Fund
Global Bond Fund .19% .35% .82% .76% .69% -- -- --
Emerging Country Debt Fund .35% .50% .94% .88% .81% -- -- --
Inflation Indexed Bond Fund .10% .25% .66% .60% .53% -- -- --
International Equity Allocation Fund .05% .00% .29% .23% .16% -- -- --
World Equity Allocation Fund .05% .00% .29% .23% .16% -- -- --
Global (U.S.+) Equity Allocation Fund .05% .00% .29% .23% .16% -- -- --
Global Balanced Allocation Fund .05% .00% .29% .23% .16% -- -- --
</TABLE>
10. Figure based on actual expenses for the fiscal year ended February 29,
1996, but restated to give effect to a change in the fee waiver and/or
expense limitation of the Fund, which change was effective as of March
1, 1996.
11. Figure based on actual expenses for the fiscal year ended February 29,
1996, but restated to give effect to a change in the fee waiver and/or
expense limitation of the Fund, which change was effective as of March
14, 1996.
12. Based on estimated amounts for the Fund's first fiscal year.
13. Figure based on actual expenses for the fiscal year ended February 29,
1996, but restated to give effect to a change in the fee waiver and/or
expense limitation of the Fund, which change was effective as of
February 7, 1996.
14. Figure based on actual expenses for the fiscal year ended February 29,
1996, but restated to give effect to a change in the fee waiver and/or
expense limitation of the Fund, which change was effective as of June
27, 1995.
-15-
15. Includes a nonrecurring expense incurred during the fiscal year ended
February 29, 1996.
16. Figure based on actual expenses for the fiscal year ended February 29,
1996, but restated to give effect to a change in the fee waiver and/or
expense limitation of the Fund, which change was effective as of May
31, 1996.
17. Effective October 16, 1996, each of the Asset Allocation Funds began
charging purchase premiums and redemption fees for cash transactions.
This is done to ensure that the costs of purchase premiums or
redemption fees paid to underlying Funds caused by shareholder
transactions in the Asset Allocation Funds is paid by the shareholders
generating the transactions, rather than by the other Asset Allocation
Fund shareholders. This is consistent with the purpose of all of the
Trust's purchase premiums and redemption fees.
Each of the Asset Allocation Funds invests in various other Funds with
different levels of purchase premiums and redemption fees, which
reflect the trading costs of different asset classes. Therefore, the
purchase premium and redemption fee of each Asset Allocation Fund has
initially been computed as the weighted average of the premiums and
fees, respectively, of the underlying Funds in which the Asset
Allocation Fund is invested, based on actual investments by each Asset
Allocation Fund as of October 8, 1996. The amount of purchase premium
and redemption fee for each Asset Allocation Fund will be adjusted
approximately annually based on underlying Funds owned by each Asset
Allocation Fund during the prior year. The Manager may, but is not
obligated to, adjust the purchase premium and/or redemption fee for an
Asset Allocation Fund more frequently if the Manager believes in its
discretion that circumstances warrant. For more information concerning
which underlying Funds a particular Asset Allocation Fund may invest
in, see "Investment Objectives and Policies -- Asset Allocation Funds."
18. Asset Allocation Funds invest primarily in other Funds of the Trust
(referred to here as "underlying Funds"). Therefore, in addition to the
fees and expenses directly incurred by the Asset Allocation Funds
(which are shown in the Schedule of Fees and Expenses), the Asset
Allocation Funds will also incur fees and expenses indirectly as
shareholders of the underlying Funds. Because the underlying Funds have
varied expense and fee levels and the Allocation Funds may own
different proportions of underlying Funds at different times, the
amount of fees and expenses indirectly incurred by the Asset Allocation
Funds will vary. The Manager believes that, under normal market
conditions, the total amount of fees and expenses that will be
indirectly incurred by the Asset Allocation Funds because of investment
in underlying Funds will fall within the ranges set forth below:
- --------------------------------------------------------------------------------
Fund Low Typical High
- --------------------------------------------------------------------------------
International Equity Allocation Fund .76% .83% .89%
World Equity Allocation Fund .68% .75% .85%
Global (U.S.+) Equity Allocation Fund .57% .63% .74%
Global Balanced Allocation Fund .48% .57% .69%
- --------------------------------------------------------------------------------
19. It is expected that the purchase premiums and redemption fees for this
Fund will be eliminated once the net assets of the Fund exceed $100
million. However, even thereafter, the Fund will reserve the right to
charge a purchase premium of up to 0.60% and a redemption fee of up to
0.30% on purchases or redemptions of amounts that are equal to or
greater than 5% of the Fund's net assets.
-16-
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
DOMESTIC EQUITY FUNDS
- ---------------------
CORE FUND
<TABLE>
<CAPTION>
CLASS I CLASS II CLASS III
------- -------- -------------------------------------------------------------
PERIOD FROM PERIOD FROM
JULY 2, 1996 JUNE 7, 1996
(COMMENCEMENT (COMMENCEMENT SIX MONTHS
OF OPERATIONS) TO OF OPERATIONS)TO ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 1996 AUGUST 31, 1996 AUGUST 31, 1996 -----------------------------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) 1996 1995 1994 1993
----------- ----------- ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 18.97 $ 20.12 $ 19.46 $ 15.45 $ 15.78 $ 15.73 $ 15.96
----------- ----------- ---------- --------- ---------- ---------- --------
Income (loss) from investment operations:
Net investment income2 0.04 0.07 0.18 0.41 0.41 0.42 0.45
Net realized and unrealized gain
(loss) on investments (0.67) (0.60) 0.04 5.49 0.66 1.59 1.13
----------- ----------- ---------- --------- ---------- ---------- --------
Total from investment
operations (0.63) (0.53) 0.22 5.90 1.07 2.01 1.58
----------- ----------- ---------- --------- ---------- ---------- --------
Less distributions to
shareholders:
From net investment
income -- (0.10) (0.19) (0.42) (0.39) (0.43) (0.46)
From net realized gains -- (1.16) (1.16) (1.47) (1.01) (1.53) (1.35)
----------- ----------- ---------- --------- ---------- ---------- --------
Total distributions -- (1.26) (1.35) (1.89) (1.40) (1.96) (1.81)
----------- ----------- ---------- --------- ---------- ---------- --------
Net asset value, end of period $ 18.34 $ 18.33 $ 18.33 $ 19.46 $ 15.45 $ 15.78 $ 15.73
=========== ========= ========== ========== ========== ========== =========
Total Return3 (3.32)% (2.89)% 0.89% 39.08% 7.45% 13.36% 10.57%
Ratios/Supplemental Data:
Net assets, end of period
(000's) $ 5,996 $ 25,377 $3,015,902 $3,179,314 $2,309,248 $1,942,005 $1,892,955
Net expenses to average
daily net assets2 0.61%4 0.55%4 0.48%4 0.48% 0.48% 0.48% 0.49%
Net investment income to
average daily net assets2 1.38%4 1.40%4 1.85%4 2.25% 2.63% 2.56% 2.79%
Portfolio turnover rate 35% 35% 35% 77% 99% 40% 54%
Average commission rate paid $ 0.0306 $ 0.0306 $ 0.0306 N/A N/A N/A N/A
1 The per share amounts have been restated to reflect a ten for one split
effective December 31, 1990.
2 Net of fees and expenses voluntarily waived or borne by the Manager of $.01
per share for each period presented.
3 Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
4 Annualized.
</TABLE>
<TABLE>
<CAPTION>
CLASS III
- --------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28/29,
- --------------------------------------------------------------------------------
1992 19911 19901 19891 19881 19871
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
$ 15.13 $ 13.90 $ 14.47 $ 13.43 $ 15.24 $ 12.64
---------- ---------- ---------- ---------- ---------- --------
0.43 0.43 0.65 0.54 0.45 0.34
1.55 1.74 2.43 0.96 (0.92) 3.15
---------- ---------- ---------- ---------- ---------- --------
1.98 2.17 3.08 1.50 (0.47) 3.49
---------- ---------- ---------- ---------- ---------- --------
(0.42) (0.51) (0.70) (0.46) (0.38) (0.46)
(0.73) (0.43) (2.95) -- (0.96) (0.43)
---------- ---------- ---------- ---------- ---------- --------
(1.15) (0.94) (3.65) (0.46) (1.34) (0.89)
---------- ---------- ---------- ---------- ---------- --------
$ 15.96 $ 15.13 $ 13.90 $ 14.47 $ 13.43 $ 15.24
========== ========== ========== ========== ========== ========
13.62% 16.52% 21.19% 11.49% (3.20)% 28.89%
$2,520,710 $1,613,945 $1,016,965 $1,222,115 $1,010,014 $909,394
0.50% 0.50% 0.50% 0.50% 0.52% 0.53%
2.90% 3.37% 3.84% 4.02% 3.23% 3.06%
39% 55% 72% 51% 46% 75%
N/A N/A N/A N/A N/A N/A
</TABLE>
17
TOBACCO-FREE CORE FUND
<TABLE>
<CAPTION>
CLASS III
-----------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 1996 ----------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 19921
----------- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.93 $ 10.65 $ 11.07 $ 11.35 $ 10.50 $ 10.00
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income2 0.12 0.28 0.23 0.34 0.31 0.12
Net realized and unrealized gain on
investments 0.074 3.71 0.50 1.18 0.84 0.44
------- ------- ------- ------- ------- -------
Total from investment operations 0.19 3.99 0.73 1.52 1.15 0.56
------- ------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.12) (0.25) (0.28) (0.35) (0.30) (0.06)
From net realized gains (1.04) (1.46) (0.87) (1.45) -- --
------- ------- ------- ------- ------- -------
Total distributions (1.16) (1.71) (1.15) (1.80) (0.30) (0.06)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 11.96 $ 12.93 $ 10.65 $ 11.07 $ 11.35 $ 10.50
======= ======= ======= ======= ======= =======
Total Return3 1.18% 38.64% 7.36% 14.12% 11.20% 5.62%
Ratios/Supplemental Data:
Net assets, end of period (000's) $54,011 $57,485 $47,969 $55,845 $85,232 $75,412
Net expenses to average daily net assets2 0.48%5 0.48% 0.48% 0.48% 0.49% 0.49%5
Net investment income to average daily
net assets2 1.87%5 2.25% 2.52% 2.42% 2.88% 3.77%5
Portfolio turnover rate 49% 81% 112% 38% 56% 0%
Average commission rate paid $0.0278 N/A N/A N/A N/A N/A
1 For the period from the commencement of operations, October 31, 1991 to
February 29, 1992.
2 Net of fees and expenses voluntarily waived or borne by the Manager of $.02,
$.03, $.03, $.03, $.02 and $.01 per share for the six months ended August 31,
1996, for the fiscal years ended 1996, 1995, 1994, and 1993 and for the period
ended February 29, 1992, respectively.
3 Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
4 The amount shown for a share outstanding does not correspond with the
aggregate net realized and unrealized gain (loss) on investments for the
period ended August 31, 1996 due to the timing of purchases and redemptions of
Fund shares in relation to fluctuating market values of the investments of the
Fund.
5 Annualized.
</TABLE>
Except as otherwise noted, the above information has been audited by Price
Waterhouse LLP, independent accountants. This statement should be read in
conjunction with the other audited financial statements and related notes which
are included in the Trust's Annual Reports and unaudited financial statements
and related notes which are included in the Trust's Semi-Annual Reports, each of
which are incorporated by reference in the Trust's Statement of Additional
Information. Information is presented for each Fund, and class of shares
thereof, of the Trust which had investment operations during the reporting
periods. Information regarding Class III Shares of each Fund reflects the
operational history for each such Fund's sole outstanding class prior to the
creation of multiple classes of such Funds on May 31, 1996.
18
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
VALUE FUND
<TABLE>
<CAPTION>
CLASS III SHARES
-----------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 1996 ---------------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992 19911
----------- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 14.25 $ 12.05 $ 13.48 $ 13.50 $ 12.94 $ 12.25 $ 10.00
-------- -------- -------- -------- ---------- -------- --------
Income from investment
operations:
Net investment income2 0.16 0.39 0.41 0.43 0.38 0.40 0.12
Net realized and unrealized
gain on
investments (0.03) 3.71 0.32 1.27 0.98 1.11 2.16
-------- -------- -------- -------- ---------- -------- --------
Total from investment
operations 0.13 4.10 0.73 1.70 1.36 1.51 2.28
-------- -------- -------- -------- ---------- -------- --------
Less distributions to
shareholders:
From net investment income (0.16) (0.39) (0.45) (0.40) (0.38) (0.41) (0.03)
From net realized gains (0.97) (1.51) (1.71) (1.32) (0.42) (0.41) --
-------- -------- -------- -------- ---------- -------- --------
Total distributions (1.13) (1.90) (2.16) (1.72) (0.80) (0.82) (0.03)
-------- -------- -------- -------- ---------- -------- --------
Net asset value, end of period $ 13.25 $ 14.25 $ 12.05 $ 13.48 $ 13.50 $ 12.94 $ 12.25
======== ======== ======== ======== ========== ======== ========
Total Return3 0.69% 35.54% 6.85% 13.02% 11.01% 12.96% 22.85%
Ratios/Supplemental Data:
Net assets, end of period
(000's) $314,418 $317,612 $350,694 $679,532 $1,239,536 $644,136 $190,664
Net expenses to average daily
net assets 2 0.61%4 0.61% 0.61% 0.61% 0.62% 0.67% 0.70%4
Net investment income to
average daily net assets2 2.32%4 2.66% 2.86% 2.70% 3.15% 3.75% 7.89%4
Portfolio turnover rate 25% 65% 77% 35% 50% 41% 23%
Average commission rate paid $ 0.0486 N/A N/A N/A N/A N/A N/A
1 For the period from the commencement of operations, November 14,1990 to
February 28, 1991.
2 Net of fees and expenses voluntarily waived or borne by the Manager of $.01,
$.02, $.02, $.02, $.01, $.01 and $.01 per share for the six months ended
August 31, 1996, for the fiscal years ended 1996, 1995, 1994, 1993, and 1992
and for the period ended February 28, 1991, respectively.
3 Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
4 Annualized.
</TABLE>
GROWTH FUND
<TABLE>
<CAPTION>
CLASS III SHARES
--------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 1996 --------------------------------------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992 1991 1990 19891
----------- ---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 5.65 $ 4.45 $ 4.14 $ 4.55 $ 5.82 $ 14.54 $ 12.64 $ 10.49 $ 10.00
-------- -------- -------- -------- -------- -------- ---------- -------- -------
Income from investment
operations:
Net investment
income2 0.04 0.08 0.06 0.06 0.07 0.19 0.25 0.26 0.03
Net realized and
unrealized gain on
investments 0.12 1.54 0.38 0.11 0.17 1.63 2.61 2.40 0.46
-------- -------- -------- -------- -------- -------- ---------- -------- -------
Total from
investment
operations 0.16 1.62 0.44 0.17 0.24 1.82 2.86 2.66 0.49
-------- -------- -------- -------- -------- -------- ---------- -------- -------
Less distributions to
shareholders:
From net investment
income (0.05) (0.07) (0.06) (0.06) (0.08) (0.23) (0.25) (0.23) --
From net realized
gains (0.43) (0.35) (0.07) (0.52) (1.43) (10.31) (0.71) (0.28) --
-------- -------- -------- -------- -------- -------- ---------- -------- -------
Total distributions (0.48) (0.42) (0.13) (0.58) (1.51) (10.54) (0.96) (0.51) --
-------- -------- -------- -------- -------- -------- ---------- -------- -------
Net asset value, end
of period $ 5.33 $ 5.65 $ 4.45 $ 4.14 $ 4.55 $ 5.82 $ 14.54 $ 12.64 $ 10.49
======== ======== ======== ======== ======== ======== ========== ======== =======
Total Return3 2.43% 37.77% 10.86% 4.13% 3.71% 20.47% 24.24% 25.35% 4.90%
Ratios/Supplemental
Data:
Net assets, end of
period (000's) $321,551 $391,366 $239,006 $230,698 $168,143 $338,439 $1,004,345 $823,891 $291,406
Net expenses to
average daily net
assets2 0.48%4 0.48% 0.48% 0.48% 0.49% 0.50% 0.50% 0.50% 0.08%
Net investment income
to average daily
net assets2 1.35%4 1.54% 1.50% 1.38% 1.15% 1.38% 1.91% 2.34% 0.52%
Portfolio turnover
rate 33% 76% 139% 57% 36% 46% 45% 57% 0%
Average commission
rate paid $ 0.0308 N/A N/A N/A N/A N/A N/A N/A N/A
1 For the period from the commencement of operations, December 28, 1988 to
February 28, 1989.
2 Net of fees and expenses voluntarily waived or borne by the Manager of less
than $.01 per share for each period presented.
3 Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
4 Annualized.
</TABLE>
Except as otherwise noted, the above information has been audited by Price
Waterhouse LLP, independent accountants. This statement should be read in
conjunction with the other audited financial statements and related notes which
are included in the Trust's Annual Reports and unaudited financial statements
and related notes which are included in the Trust's Semi-Annual Reports, each of
which are incorporated by reference in the Trust's Statement of Additional
Information. Information is presented for each Fund, and class of shares
thereof, of the Trust which had investment operations during the reporting
periods. Information regarding Class III Shares of each Fund reflects the
operational history for each such Fund's sole outstanding class prior to the
creation of multiple classes of such Funds on May 31, 1996.
19
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
U.S. SECTOR FUND
<TABLE>
<CAPTION>
CLASS III SHARES
---------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 1996 ---------------------------------------------
(UNAUDITED) 1996 1995 1994 19931
----------- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.63 $ 11.06 $ 11.26 $ 10.38 $ 10.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income2 0.12 0.29 0.28 0.29 0.05
Net realized and unrealized gain on investments 0.09 3.90 0.49 1.21 0.33
-------- -------- -------- -------- --------
Total from investment operations 0.21 4.19 0.77 1.50 0.38
-------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.14) (0.29) (0.27) (0.30) --
From net realized gains (1.96) (1.33) (0.70) (0.32) --
-------- -------- -------- -------- --------
Total distributions (2.10) (1.62) (0.97) (0.62) --
-------- -------- -------- -------- --------
Net asset value, end of period $ 11.74 $ 13.63 $ 11.06 $ 11.26 $ 10.38
======== ======== ======== ======== ========
Total Return3 1.05% 38.90% 7.56% 14.64% 3.80%
Ratios/Supplemental Data:
Net assets, end of period (000's) $225,508 $211,319 $207,291 $167,028 $169,208
Net expenses to average daily net assets2 0.48%4 0.48% 0.48% 0.48% 0.48%4
Net investment income to average daily net assets2 1.90%4 2.27% 2.61% 2.56% 3.20%4
Portfolio turnover rate 48% 84% 101% 53% 9%
Average commission rate paid $ 0.0286 N/A N/A N/A N/A
1 For the period from the commencement of operations, January 4, 1993 to
February 28, 1993.
2 Net of fees and expenses voluntarily waived or borne by the Manager of $.01
per share for each period presented.
3 Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
4 Annualized.
</TABLE>
SMALL CAP VALUE FUND*
<TABLE>
<CAPTION>
CLASS III
---------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 1996 ---------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 19921
----------- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.89 $ 13.61 $ 14.31 $ 12.68 $ 11.12 $ 10.00
-------- -------- -------- -------- -------- -------
Income from investment operations:
Net investment income2 0.15 0.23 0.20 0.21 0.22 0.04
Net realized and unrealized gain 0.49 3.20 0.34 2.14 1.59 1.08
-------- -------- -------- -------- -------- -------
Total from investment operations 0.64 3.43 0.54 2.35 1.81 1.12
-------- -------- -------- -------- -------- -------
Less distributions to shareholders:
From net investment income (0.13) (0.23) (0.20) (0.22) (0.21) --
From net realized gains (0.23) (2.92) (1.04) (0.50) (0.04) --
-------- -------- -------- -------- -------- -------
Total distributions (0.36) (3.15) (1.24) (0.72) (0.25) 0.00
-------- -------- -------- -------- -------- -------
Net asset value, end of period $ 14.17 $ 13.89 $ 13.61 $ 14.31 $ 12.68 $ 11.12
======== ======== ======== ======== ======== =======
Total Return3 4.57% 27.18% 4.48% 18.97% 16.46% 11.20%
Ratios/Supplemental Data:
Net assets, end of period (000's) $330,377 $231,533 $235,781 $151,286 $102,232 $58,258
Net expenses to average daily net assets2 0.48%4 0.48% 0.48% 0.48% 0.49% 0.49%4
Net investment income to average daily
net assets2 2.24%4 1.67% 1.55% 1.66% 2.02% 2.19%4
Portfolio turnover rate 5% 135% 54% 30% 3% 0%
Average commission rate paid $ 0.0309 N/A N/A N/A N/A N/A
1 For the period from commencement of operations, December 31, 1991 to February
29, 1992.
2 Net of fees and expenses voluntarily waived or borne by the Manager of $0.01,
$0.02, $0.01, $0.02, $0.02 and $0.01 per share for the six months ended August
31, 1996, for the fiscal years ended 1996, 1995, 1994 and 1993 and for the
period ended February 29, 1992, respectively.
3 Calculation excludes purchase premiums and redemption fees. The total returns
would have been lower had certain expenses not been waived during the periods
shown.
4 Annualized.
* Effective December 1, 1996, the "GMO Core II Secondaries Fund" has been
renamed the "GMO Small Cap Value Fund."
</TABLE>
Except as otherwise noted, the above information has been audited by Price
Waterhouse LLP, independent accountants. This statement should be read in
conjunction with the other audited financial statements and related notes which
are included in the Trust's Annual Reports and unaudited financial statements
and related notes which are included in the Trust's Semi-Annual Reports, each of
which are incorporated by reference in the Trust's Statement of Additional
Information. Information is presented for each Fund, and class of shares
thereof, of the Trust which had investment operations during the reporting
periods. Information regarding Class III Shares of each Fund reflects the
operational history for each such Fund's sole outstanding class prior to the
creation of multiple classes of such Funds on May 31, 1996.
20
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
FUNDAMENTAL VALUE FUND
<TABLE>
<CAPTION>
CLASS III SHARES
--------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 1996 ---------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 19921
----------- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.04 $ 12.54 $ 12.49 $ 11.71 $ 10.82 $ 10.00
-------- -------- -------- -------- ------- -------
Income from investment operations:
Net investment income2 0.18 0.37 0.34 0.27 0.30 0.11
Net realized and unrealized gain on
investments 0.03 3.26 0.55 1.64 1.32 0.77
-------- -------- -------- -------- ------- -------
Total from investment operations 0.21 3.63 0.89 1.91 1.62 0.88
-------- -------- -------- -------- ------- -------
Less distributions to shareholders:
From net investment income (0.15) (0.37) (0.32) (0.28) (0.30) (0.06)
From net realized gains (0.63) (0.76) (0.52) (0.85) (0.43) --
-------- -------- -------- -------- ------- -------
Total distributions (0.78) (1.13) (0.84) (1.13) (0.73) (0.06)
-------- -------- -------- -------- ------- -------
Net asset value, end of period $ 14.47 $ 15.04 $ 12.54 $ 12.49 $ 11.71 $ 10.82
======== ======== ======== ======== ======= =======
Total Return3 1.29% 29.95% 7.75% 16.78% 15.66% 8.87%
Ratios/Supplemental Data:
Net assets, end of period (000's) $203,243 $212,428 $182,871 $147,767 $62,339 $32,252
Net expenses to average daily net assets2 0.75%4 0.75% 0.75% 0.75% 0.73% 0.62%4
Net investment income to average daily
net assets2 2.35%4 2.61% 2.84% 2.32% 2.77% 3.43%4
Portfolio turnover rate 9% 34% 49% 65% 83% 33%
Average commission rate paid $ 0.0554 N/A N/A N/A N/A N/A
1 For the period from the commencement of operations, October 31, 1991 to
February 29, 1992.
2 Net of fees and expenses voluntarily waived or borne by the Manager of $.01,
$.01, $.01, $.01, $.03 and $.03 per share for the six months ended August 31,
1996, for fiscal years ended 1996, 1995, 1994, and 1993 and for the period
ended February 29, 1992, respectively.
3 Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
4 Annualized.
</TABLE>
REIT FUND
<TABLE>
<CAPTION>
CLASS III
-----------------
PERIOD FROM
MAY 31, 1996
(COMMENCEMENT OF
OPERATIONS) TO
AUGUST 31, 1996
---------------
<S> <C>
Net asset value, beginning of period $ 10.00
--------
Income from investment operations:
Net investment income1 0.08
Net realized and unrealized gain 0.52
--------
Total from investment operations 0.60
--------
Net asset value, end of period $ 10.60
========
Total Return2 6.00%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 79,111
Net expenses to average daily net assets1 0.69%3
Net investment income to average daily net assets1 6.14%3
Portfolio turnover rate 1%
Average commission rate paid $ 0.0338
1 Net of fees and expenses voluntarily waived or borne by the Manager of $0.01
per share.
2 Calculation excludes purchase premiums and redemption fees. The total return
would have been lower had certain expenses not been waived during the period
shown.
3 Annualized.
</TABLE>
Except as otherwise noted, the above information has been audited by Price
Waterhouse LLP, independent accountants. This statement should be read in
conjunction with the other audited financial statements and related notes which
are included in the Trust's Annual Reports and unaudited financial statements
and related notes which are included in the Trust's Semi-Annual Reports, each of
which are incorporated by reference in the Trust's Statement of Additional
Information. Information is presented for each Fund, and class of shares
thereof, of the Trust which had investment operations during the reporting
periods. Information regarding Class III Shares of each Fund reflects the
operational history for each such Fund's sole outstanding class prior to the
creation of multiple classes of such Funds on May 31, 1996.
21
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
INTERNATIONAL EQUITY FUNDS
- --------------------------
INTERNATIONAL CORE FUND
<TABLE>
<CAPTION>
CLASS III SHARES
--------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 1996 -------------------------------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992 1991 1990 1989 19881
----------- ---- ---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 24.62 $ 22.32 $ 25.56 $ 18.51 $18.80 $18.73 $18.79 $ 17.22 $14.76 $ 15.00
---------- ------- ------- ------- ------ ------ ------ -------- ------ -------
Income (loss) from investment operations:
Net investment income2 0.43 0.36 0.27 0.29 0.29 0.29 0.55 0.49 0.45 0.18
Net realized and unreal-
ized gain (loss) on
investments (0.34) 3.09 (1.57) 7.44 (0.04) 0.22 0.69 1.93 3.37 (0.03)
---------- ------- ------- ------- ------ ------ ------ -------- ------ -------
Total for investment
operations 0.09 3.45 (1.30) 7.73 0.25 0.51 1.24 2.42 3.82 0.15
---------- ------- ------- ------- ------ ------ ------ -------- ------ -------
Less distributions to shareholders:
From net investment
income (0.07) (0.39) (0.35) (0.27) (0.20) (0.28) (0.54) (0.55) (0.45) (0.05)
From net realized gains (0.46) (0.76) (1.59) (0.41) (0.34) (0.16) (0.76) (0.30) (0.91) (0.34)
---------- ------- ------- ------- ------ ------ ------ -------- ------ -------
Total distributions (0.53) (1.15) (1.94) (0.68) (0.54) (0.44) (1.30) (0.85) (1.36) (0.39)
---------- ------- ------- ------- ------ ------ ------ -------- ------ -------
Net asset value, end of
period $ 24.18 $ 24.62 $ 22.32 $ 25.56 $18.51 $18.80 $18.73 $ 18.79 $17.22 $14.76
========== ======= ======= ======= ====== ====== ====== ======== ====== ======
Total Return3 0.32% 15.72% (5.31)% 42.10% 1.43% 2.84% 7.44% 13.99% 26.35% 1.07%
Ratios/Supplemental
Data:
Net assets, end of period
(000's) $4,253,262 $4,538,036 $2,591,646 $2,286,431 $918,332 $414,341 $173,792 $101,376 $35,636 $11,909
Net expenses to
average daily net assets2 0.69%5 0.71%4 0.70% 0.71%4 0.70% 0.70% 0.78% 0.80% 0.88% 0.70%5
Net investment income to
average daily net assets2 3.38%5 1.93% 1.48% 1.48% 2.36% 2.36% 3.32% 3.17% 3.19% 1.27%5
Portfolio turnover rate 52% 14% 53% 23% 23% 35% 81% 45% 37% 129%
Average commission rate paid $ 0.0061(6) n/a n/a n/a n/a n/a n/a n/a n/a n/a
1 For the period from the commencement of operations, April 7, 1987 to February
29, 1988.
2 Net of fees and expenses voluntarily waived or borne by the Manager of $.03,
$.03, $.03, $.03, $.03, $.02, $.01, $.02, $.05 and $.08 per share for the six
months ended August 31, 1996, for the fiscal years ended 1996, 1995, 1994,
1993, 1992, 1991, 1990, and 1989 and for the period ended February 29, 1988,
respectively.
3 Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
4 Includes stamp duties and transfer taxes not waived or borne by the Manager,
which approximate .01% of average daily net assets.
5 Annualized.
6 The Average commission rate paid will vary depending on the markets in which
trades are executed.
</TABLE>
CURRENCY HEDGED INTERNATIONAL CORE FUND
<TABLE>
<CAPTION>
CLASS III SHARES
--------------------------------------
PERIOD FROM
JUNE 30, 1995
SIX MONTHS ENDED (COMMENCEMENT OF
AUGUST 31, 1996 OPERATIONS) TO
(UNAUDITED) FEBRUARY 29, 1996
----------- -----------------
<S> <C> <C>
Net asset value, beginning of period $ 11.54 $ 10.00
-------- --------
Income from investment operations:
Net investment income1 0.15 0.23
Net realized and unrealized gain on investments5 0.12 1.44
-------- --------
Total from investment operations 0.27 1.67
-------- --------
Less distributions to shareholders from:
Net investment income (0.04) (0.06)
Net realized gains (0.24) (0.07)
-------- --------
Total distributions (0.28) (0.13)
-------- --------
Net asset value, end of period $ 11.53 $ 11.54
======== ========
Total Return2 2.21% 16.66%
Ratios/Supplemental Data:
Net assets, end of period (000's) $508,171 $407,277
Net expenses to average daily net assets1 0.69%3 0.69%3
Net investment income to average daily net assets1 3.42%3 1.89%3
Portfolio turnover rate 36% 7%
Average commission rate paid $0.0059(4) N/A
1 Net of fees and expenses voluntarily waived or borne by the Manager of $.01
and $.05 per share for the six months ended August 31, 1996 and for the period
ended February 29, 1996, respectively.
2 Calculation excludes purchase premiums. The total return would have been lower
had certain expenses not been waived during the period shown.
3 Annualized.
4 The Average commission rate paid will vary depending on the markets in which
trades are executed.
5 Tne amount shown for a share outstanding does not correspond with the
aggregate net realized and unrealized gain (loss) on investments for the
period ended August 31, 1996 due to the timing of purchases and redemptions of
Fund shares in relation to fluctuating market values of the investments of the
Fund.
</TABLE>
Except as otherwise noted, the above information has been audited by Price
Waterhouse LLP, independent accountants. This statement should be read in
conjunction with the other audited financial statements and related notes which
are included in the Trust's Annual Reports and unaudited financial statements
and related notes which are included in the Trust's Semi-Annual Reports, each of
which are incorporated by reference in the Trust's Statement of Additional
Information. Information is presented for each Fund, and class of shares
thereof, of the Trust which had investment operations during the reporting
periods. Information regarding Class III Shares of each Fund reflects the
operational history for each such Fund's sole outstanding class prior to the
creation of multiple classes of such Funds on May 31, 1996.
22
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
FOREIGN FUND*
<TABLE>
<CAPTION>
CLASS I CLASS III | GMO POOL PERFORMANCE INFORMATION**
----------- ------------- | (UNAUDITED)
PERIOD FROM PERIOD FROM | -----------------------------------------
JULY 10, 1996 JUNE 28, 1996 |
(COMMENCEMENT OF (COMMENCEMENT OF |
OPERATIONS) TO OPERATIONS) TO | YEAR ENDED JUNE 30,(a)
AUGUST 31, 1996 AUGUST 31, 1996 | ------------------------------------------
(UNAUDITED) (UNAUDITED) | 1996 1995 1994 1993 1992
----------- ----------- | ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of |
period $ 9.88 $ 10.00 | $ 8.90 $ 8.52 $ 6.88 $ 6.72 $ 5.94
-------- -------- | ------ ------ ------ ------ ------
Income (loss) from investment |
operations: |
Net investment income 0.021 0.031 | 0.27(b) 0.27(b) 0.15(b) 0.23(b) 0.21(b)
Net realized and unrealized gain |
(loss) on investments (0.09) (0.22) | 1.07 0.37 1.65 0.15 0.79
-------- -------- | ------ ------ ------ ------ ------
Total from investment operations (0.07) (0.19) | 1.34 0.64 1.80 0.38 1.00
-------- -------- | ------ ------ ------ ------ ------
Less distributions to shareholders: |
From net investment income 0 0 | (0.24) (0.26) (0.16) (0.22) (0.22)
-------- -------- | ------ ------ ------ ------ ------
Net asset value, end of period $ 9.81 $ 9.81 | $10.00 $ 8.90 $ 8.52 $ 6.88 $ 6.72
======== ======== | ====== ====== ====== ====== ======
Total Return (0.71)%2 (1.90)%2 | 14.25%(c) 6.82%(c) 25.43%(c) 5.10%(c) 16.22%(c)
Ratios/Supplemental Data: |
Net assets, end of period (000's) $ 3,476 $566,259 | N/A N/A N/A N/A N/A
Net expenses to average daily net |
assets 0.88%1,3 0.75%1,3 | N/A N/A N/A N/A N/A
Net investment income to average |
daily net assets 1.22%1,3 1.81%1,3 | N/A N/A N/A N/A N/A
Portfolio turnover rate 2% 2% | N/A N/A N/A N/A N/A
Average commission rate paid $0.0165(4) $0.0165(4) | N/A N/A N/A N/A N/A
1 Net of fees and expenses voluntarily waived or borne by the Manager of less of
than $0.01 per share.
2 The total return would have been lower had certain expenses not been waived
during the period shown.
3 Annualized.
4 The average broker commission rate will vary depending on the markets in which
trades are executed.
(a) The fiscal year end of the GMO Pool was June 30.
(b) Expenses for the GMO Pool were paid directly by its unitholders.
(c) Net of annual total GMO Pool expenses of 0.83% paid directly by unitholders.
* The GMO Foreign Fund (the "Foreign Fund") commenced operations on June 28,
1996 subsequent to a transaction involving, in essence, the reorganization of
the GMO International Equities Pool of The Common Fund for Nonprofit
Organizations (the "GMO Pool") as the Foreign Fund. For more information, see
"Certain Financial Information Relating to the GMO Foreign Fund."
** All information relating to the time periods prior to June 28, 1996 relates
to the GMO Pool. Total return figures are based on historical earnings but
past performance data is not necessarily indicative of future performance of
the Foreign Fund. The per unit information for the GMO Pool has been restated
to conform to the Foreign Fund's initial net asset value of $10.00 per share
on such date. The GMO Pool was not a registered investment company as it was
exempt from registration under the 1940 Act and therefore was not subject to
certain investment restrictions imposed by the 1940 Act. If the GMO Pool had
been registered under the 1940 Act, its performance may have been adversely
affected. The GMO Pool's performance information is also presented as the
performance of the Foreign Fund for periods prior to June 28, 1996 by
including the total return of the GMO Pool; such information does not
constitute the financial highlights of the Foreign Fund. For more information
relating to the GMO Pool and the reorganization of the Foreign Fund, see
"Certain Financial Information Relating to the GMO Foreign Fund."
</TABLE>
The above information is unaudited. The information relating to the period
ending August 31, 1996 should be read in conjunction with the other unaudited
financial statements and related notes which are included in the Foreign Fund's
Semi-Annual Report, and which are incorporated by reference in the Trust's
Statement of Additional Information. The GMO Pool had only one class of
outstanding units. Expenses charged to GMO Pool unitholders were fixed at a
level below that of the Foreign Fund's Class I Shares and above that of its
Class III Shares. No Class II Shares of the Foreign Fund were outstanding during
the period ended August 31, 1996.
23
<TABLE>
<CAPTION>
GMO POOL PERFORMANCE INFORMATION**
(UNAUDITED)
- ----------------------------------------------------------------------------
YEAR ENDED JUNE 30,(a)
- ----------------------------------------------------------------------------
1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
$ 7.04 $ 5.71 $ 5.05 $ 5.10 $ 3.83 $ 2.12
------- ------ ------ ------ ------ ------
0.29(b) 0.29(b) 0.23(b) 0.18(b) 0.14(b) 0.12(b)
(1.09) 1.32 0.66 (0.04) 1.27 1.71
------- ------ ------ ------ ------ ------
(0.80) 1.61 0.89 0.14 1.41 1.83
------- ------ ------ ------ ------ ------
(0.30) (0.28) (0.23) (0.19) (0.14) (0.12)
------- ------ ------ ------ ------ ------
$ 5.94 $ 7.04 $ 5.71 $ 5.05 $ 5.10 $ 3.83
======= ====== ====== ====== ====== ======
(11.99)%(c) 27.53%(c) 17.04%(c) 1.96%(c) 36.38%(c) 86.92%(c)
N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A
</TABLE>
24
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
INTERNATIONAL SMALL COMPANIES FUND
<TABLE>
<CAPTION>
CLASS III SHARES
-----------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 1996 -------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 19921
----------- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.95 $ 11.95 $ 14.45 $ 8.91 $ 9.62 $ 10.00
-------- -------- -------- -------- ------- -------
Income (loss) from investment operations:
Net investment income2 0.17 0.18 0.18 0.15 0.35 0.06
Net realized and unrealized gain (loss) on
investments 0.10 1.16 (1.52) 5.59 (0.68) (0.43)
-------- -------- -------- -------- ------- -------
Total from investment operations 0.27 1.34 (1.34) 5.74 (0.33) (0.37)
-------- -------- -------- -------- ------- -------
Less distributions to shareholders:
From net investment income (0.04) (0.17) (0.20) (0.12) (0.38) (0.01)
In excess of net investment income -- (0.02) -- -- -- --
From net realized gains (0.20) (0.15) (0.96) (0.08) -- --
-------- -------- -------- -------- ------- -------
Total distributions (0.24) (0.34) (1.16) (0.20) (0.38) (0.01)
-------- -------- -------- -------- ------- -------
Net asset value, end of period $ 12.98 $ 12.95 $ 11.95 $ 14.45 $ 8.91 $ 9.62
======== ======== ======== ======== ======= =======
Total Return3 1.96% 11.43% (9.66)% 64.67% (3.30)% (3.73)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $226,426 $218,964 $186,185 $132,645 $35,802 $24,467
Net expenses to average daily net assets2 0.75%5 0.76%4 0.76%4 0.75% 0.75% 0.85%5
Net investment income to average daily net
assets2 2.50%5 1.84% 1.45% 1.50% 4.02% 1.91%5
Portfolio turnover rate 6% 13% 58% 38% 20% 1%
Average commission rate paid $ 0.0005(6) N/A N/A N/A N/A N/A
1 For the period from the commencement of operations, October 15, 1991 to
February 29, 1992.
2 Net of fees and expenses voluntarily waived or borne by the Manager of $.05,
$.07, $.08, $.09, $.09 and $.05 per share for the six months ended August 31,
1996, for the fiscal years ended 1996, 1995, 1994, and 1993 and for the period
ended February 29, 1992, respectively.
3 Calculation excludes purchase premiums and redemption fees. The total returns
would have been lower had certain expenses not been waived during the periods
shown.
4 Includes stamp duties and transfer taxes not waived or borne by the Manager,
which approximate .01% of average daily net assets.
5 Annualized.
6 The average broker commission rate will vary depending on the markets in which
trades are executed.
</TABLE>
JAPAN FUND
<TABLE>
<CAPTION>
CLASS III SHARES
-------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 1996 ------------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992 19911
----------- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 8.52 $ 9.12 $ 11.13 $ 7.37 $ 7.73 $ 9.48 $ 10.00
-------- -------- ------- -------- -------- --------- -------
Income (loss) from investment
operations:
Net investment income
(loss)2 -- 3 (0.01)3 -- 3 -- 0.01 -- (0.01)
Net realized and unrealized
gain (loss) on investments (0.31) 0.79 (1.08) 3.94 (0.36) (1.74) (0.39)
-------- -------- ------- -------- -------- --------- -------
Total fromm investment
operations (0.31) 0.78 (1.08) 3.94 (0.35) (1.74) (0.40)
-------- -------- ------- -------- -------- --------- -------
Less distributions to
shareholders:
From net investment income -- -- -- -- (0.01) -- --
In excess of net investment
income -- -- -- (0.01) -- -- --
From net realized gains -- (1.38) (0.93) (0.17) -- -- --
From paid-in capital4 -- -- -- -- -- (0.01) (0.12)
-------- -------- ------- -------- -------- --------- -------
Total distributions -- (1.38) (0.93) (0.18) (0.01) (0.01) (0.12)
-------- -------- ------- -------- -------- --------- -------
Net asset value, end of
period $ 8.21 $ 8.52 $ 9.12 $ 11.13 $ 7.37 $ 7.73 $ 9.48
======== ======== ======= ======== ======== ======== =======
Total Return5 (3.75)% 8.29% (10.62)% 53.95% (4.49)% (18.42)% (3.79)%
Ratios/Supplemental Data:
Net assets, end of period
(000's) $263,438 $126,107 $60,123 $450,351 $306,423 $129,560 $60,509
Net expenses to average
daily net assets2 0.70%6 0.92% 0.83% 0.87% 0.88% 0.93% 0.95%6
Net investment income to
average daily net assets2 (0.02)%6 (0.13)% (0.02)% (0.01)% 0.12% (0.11)% (0.32)%6
Portfolio turnover rate 2% 23% 60% 8% 17% 25% 11%
Average commission rate paid $ 0.0061 N/A N/A N/A N/A N/A N/A
1 For the period from the commencement of operations, June 8, 1990 to February
28, 1991.
2 Net of fees and expenses voluntarily waived or borne by the Manager of $.01
per share for the six months ended August 31, 1996, $.01 per share for the
fiscal year ended 1996, less than $.01 per share for the fiscal year ended
1995, and $.01 per share for the fiscal years ended 1994, 1993, 1992 and 1991.
3 Based on average month-end shares outstanding.
4 Return of capital for book purposes only. A distribution was required for tax
purposes to avoid the payment of federal excise tax.
5 Calculation excludes purchase premiums and redemption fees. The total returns
would have been lower had certain expenses not been waived during the periods
shown.
6 Annualized.
</TABLE>
Except as otherwise noted, the above information has been audited by Price
Waterhouse LLP, independent accountants. This statement should be read in
conjunction with the other audited financial statements and related notes which
are included in the Trust's Annual Reports and unaudited financial statements
and related notes which are included in the Trust's Semi-Annual Reports, each of
which are incorporated by reference in the Trust's Statement of Additional
Information. Information is presented for each Fund, and class of shares
thereof, of the Trust which had investment operations during the reporting
periods. Information regarding Class III Shares of each Fund reflects the
operational history for each such Fund's sole outstanding class prior to the
creation of multiple classes of such Funds on May 31, 1996.
25
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
CLASS III SHARES
-----------------------------------------------------------------
PERIOD FROM
SIX MONTHS DECEMBER 9, 1993
ENDED YEAR ENDED FEBRUARY 28/29, (COMMENCEMENT OF
AUGUST 31, 1996 --------------------------- OPERATIONS) TO
(UNAUDITED) 1996 1995 FEBRUARY 28, 1994
----------- ---- ---- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.54 $ 9.52 $ 12.13 $ 10.00
---------- -------- -------- --------
Income (loss) from investment operations:
Net investment income1 0.09 0.10 0.05 0.02
Net realized and unrealized gain (loss) on
investments 0.38 1.06 (2.37) 2.11
---------- -------- -------- --------
Total from investment operations 0.47 1.16 (2.32) 2.13
---------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.08) (0.01) (0.07) (0.00)2
From net realized gains -- (0.13) (0.22) --
---------- -------- -------- --------
Total distributions (0.08) (0.14) (0.29) (0.00)
---------- -------- -------- --------
Net asset value, end of period $ 10.93 $ 10.54 $ 9.52 $ 12.13
========== ======== ======== ========
Total Return3 4.42% 12.24% (19.51%) 21.35%
Ratios/Supplemental Data:
Net assets, end of period (000's) $1,220,397 $907,180 $384,259 $114,409
Net expenses to average daily net assets1 1.18%4 1.35% 1.58% 1.64%4
Net investment income to average daily net assets1 2.13%4 1.31% 0.85% 0.87%4
Portfolio turnover rate 18% 35% 50% 2%
Average commission rate paid $ 0.00035 N/A N/A N/A
1 Net of fees and expenses voluntarily waived or borne by the Manager of $.01
per share for the six months ended August 31, 1996 and of less than $.01 per
share for the fiscal year ended 1996 and the period ended 1994.
2 The per share income distribution was $0.004.
3 Calculation excludes purchase premiums and redemption fees. The total returns
would have been lower had certain expenses not been waived during the periods
shown.
4 Annualized.
5 The Average commission rate paid will vary depending on the markets in which
trades are executed.
</TABLE>
FIXED INCOME FUNDS
- ------------------
SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
CLASS III SHARES
---------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED FEBRUARY 28/29,
AUGUST 31, 1996 ----------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 19923 19911,2,3
----------- ---- ---- ---- ---- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 9.77 $ 9.56 $ 9.79 $10.05 $ 10.11 $10.00 $ 10.00
------- ------- ------ ------ ------- ------ -------
Income (loss) from investment operations:
Net investment income4 0.22 0.57 0.63 0.44 0.46 0.56 0.67
Net realized and unrealized gain
(loss) on investments (0.02) 0.20 (0.28) (0.09) 0.30 0.11 --
------- ------- ------ ------ ------- ------ -------
Total from investment operations 0.20 0.77 0.35 0.35 0.76 0.67 0.67
------- ------- ------ ------ ------- ------ -------
Less distributions to shareholders:
From net investment income (0.25) (0.56) (0.58) (0.46) (0.38) (0.56) (0.67)
From net realized gains -- -- -- (0.15) (0.44) -- --
------- ------- ------ ------ ------- ------ -------
Total distributions (0.25) (0.56) (0.58) (0.61) (0.82) (0.56) (0.67)
------- ------- ------ ------ ------- ------ -------
Net asset value, end of period $ 9.72 $ 9.77 $ 9.56 $ 9.79 $ 10.05 $10.11 $ 10.00
======= ======= ====== ====== ======= ====== =======
Total Return5 2.11% 8.32% 3.78% 3.54% 8.25% 11.88% 3.83%
Ratios/Supplemental Data:
Net assets, end of period (000's) $25,385 $11,066 $8,193 $8,095 $10,499 $9,257 $40,850
Net expenses to average daily net
assets4 0.20%6 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%6
Net investment income to average
daily net assets4 5.81%6 6.49% 5.02% 4.35% 4.94% 5.83% 7.88%6
Portfolio turnover rate 206% 139% 335% 243% 649% 135% --
1 For the period from the commencement of operations, April 17, 1990 to February
28, 1991.
2 The per share amounts have been restated to reflect a one for ten reverse
stock split effective December 1, 1991.
3 The Fund operated as a money market fund from April 17, 1990 until June 30,
1991. Subsequently, the Fund became a short-term income fund.
4 Net of fees and expenses voluntarily waived or borne by the manager of $.01,
$.03, $.02, $.02, $.03, $.03 and $.09 per share for the six months ended
August 31, 1996, for the fiscal years ended 1996, 1995, 1994, 1993, and 1992
and for the period ended February 28, 1991, respectively.
5 The total returns would have been lower had certain expenses not been waived
during the periods shown.
6 Annualized.
</TABLE>
Except as otherwise noted, the above information has been audited by Price
Waterhouse LLP, independent accountants. This statement should be read in
conjunction with the other audited financial statements and related notes which
are included in the Trust's Annual Reports and unaudited financial statements
and related notes which are included in the Trust's Semi-Annual Reports, each of
which are incorporated by reference in the Trust's Statement of Additional
Information. Information is presented for each Fund, and class of shares
thereof, of the Trust which had investment operations during the reporting
periods. Information regarding Class III Shares of each Fund reflects the
operational history for each such Fund's sole outstanding class prior to the
creation of multiple classes of such Funds on May 31, 1996.
26
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
GLOBAL HEDGED EQUITY FUND
<TABLE>
<CAPTION>
CLASS III SHARES
----------------------------------------------------------
PERIOD FROM
JULY 29, 1994
SIX MONTHS ENDED (COMMENCEMENT OF
AUGUST 31, 1996 YEAR ENDED OPERATIONS) TO
(UNAUDITED) FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------- ----------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.64 $ 10.12 $ 10.00
-------- -------- --------
Income from investment operations:
Net investment income1 0.14 0.21 0.11
Net realized and unrealized gain on investments (0.12) 0.55 0.08
-------- -------- --------
Total from investment operations 0.02 0.76 0.19
-------- -------- --------
Less distributions to shareholders:
From net investment income (0.01) (0.24) (0.07)
-------- -------- --------
Net asset value, end of period $ 10.65 $ 10.64 $ 10.12
======== ======== ========
Total Return2 0.22% 7.54% 1.92%
Ratios/Supplemental Data:
Net assets, end of period (000's) $317,129 $382,934 $214,638
Net expenses to average daily net assets1 0.83%3 0.78% 0.92%3
Net investment income to average daily net assets1 2.37%3 2.44% 2.85%3
Portfolio turnover rate 150% 214% 194%
Average commission rate paid $0.00724 N/A N/A
1 Net of fees and expenses voluntarily waived or borne by the Manager of $.01,
$.005 and $.006 per share for the six months ended August 31, 1996, for the
fiscal year ended 1996 and for the period ended February 28, 1995,
respectively.
2 Calculation excludes purchase premiums and redemption fees. The total returns
would have been lower had certain expenses not been waived during the periods
shown.
3 Annualized.
4 The average broker commission rate will vary depending on the markets in which
trades are executed.
</TABLE>
DOMESTIC BOND FUND
<TABLE>
<CAPTION>
CLASS III SHARES
-----------------------------------------------------------
PERIOD FROM
AUGUST 18, 1994
SIX MONTHS ENDED (COMMENCEMENT OF
AUGUST 31, 1996 YEAR ENDED OPERATIONS) TO
(UNAUDITED) FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------- ----------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.40 $ 10.13 $ 10.00
-------- -------- --------
Income from investment operations:
Net investment income1 0.28 0.66 0.24
Net realized and unrealized gain on investments (0.33) 0.58 0.07
-------- -------- --------
Total from investment operations (0.05) 1.24 0.31
-------- -------- --------
Less distributions to shareholders:
From net investment income (0.31) (0.60) (0.18)
From net realized gains (0.06) (0.37) --
-------- -------- --------
Total distributions (0.37) (0.97) (0.18)
-------- -------- --------
Net asset value, end of period $ 9.98 $ 10.40 $ 10.13
======== ======== ========
Total Return2 (0.46)% 12.50% 3.16%
Ratios/Supplemental Data:
Net assets, end of period (000's) $451,131 $310,949 $209,377
Net expenses to average daily net assets1 0.25%3 0.25% 0.25%3
Net investment income to average daily net assets1 6.10%3 6.52% 6.96%3
Portfolio turnover rate 19% 70% 65%
1 Net of fees and expenses voluntarily waived or borne by the Manager of $.01
per share for each period presented.
2 The total returns would have been lower had certain expenses not been waived
during the periods shown.
3 Annualized.
</TABLE>
Except as otherwise noted, the above information has been audited by Price
Waterhouse LLP, independent accountants. This statement should be read in
conjunction with the other audited financial statements and related notes which
are included in the Trust's Annual Reports and unaudited financial statements
and related notes which are included in the Trust's Semi-Annual Reports, each of
which are incorporated by reference in the Trust's Statement of Additional
Information. Information is presented for each Fund, and class of shares
thereof, of the Trust which had investment operations during the reporting
periods. Information regarding Class III Shares of each Fund reflects the
operational history for each such Fund's sole outstanding class prior to the
creation of multiple classes of such Funds on May 31, 1996.
27
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
INTERNATIONAL BOND FUND
<TABLE>
<CAPTION>
CLASS III SHARES
-------------------------------------------------------------------
PERIOD FROM
DECEMBER 22, 1993
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28/29, (COMMENCEMENT OF
AUGUST 31, 1996 -------------------------- OPERATIONS) TO
(UNAUDITED) 1996 1995 FEBRUARY 28, 1994
----------- ---- ---- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.92 $ 9.64 $ 9.96 $ 10.00
-------- -------- -------- -------
Income (loss) from investment operations:
Net investment income1 0.41 0.62 0.98 0.08
Net realized and unrealized gain (loss) on
investments 0.58 1.55 (0.21) (0.12)
-------- -------- -------- -------
Total from investment operations 0.99 2.17 0.77 (0.04)
-------- -------- -------- -------
Less distributions to shareholders:
From net investment income (0.22) (0.59) (0.75) --
From net realized gains (0.14) (0.30) (0.34) --
-------- -------- -------- -------
Total distributions (0.36) (0.89) (1.09) --
-------- -------- -------- -------
Net asset value, end of period $ 11.55 $ 10.92 $ 9.64 $ 9.96
======== ======== ======== =======
Total Return2 9.22% 22.72% 8.23% (0.40)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $202,805 $193,920 $151,189 $39,450
Net expenses to average daily net assets1 0.40%3 0.40% 0.40% 0.40%3
Net investment income to average daily net
assets1 7.15%3 8.17% 7.51% 5.34%3
Portfolio turnover rate 47% 99% 141% 14%
1 Net of fees and expenses voluntarily waived or borne by the Manager of $.01,
$.01, $.02 and $.01 per share for the six months ended August 31, 1996, for
the fiscal years ended 1996 and 1995 and for the period ended February 28,
1994, respectively.
2 Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
3 Annualized.
</TABLE>
CURRENCY HEDGED INTERNATIONAL BOND FUND
<TABLE>
<CAPTION>
CLASS III SHARES
-----------------------------------------------------------
PERIOD FROM
SEPTEMBER 30, 1994
SIX MONTHS ENDED (COMMENCEMENT OF
AUGUST 31, 1996 YEAR ENDED OPERATIONS) TO
(UNAUDITED) FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------- ----------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.92 $ 9.99 $ 10.00
-------- -------- --------
Income (loss) from investment operations:
Net investment income1 0.32 1.05 0.24
Net realized and unrealized gain (loss) on investments 0.80 1.62 (0.09)
-------- -------- --------
Total from investment operations 1.12 2.67 0.15
-------- -------- --------
Less distributions to shareholders:
From net investment income (0.01) (1.04) (0.16)
From net realized gains (0.03) (0.42) --
In excess of net realized gains -- (0.28) --
-------- -------- --------
Total distributions (0.04) (1.74) (0.16)
-------- -------- --------
Net asset value, end of period $ 12.00 $ 10.92 $ 9.99
======== ======== ========
Total Return2 10.32% 27.36% 1.49%
Ratios/Supplemental Data:
Net assets, end of period (000's) $349,131 $236,162 $238,664
Net expenses to average daily net assets1 0.40%3 0.40% 0.40%3
Net investment income to average daily net assets1 7.35%3 8.54% 8.46%3
Portfolio turnover rate 38% 85% 64%
1 Net of fees and expenses voluntarily waived or borne by the Manager of $.01,
$.03 and $.01 per share for the six months ended August 31, 1996, for the
fiscal year ended 1996 and for the period ended February 28, 1995,
respectively.
2 Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
3 Annualized.
</TABLE>
Except as otherwise noted, the above information has been audited by Price
Waterhouse LLP, independent accountants. This statement should be read in
conjunction with the other audited financial statements and related notes which
are included in the Trust's Annual Reports and unaudited financial statements
and related notes which are included in the Trust's Semi-Annual Reports, each of
which are incorporated by reference in the Trust's Statement of Additional
Information. Information is presented for each Fund, and class of shares
thereof, of the Trust which had investment operations during the reporting
periods. Information regarding Class III Shares of each Fund reflects the
operational history for each such Fund's sole outstanding class prior to the
creation of multiple classes of such Funds on May 31, 1996.
28
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
GLOBAL BOND FUND
<TABLE>
<CAPTION>
CLASS III SHARES
-------------------------------------
PERIOD FROM
DECEMBER 28, 1995
SIX MONTHS ENDED (COMMENCEMENT OF
AUGUST 31, 1996 OPERATIONS) TO
(UNAUDITED) FEBRUARY 29, 1996
----------- -----------------
<S> <C> <C>
Net asset value, beginning of period $ 9.89 $ 10.00
------- -------
Income (loss) from investment operations:
Net investment income1 0.29 0.05
Net realized and unrealized gain (loss) on investments 0.33 (0.16)
------- -------
Total from investment operations 0.62 (0.11)
------- -------
Less distributions to shareholders:
From net investment income (0.03) --
------- -------
Total distribution (0.03) --
------- -------
Net asset value, end of period $ 10.48 $ 9.89
======= ========
Total Return2 6.22% (1.10)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $63,321 $31,072
Net expenses to average daily net assets1 0.34%3 0.34%3
Net investment income to average daily net assets1 6.44%3 6.16%3
Portfolio turnover rate 22% 0%
1 Net of fees and expenses voluntarily waived or borne by the Manager of $.01
per share for each period presented.
2 Calculation excludes purchase premiums. The total return would have been lower
had certain expenses not been waived during the period shown.
3 Annualized.
</TABLE>
EMERGING COUNTRY DEBT FUND
<TABLE>
<CAPTION>
CLASS III SHARES
---------------------------------------------------------
PERIOD FROM
APRIL 19, 1994
SIX MONTHS ENDED (COMMENCMENT OF
AUGUST 31, 1996 YEAR ENDED OPERATIONS) TO
(UNAUDITED) FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------- ----------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.76 $ 8.39 $ 10.00
-------- -------- --------
Income (loss) from investment operations:
Net investment income1 0.71 1.35 0.48
Net realized and unrealized gain (loss) on investments 2.65 3.84 (1.59)
-------- -------- --------
Total from investment operations 3.36 5.19 (1.11)
-------- -------- --------
Less distributions to shareholders:
From net investment income (0.26) (1.17) (0.40)
From net realized gains (0.50) (0.65) --
In excess of net realized gains -- -- (0.10)
-------- -------- --------
Total distributions (0.76) (1.82) (0.50)
-------- -------- --------
Net asset value, end of period $ 14.36 $ 11.76 $ 8.39
======== ======== ========
Total Return2 29.01% 63.78% (11.65%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $646,827 $615,485 $243,451
Net expenses to average daily net assets1 0.58%3 0.50% 0.50%3
Net investment income to average daily net assets1 9.51%3 12.97% 10.57%3
Portfolio turnover rate 69% 158% 104%
1 Net of fees and expenses voluntarily waived or borne by the Manager of $.01,
$.02 and $.01 per share for the six months ended August 31, 1996, for the
fiscal year ended 1996 and for the period ended February 28, 1995,
respectively.
2 Calculation excludes purchase premiums and redemption fees. The total returns
would have been lower had certain expenses not been waived during the periods
shown.
3 Annualized.
</TABLE>
Except as otherwise noted, the above information has been audited by Price
Waterhouse LLP, independent accountants. This statement should be read in
conjunction with the other audited financial statements and related notes which
are included in the Trust's Annual Reports and unaudited financial statements
and related notes which are included in the Trust's Semi-Annual Reports, each of
which are incorporated by reference in the Trust's Statement of Additional
Information. Information is presented for each Fund, and class of shares
thereof, of the Trust which had investment operations during the reporting
periods. Information regarding Class III Shares of each Fund reflects the
operational history for each such Fund's sole outstanding class prior to the
creation of multiple classes of such Funds on May 31, 1996.
29
FINANCIAL HIGHLIGHTS
(For a Share outstanding throughout each period)
ASSET ALLOCATION FUNDS
- ----------------------
WORLD EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
CLASS I CLASS II
--------------- -----------------
PERIOD FROM PERIOD FROM
JUNE 28, 1996 JUNE 28, 1996
(COMMENCEMENT OF (COMMENCEMENT OF
OPERATIONS) TO OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1996
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Net asset value, beginning of period $10.00 $10.00
------ ------
Income from investment operations:
Net investment income1 0.03 0.04
Net realized and unrealized loss (0.34) (0.35)
------ ------
Total from investment operations (0.31) (0.31)
------ ------
Net asset value, end of period $ 9.69 $ 9.69
====== ======
Total Return2 (3.10)% (3.10)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $5,639 $3,994
Net expenses to average daily net assets1 0.18%3 0.12%3
Net investment income to average daily net assets1 2.00%3 2.06%3
Portfolio turnover rate 0% 0%
1 Net of fees and expenses voluntarily waived or borne by the Manager of $0.01
per share.
2 The total return would have been lower had certain expenses not been waived
during the period shown.
3 Annualized.
</TABLE>
GLOBAL BALANCED ALLOCATION FUND
<TABLE>
<CAPTION>
CLASS I
-----------------
PERIOD FROM
JULY 29, 1996
(COMMENCEMENT OF
OPERATIONS) TO
AUGUST 31, 1996
(UNAUDITED)
---------------
<S> <C>
Net asset value, beginning of period $10.00
------
Income from investment operations:
Net investment loss1 --
Net realized and unrealized gain 0.24
------
Total from investment operations 0.24
------
Net asset value, end of period $10.24
======
Total Return2 2.40%
Ratios/Supplemental Data:
Net assets, end of period (000's) $3,073
Net expenses to average daily net assets1 0.18%3
Net investment income to average daily net assets1 (0.18)%3
Portfolio turnover rate 0%
1 Net of fees and expenses voluntarily waived or borne by the Manager of $0.01
per share.
2 The total return would have been lower had certain expenses not been waived
during the period shown.
3 Annualized.
</TABLE>
Except as otherwise noted, the above information has been audited by Price
Waterhouse LLP, independent accountants. This statement should be read in
conjunction with the other audited financial statements and related notes which
are included in the Trust's Annual Reports and unaudited financial statements
and related notes which are included in the Trust's Semi-Annual Reports, each of
which are incorporated by reference in the Trust's Statement of Additional
Information. Information is presented for each Fund, and class of shares
thereof, of the Trust which had investment operations during the reporting
periods. Information regarding Class III Shares of each Fund reflects the
operational history for each such Fund's sole outstanding class prior to the
creation of multiple classes of such Funds on May 31, 1996.
Investors in Class I or Class II Shares should be aware that the above financial
highlight tables reflect performance based on Class III expense ratios. In the
future, investors in Class I and Class II Shares will experience slightly lower
total returns than investors in Class III Shares of the same Fund as a result of
higher overall expense ratios for Class I and Class II Shares.
The Manager's discussion of the performance of each Fund in fiscal 1996, as well
as a comparison of each Fund's performance over the life of the Fund with that
of a benchmark securities index elected by the Manager, is included in each
Fund's Annual Report and Semi-Annual Report for the fiscal year ended February
29, 1996 and the six months ended August 31, 1996, respectively. Copies of the
Annual and Semi-Annual Reports are available upon request without charge.
30
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
The investment objective of each of the Core Fund, the Value Fund, the
Growth Fund, the Short-Term Income Fund, the International Core Fund, and the
Japan Fund is fundamental and may not be changed without shareholder approval.
The investment objective of each other Fund may be changed without shareholder
approval. Unless specifically noted herein, the investment policies of the Funds
may be changed without shareholder approval. There can be no assurance that the
investment objective of any Fund will be achieved.
As noted in the following Fund descriptions, many of the Funds seek
total returns greater than, or select securities that are represented in,
certain indexes or benchmarks. These benchmarks or indexes may be commercially
developed and published, modifications of commercially available indexes
maintained by the Manager, or composite benchmarks maintained by the Manager
that blend commercially available indexes. A description of the various
benchmarks and indexes is set forth on page 5.
DOMESTIC EQUITY FUNDS
- ---------------------
CORE FUND
- ---------
The Core Fund seeks a total return greater than that of the S&P 500
through investment in common stocks. The Core Fund expects that substantially
all of its assets will be invested in or exposed to the equity securities of at
least 125 companies chosen from among the Wilshire 5000 Index (the "WILSHIRE
5000") and that it will be invested primarily in the approximately 1,200
companies with the largest equity capitalization (i.e., number of shares
outstanding multiplied by the market price per share) at the time of investment
which are also listed on a United States national securities exchange (the
"LARGE CAP 1200"). The Core Fund may, from time to time, invest in fewer issuers
if, in the opinion of the Manager, there are not at least 125 attractive
investment opportunities from among such companies.
The Manager will select which issuers to invest in based on its
assessment of whether the common stock of the issuer is likely to perform better
than the S&P 500. Since the Core Fund's portfolio investments will not be chosen
and proportionately weighted to approximate the total return of the S&P 500, the
total return of the Core Fund may be more or less than the total return of the
S&P 500. An investment in the Fund involves risks similar to investing in common
stocks directly.
In pursuing its objective, the Fund may invest in securities of foreign
issuers traded principally on U.S. securities exchanges, invest without limit in
depository receipts of foreign issuers, and purchase convertible securities. The
Fund may also purchase interests in real estate investment trusts ("REITs"),
which are described under the description of the GMO REIT Fund in this
Prospectus. The Fund may also invest up to 15% of its net assets in illiquid
securities, lend portfolio securities valued at up to one-third of total assets,
and enter into repurchase agreements.
In addition, the Fund may purchase index futures on the S&P 500 and
other domestic indexes for investment, anticipatory hedging and risk management
and to effect synthetic sales and purchases. The Fund may also buy exchange
traded or over-the-counter put and call options, sell (write) covered options
and enter into futures contracts and options on futures contracts for hedging
and risk management. The Fund may also use equity swap contracts and contracts
for differences for these purposes.
It is a policy of the Fund to stay fully invested in common stocks,
index futures, equity swap contracts and contracts for differences even when the
Manager believes that equity securities generally may underperform other types
of investments. The Fund expects that, not including the margin deposits or the
segregated accounts created in connection with index futures and other
derivatives, less than 5% of its total net assets will be invested in high
quality money market instruments such as securities issued by the U.S.
government and agencies thereof, bankers' acceptances, commercial paper, and
bank certificates of deposit. The Fund will at all times invest at least 65% of
its total assets in domestic common stocks. The Fund does not expect to invest
in long or short-term fixed income securities for temporary defensive purposes.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
TOBACCO-FREE CORE FUND
- ----------------------
The Tobacco-Free Core Fund seeks a total return greater than that of
the S&P 500 through investment in common stocks. Substantially all of the Fund's
assets will be invested in or exposed to equity securities chosen from among the
Wilshire 5000 and selected primarily from Large Cap 1200 issuers which are not
Tobacco Producing Issuers (as defined below). The Tobacco-Free Core Fund expects
that substantially all of its assets will be invested in the securities of at
least 125 companies. The Tobacco-Free Core Fund may, from time to time, invest
in fewer issuers if, in the opinion of the Manager, there are not at least 125
attractive investment opportunities from among such companies.
The Manager will select which issuers to invest in based on its
assessment of whether the common stock of the issuer is likely to perform better
than the S&P 500. Since the Tobacco-Free Core Fund's portfolio investments will
not be chosen and proportionately weighted to approximate the total return of
the S&P 500, the total return of the Tobacco-Free Core Fund may be more or less
than the total return of the S&P 500. An investment in the Fund involves risks
similar to investing in common stocks directly.
-31-
The Manager has instituted procedures to avoid investment by the
Tobacco-Free Core Fund in the securities of issuers which, at the time of
purchase, derive more than 10% of their gross revenues from the production of
tobacco-related products ("TOBACCO PRODUCING ISSUERS"). For this purpose the
Manager will subscribe to and generally rely on information services provided by
third parties, although the Manager may cause the Tobacco-Free Core Fund to
purchase securities of issuers which are identified by those third parties as
Tobacco Producing Issuers if, at the time of purchase, the Manager has received
information from the issuer to the effect that it is no longer a Tobacco
Producing Issuer.
The Tobacco-Free Core Fund is required to have a fundamental policy,
which cannot be changed without shareholder approval, that under normal market
conditions at least 65% of its assets will be invested in the securities of
issuers other than Tobacco Producing Issuers. This policy is not expected to
affect the Manager's overall goal of not investing in Tobacco Producing Issuers.
In pursuing its objective, the Fund may invest in securities of foreign
issuers traded principally on U.S. securities exchanges, invest without limit in
depository receipts of foreign issuers, and purchase convertible securities. The
Fund may also purchase interests in REITs. The Fund may also invest up to 15% of
its net assets in illiquid securities, lend portfolio securities valued at up to
one-third of total assets, and enter into repurchase agreements.
In addition, the Fund may purchase index futures on the S&P 500 and
other domestic indexes for investment, anticipatory hedging and risk management
and to effect synthetic sales and purchases. The Fund may also buy exchange
traded or over-the-counter put and call options, sell (write) covered options
and enter into futures contracts and options on futures contracts for hedging
and risk management. The Fund may also use equity swap contracts and contracts
for differences for these purposes.
It is a policy of the Fund to stay fully invested in common stocks,
index futures, equity swap contracts and contracts for differences even when the
Manager believes that equity securities generally may underperform other types
of investments. The Fund expects that, not including the margin deposits or the
segregated accounts created in connection with index futures and other
derivatives, less than 5% of its total net assets will be invested in high
quality money market instruments such as securities issued by the U.S.
government and agencies thereof, bankers' acceptances, commercial paper, and
bank certificates of deposit. The Fund will at all times invest at least 65% of
its total assets in domestic common stocks. The Fund does not expect to invest
in long or short-term fixed income securities for temporary defensive purposes.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
VALUE FUND
- ----------
The Value Fund (formerly, the Value Allocation Fund) seeks a total
return greater than that of the S&P 500 through investment in a broadly
diversified and liquid portfolio of common stocks. Substantially all of the
Fund's investments will be chosen from among the Wilshire 5000 and primarily
from among the Large Cap 1200. The Fund expects that any income it derives will
be from dividends on common stock. The Manager will select which issuers to
invest in based on its assessment of whether the common stock of the issuer is
likely to perform better than the S&P 500. Strong consideration is given to
common stocks whose current prices do not adequately reflect, in the opinion of
the Manager, the ongoing business value of the underlying company.
The Fund's investments are made in securities of companies which, in
the opinion of the Manager, are of average or above average investment quality.
Investment quality is evaluated using fundamental analysis emphasizing each
issuer's historic financial performance, balance sheet strength, management
capability and competitive position. Various valuation parameters are examined
to determine the attractiveness of individual securities. Since the Fund's
portfolio investments will not be chosen and proportionately weighted to
approximate the total return of the S&P 500, at times the total return of the
Value Fund may be more or less than the total return of the S&P 500.
In pursuing its objective, the Fund may invest in securities of foreign
issuers traded principally on U.S. securities exchanges, invest without limit in
depository receipts of foreign issuers, and purchase convertible securities. The
Fund may also purchase interests in REITs. The Fund may also invest up to 15% of
its net assets in illiquid securities, lend portfolio securities valued at up to
one-third of total assets, and enter into repurchase agreements.
In addition, the Fund may purchase index futures on the S&P 500 and
other domestic indexes for investment, anticipatory hedging and risk management
and to effect synthetic sales and purchases. The Fund may also buy exchange
traded or over-the-counter put and call options, sell (write) covered options
and enter into futures contracts and options on futures contracts for hedging
and risk management. The Fund may also use equity swap contracts and contracts
for differences for these purposes.
It is a policy of the Fund to stay fully invested in common stocks,
index futures, equity swap contracts and contracts for differences even when the
Manager believes that equity securities generally may underperform other types
of investments. The Fund expects that, not including the margin deposits or the
segregated accounts created in connection with index futures and other
derivatives, less than 5% of its total net assets will be invested in high
quality money market instruments such as securities issued by the U.S.
government and agencies thereof, bankers' acceptances, commercial paper, and
bank certificates of deposit. The Fund will at all times invest at least
-32-
65% of its total assets in domestic common stocks. The Fund does not expect to
invest in long or short-term fixed income securities for temporary defensive
purposes.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
GROWTH FUND
- -----------
The Growth Fund (formerly the Growth Allocation Fund) seeks long-term
growth of capital. Current income is only an incidental consideration. The
Growth Fund attempts to achieve its objective by investing in companies whose
earnings per share are expected by the Manager to grow at a rate faster than the
average of the Large Cap 1200. The Fund is designed for investors who wish to
allocate a portion of their assets to investment in growth-oriented stocks.
The Fund expects that substantially all of the Fund's investments will
be chosen from among the Wilshire 5000, and at least 65% of its assets will be
invested in the common stocks (and securities convertible into common stocks) of
issuers chosen from the Large Cap 1200. Such companies may include foreign
issuers, although the Fund does not intend to invest in securities which are
principally traded outside of the United States. The balance of the common
stocks (and securities convertible into common stocks) held by the Fund may be
less liquid investments since the companies in question will have smaller equity
capitalization and/or the securities may not be listed on a national securities
exchange.
In pursuing its objective, the Fund may invest in securities of foreign
issuers traded principally on U.S. securities exchanges, invest without limit in
depository receipts of foreign issuers, and purchase convertible securities. The
Fund may also purchase interests in REITs. The Fund may also invest up to 15% of
its net assets in illiquid securities, lend portfolio securities valued at up to
one-third of total assets, and enter into repurchase agreements.
In addition, the Fund may purchase index futures on the S&P 500 and
other domestic indexes for investment, anticipatory hedging and risk management
and to effect synthetic sales and purchases. The Fund may also buy exchange
traded or over-the-counter put and call options, sell (write) covered options
and enter into futures contracts and options on futures contracts for hedging
and risk management. The Fund may also use equity swap contracts and contracts
for differences for these purposes.
It is a policy of the Fund to stay fully invested in common stocks,
index futures, equity swap contracts and contracts for differences even when the
Manager believes that equity securities generally may underperform other types
of investments. The Fund expects that, not including the margin deposits or the
segregated accounts created in connection with index futures and other
derivatives, less than 5% of its total net assets will be invested in the high
quality money market instruments such as securities issued by the U.S.
government and agencies thereof, bankers' acceptances, commercial paper, and
bank certificates of deposit. The Fund will at all times invest at least 65% of
its total assets in domestic common stocks. The Fund does not expect to invest
in long or short-term fixed income securities for temporary defensive purposes.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
U.S. SECTOR FUND
- ----------------
The U.S. Sector Fund (formerly the U.S. Sector Allocation Fund) seeks a
total return greater than that of the S&P 500 through investment in common
stocks. Substantially all of the Fund's investments will be chosen from among
the Wilshire 5000 and primarily from among the 1,800 companies with the largest
equity capitalization whose securities are listed on United States national
securities exchanges.
The Fund will allocate its assets, as directed by the Manager, among
major U.S. sectors (including value, growth, small/large capitalization and
defensive stocks, stocks in individual industries, etc.) and will overweight
those sectors which the Manager believes may outperform the S&P 500 generally.
The Fund may place varying degrees of emphasis on different types of companies
depending on the Manager's assessment of economic and market conditions,
including companies with superior growth prospects and/or companies whose common
stock does not, in the opinion of the Manager, adequately reflect the companies'
ongoing business value. The Fund may invest in companies with smaller equity
capitalization than the companies whose securities are purchased by the Value
Fund and the Growth Fund. The securities of small capitalization companies may
be less liquid and their market prices more volatile than those issued by
companies with larger equity capitalizations. Since the Fund's portfolio
investments will not be chosen and proportionately weighted to approximate the
S&P 500, the total return of the U.S. Sector Fund may be more or less than the
total return of the S&P 500.
In pursuing its objective, the Fund may invest in securities of foreign
issuers traded principally on U.S. securities exchanges, invest without limit in
depository receipts of foreign issuers, and purchase convertible securities. The
Fund may also purchase interests in REITs. The Fund may also invest up to 15% of
its net assets in illiquid securities, lend portfolio securities valued at up to
one-third of total assets, and enter into repurchase agreements.
In addition, the Fund may purchase index futures on the S&P 500 and
other domestic indexes for investment, anticipatory hedging and risk management
and to effect synthetic sales and purchases. The Fund may also buy exchange
traded or over-the-counter put and call options, sell (write) covered options
and
-33-
enter into futures contracts and options on futures contracts for hedging and
risk management. The Fund may also use equity swap contracts and contracts for
differences for these purposes.
It is a policy of the Fund to stay fully invested in common stocks,
index futures, equity swap contracts and contracts for differences even when the
Manager believes that equity securities generally may underperform other types
of investments. The Fund expects that, not including the margin deposits or the
segregated accounts created in connection with index futures and other
derivatives, less than 5% of its total net assets will be invested in high
quality money market instruments such as securities issued by the U.S.
government and agencies thereof, bankers' acceptances, commercial paper, and
bank certificates of deposit. The Fund will at all times invest at least 65% of
its total assets in domestic common stocks. The Fund does not expect to invest
in long or short-term fixed income securities for temporary defensive purposes.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
SMALL CAP VALUE FUND
- --------------------
The investment objective of the Small Cap Value Fund (formerly the GMO
Core II Secondaries Fund) is long-term growth of capital. Current income is only
an incidental consideration. The Small Cap Value Fund attempts to achieve its
objective by selecting its investments primarily from domestic second tier
companies. For these purposes "second tier companies" are those companies whose
equity capitalization at the time of investment by the Small Cap Value Fund
ranks in the lower two-thirds of the 1800 companies with the largest equity
capitalization whose securities are listed on a United States national
securities exchange. Among these companies, the Manager will primarily select
issuers which, in the opinion of the Manager, represent favorable values
relative to their market prices.
The Small Cap Value Fund invests primarily in common stocks, although
the Fund may on rare occasions hold securities convertible into common stocks
such as convertible bonds, convertible preferred stocks and warrants. Because of
the Fund's name, under normal market conditions, at least 65% of the Fund's
total assets will be invested in the securities of issuers with market
capitalizations believed to be equal to or less than $1.5 billion on the date of
this Prospectus. The Fund may also hold the common stocks (and securities
convertible into common stocks) of companies with smaller equity
capitalizations. Such investments may be less liquid, as the securities may not
be listed on a national securities exchange and their market prices may be more
volatile than those issued by companies with larger equity capitalizations.
In pursuing its objective, the Fund may invest in securities of foreign
issuers traded principally on U.S. securities exchanges, invest without limit in
depository receipts of foreign issuers, and purchase convertible securities. The
Fund may also purchase interests in REITs. The Fund may also invest up to 15% of
its net assets in illiquid securities, lend portfolio securities valued at up to
one-third of total assets, and enter into repurchase agreements.
In addition, the Fund may purchase index futures on the S&P 500 and
other domestic indexes for investment, anticipatory hedging and risk management
and to effect synthetic sales and purchases. The Fund may also buy exchange
traded or over-the-counter put and call options, sell (write) covered options
and enter into futures contracts for hedging and risk management. The Fund may
also use equity swap contracts and contracts for differences for these purposes.
It is a policy of the Fund to stay fully invested in common stocks,
index futures, equity swap contracts and contracts for differences even when the
Manager believes that equity securities generally may underperform other types
of investments. The Fund expects that, not including the margin deposits or the
segregated accounts created in connection with index futures and other
derivatives, less than 5% of its total net assets will be invested in high
quality money market instruments such as securities issued by the U.S.
government and agencies thereof, bankers' acceptances, commercial paper, and
bank certificates of deposit. The Fund will at all times invest at least 65% of
its total assets in domestic common stocks. The Fund does not expect to invest
in long or short-term fixed income securities for temporary defensive purposes.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
SMALL CAP GROWTH FUND
- ---------------------
The investment objective of the Small Cap Growth Fund is long-term
growth of capital. Current income is only an incidental consideration. The Small
Cap Growth Fund attempts to achieve its objective by selecting its investments
primarily from domestic second tier companies. For these purposes "second tier
companies" are those companies whose equity capitalization at the time of
investment by the Small Cap Growth Fund ranks in the lower two-thirds of the
1800 companies with the largest equity capitalization whose securities are
listed on a United States national securities exchange. Among these companies,
the Manager will primarily select stocks that it believes have above average
prospects for growth.
The Small Cap Growth Fund invests primarily in common stocks, although
the Fund may on rare occasions hold securities convertible into common stocks
such as convertible bonds, convertible preferred stocks and warrants. Because of
its name, under normal market conditions at least 65% of the Fund's total assets
will be invested in the securities of issuers with market capitalizations
believed to be equal to or less than $1.5
-34-
billion on the date of this Prospectus. The Fund may also hold the common stocks
(and securities convertible into common stocks) of companies with smaller equity
capitalizations. Such investments may be less liquid, as the securities may not
be listed on a national securities exchange and their market prices may be more
volatile than those issued by companies with larger equity capitalizations.
In pursuing its objective, the Fund may invest in securities of foreign
issuers traded principally on U.S. securities exchanges, invest without limit in
depository receipts of foreign issuers, and purchase convertible securities. The
Fund may also purchase interests in REITs. The Fund may also invest up to 15% of
its net assets in illiquid securities, lend portfolio securities valued at up to
one-third of total assets, and enter into repurchase agreements.
In addition, the Fund may purchase index futures on the S&P 500 and
other domestic indexes for investment, anticipatory hedging and risk management
and to effect synthetic sales and purchases. The Fund may also buy exchange
traded or over-the-counter put and call options, sell (write) covered options
and enter into futures contracts for hedging and risk management. The Fund may
also use equity swap contracts and contracts for differences for these purposes.
It is a policy of the Fund to stay fully invested in common stocks,
index futures, equity swap contracts and contracts for differences even when the
Manager believes that equity securities generally may underperform other types
of investments. The Fund expects that, not including the margin deposits or the
segregated accounts created in connection with index futures and other
derivatives, less than 5% of its total net assets will be invested in high
quality money market instruments such as securities issued by the U.S.
government and agencies thereof, bankers' acceptances, commercial paper, and
bank certificates of deposit. The Fund will at all times invest at least 65% of
its total assets in domestic common stocks. The Fund does not expect to invest
in long- or short-term fixed income securities for temporary defensive purposes.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
FUNDAMENTAL VALUE FUND
- ----------------------
The Fundamental Value Fund seeks long-term capital growth through
investment primarily in equity securities. Current income is only a secondary
consideration. It is anticipated that at least 90% of the Fund's assets will be
invested in common stocks and securities convertible into common stocks.
Although the Fund invests primarily in securities traded in the United States,
it may invest up to 25% of its assets in securities of foreign issuers and
securities traded principally outside of the United States.
The Fund invests primarily in common stocks of domestic corporations
that, in the opinion of the Manager, represent favorable values relative to
their market prices. Under normal conditions, the Fund generally, but not
exclusively, looks for companies with low price/earnings ratios and rising
earnings. The Fund focuses on established firms with capitalizations of more
than $100 million and generally does not buy issues of companies with less than
three years of operating history. The Fund seeks to maintain lower than average
equity risk levels relative to the potential for return through a portfolio with
an average historic volatility (beta) below 1.0. The S&P 500, which serves as a
standard for measuring volatility, always has average volatility (beta) of 1.0.
The Fund's beta may change with market conditions.
The Fund's Manager analyzes key economic variables to identify general
trends in the stock markets. World economic indicators, which are tracked
regularly, include U.S. industry and trade indicators, interest rates,
international stock market indexes, and currency levels. Under normal
conditions, investments are made in a variety of economic sectors, industry
segments, and individual securities to reduce the effects of price volatility in
any one area.
In making investments, the Manager takes into account, among other
things, a company's source of earnings, competitive edge, management strength,
and level of industry dominance as measured by market share. At the same time,
the Manager analyzes the financial condition of each company. The Manager
examines current and historical measures of relative value to find corporations
that are selling at discounts relative to both underlying asset values and
market pricing. The Manager then selects those companies with financial and
business characteristics that it believes will produce above-average growth in
earnings. Sell decisions are triggered when, in the opinion of the Manager, the
stock price and other fundamental considerations make further appreciation less
likely.
The Manager generally selects equities that normally trade in
sufficient volume to provide liquidity. Domestic equities are usually traded on
the New York Stock Exchange or the American Stock Exchange or in the
over-the-counter markets.
The Fund's investments in foreign securities will generally consist of
equity securities traded in principal European and Pacific Basin markets. The
Manager evaluates the economic strength of a country, which includes its
resources, markets, and growth rate. In addition, it examines the political
climate of a country as to its stability and business policies. The Manager then
assesses the strength of the country's currency and considers foreign exchange
issues in general. The Fund aims for diversification not only among countries
but also among industries in order to enable shareholders to participate in
markets that do not necessarily move in concert with U.S. markets.
Once the Fund has identified a rapidly expanding foreign economy, the
Fund attempts to search out growing industries and
-35-
corporations, focusing on companies with established records. Individual
securities are selected based on value indicators, such as low price to earnings
ratio. Foreign securities in the portfolio are generally listed on principal
overseas exchanges.
In pursuing its objective, the Fund may invest without limit in
depository receipts of foreign issuers, and purchase convertible securities. The
Fund may also invest up to 15% of its net assets in illiquid securities, lend
portfolio securities valued at up to one-third of total assets, and enter into
repurchase agreements.
In addition, the Fund may purchase index futures on the S&P 500 and
other domestic indexes for investment, anticipatory hedging and risk management
and to effect synthetic sales and purchases. The Fund may also buy exchange
traded or over-the-counter put and call options, sell (write) covered options
and enter into futures contracts and options on futures contracts for hedging
and risk management. The Fund may also use equity swap contracts and contracts
for differences for these purposes.
It is a policy of the Fund to stay fully invested in common stocks,
index futures, equity swap contracts and contracts for differences even when the
Manager believes that equity securities generally may underperform other types
of investments. The Fund expects that, not including the margin deposits or the
segregated accounts created in connection with index futures and other
derivatives, less than 5% of its total net assets will be invested in high
quality money market instruments such as securities issued by the U.S.
government and agencies thereof, bankers' acceptances, commercial paper, and
bank certificates of deposit. The Fund will at all times invest at least 65% of
its total assets in domestic common stocks. The Fund does not expect to invest
in long or short-term fixed income securities for temporary defensive purposes.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
REIT FUND
- ---------
The investment objective of the REIT Fund is to maximize total return
through investment primarily in real estate investment trusts ("REITS"), which
are managed vehicles that invest in real estate or real estate-related assets.
REITs purchased by the Fund will include equity REITs, which own real estate
directly, mortgage REITs, which make construction, development or long-term
mortgage loans, and hybrid REITs, which share characteristics of equity REITs
and mortgage REITs. Equity REITs will be affected by, among other things,
changes in the value of the underlying property owned by the REITs, while
mortgage REITs will be affected by, among other things, the value of the
properties to which they have extended credit.
Since the Fund's investments are concentrated in real estate-related
securities, the value of its shares can be expected to change in light of
factors affecting the real estate industry, and may fluctuate more widely than
the value of shares of a portfolio that invests in a broader range of
industries. Factors affecting the performance of real estate may include excess
supply of real property in certain markets, changes in zoning laws, completion
of construction, changes in real estate value and property taxes, sufficient
level of occupancy, adequate rent to cover operating expenses, and local and
regional markets for competing assets. The performance of real estate may also
be affected by changes in interest rates, prudent management of insurance risks
and social and economic trends. Also, REITs are dependent upon the skill of each
REIT's management.
The Fund could under certain circumstances own real estate directly as
a result of a default on debt securities it owns or from an in-kind distribution
of real estate from a REIT. Risks associated with such ownership could include
potential liabilities under environmental laws and the costs of other regulatory
compliance. If the Fund has rental income or income from the direct disposition
of real property, the receipt of such income may adversely affect its ability to
retain its tax status as a regulated investment company and thus its ability to
avoid taxation on its income and gains distributed to its shareholders. REITs
are also subject to substantial cash flow dependency, defaults by borrowers,
self-liquidation and the risk of failing to qualify for tax-free pass-through of
income under the Internal Revenue Code and/or to maintain exempt status under
the 1940 Act. By investing in REITs indirectly through the Fund, investors bear
not only a proportionate share of the expenses of the Fund, but also,
indirectly, expenses of the REITs.
Because of its name, the REIT Fund is required to have a policy of
investing at least 65% of its total assets in securities of REITs under normal
conditions, although the Fund intends to invest a greater portion of its assets
in REIT securities. The Fund may also invest in common and preferred stock,
fixed income securities including lower-rated fixed income securities (commonly
known as "junk bonds"), invest in securities principally traded in foreign
markets and foreign currency exchange transactions. The Fund may lend portfolio
securities valued at up to one-third of total assets, and invest in adjustable
rate securities, zero coupon securities and depository receipts of foreign
issuers. The Fund may also enter into repurchase agreements, reverse repurchase
agreements and dollar roll agreements. In addition, the Fund may invest in
mortgage-backed and other non-government issuers, including collateral mortgage
obligations ("CMO's"), strips and residuals. The Fund may also invest in indexed
securities the redemption values and/or coupons of which are indexed to the
prices of other securities, securities indexes, currencies, precious metals or
other commodities, or other financial indicators. The Fund may also enter into
firm commitment agreements with banks or broker-dealers, and may invest up to
15% of its net assets in illiquid securities. The Fund may hold a portion of its
assets in high quality money market instruments.
-36-
The Fund may buy and sell options and enter into futures contracts and
options on futures contracts for hedging, investment and risk management. In
particular, the Fund may purchase futures contracts on the S&P 500 and interest
rate futures contracts for anticipatory hedging purposes and otherwise to
provide investment exposure for cash balances. In addition, the Fund may use
interest rate and currency swap contracts, contracts for differences and
interest rate caps, floors and collars for hedging and for risk management.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
INTERNATIONAL EQUITY FUNDS
- --------------------------
The International Equity Funds, together with the Global Hedged Equity
Fund, International Bond Fund, Currency Hedged International Bond Fund, Global
Bond Fund and Emerging Country Debt Fund are sometimes collectively referred to
as the "INTERNATIONAL FUNDS."
INTERNATIONAL CORE FUND
- -----------------------
The investment objective of the International Core Fund is to maximize
total return through investment in a portfolio of common stocks of non-U.S.
issuers. The Fund will usually invest primarily in common stocks, including
dividend-paying common stocks. Capital appreciation may be sought through
investment in common stocks, convertible bonds, convertible preferred stocks,
warrants or rights. Income may be sought through investment in dividend-paying
common stocks, convertible bonds, money market instruments or fixed income
securities such as long and medium term corporate and government bonds and
preferred stocks. Some of these fixed income securities may have speculative
qualities and the values of these securities generally fluctuate more than those
of other, less speculative fixed income securities. See "Description and Risks
of Fund Investments -- Lower Rated Securities."
The relative emphasis of the Fund on capital appreciation or income
will depend upon the views of the Manager with respect to the opportunities for
capital appreciation relative to the opportunities for income. There are no
prescribed limits on geographic asset distribution and the Fund has the
authority to invest in securities traded in securities markets of any country in
the world, although under normal market conditions at least 65% of the Fund's
total assets will be invested in securities principally traded in the securities
markets of at least three foreign countries. The responsibility for allocating
the Fund's assets among the various securities markets of the world is borne by
the Manager. In making these allocations, the Manager will consider such factors
as the condition and growth potential of the various economic and securities
markets, currency and taxation considerations and other pertinent financial,
social, national and political factors. The Fund generally will not invest in
securities of U.S. issuers, except that for temporary defensive purposes the
Fund may invest up to 100 percent of its assets in United States securities.
The Fund may use forward foreign currency contracts, currency futures
contracts, currency swap contracts, options on currencies and buy and sell
foreign currencies for hedging and for currency risk management, although the
Fund's foreign currency exposure will not generally vary by more than 30% from
the foreign currency exposure of a benchmark index (the "EAFE-LITE INDEX"),
which is a modification of the Morgan Stanley Capital International EAFE Index
(the "EAFE INDEX") developed by the Manager so as to reduce the weighting of
Japan in the EAFE Index. The put and call options on currency futures written by
the Fund will always be covered. For more information on foreign currency
transactions, see "Descriptions and Risks of Fund Investments -- Foreign
Currency Transactions." The stocks held by the Fund will not be chosen to
approximate the weightings of the EAFE-lite Index.
The Fund may also invest in securities of investment companies, such as
closed-end investment management companies which invest in foreign markets, to
the extent permitted under the 1940 Act. As a shareholder of an investment
company, the Fund may indirectly bear service fees which are in addition to the
fees the Fund pays to its service providers.
In addition, the Fund may invest in securities of foreign issuers
traded on U.S. exchanges and securities traded abroad, American Depositary
Receipts, European Depository Receipts and other similar securities convertible
into securities of foreign issuers. The Fund may also enter repurchase
agreements, lend portfolio securities valued at up to 25% of total assets, and
may invest up to 15% of its net assets in illiquid securities. The Fund expects
that, not including the margin deposits or the segregated accounts created in
connection with index futures and other derivatives, less than 5% of its total
net assets will be invested in cash or high quality money market instruments
such as securities issued by the U.S. government and agencies thereof, bankers'
acceptances, commercial paper, and bank certificates of deposit.
The Fund may also buy put and call options, sell (write) covered
options and enter into futures contracts and options on futures contracts for
hedging and risk management. The Fund's use of options on particular securities
(as opposed to market indexes) is limited such that the time premiums paid by
the Fund on all outstanding options it has purchased may not exceed 5% of its
total assets. The Fund may also write options in connection with buy-and-write
transactions, and use index futures (on foreign stock indexes), options on
futures, equity swap contracts and contracts for differences for investment,
anticipatory hedging and risk management and to effect synthetic sales and
purchases.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
-37-
CURRENCY HEDGED INTERNATIONAL CORE FUND
- ---------------------------------------
The investment objective of the Currency Hedged International Core Fund
is to maximize total return through investment in a portfolio of common stocks
of non-U.S. issuers and through management of the Fund's currency positions. The
Fund has policies that are similar to the International Core Fund, except that
the Currency Hedged International Core Fund will employ a different strategy
with respect to foreign currency exposure. While the International Core Fund's
foreign currency exposure will not generally differ from that of the EAFE-lite
Index by more than 30%, the Currency Hedged International Core Fund's foreign
currency exposure will generally vary no more than 30% from the currency
exposure of a fully hedged EAFE-lite Index. That is, the Currency Hedged
International Core Fund will hedge a substantial portion (generally at least
70%) of the EAFE-lite foreign currency exposure while the International Core
Fund will generally hedge only a limited portion (generally less than 30%) of
EAFE-lite currency exposure. The Currency Hedged International Core Fund may use
forward foreign currency contracts, currency futures contracts, currency swap
contracts, options on currencies and buy and sell foreign currencies for hedging
and for currency risk management. While the Fund will not hedge currency risk in
the aggregate in an amount greater than the total value of its securities
denominated in foreign currencies, because the Fund will generally hedge
currency based on benchmark weightings rather than Fund investments, the Fund
will sometimes have a net short position with respect to certain foreign
currencies. The Fund's incurrence of such net short positions using forward
contracts, futures or swap contracts - to the extent the Fund has not segregated
liquid assets against such obligations is limited to no more than 10% of the
Fund's total net assets when aggregated with the Fund's traditional borrowings.
This 10% limitation applies to the face amount of unsegregated futures and
forward contracts and related options and to the amount of a Fund's net payment
obligation that is not segregated against in the case of swap contracts. The put
and call options on currency futures written by the Fund will always be covered.
For more information on foreign currency transactions, see "Description and
Risks of Fund Investments -- Foreign Currency Transactions." Because of its
name, the Currency Hedged International Core Fund is required to have a policy
that it will maintain short currency positions with respect to at least 65% of
the foreign currency exposure represented by the common stocks owned by the
Fund.
The Fund will usually invest primarily in common stocks, including
dividend-paying common stocks. The stocks held by the Fund will not be chosen to
approximate the weightings of the EAFE-lite Index. Capital appreciation may be
sought through investment in common stocks, convertible bonds, convertible
preferred stocks, warrants or rights. Income may be sought through investment in
dividend-paying common stocks, convertible bonds, money market instruments or
fixed income securities such as long and medium term corporate and government
bonds and preferred stocks. Some of these fixed income securities may have
speculative qualities and the values of these securities generally fluctuate
more than those of other, less speculative fixed income securities. See
"Description and Risks of Fund Investments -- Lower Rated Securities."
The relative emphasis of the Fund on capital appreciation or income
will depend upon the views of the Manager with respect to the opportunities for
capital appreciation relative to the opportunities for income. There are no
prescribed limits on geographic asset distribution and the Fund has the
authority to invest in securities traded in securities markets of any country in
the world, although under normal market conditions the Fund will invest in
securities traded in the securities markets of at least three foreign countries.
The responsibility for allocating the Fund's assets among the various securities
markets of the world is borne by the Manager. In making these allocations, the
Manager will consider such factors as the condition and growth potential of the
various economic and securities markets, currency and taxation considerations
and other pertinent financial, social, national and political factors. The Fund
generally will not invest in securities of U.S. issuers, except that for
temporary defensive purposes the Fund may invest up to 100 percent of its assets
in United States securities.
The Fund may also invest in securities of investment companies, such as
closed-end investment management companies which invest in foreign markets, to
the extent permitted under the 1940 Act. As a shareholder of an investment
company, the Fund may indirectly bear service fees which are in addition to the
fees the Fund pays to its service providers.
In addition, the Fund may invest in securities of foreign issuers
traded on U.S. exchanges and securities traded abroad, American Depositary
Receipts, European Depository Receipts and other similar securities convertible
into securities of foreign issuers. The Fund may also enter repurchase
agreements, and lend portfolio securities valued at up to 25% of total assets.
The Fund may also invest up to 15% of its net assets in illiquid securities and
temporarily invest in cash and high quality money market instruments such as
securities issued by the U.S. government and agencies thereof, bankers'
acceptances, commercial paper, and bank certificates of deposit. The Fund
expects that, not including the margin deposits or the segregated accounts
created in connection with index futures and other derivatives, less than 5% of
its total net assets will be invested in such high quality cash items.
The Fund may also buy put and call options, sell (write) covered
options and enter into futures contracts and options on futures contracts for
hedging and risk management. The Fund's use of options on particular securities
(as opposed to market indexes) is limited such that the time premiums paid by
the Fund on all outstanding options it has purchased may not exceed 5% of its
total assets. The Fund may also write options in connection with buy-and-write
transactions, and use index futures (on foreign stock indexes), options on
futures, equity swap contracts and contracts for differences for investment,
anticipatory hedging and risk management and to effect synthetic sales and
purchases.
-38-
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
FOREIGN FUND
- ------------
The investment objective of the Foreign Fund is to maximize total
return through investment primarily in equity securities of non-U.S. issuers.
The Fund's investment strategy is based on a fundamental analysis of issuers and
country economics. The Fund will usually invest primarily in common stocks,
including dividend-paying common stocks. Capital appreciation may be sought
through investment in common stocks, convertible bonds, convertible preferred
stocks, warrants or rights. Income may be sought through investment in
dividend-paying common stocks, convertible bonds, money market instruments or
fixed income securities such as long and medium term corporate and government
bonds and preferred stocks. Some of these fixed income securities may have
speculative qualities and the values of these securities generally fluctuate
more than those of other, less speculative fixed income securities. See
"Description and Risks of Fund Investments -- Lower Rated Securities."
The relative emphasis of the Fund on capital appreciation or income
will depend upon the views of the Manager with respect to the opportunities for
capital appreciation relative to the opportunities for income. There are no
prescribed limits on geographic asset distribution and the Fund has the
authority to invest in securities traded in securities markets of any country in
the world other than the United States, although under normal market conditions
at least 65% of the Foreign Fund's total assets will be invested in securities
principally traded in the securities markets of at least three countries other
than the United States. The responsibility for allocating the Fund's assets
among the various securities markets of the world is borne by the Manager. In
making these allocations, the Manager will consider such factors as the
condition and growth potential of the various economic and securities markets,
currency and taxation considerations and other pertinent financial, social,
national and political factors.
The Fund may use forward foreign currency contracts and currency
futures contracts for the purpose of hedging the currency exposure of its
portfolio securities. The Fund is not required to hedge its currency risk and
will not normally hedge more than 90% of such risks. The Fund will not buy and
sell foreign currencies for investment purposes, but may hold foreign currencies
pending investments consistent with the Fund's investment program. The Fund will
not invest in options on foreign currencies.
The Fund may also invest in securities of investment companies, such as
closed-end investment management companies which invest in foreign markets, to
the extent permitted under the 1940 Act. As a shareholder of an investment
company, the Fund may indirectly bear service fees which are in addition to the
fees the Fund pays to its service providers.
In addition, the Fund may invest in securities of foreign issuers
traded on U.S. exchanges and securities traded abroad, American Depositary
Receipts, European Depository Receipts and other similar securities convertible
into securities of foreign issuers. The Fund may also enter into repurchase
agreements, lend portfolio securities valued at up to one-third of total assets,
and may invest up to 10% of its net assets in illiquid securities. The Fund may
invest up to 20% of its assets in securities of issuers in newly industrialized
countries of the type invested in by the Emerging Markets Fund.
The Fund may also buy put and call options, sell (write) covered
options and enter into futures contracts and options on futures contracts for
hedging and risk management. The Fund may also write options in connection with
buy-and-write transactions and use index futures.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
GLOBAL FUND
- -----------
The investment objective of the Global Fund is to maximize total return
through investment primarily in equity securities of U.S. and non-U.S. issuers.
The Fund's investment strategy is based on a fundamental analysis of issuers and
country economics. The Fund will usually invest primarily in common stocks,
including dividend-paying common stocks. Capital appreciation may be sought
through investment in common stocks, convertible bonds, convertible preferred
stocks, warrants or rights. Income may be sought through investment in
dividend-paying common stocks, convertible bonds, money market instruments or
fixed income securities such as long and medium term corporate and government
bonds and preferred stocks. Some of these fixed income securities may have
speculative qualities and the values of these securities generally fluctuate
more than those of other, less speculative fixed income securities. See
"Description and Risks of Fund Investments -- Lower Rated Securities."
The relative emphasis of the Fund on capital appreciation or income
will depend upon the views of the Manager with respect to the opportunities for
capital appreciation relative to the opportunities for income. There are no
prescribed limits on geographic asset distribution and the Fund has the
authority to invest in securities traded in securities markets of any country in
the world, although under normal market conditions at least 65% of the Fund's
total assets will be invested in securities principally traded in the securities
markets of at least three countries. The responsibility for allocating the
Fund's assets among the various securities markets of the world is borne by the
Manager. In making these allocations, the Manager will consider such factors as
the condition and growth potential of the
-39-
various economic and securities markets, currency and taxation considerations
and other pertinent financial, social, national and political factors.
The Fund may use forward foreign currency contracts and currency
futures contracts for the purpose of hedging the currency exposure of its
portfolio securities. The Fund is not required to hedge its currency risk and
will not normally hedge more than 90% of such risks. The Fund will not buy and
sell foreign currencies for investment purposes, but may hold foreign currencies
pending investments consistent with the Fund's investment program.
The Fund may also invest in securities of investment companies, such as
closed-end investment management companies which invest in foreign markets, to
the extent permitted under the 1940 Act. As a shareholder of an investment
company, the Fund may indirectly bear service fees which are in addition to the
fees the Fund pays its service providers.
In addition, the Fund may invest in American Depositary Receipts,
European Depository Receipts and other similar securities convertible into
securities of foreign issuers. The Fund may also enter into repurchase
agreements, lend portfolio securities valued at up to one-third of total assets,
and may invest up to 10% of its net assets in illiquid securities. The Fund may
invest up to 20% of its assets in securities of issuers in newly industrialized
countries of the type invested in by the Emerging Markets Fund.
The Fund may also buy put and call options, sell (write) covered
options and enter into futures contracts and options on futures contracts for
hedging and risk management. The Fund may also write options in connection with
buy-and-write transactions and use index futures.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
INTERNATIONAL SMALL COMPANIES FUND
- ----------------------------------
The International Small Companies Fund seeks to maximize total return
through investment primarily in equity securities of foreign issuers whose
equity securities are traded on a major stock exchange of a foreign country
("foreign stock exchange companies") and whose equity capitalization at the time
of investment, when aggregated with the equity capitalizations of all foreign
stock exchange companies in that country whose equity capitalizations are
smaller than that of such company, is less than 50% of the aggregate equity
capitalization of all foreign stock exchange companies in such country ("small
capitalization foreign companies"). With the exception of the International
Small Companies Fund's policy of investing in securities of small capitalization
foreign companies, and except as otherwise disclosed in this Prospectus and the
related Statement of Additional Information, the International Small Companies
Fund's investment objectives and policies are the same as those described above
with respect to the International Core Fund.
It is currently expected that at least 65% of the International Small
Companies Fund's assets will be invested in common stocks of small
capitalization foreign companies. Such companies may present greater
opportunities for capital appreciation because of high potential earnings
growth, but may also involve greater risk. Small capitalization foreign
companies tend to be smaller and newer than other foreign companies and may be
dependent upon a single proprietary product or market niche. They may have
limited product lines, markets or financial resources, or may depend on a
limited management group. Typically, small capitalization foreign companies have
fewer securities outstanding and are less liquid than large companies. Their
common stock and other securities may trade less frequently and in limited
volume. The securities of small capitalization foreign companies are generally
more sensitive to purchase and sale transactions and, therefore, the prices of
such securities tend to be more volatile than the securities of larger
companies.
The Fund may also invest in securities of investment companies, such as
closed-end investment management companies which invest in foreign markets, to
the extent permitted under the 1940 Act. As a shareholder of an investment
company, the Fund may indirectly bear service fees which are in addition to the
fees the Fund pays to its service providers.
The Fund also may invest in securities of foreign issuers traded on
U.S. exchanges and securities traded abroad, American Depositary Receipts,
European Depository Receipts and other similar securities convertible into
securities of foreign issuers. The Fund may also enter repurchase agreements,
and lend portfolio securities valued at up to one-third of total assets. The
Fund may also invest up to 15% of its net assets in illiquid securities and
temporarily invest in cash and high quality money market instruments such as
securities issued by the U.S. government and agencies thereof, bankers'
acceptances, commercial paper, and bank certificates of deposit. The Fund
expects that, not including the margin deposits or the segregated accounts
created in connection with index futures and other derivatives, less than 5% of
its total net assets will be invested in such high quality cash items.
The Fund may also buy put and call options, sell (write) covered
options and enter into futures contracts and options on futures contracts for
hedging and risk management. The Fund's use of options on particular securities
(as opposed to market indexes) is limited such that the time premiums paid by
the Fund on all outstanding options it has purchased may not exceed 5% of its
total assets. The Fund may also write options in connection with buy-and-write
transactions, and use index futures (on foreign stock indexes), options on
futures, equity swap contracts and contracts for differences for investment,
anticipatory hedging and risk management and to effect synthetic sales and
purchases.
-40-
The Fund may use forward foreign currency contracts, currency futures
contracts, currency swap contracts, options on currencies and buy and sell
foreign currencies for hedging and for currency risk management. The put and
call options on currency futures written by the Fund will always be covered.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
JAPAN FUND
- ----------
The Japan Fund seeks to maximize total return through investment in a
portfolio of Japanese securities, consisting primarily of common stocks of
Japanese companies. It is currently expected that at least 90% of the net assets
of the Japan Fund will be invested in or exposed to "Japanese Securities," that
is, securities issued by entities that are organized under the laws of Japan and
that either have 50% or more of their assets in Japan or derive 50% or more of
their revenues from Japan ("Japanese Companies"). Although the Japan Fund will
invest primarily in common stocks of Japanese Companies, it may also invest in
other Japanese Securities, such as convertible preferred stock, warrants or
rights as well as short-term government debt securities or other short-term
prime obligations (i.e., high quality debt obligations maturing not more than
one year from the date of issuance). The Japan Fund expects that any income it
derives will be from dividend or interest payments on securities.
Unlike mutual funds which invest in the securities of many other
countries, the Japan Fund will be invested almost exclusively in Japanese
Securities. No effort will be made by the Manager to assess the Japanese
economic, political or regulatory developments or changes in currency exchange
rates for purposes of varying the portion of the Fund's assets invested in
Japanese Securities. This means that the Fund's performance will be directly
affected by political, economic, market and exchange rate conditions in Japan.
Also, since the Japanese economy is dependent to a significant extent on foreign
trade, the relationships between Japan and its trading partners and between the
yen and other currencies are expected to have a significant impact on particular
Japanese Companies and on the Japanese economy generally. Also, the Japan Fund's
investments are denominated in yen, whose value continually changes in relation
to the dollar. This varying relationship will also directly affect the value of
the Japan Fund's shares. The Japan Fund is designed for investors who are
willing to accept the risks associated with changes in such conditions and
relationships.
To achieve its objectives, the Fund may invest in securities of foreign
issuers traded on U.S. exchanges and securities traded abroad, American
Depositary Receipts, European Depository Receipts and other similar securities
convertible into securities of foreign issuers. The Fund may also enter
repurchase agreements, and lend portfolio securities valued at up to one-third
of total assets. The Fund may also invest up to 15% of its net assets in
illiquid securities and temporarily invest in cash and high quality money market
instruments such as securities issued by the U.S. government and agencies
thereof, bankers' acceptances, commercial paper, and bank certificates of
deposit. The Fund expects that, not including the margin deposits or the
segregated accounts created in connection with index futures or other
derivatives, less than 5% of its total net assets will be invested in such high
quality cash items.
The Fund may also invest in securities of investment companies, such as
closed-end investment management companies which invest in foreign markets, to
the extent permitted under the 1940 Act. As a shareholder of an investment
company, the Fund may indirectly bear service fees which are in addition to the
fees the Fund pays to its service providers.
The Fund may also buy put and call options, sell (write) covered
options and enter into futures contracts and options on futures contracts for
hedging and risk management. The Fund's use of options on particular securities
(as opposed to market indexes) is limited such that the time premiums paid by
the Fund on all outstanding options it has purchased may not exceed 5% of its
total assets. The Fund may also write options in connection with buy-and-write
transactions, and use index futures (on foreign stock indexes), options on
futures, equity swap contracts and contracts for differences for investment,
anticipatory hedging and risk management and to effect synthetic sales and
purchases.
The Fund may use forward foreign currency contracts, currency futures
contracts, currency swap contracts, options on currencies and buy and sell
foreign currencies for hedging and for currency risk management. The put and
call options on currency futures written by the Fund will always be covered.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
EMERGING MARKETS FUND
- ---------------------
The Emerging Markets Fund seeks long-term capital appreciation
consistent with what the Manager believes to be a prudent level of risk through
investment in equity and equity-related securities traded in the securities
markets of newly industrializing countries in Asia, Latin America, the Middle
East, Southern Europe, Eastern Europe and Africa. The Manager has appointed
Dancing Elephant, Ltd. to serve as Consultant to the Fund.
The Consultant's efforts focus on asset allocation among the selected
emerging markets. (See "Description and Risks of Fund Investments -- Certain
Risks of Foreign Investments.") In addition to considerations relating to a
particular market's investment restrictions and tax barriers, asset allocation
is based on certain other relevant factors including the outlook for economic
growth, currency exchange rates, commodity prices, interest rates, political
factors and the stage of the local market cycle in such emerging market. The
Consultant expects to
-41-
allocate the Fund's investments over geographic as well as economic sectors.
There are currently over 50 newly industrializing and developing
countries with equity markets. A number of these markets are not yet easily
accessible to foreign investors and have unattractive tax barriers or
insufficient liquidity to make significant investments by the Fund feasible or
attractive. However, many of the largest of the emerging markets have, in recent
years, liberalized access and more are expected to do so over the coming few
years if the present trend continues.
Emerging markets in which the Fund intends to invest may include the
following emerging markets ("EMERGING MARKETS"):
Asia: Bangladesh, China, India, Indonesia, Republic of
Korea, Malaysia, Myanmar, Mongolia, Pakistan,
Philippines, Sri Lanka, Republic of China (Taiwan),
Thailand, Vietnam
Latin
America: Argentina, Bolivia, Brazil, Chile, Colombia, Costa
Rica, Ecuador, Jamaica, Mexico, Peru, Uruguay,
Venezuela
Europe/
Middle East/
Africa: Botswana, Czech Republic, Ghana, Greece, Hungary,
Israel, Jordan, Kazakhstan, Kenya, Morocco, Namibia,
Nigeria, Poland, Portugal, Russia, Slovakia,
Slovenia, South Africa, Turkey, Ukraine, Zimbabwe
The Emerging Markets Fund has a fundamental policy that, under normal
conditions, at least 65% of its total assets will be invested in equity and
equity-related securities which are predominantly traded on Emerging Market
exchanges ("Emerging Market Securities"). The Fund invests predominantly in
individual stocks listed on Emerging Market stock exchanges or in depository
receipts of such stocks listed on markets in industrialized countries or traded
in the international equity market. The Fund may also invest in shares of
companies which are not presently listed but are in the process of being
privatized by the government and, subject to a maximum aggregate investment
equal to 25% of the total assets of the Fund, shares of companies that are
traded in unregulated over-the-counter markets or other types of unlisted
securities markets. The Fund may also invest through investment funds, pooled
accounts or other investment vehicles designed to permit investments in a
portfolio of stocks listed in a particular developing country or region subject
to obtaining any necessary local regulatory approvals, particularly in the case
of countries in which such an investment vehicle is the exclusive or main
vehicle for foreign portfolio investment. Such investments may result in
additional costs, as the Fund may be required to bear a pro rata share of the
expenses of each such fund in which it invests. The Fund may also invest in
companies listed on major markets outside of the emerging markets that, based on
information obtained by the Consultant, derive at least half of their revenues
from trade with or production in developing countries. In addition, the Fund's
assets may be invested on a temporary basis in debt securities issued by
companies or governments in developing countries or money market securities of
high-grade issuers in industrialized countries denominated in various
currencies.
The Fund may also invest in bonds and money market instruments in
Canada, the United States and other markets of industrialized nations and
emerging securities markets, and, for temporary defensive purposes, may invest
without limit in cash and high quality money market instruments such as
securities issued by the U.S. government and agencies thereof, bankers'
acceptances, commercial paper, and bank certificates of deposit. The Fund
expects that, not including the margin deposits or the segregated accounts
created in connection with index futures and other derivatives, less than 5% of
its total net assets will be invested in such high quality cash items. The Fund
may also invest in indexed securities, the redemption value and/or coupons of
which are indexed to the prices of other securities, securities indexes,
currencies, precious metal, or other commodities, as well as other technical
indicators.
The Fund may also invest up to 10% of its total assets through
debt-equity conversion funds established to exchange foreign bank debt of
countries whose principal repayments are in arrears into a portfolio of listed
and unlisted equities, subject to certain repatriation restrictions. The Fund
may also invest in convertible securities, enter repurchase agreements and lend
portfolio securities valued at up to one-third of total assets. The Fund may
invest up to 15% of its net assets in illiquid securities.
The Fund may also buy put and call options, sell (write) covered
options and enter into futures contracts and options on futures contracts for
hedging and risk management. The Fund's use of options on particular securities
(as opposed to market indexes) is limited such that the time premiums paid by
the Fund on all outstanding options it has purchased may not exceed 5% of its
total assets. The Fund may also write options in connection with buy-and-write
transactions, and use index futures (on foreign stock indexes), options on
futures, equity swap contracts and contracts for differences for investment,
anticipatory hedging and risk management and to effect synthetic sales and
purchases.
The Fund may use forward foreign currency contracts, currency futures
contracts, currency swap contracts, options on currencies and buy and sell
foreign currencies for hedging and for currency risk management. The put and
call options on currency futures written by the Fund will always be covered.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
-42-
GLOBAL PROPERTIES FUND
- ----------------------
The Global Properties Fund seeks long-term growth of capital. The Fund
pursues its objective by investing primarily in securities of issuers throughout
the world which are principally engaged in or related to the real estate
industry or which own significant real estate assets ("Real Estate Companies").
The Fund will not invest directly in real estate. A Real Estate Company is
principally engaged in or related to the real estate industry if at least 50% of
its assets, gross income or net profits are attributable to ownership,
construction, management or sale of residential, commercial or industrial real
estate, or to products or services that are related to the real estate industry.
For these purposes, Real Estate Companies whose products or services are related
to the real estate industry include manufacturers and distributors of building
supplies and financial institutions which issue or service mortgages. Real
Estate Companies may also include: equity real estate investment trusts, which
own real estate directly; mortgage real estate investment trusts, which make
construction, development or long-term mortgage loans; real estate brokers or
developers; and issuers with substantial real estate holdings.
The responsibility for allocating the Fund's assets among the various
securities markets of the world is borne by the Manager. In making these
allocations, the Manager will consider such factors as the condition and growth
potential of the various economic and securities markets, currency and taxation
considerations and other pertinent financial, social, national and political
factors. The Manager anticipates that the Fund will give particular
consideration to investments in the United Kingdom, Western Europe, Australia,
Canada, the Far East (Japan, Hong Kong, Singapore, Malaysia and Thailand) and
the United States. The percentage of the Fund's assets invested in particular
geographic regions will shift from time to time in accordance with the judgment
of the Manager. Under normal market conditions, the Fund will invest at least
65% of its total assets in securities of Real Estate Companies principally
traded in the securities markets of at least three countries (one of which may
be the United States). A substantial portion of the assets of the Fund will be
denominated or traded in foreign currencies.
Although the Fund generally invests in common stocks, it may also
invest in preferred stocks, convertible securities and fixed income securities
including lower-rated fixed income securities (commonly known as "junk bonds").
Where lower-rated debt securities are secured by real estate assets, it is
conceivable that the Fund could, in the event of default, end up holding the
underlying real estate directly. Risks associated with such ownership could
include potential liabilities under environmental laws and the costs of other
regulatory compliance. If the Fund has rental income or income from the direct
disposition of real property, the receipt of such income may adversely affect
its ability to retain its tax status as a regulated investment company and thus
its ability to avoid taxation on its income and gains distributed to its
shareholders. See "Taxes" below.
As indicated, the Fund expects to invest in securities of foreign
issuers traded on U.S. exchanges and securities traded abroad, and may also
invest in depository receipts and foreign exchange transactions. The Fund may
also invest in adjustable rate securities, zero coupon securities and
mortgage-backed and other asset-backed securities issued by the U.S. government,
its agencies and by non-government issuers, including collateralized mortgage
obligations ("CMO's"), strips and residuals. The Fund may lend portfolio
securities valued at up to one-third of total assets and enter into repurchase
agreements, reverse repurchase agreements and dollar roll agreements. The Fund
may also invest in indexed securities the redemption values and/or coupons of
which are indexed to the prices of other securities, securities indexes,
currencies, precious metals or other commodities, or other financial indicators.
The Fund may also enter into firm commitment agreements with banks or
broker-dealers, and may invest up to 15% of its net assets in illiquid
securities.
The Fund may use forward foreign currency contracts, currency futures
contracts, options on currencies and buy and sell foreign currencies for hedging
and for currency risk management. The put and call options on currency futures
written by the Fund will always be covered.
The Fund may also invest in securities of investment companies, such as
closed-end investment management companies which invest in foreign markets, to
the extent permitted under the 1940 Act. As a shareholder of an investment
company, the Fund may indirectly bear service fees which are in addition to the
fees the Fund pays to its service providers.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
FIXED INCOME FUNDS
- ------------------
As used in several of the Fixed Income Funds' investment objectives
below, "BOND" means any fixed income obligation with an original maturity of two
years or more, as well as "synthetic" bonds created by combining a futures
contract or option on a fixed income security with cash, a cash equivalent
investment or another fixed income security. (See "Description and Risks of Fund
Investments -- Uses of Options, Futures and Options on Futures -- Investment
Purposes.") Under normal market conditions, each of the Emerging Country Debt
Fund, the International Bond Fund, the Currency Hedged International Bond Fund
and the Global Bond Fund will invest at least 65% of its assets in bonds of
issuers of at least three countries (excluding the United States). However, up
to 100% of these Fixed Income Fund's assets may be denominated in U.S. dollars,
and for temporary defensive purposes, each such Fixed Income Fund may invest as
much as 100% of its assets in issuers from one or two countries, which may
include the United States. The Global Hedged Equity Fund is referred to as a
"Fixed Income Fund" despite its substantial investment in equity securities
because, as
-43-
described more fully in the description of that Fund, the Global Hedged Equity
Fund attempts to hedge the general equity market risk of its equity investments,
producing a theoretical fixed income return, plus or minus the performance of
the Fund's equity holdings relative to equity markets generally.
SHORT-TERM INCOME FUND
- ----------------------
The Short-Term Income Fund seeks current income to the extent
consistent with the preservation of capital and liquidity through investment in
a portfolio of fixed income instruments rated high quality by Standard & Poor's
Corporation ("S&P") or by Moody's Investors Service, Inc. ("MOODY'S") or
considered by the Manager to be of comparable quality. While the Short-Term
Income Fund intends to invest in short-term securities, it is not a money market
fund. Debt securities held by the Fund which have a remaining maturity of 60
days or less will be valued at amortized cost unless circumstances dictate
otherwise. See "Determination of Net Asset Value." It is the present policy of
the Short-Term Income Fund, which may be changed without shareholder approval,
to maintain at least 65% of the Fund's assets invested in securities with
remaining maturities of two years or less.
In determining whether a security is a suitable investment for the
Short-Term Income Fund, reference will be made to the quality of the security,
including its rating, at the time of purchase. The Manager may or may not
dispose of a portfolio security as a result of a change in the securities'
rating, depending on its evaluation of the security in light of the Fund's
investment objectives and policies.
The Fund may invest in prime commercial paper and master demand notes
(rated "A-1" by S&P or "Prime-1" by Moody's or, if not rated, issued by
companies having an outstanding debt issue rated at least "AA" by S&P or at
least "Aa" by Moody's), high-quality corporate debt securities (rated at least
"AA" by S&P or at least "Aa" by Moody's), and high-quality debt securities
backed by pools of commercial or consumer finance loans (rated at least "AA" by
S&P or "Aa" by Moody's) and certificates of deposit, bankers' acceptances and
other bank obligations (when and if such other bank obligations become available
in the future) issued by banks having total assets of at least $2 billion as of
the date of the bank's most recently published financial statement.
In addition to the foregoing, the Short-Term Income Fund may also
invest in certificates of deposit of $100,000 or less of domestic banks and
savings and loan associations, regardless of total assets, if the certificates
of deposit are fully insured as to principal by the Federal Deposit Insurance
Corporation. The Short-Term Income Fund may invest up to 100% of its assets in
obligations issued by banks, and up to 15% of its assets in obligations issued
by any one bank. If the bank is a domestic bank, it must be a member of the
Federal Deposit Insurance Corporation. This does not prevent the Short-Term
Income Fund from investing in obligations issued by foreign branches of domestic
banks and there is currently no limit on the Fund's ability to invest in these
obligations. If the bank is foreign, the obligation must, in the opinion of the
Manager, be of a quality comparable to the other debt securities which may be
purchased by the Short-Term Income Fund. There are special risks associated with
investments in such foreign bank obligations, including the risks associated
with foreign political, economic and legal developments and the fact that
foreign banks may not be subject to the same or similar regulatory requirements
that apply to domestic banks. (See "Description and Risks of Fund Investments
Certain Risks of Foreign Investments.") The Short-Term Income Fund will invest
in these securities only when the Manager believes the risks are minimal. In
addition, to the extent the Short-Term Income Fund concentrates its assets in
the banking industry, including the domestic banking industry, adverse events
affecting the industry may also have an adverse effect on the Fund. Such adverse
events include, but are not limited to, rising interest rates which affect a
bank's ability to maintain the "spread" between the cost of money and any fixed
return earned on money, as well as industry-wide increases in loan default rates
and declines in the value of loan collateral such as real estate. The Fund may
also invest in U.S. Government Securities.
The Short-Term Income Fund may purchase any of the foregoing
instruments through firm commitment arrangements with domestic commercial banks
and registered broker-dealers and may enter into repurchase agreements with such
banks and broker-dealers with respect to any of the foregoing money market
instruments, longer term U.S. Government Securities or corporate debt securities
rated at least "AA" by S&P or at least "Aa" by Moody's. The Fund will only enter
into firm commitment arrangements and repurchase agreements with banks and
broker-dealers which the Manager determines present minimal credit risks.
All of the Short-Term Income Fund's investments will, at the time of
investment, have remaining maturities of five years or less and the average
maturity of the Short-Term Income Fund's portfolio securities based on their
dollar value will not exceed two years at the time of each investment. When the
Fund has purchased a security subject to a repurchase agreement, the amount and
maturity of the Fund's investment will be determined by reference to the amount
and term of the repurchase agreement, not by reference to the underlying
security. When the Fund purchases an adjustable rate security, the security's
maturity will be determined with reference to the frequency with which the rate
is adjusted. If the disposition of a portfolio security results in a
dollar-weighted average portfolio maturity in excess of two years for the Fund,
it will invest its available cash in such a manner as to reduce its
dollar-weighted average maturity to two years or less as soon as reasonably
practicable.
The Fund may also invest in foreign securities when the Manager
believes the risks are minimal, and lend portfolio securities valued at up to
one-third of total assets.
-44-
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
GLOBAL HEDGED EQUITY FUND
- -------------------------
The Global Hedged Equity Fund seeks total return consistent with
minimal exposure to general equity market risk. Although at least 65% of the
Fund's total assets will be invested in equity securities, as a result of the
Fund's hedging techniques, the Fund expects to create a return more similar to
that received by an investment in fixed income securities. The Fund will pursue
its investment objective by investing substantially all of its assets in a
combination of (i) equity securities, (ii) derivative instruments intended to
hedge the value of the Fund's equity securities against substantially all of the
general movements in the relevant equity market(s), including hedges against
substantially all of the changes in the value of the U.S. dollar relative to the
currencies represented in the indexes used to hedge general equity market risk
and (iii) long interest rate futures contracts intended to adjust the duration
of the theoretical fixed income security embedded in the pricing of the
derivatives used for hedging the Fund's equity securities (the "THEORETICAL
FIXED INCOME SECURITY"). The Fund may also buy exchange traded or
over-the-counter put and call options and sell (write) covered options for
hedging or investment. To the extent that the Fund's portfolio strategy is
successful, the Fund is expected to achieve a total return consisting of (i) the
performance of the Fund's equity securities, relative to the relevant equity
market indexes (including appreciation or depreciation of any overweighted
currency relative to the currency weighting of the equity hedge), plus or minus
(ii) short-term capital gains or losses approximately equal to the total return
on the Theoretical Fixed Income Security, plus or minus (iii) capital gains or
losses on the Fund's interest rate futures positions minus (iv) transaction
costs and other Fund expenses. Investors should understand that, as opposed to
conventional equity portfolios, to the extent that the Fund's hedging positions
are effective, the performance of the Fund is not expected to correlate with the
movements of equity markets generally. Rather, the performance of the Fund will
tend to be a function of the total return on fixed income securities and the
performance of the Fund's equity securities relative to broad market indexes,
including changes in overweighted currencies relative to the currency weighting
of those indexes.
The Global Hedged Equity Fund has a fundamental policy that, under
normal market conditions, at least 65% of its total assets will be invested in
equity securities. In addition, under normal market conditions, the Fund will
invest in securities principally traded in the securities markets of at least
three countries. The Global Hedged Equity Fund will generally invest in at least
125 different common stocks chosen from among (i) U.S. stocks in which the Core
Fund is permitted to invest and (ii) stocks traded primarily outside of the
United States in which the International Core Fund is permitted to invest. The
Fund may invest up to 20% of its assets in securities of issuers in newly
industrializing countries of the type invested in by the Emerging Markets Fund.
The Manager will select which common stocks to purchase based on its assessment
of whether the common stock of an issuer (and/or the currency in which the stock
is traded) is likely to perform better than the broad global equity market index
(the "SELECTED EQUITY INDEX") selected by the Manager to serve as a hedge for
the Fund's portfolio as a whole.
As indicated above, the Fund will seek to hedge fully the value of its
equity holdings (measured in U.S. dollars) against substantially all movements
in the global equity markets (measured in U.S. dollars). This means that, if the
hedging strategy is successful, when the world equity markets and/or the U.S.
dollar go up or down, the Fund's net asset value will not be materially affected
by those movements in the relevant equity or currency markets generally, but
will rise or fall based primarily on whether the Fund's selected equity
securities perform better or worse than the Selected Equity Index. Those changes
will include the changes in any overweighted currency relative to the currency
weighting of the Selected Equity Index.
The Fund may use a variety of equity hedging instruments. It is
currently anticipated that the Fund will primarily use a combination of short
equity swap contracts and Index Futures for the purpose of hedging equity market
exposure, including, to the extent permitted by regulations of the Commodity
Futures Trading Commission, those traded on foreign markets. Derivative short
positions represented by the Fund's equity swap contracts will generally relate
to modified versions of the market capitalization weighted U.S., Europe,
Australia and Far East Index (or "GLOBAL INDEX") calculated by Morgan Stanley
Capital International. These modified indexes ("MODIFIED GLOBAL INDEX"), which
are maintained by the Manager, generally reduce the size of the Japanese equity
markets for purposes of the country weighting by 40% or more. The Fund generally
expects to build its currency hedging into its equity swap contracts, although
it may also attempt to hedge directly its foreign currency-denominated portfolio
securities against an appreciation in the U.S. dollar relative to the foreign
currencies in which such securities are denominated.
The Manager expects to select specific equity investments without
regard to the country weightings of the Modified Global Index and in some cases
may intentionally emphasize holdings in a particular market or traded in a
particular currency. Because the country market and currency weighting of the
Modified Global Index will generally not precisely mirror the country market
weightings represented by the Fund's equity securities, there will be an
imperfect correlation between the Fund's equity securities and the hedging
position(s). Consequently, the Fund's hedging strategies using those equity swap
contracts are expected to be somewhat imperfect. This means there is a risk that
if the Fund's equity securities decline in value as a result of general market
conditions, the hedging position(s) may not appreciate enough to offset that
decline (or may actually depreciate). Likewise, if the Fund's equity securities
increase in value, that value may be
-45-
more than offset by a decline in the value of the hedging position(s). Also,
because the Manager may conclude that a particular currency is likely to
appreciate relative to the currencies represented by the Selected Equity Index,
securities traded in that particular currency may be overweighted relative to
the Selected Equity Index. Such an overweighted position may result in a loss or
reduced gain to the Fund (even when the security appreciates in local currency)
if the relevant currency depreciates relative to the currencies represented by
the Modified Global Index.
The Fund's hedging positions are also expected to increase or decrease
the Fund's gross total return by an amount approximating the total return on
relevant short-term fixed income securities referred to above as the Theoretical
Fixed Income Security. For example, as the holder of a short derivative position
on an equity index, the Fund will be obligated to pay the holder of the long
position (the "counterparty") the total return on that equity index. The Fund's
contractual obligation eliminates for the counterparty the opportunity cost that
would be associated with actually owning the securities underlying that equity
index. That opportunity cost would generally be considered the total return that
a counterparty could achieve if the counterparty's capital were invested in a
short-term fixed income security (i.e., up to 2 years maturity) rather than in
the securities underlying the Relevant Equity Index. Because the counterparty is
relieved of this cost, the pricing of the hedging instruments is designed to
compensate the holder of the short position (in this case the Fund) by paying to
the holder the total return on the Theoretical Fixed Income Security. (Another
way of thinking about this is that the holder of the short position must, in
theory, be compensated for the cost of borrowing money over some relatively
short term (generally up to 2 years) to purchase an equity portfolio matching
that holder's obligations under the hedging instrument.)
In practice, the Manager has represented that generally, if there is no
movement in the Relevant Equity Index during the term of the derivative
instrument, the Fund as the holder of the short (hedging) position would be able
to close out that position with a gain or loss equal to the total return on a
Theoretical Fixed Income Security with a principal amount equal to the face or
notional amount of the hedging instrument.
The total return on the Theoretical Fixed Income Security would be
accrued interest plus or minus the capital gain or loss on that security. In the
case of Index Futures, the Fund would expect the Theoretical Fixed Income
Security would be one with a term equal to the remaining term of the Index
Future and bearing interest at a rate approximately equal to the weighted
average interest rate for money market obligations denominated in the currency
or currencies used to settle the Index Futures (generally LIBOR if settled in
U.S. dollars). In the case of equity swap contracts, the Manager can specify the
Theoretical Fixed Income Security whose total return will be paid to (or payable
by) the Fund. In cases where the Manager believes the implicit "duration" of the
Fund's theoretical fixed income securities is too short to provide an acceptable
total return, the Fund may enter into long interest rate futures (or purchase
call options on longer maturity fixed-income securities) which, together with
the Theoretical Fixed Income Security, creates a synthetic Theoretical Fixed
Income Security with a longer duration (but never with a duration causing the
Fund's overall duration to exceed that of 3-year U.S. Treasury obligations) (See
"Description and Risks of Fund Investments -- Use of Options, Futures and
Options on Futures -- Investment Purposes"). The Fund will segregate cash, U.S.
Treasury obligations and other high grade debt obligations in an amount equal,
on a marked-to-market basis, to the Fund's obligations under the interest rate
futures. Duration is the average time until payment (or anticipated payment in
the case of a callable security) of interest and principal on a fixed income
security, weighted according to the present value of each payment.
If interest rates rise, the Fund would expect that the value of any
long interest rate future owned by the Fund would decline and that amounts
payable to the Fund under an equity swap contract in respect of the Theoretical
Fixed Income Security would decrease or that amounts payable by the Fund
thereunder would increase. Any such decline (and/or the amount of any such
decrease or increase under a short equity swap contract) could be greater than
the derivative "interest" received on the Fund's Theoretical Fixed Income
Securities. The Fund's gross return is also expected to be reduced by
transaction costs and other Fund expenses. Those expenses will generally include
currency hedging costs if interest rates outside the U.S. are higher than those
in the U.S.
For the equity swap contracts entered into by the Fund, the
counterparty will typically be a bank, investment banking firm or broker/dealer.
The counterparty will generally agree to pay the Fund (i) interest on the
Theoretical Fixed Income Security with a principal amount equal to the notional
amount of the equity swap contract plus (ii) the amount, if any, by which that
notional amount would have decreased in value (measured in U.S. Dollars) had it
been invested in the stocks comprising the equity index agreed to by the Fund
(the "Contract Index") in proportion to the composition of the Contract Index.
(The Contract Index will be the Modified Global Index except that, to the extent
short futures contracts on a particular country's equity securities are also
used by the Fund, the Contract Index may be the Modified Global Index with a
reduced weighting for that country to reflect the futures position.) The Fund
will agree to pay the counterparty (i) any negative total return on the
Theoretical Fixed Income Security plus (ii) the amount, if any, by which the
notional amount of the equity swap contract would have increased in value
(measured in U.S. Dollars) had it been invested in the stocks comprising the
Contract Index plus (iii) the dividends that would have been received on those
stocks. Therefore, the return to the Fund on any equity swap contract should be
the total return on the Theoretical Fixed Income Security reduced by the gain
(or increased by the loss) on the notional amount as if invested in the Contract
Index and reduced by the dividends on the stocks comprising the Contract Index.
The Fund will only enter into equity swap contracts on a net basis, i.e., the
two parties' obligations are netted out, with the
-46-
Fund paying or receiving, as the case may be, only the net amount of any
payments. Payments under the equity swap contracts may be made at the conclusion
of the contract or periodically during its term.
The Fund may from time to time enter into the opposite side of equity
swap contracts (i.e., where the Fund is obligated to pay the decrease (or
receive the increase) on the Contract Index increased by any negative total
return (and decreased by any positive total return) on the Theoretical Fixed
Income Security) to reduce the amount of the Fund's equity market hedging
consistent with the Fund's objective. These positions are sometimes referred to
as "long equity swap contracts." The Fund may also take long positions in index
futures for similar purposes.
The Fund may also take a long position in index futures to reduce the
amount of the Fund's equity market hedging consistent with the Fund's objective.
When hedging positions are reduced using index futures, the Fund will also be
exposed to the risk of imperfect correlations between the index futures and the
hedging positions being reduced.
The Fund will use a combination of long and short equity swap contracts
and long and short positions in index futures in an attempt to hedge generally
its equity securities against substantially all movements in the relevant equity
markets generally. The Fund will not use equity swap contracts or Relevant
Equity Index Futures to leverage the Fund.
The Fund's actual exposure to an equity market or markets will not be
completely hedged if the aggregate of the notional amount of the long equity
swap contracts (less the notional amount of any short equity swap contracts)
relating to the relevant equity index plus the face amount of the short Index
Futures (less the face amount of any long Index Futures) is less than the Fund's
total net assets invested in common stocks principally traded on such market or
markets and will tend to be overhedged if such aggregate is more than the Fund's
total net assets so invested. Under normal conditions, the Manager expects the
Fund's total net assets invested in equity securities generally to be up to 5%
more or less than this aggregate because purchases and redemptions of Fund
shares will change the Fund's total net assets frequently, because Index Futures
can only be purchased in integral multiples of an equity index and because the
Funds' positions may appreciate or depreciate over time. Also, the ability of
the Fund to hedge risk may be diminished by imperfect correlations between price
movements of the underlying equity index with the price movements of Index
Futures relating to that index and by lack of correlation between the market
weightings of the Modified Global Index, on the one hand, and, on the other, the
market weightings represented by the common stocks selected for purchase by the
Fund.
In theory, the Fund will only be able to achieve its objective with
precision if (i) the aggregate face amount of the net short Index Futures plus
the notional amount of the long equity swap contracts (less the notional amount
of any short equity swap contracts) relating to the Selected Equity Index is
precisely equal to a Fund's total net assets, (ii) there is exact price movement
correlation between any Index Futures and the relevant equity index, (iii) there
is exact price correlation between the Modified Global Index and the overall
movements of the relevant equity markets and (iv) the Fund's currency hedging
strategies are effective. As noted, in practice there are a number of risks and
cash flows which will tend to undercut these assumptions.
The purchase and sale of common stocks and Index Futures involve
transaction costs and reverse equity swap contracts require the Fund to pay
interest on the notional amount of the contract.
In addition to the practices described above, in order to pursue its
objective the Fund may invest in securities of foreign issuers traded on U.S.
exchanges and securities traded abroad, American Depositary Receipts, European
Depository Receipts and other similar securities convertible into securities of
foreign issuers. The Fund may also invest up to 15% of its net assets in
illiquid securities and temporarily invest up to 50% of its net assets in cash
and high quality money market instruments such as securities issued by the U.S.
government and agencies thereof, bankers' acceptances, commercial paper, and
bank certificates of deposit.
The Fund may also enter repurchase agreements, and lend portfolio
securities valued at up to one-third of total assets.
In addition, for hedging purposes only the Fund may use forward foreign
currency contracts, currency futures contracts, related options and options on
currencies, and buy and sell foreign currencies.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
DOMESTIC BOND FUND
- ------------------
The Domestic Bond Fund seeks to earn high total return through
investment primarily in U.S. Government Securities. The Fund may also invest a
significant portion of its assets in other investment grade bonds (including
convertible bonds) denominated in U.S. dollars. The Fund's portfolio will
generally have a duration of approximately four to six years (excluding
short-term investments). The duration of a fixed income security is the weighted
average maturity, expressed in years, of the present value of all future cash
flows, including coupon payments and principal repayments. The Fund will attempt
to provide a total return greater than that generally provided by the U.S.
government securities market as measured by an index selected from time to time
by the Manager. The Fund may invest in fixed income securities of any maturity,
although the Fund expects that at least 65% of its total assets will be
comprised of "bonds" (as such term is defined earlier) of U.S. issuers. Fixed
income
-47-
securities include securities issued by federal, state, local and foreign
governments, and a wide range of private issuers.
The Fund may lend portfolio securities valued at up to one-third of
total assets, invest up to 5% of its assets in lower rated securities (also
known as "junk bonds"), and invest in adjustable rate securities, zero coupon
securities and depository receipts. The Fund may also enter into repurchase
agreements, reverse repurchase agreements and dollar roll transactions. The Fund
may also enter into loan participation agreements and invest in other direct
debt instruments. In addition, the Fund may invest in mortgage-backed and other
asset-backed securities issued by the U.S. government, its agencies and by
non-government issuers, including collateral mortgage obligations ("CMO's"),
strips and residuals. The Fund may also invest in indexed securities the
redemption values and/or coupons of which are indexed to the prices of other
securities, securities indexes, currencies, precious metals or other
commodities, or other financial indicators. The Fund may also enter into firm
commitment agreements with banks or broker-dealers, and may invest up to 15% of
its net assets in illiquid securities.
In addition, the Fund may buy put and call options, sell (write)
covered options, and enter into futures contracts and options on futures
contracts for hedging, investment and risk management and to effect synthetic
sales and purchases. The Fund's use of options on particular securities (as
opposed to market indexes) is limited such that the time premiums paid by the
Fund on all outstanding options it has purchased may not exceed 5% of its total
assets. The Fund may also use interest rate swap contracts, contracts for
differences and interest rate caps, floors and collars for hedging, investment
and risk management.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
INTERNATIONAL BOND FUND
- -----------------------
The International Bond Fund seeks to earn high total return through
investment primarily in investment-grade bonds (including convertible bonds)
denominated in various currencies, including U.S. dollars, or in multicurrency
units. The Fund will attempt to provide a total return greater than that
generally provided by the international fixed income securities markets as
measured by an index selected from time to time by the Manager. Because the Fund
will not generally attempt to hedge against an appreciation in the U.S. dollar
relative to the foreign currency in which its portfolio securities are
denominated, investors should expect that the Fund's performance will be
adversely affected by appreciation of the U.S. dollar and will be positively
affected by a decline in the U.S. dollar relative to the currencies in which the
Fund's portfolio securities are denominated.
The Fund may invest in fixed income securities of any maturity,
although under normal market conditions at least 65% of the Fund's total assets
will be comprised of "bonds" as such term is defined above. Fixed income
securities include securities issued by federal, state, local and foreign
governments, and a wide range of private issuers.
The Fund may enter into loan participation agreements and other direct
investments, forward foreign exchange agreements, and purchase or sell
securities on a when-issued or delayed delivery basis. The Fund may also invest
a portion of its assets in sovereign debt (bonds, including convertible bonds
and Brady bonds, and loans) of countries in Asia, Latin America, the Middle
East, Southern Europe, Eastern Europe and Africa (see "Emerging Country Debt
Fund") and, to the extent permitted by the 1940 Act, may invest in securities of
other investment companies. As a shareholder of an investment company, the Fund
may indirectly bear service fees which are in addition to the fees the Fund pays
to its own service providers.
The Fund may lend portfolio securities valued at up to one-third of
total assets, invest up to 25% of its assets in lower rated securities (also
known as "junk bonds"), and invest in adjustable rate securities, zero coupon
securities and depositary receipts of foreign issuers. The Fund may also enter
into repurchase agreements, reverse repurchase agreements and dollar roll
agreements. In addition, the Fund may invest in mortgage-backed and other
asset-backed securities issued by the U.S. government, its agencies and by
non-government issuers, including collateral mortgage obligations ("CMO's"),
strips and residuals. The Fund may also invest in indexed securities the
redemption values and/or coupons of which are indexed to the prices of other
securities, securities indexes, currencies, precious metals or other
commodities, or other financial indicators. The Fund may also enter into firm
commitment agreements with banks or broker-dealers, and may invest up to 15% of
its net assets in illiquid securities.
The Fund may buy put and call options, sell (write) covered options,
and enter into futures contracts and options on futures contracts for hedging,
investment and risk management and to effect synthetic sales and purchases. The
Fund's use of options on particular securities (as opposed to market indexes) is
limited such that the time premiums paid by the Fund on all outstanding options
it has purchased may not exceed 10% of its total assets. The Fund may also write
options in connection with buy-and-write transactions, and use index futures on
foreign indexes for investment, anticipatory hedging and risk management. In
addition, the Fund may use forward foreign currency contracts, currency futures
contracts and related options, currency swap contracts, options on currencies,
and buy and sell currencies for hedging, and for currency risk management. The
Fund may also use synthetic bonds and synthetic foreign currency denominated
securities to approximate desired risk/return profiles where the desired profile
is either unavailable or possesses undesirable characteristics.
In addition, the Fund may use interest rate swap contracts, contracts
for differences and interest rate caps, floors and collars for hedging,
investment and risk management.
-48-
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
CURRENCY HEDGED INTERNATIONAL BOND FUND
- ---------------------------------------
The Currency Hedged International Bond Fund seeks to earn high total
return through investment primarily in investment-grade bonds (including
convertible bonds) denominated in various currencies including U.S. dollars or
in multicurrency units. The Fund will attempt to provide a total return greater
than that generally provided by the international fixed income securities
markets as measured by an index selected from time to time by the Manager. The
Fund has the same objectives and policies as the International Bond Fund, except
that the Currency Hedged International Bond Fund will generally attempt to hedge
at least 75% of its foreign currency-denominated portfolio securities against an
appreciation in the U.S. dollar relative to the foreign currencies in which the
portfolio securities are denominated. However, there can be no assurance that
the Fund's hedging strategies will be totally effective.
The Fund may invest in fixed income securities of any maturity,
although under normal market conditions at least 65% of the Fund's total assets
will be comprised of "bonds" as such term is defined above. Fixed income
securities include securities issued by federal, state, local and foreign
governments, and a wide range of private issuers.
The Fund may enter into loan participation agreements and other direct
investments, forward foreign exchange agreements and purchase or sell securities
on a when-issued or delayed delivery basis. The Fund may also invest a portion
of its assets in sovereign debt (bonds, including convertible bonds and Brady
Bonds, and loans) of countries in Asia, Latin America, the Middle East, Southern
Europe, Eastern Europe and Africa (see "Emerging Country Debt Fund") and, to the
extent permitted by the 1940 Act, may invest in securities of other investment
companies. As a shareholder of an investment company, the Fund may indirectly
bear service fees which are in addition to the fees the Fund pays to its own
service providers.
The Fund may lend portfolio securities valued at up to one-third of
total assets, invest up to 25% of its assets in lower rated securities (also
known as "junk bonds"), and invest in adjustable rate securities, zero coupon
securities and depositary receipts of foreign issuers. The Fund may also enter
into repurchase agreements, reverse repurchase agreements and dollar roll
agreements. In addition, the Fund may invest in mortgage-backed and other
asset-backed securities issued by the U.S. government, its agencies and by
non-government issuers, including collateral mortgage obligations ("CMO's"),
strips and residuals. The Fund may also invest in indexed securities the
redemption values and/or coupons of which are indexed to the prices of other
securities, securities indexes, currencies, precious metals or other
commodities, or other financial indicators. The Fund may also enter into firm
commitment agreements with banks or broker-dealers, and may invest up to 15% of
its net assets in illiquid securities.
The Fund may buy put and call options, sell (write) covered options,
and enter into futures contracts and options on futures contracts for hedging,
investment and risk management and to effect synthetic sales and purchases. The
Fund's use of options on particular securities (as opposed to market indexes) is
limited such that the time premiums paid by the Fund on all outstanding options
it has purchased may not exceed 10% of its total assets. The Fund may also write
options in connection with buy-and-write transactions, and use index futures on
foreign indexes for investment, anticipatory hedging and risk management. In
addition, the Fund may use forward foreign currency contracts, currency futures
contracts and related options, currency swap contracts, options on currencies,
and buy and sell currencies for hedging, and for currency risk management. The
Fund may also use synthetic bonds and synthetic foreign currency denominated
securities to approximate desired risk/return profiles where the desired profile
is either unavailable or possesses undesirable characteristics.
In addition, the Fund may use interest rate swap contracts, contracts
for differences and interest rate caps, floors and collars for hedging,
investment and risk management.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
GLOBAL BOND FUND
- ----------------
The Global Bond Fund seeks to earn high total return through investment
primarily in investment-grade bonds (including convertible bonds) denominated in
various currencies, including U.S. dollars, or in multicurrency units. The Fund
will attempt to provide a total return greater than that generally provided by
the global fixed income securities markets as measured by an index selected from
time to time by the Manager. The Fund will invest in fixed income securities of
both United States and foreign issuers. Because the Fund will not generally
attempt to hedge against an appreciation in the U.S. dollar relative to the
foreign currencies in which some of its portfolio securities are denominated,
investors should expect that the Fund's performance will be adversely affected
by appreciation of the U.S. dollar and will be positively affected by a decline
in the U.S. dollar relative to the currencies in which the Funds' portfolio
securities are denominated.
The Fund may invest in fixed income securities of any maturity,
although the Fund expects that at least 65% of its total assets will be
comprised of "bonds" as such term is defined above. Fixed income securities
include securities issued by federal, state, local and foreign governments, and
a wide range of private issuers.
-49-
Under certain adverse investment conditions, the Fund may restrict the
number of securities markets in which assets will be invested, although under
normal market circumstances it is expected that the Fund's investments will
involve securities principally traded in at least three different countries. For
temporary defensive purposes, the Fund may invest up to 100% of its assets in
securities principally traded in the United States and/or denominated in U.S.
dollars.
The Fund may enter into loan participation agreements and other direct
investments, forward foreign exchange agreements, and purchase or sell
securities on a when-issued or delayed delivery basis. The Fund may also invest
a portion of its assets in sovereign debt (bonds, including convertible bonds
and Brady bonds, and loans) of countries in Asia, Latin America, the Middle
East, Southern Europe, Eastern Europe and Africa (See "Emerging Country Debt
Fund") and, to the extent permitted by the 1940 Act, may invest in securities of
other investment companies. As a shareholder of an investment company, the Fund
may indirectly bear service fees which are in addition to the fees the Fund pays
to its own service providers.
The Fund may lend portfolio securities valued at up to one-third of
total assets, invest up to 25% of its assets in lower rated securities (also
known as "junk bonds"), and invest in adjustable rate securities, zero coupon
securities and depository receipts of foreign issuers. The Fund may also enter
into repurchase agreements, reverse repurchase agreements and dollar roll
transactions. In addition, the Fund may invest in mortgage-backed and other
asset-backed securities issued by the U.S. government, its agencies and by
non-government issuers, including collateral mortgage obligations ("CMO's"),
strips and residuals. The Fund may also invest in indexed securities the
redemption values and/or coupons of which are indexed to the prices of other
securities, securities indexes, currencies, precious metals or other
commodities, or other financial indicators. The Fund may also enter into firm
commitment agreements with banks or broker-dealers, and may invest up to 15% of
its net assets in illiquid securities.
The Fund may buy put and call, sell (write) covered options, and enter
into futures contracts and options on futures contracts for hedging, investment
and risk management and to effect synthetic sales and purchases. The Fund's use
of options on particular securities (as opposed to market indexes) is limited
such that the time premiums paid by the Fund on all outstanding options it has
purchased may not exceed 10% of its total assets. The Fund may also write
options in connection with buy-and-write transactions, and use index futures on
foreign indexes for investment, anticipatory hedging and risk management. In
addition, the Fund may use forward foreign currency contracts, currency futures
contracts and related options, currency swap contracts, options on currencies,
and buy and sell currencies for hedging and for currency risk management. The
Fund may also use futures contracts and foreign currency forward contracts to
create synthetic bonds and synthetic foreign currency denominated securities to
approximate desired risk/return profiles where the non-synthetic security having
the desired risk/return profile is either unavailable or possesses undesirable
characteristics.
For a more detailed description of the investment practices described
above and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
EMERGING COUNTRY DEBT FUND
- --------------------------
The Emerging Country Debt Fund seeks to earn high total return by
investing primarily in sovereign debt (bonds, including convertible bonds, and
loans) of countries in Asia, Latin America, the Middle East and Africa, as well
as any country located in Europe which is not in the European Community
("EMERGING COUNTRIES"). In addition to considerations relating to investment
restrictions and tax barriers, allocation of the Fund's investments among
selected emerging countries will be based on certain other relevant factors
including the outlook for economic growth, currency exchange rates, interest
rates, political factors and the stage of the local market cycle. The Fund will
generally have at least 50% of its assets denominated in hard currencies such as
the U.S. dollar, Japanese yen, Italian lira, British pound, Deutschmark, French
franc and Canadian dollar. The Fund will attempt to provide a total return
greater than that generally provided by the international fixed income
securities markets as measured by an index selected from time to time by the
Manager.
The Fund has a fundamental policy that, under normal market conditions,
at least 65% of its total assets will be invested in debt securities of Emerging
Countries. In addition, the Fund may invest in fixed income securities of any
maturity, although the Fund expects that at least 65% of its total assets will
be comprised of "bonds" as such term is defined above. Fixed income securities
include securities issued by federal, state, local and foreign governments, and
a wide range of private issuers.
The Emerging Country Debt Fund's investments in Emerging Country debt
instruments are subject to special risks that are in addition to the usual risks
of investing in debt securities of developed foreign markets around the world,
and investors are strongly advised to consider those risks carefully. See
"Description and Risks of Fund Investments -- Certain Risks of Foreign
Investments."
The Fund may enter into loan participation agreements and other direct
investments, forward foreign exchange agreements, invest in Brady bonds and
purchase or sell securities on a when-issued or delayed delivery basis. The Fund
may also lend portfolio securities valued at up to one-third of total assets,
invest without limit in lower rated securities (also known as "junk bonds"), and
invest in adjustable rate securities, zero coupon securities and depository
receipts of foreign issuers. The Fund may also enter into repurchase agreements,
reverse repurchase agreements and dollar roll agreements. In addition, the Fund
may invest in mortgage-backed and other asset-backed securities
-50-
issued by the U.S. government, its agencies and by non-government issuers,
including collateral mortgage obligations ("CMO's"), strips and residuals. The
Fund may also invest in indexed securities the redemption values and/or coupons
of which are indexed to the prices of other securities, securities indexes,
currencies, precious metals or other commodities, or other financial indicators.
The Fund may also enter into firm commitment agreements with banks or
broker-dealers, and may invest up to 15% of its net assets in illiquid
securities.
The Fund may buy put and call options, sell (write) covered options,
and enter into futures contracts and options on futures contracts for hedging,
investment and risk management and to effect synthetic sales and purchases. The
Fund's use of options on particular securities (as opposed to market indexes) is
limited such that the time premiums paid by the Fund on all outstanding options
it has purchased may not exceed 10% of its total assets. The Fund may also write
options in connection with buy-and-write transactions, and use index futures on
foreign indexes for investment, anticipatory hedging and risk management. In
addition, the Fund may use forward foreign currency contracts, currency futures
contracts and related options, currency swap contracts, options on currencies,
and buy and sell currencies for hedging, and for currency risk management. The
Fund may also use synthetic bonds and synthetic foreign currency denominated
securities to approximate desired risk/return profiles where the desired profile
is either unavailable or possesses undesirable characteristics.
In addition, the Fund may use interest rate swap contracts, contracts
for differences and interest rate caps, floors and collars for hedging,
investment and risk management.
For a detailed description of the investment practices described above
and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
INFLATION INDEXED BOND FUND
- ---------------------------
The Inflation Indexed Bond Fund seeks maximum total return through
investment primarily in foreign and U.S. government bonds that are indexed or
otherwise linked to general measures of inflation in the country of issue. The
Fund will invest in fixed income securities of both United States (when and if
appropriate issues become available) and foreign issuers. The availability of
inflation indexed bonds is currently limited to a small number of countries.
Inflation indexed U.S. government bonds are not currently offered. A bond will
be deemed to be "linked" to general measures of inflation if, by such bond's
terms, principal or interest components change with general movements of
inflation in the country of issue.
The Fund may invest in fixed income securities of any maturity,
although under normal market conditions at least 65% of the Fund's total assets
will be comprised of inflation indexed "bonds" as such term is defined above.
Fixed income securities include securities issued by federal, state, local and
foreign governments, and a wide range of private issuers.
Under certain adverse investment conditions, the Fund may restrict the
number of securities markets in which assets will be invested. For temporary
defensive purposes, the Fund may invest up to 100% of its assets in securities
principally traded in the United States and/or denominated in U.S. dollars.
The Fund may enter into forward foreign exchange agreements, and
purchase or sell securities on a when-issued or delayed delivery basis.
The Fund may lend portfolio securities valued at up to one-third of
total assets, invest up to 25% of its assets in lower rated securities (also
known as "junk bonds"), and invest in adjustable rate securities, zero coupon
securities and depository receipts of foreign issuers. The Fund may also enter
into repurchase agreements, reverse repurchase agreements and dollar roll
transactions. In addition, the Fund may invest in mortgage-backed and other
asset-backed securities issued by the U.S. government, its agencies and by
non-government issuers, including collateral mortgage obligations ("CMO's"),
strips and residuals. The Fund may also invest in indexed securities the
redemption values and/or coupons of which are indexed to the prices of other
securities, securities indexes, currencies, precious metals or other
commodities, or other financial indicators. The Fund may also enter into firm
commitment agreements with banks or broker-dealers, and may invest up to 15% of
its net assets in illiquid securities.
The Fund may buy put and call options, sell (write) covered options,
and enter into futures contracts and options on futures contracts for hedging,
investment and risk management and to effect synthetic sales and purchases. The
Fund's use of options on particular securities (as opposed to market indexes) is
limited such that the time premiums paid by the Fund on all outstanding options
it has purchased may not exceed 10% of its total assets. The Fund may also write
options in connection with buy-and-write transactions, and use index futures on
domestic and foreign indexes for investment, anticipatory hedging and risk
management. In addition, the Fund may use forward foreign currency contracts,
currency futures contracts and related options, currency swap contracts, options
on currencies, and buy and sell currencies for hedging and for currency risk
management. The Fund may also use futures contracts and foreign currency forward
contracts to create synthetic bonds and synthetic foreign currency denominated
securities to approximate desired risk/return profiles where the non-synthetic
security having the desired risk/return profile is either unavailable or
possesses undesirable characteristics.
For a more detailed description of the investment practices described
above and the risks associated with them, see "Description and Risks of Fund
Investments" later in this Prospectus.
ASSET ALLOCATION FUNDS
- ----------------------
-51-
The Asset Allocation Funds are mutual funds that invest in other Funds
of the Trust (referred to in this section as "underlying Funds") and, in doing
so, seek to outperform a specified benchmark. The Asset Allocation Funds are
able to operate in such a manner notwithstanding prohibitions in Sections
12(d)(1) and 17(a), inter alia, of the 1940 Act pursuant to an exemptive order
of the SEC. The Manager decides and manages the allocation of the assets of each
Asset Allocation Fund among a permitted subset of underlying Funds, as set forth
below. Thus, an investor in an Asset Allocation Fund receives investment
management within each of the underlying Funds and receives management with
respect to the allocation of the investment among the underlying Funds as well.
The Manager does not charge an advisory fee for asset allocation advice
provided to the Asset Allocation Funds, but receives such fees only from the
underlying Funds in which the Asset Allocation Funds invest. Stated otherwise,
there are no investment advisory fees at the Asset Allocation Fund level.
Because the underlying Funds have differing fees, certain allocations will
produce greater overall fees for GMO than others. Certain expenses, such as
custody, transfer agency and audit fees, will be incurred at the Asset
Allocation Fund level, although the Manager has agreed to voluntarily bear such
expenses until further notice.
Each Asset Allocation Fund will invest in Class III Shares of the
underlying Funds and will bear the 0.15% Shareholder Service Fees assessed
against those Class III shares. Each Asset Allocation Fund offers Class I, Class
II and Class III Shares with special lower Shareholder Service Fees that are
designed to mitigate the indirect cost of Shareholder Servicing Fees of the
Class III shares of the Underlying Funds in which the Asset Allocation Funds
invest. Thus, investors in Class I, Class II and Class III Shares of the Asset
Allocation Funds will bear, in the aggregate, direct and indirect Shareholder
Service Fees that are the same as those borne directly by Class I, Class II and
Class III Shares of the other Funds (i.e., an aggregate of 0.28%, 0.22% and
0.15% per annum, respectively). Investors should refer to "Multiple Classes"
herein for greater detail concerning the eligibility requirements and other
differences among the classes.
Investors in the Asset Allocation Funds should consider both the direct
risks associated with an investment in a "fund-of-funds," and the indirect risks
associated with an investment in the underlying Funds. See "Description and
Risks of Fund Investments -- Special Allocation Fund Considerations" for a
discussion of the risks directly associated with an investment in the Asset
Allocation Funds. Investors should also carefully review the "Investment
Objectives and Policies" description of each underlying Fund in which the
relevant Asset Allocation Fund may invest, as well as each corresponding
"Description and Risks of Fund Investments" section associated with each
underlying Fund's investment practices.
INTERNATIONAL EQUITY ALLOCATION FUND
- ------------------------------------
The International Equity Allocation Fund seeks a total return greater
than the return of its benchmark index - the "EAFE-LITE EXTENDED INDEX." This
index has been developed by the Manager and is a modification of the EAFE-lite
Index which includes a weighting for emerging countries. See "Investment
Objectives and Policies - International Core Fund" for a description of the
EAFE-lite Index. The Fund will pursue its objective by investing to varying
extents, as determined by the Manager, primarily in Class III Shares of the
International Core Fund, Currency Hedged International Core Fund, Foreign Fund,
International Small Companies Fund, Japan Fund and Emerging Markets Fund. The
Fund may also invest up to 15% of its net assets in any combination of the
Domestic Bond Fund, International Bond Fund, Currency Hedged International Bond
Fund, Global Bond Fund, Emerging Country Debt Fund and Inflation Indexed Bond
Fund. Although the Fund is designed to be measured in comparison to the
EAFE-lite Extended Index, it is not an index fund or an "index-plus" fund, but
rather seeks to add total return in excess of the EAFE-lite Extended Index
benchmark both by making bets relative to that benchmark with respect to the
allocation among the underlying Funds, and by participating indirectly in the
attempt that each of the underlying Funds makes to outperform its own respective
benchmark index.
While the Fund's assets will be primarily invested in the Funds listed
above, the Fund may also hold cash and invest in short-term fixed income
securities, including shares of the Short-Term Income Fund and Global Hedged
Equity Fund and high quality money market instruments such as securities issued
by the U.S. government and agencies thereof, bankers' acceptances, commercial
paper and bank certificates of deposit.
For a detailed description of the objective and policies of each
underlying Fund, see "Investment Objectives and Policies" herein. For a detailed
description of the investment practices referred to therein, see "Description
and Risks of Fund Investments" later in this Prospectus.
WORLD EQUITY ALLOCATION FUND
- ----------------------------
The World Equity Allocation Fund seeks a total return greater than the
return of its benchmark index - the "WORLD LITE EXTENDED INDEX." This index has
been developed by the Manager and is a modification of the Morgan Stanley
Capital International World Index that reduces the weighting of Japan and
includes a weighting for emerging countries. The Fund will pursue its objective
by investing to varying extents, as determined by the Manager, in Class III
Shares of the Core Fund, Value Fund, Growth Fund, U.S. Sector Fund, Fundamental
Value Fund, Small Cap Value Fund, Small Cap Growth Fund, REIT Fund,
International Core Fund, Currency Hedged International Core Fund, Foreign Fund,
International Small Companies Fund, Japan Fund and Emerging Markets Fund. The
Fund may also invest up to 15% of its net assets in any combination of the
Domestic Bond Fund, International Bond Fund, Currency Hedged International Bond
Fund, Global Bond Fund, Emerging Country Debt Fund and Inflation Indexed Bond
Fund. Although the Fund
-52-
is designed to be measured in comparison to the World Lite Extended Index, it is
not an index fund or an "index-plus" fund, but rather seeks to add total return
in excess of the World Lite Extended Index benchmark both by making bets
relative to that benchmark with respect to the allocation among the underlying
Funds, and by participating indirectly in the attempt that each of the
underlying Funds makes to outperform its own respective benchmark index.
While the Fund's assets will be primarily invested in the Funds listed
above, the Fund may also hold cash and invest in short-term fixed income
securities, including shares of the Short-Term Income Fund and Global Hedged
Equity Fund and high quality money market instruments such as securities issued
by the U.S. government and agencies thereof, bankers' acceptances, commercial
paper and bank certificates of deposit.
For a detailed description of the objective and policies of each
underlying Fund, see "Investment Objectives and Policies" herein. For a detailed
description of the investment practices referred to therein, see "Description
and Risks of Fund Investments" later in this Prospectus.
GLOBAL (U.S.+) EQUITY ALLOCATION FUND
- -------------------------------------
The Global (U.S.+) Equity Allocation Fund seeks a total return greater
than the return of its benchmark index - the "GMO GLOBAL (U.S.+) EQUITY INDEX."
This index has been developed by the Manager and is a weighted index comprised
75% by the S&P 500 Index and 25% by the EAFE-lite Extended Index. The Fund will
pursue its objective by investing to varying extents, as determined by the
Manager, in Class III Shares of the Core Fund, Value Fund, Growth Fund, U.S.
Sector Fund, REIT Fund, Fundamental Value Fund, Small Cap Value Fund, Small Cap
Growth Fund, International Core Fund, Currency Hedged International Core Fund,
Foreign Fund, International Small Companies Fund, Japan Fund and Emerging
Markets Fund. The Fund may also invest up to 15% of its net assets in any
combination of the Domestic Bond Fund, International Bond Fund, Currency Hedged
International Bond Fund, Global Bond Fund, Emerging Country Debt Fund and
Inflation Indexed Bond Fund. Although the Fund is designed to be measured in
comparison to the GMO Global (U.S.+) Equity Index, it is not an index fund or an
"index-plus" fund, but rather seeks to add total return in excess of the GMO
Global (U.S.+) Equity Index benchmark both by making bets relative to that
benchmark with respect to the allocation among the underlying Funds, and by
participating indirectly in the attempt that each of the underlying Funds makes
to outperform its own respective benchmark index.
While the Fund's assets will be primarily invested in the Funds listed
above, the Fund may also hold cash and invest in short-term fixed income
securities, including shares of the Short-Term Income Fund and Global Hedged
Equity Fund and high quality money market instruments such as securities issued
by the U.S. government and agencies thereof, bankers' acceptances, commercial
paper and bank certificates of deposit.
For a detailed description of the objective and policies of each
underlying Fund, see "Investment Objectives and Policies" herein. For a detailed
description of the investment practices referred to therein, see "Description
and Risks of Fund Investments" later in this Prospectus.
GLOBAL BALANCED ALLOCATION FUND
- -------------------------------
The Global Balanced Allocation Fund seeks a total return greater than
the return of its benchmark index - the "GMO GLOBAL BALANCED INDEX." This index
has been developed by the Manager and is a weighted index comprised 48.75% by
the S&P 500, 16.25% by the EAFE-Lite Extended Index and 35% by the Lehman
Brothers Government Bond Index. The Fund will pursue its objective by investing
to varying extents, as determined by the Manager, in Class III Shares of the
Core Fund, Value Fund, Growth Fund, U.S. Sector Fund, Fundamental Value Fund,
Small Cap Value Fund, Small Cap Growth Fund, REIT Fund, International Core Fund,
Currency Hedged International Core Fund, Foreign Fund, International Small
Companies Fund, Japan Fund, Emerging Markets Fund, Domestic Bond Fund,
International Bond Fund, Currency Hedged International Bond Fund, Global Bond
Fund, Inflation Indexed Bond Fund and Emerging Country Debt Fund. The Fund has a
fundamental policy that it will, under normal market conditions, invest in
equity securities of underlying Funds such that, under normal market conditions,
at least 25% of the Fund's total assets will indirectly be invested in fixed
income senior securities. Although the Fund is designed to be measured in
comparison to the GMO Global Balanced Index, it is not an index fund or an
"index-plus" fund, but rather seeks to add total return in excess of the GMO
Global Balanced Index benchmark both by making bets relative to that benchmark
with respect to the allocation among the underlying Funds, and by participating
indirectly in the attempt that each of the underlying Funds makes to outperform
its own respective benchmark index.
While the Fund's assets will be primarily invested in the Funds listed
above, the Fund may also hold cash and invest in short-term fixed income
securities, including shares of the Short-Term Income Fund and Global Hedged
Equity Fund and high quality money market instruments such as securities issued
by the U.S. government and agencies thereof, bankers' acceptances, commercial
paper and bank certificates of deposit.
For a detailed description of the objective and policies of each
underlying Fund, see "Investment Objectives and Policies" herein. For a detailed
description of the investment practices referred to therein, see "Description
and Risks of Fund Investments" below.
DESCRIPTION AND RISKS OF FUND
-----------------------------
INVESTMENTS
-----------
The following is a detailed description of the various investment
practices in which the Funds may engage and the risks associated with their use.
Not all Funds may engage in all
-53-
practices described below. Please refer to the "Investment Objectives and
Policies" section above for determination of which practices a particular Fund
may engage in. Investors in Asset Allocation Funds should be aware that the
Asset Allocation Funds will indirectly engage in the practices engaged in by the
underlying Funds in which they are invested.
PORTFOLIO TURNOVER
- ------------------
Portfolio turnover is not a limiting factor with respect to investment
decisions for the Funds. The portfolio turnover rate of those Funds with at
least five months of operational history is shown under the heading "Financial
Highlights."
In any particular year, market conditions may well result in greater
rates than are presently anticipated. However, portfolio turnover for the Small
Cap Growth Fund, the Inflation Indexed Bond Fund, the REIT Fund, the Currency
Hedged International Core Fund, the Global Fund, the Global Bond Fund, the
Foreign Fund and the Global Properties Fund is not expected to exceed 150%. High
portfolio turnover involves correspondingly greater brokerage commissions and
other transaction costs, which will be borne directly by the relevant Fund, and
could involve realization of capital gains that would be taxable when
distributed to shareholders of the relevant Fund unless such shareholders are
themselves exempt. See "Taxes" below.
DIVERSIFIED AND NON-DIVERSIFIED PORTFOLIOS
- ------------------------------------------
It is a fundamental policy of each of the Core Fund, the Tobacco-Free
Core Fund, the Small Cap Value Fund, the Fundamental Value Fund, the
International Core Fund, the International Small Companies Fund, the GMO
International Equity Allocation Fund, the GMO World Equity Allocation Fund, the
GMO Global (U.S.+) Equity Allocation Fund, and the GMO Global Balanced
Allocation Fund, which may not be changed without shareholder approval, that at
least 75% of the value of each such Funds' total assets are represented by cash
and cash items (including receivables), Government securities, securities of
other investment companies, and other securities for the purposes of this
calculation limited in respect of any one issuer to an amount not greater in
value than 5% of the value of the relevant Fund's total assets and to not more
than 10% of the outstanding voting securities of any single issuer. Each such
Fund is referred to herein as a "diversified" fund.
All other Funds are "non-diversified" funds under the 1940 Act, and as
such are not required to satisfy the "diversified" requirements stated above.
However, the Japan Fund may not own more than 10% of the outstanding voting
securities of any single issuer. As a non-diversified fund, each of these Funds
is permitted to (but is not required to) invest a higher percentage of its
assets in the securities of fewer issuers. Such concentration could increase the
risk of loss to such Funds should there be a decline in the market value of any
one portfolio security. Investment in a non-diversified fund may therefore
entail greater risks than investment in a diversified fund. All Funds, however,
must meet certain diversification standards to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986.
CERTAIN RISKS OF FOREIGN INVESTMENTS
- ------------------------------------
GENERAL. Investment in foreign issuers or securities principally traded
overseas may involve certain special risks due to foreign economic, political
and legal developments, including favorable or unfavorable changes in currency
exchange rates, exchange control regulations (including currency blockage),
expropriation of assets or nationalization, imposition of withholding taxes on
dividend or interest payments, and possible difficulty in obtaining and
enforcing judgments against foreign entities. Furthermore, issuers of foreign
securities are subject to different, often less comprehensive, accounting,
reporting and disclosure requirements than domestic issuers. The securities of
some foreign governments and companies and foreign securities markets are less
liquid and at times more volatile than comparable U.S. securities and securities
markets. Foreign brokerage commissions and other fees are also generally higher
than in the United States. The laws of some foreign countries may limit a Fund's
ability to invest in securities of certain issuers located in these foreign
countries. There are also special tax considerations which apply to securities
of foreign issuers and securities principally traded overseas. Investors should
also be aware that under certain circumstances, markets which are perceived to
have similar characteristics to troubled markets may be adversely affected
whether or not similarities actually exist.
EMERGING MARKETS. The risks described above apply to an even greater
extent to investments in emerging markets. The securities markets of emerging
countries are generally smaller, less developed, less liquid, and more volatile
than the securities markets of the U.S. and developed foreign markets.
Disclosure and regulatory standards in many respects are less stringent than in
the U.S. and developed foreign markets. There also may be a lower level of
monitoring and regulation of securities markets in emerging market countries and
the activities of investors in such markets, and enforcement of existing
regulations has been extremely limited. Many emerging countries have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have very negative effects on the economies and securities markets
of certain emerging countries. Economies in emerging markets generally are
heavily dependent upon international trade and, accordingly, have been and may
continue to be affected adversely by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been and may continue to be adversely affected by economic conditions
in the countries in which they trade. The economies of countries with emerging
markets may also be predominantly based on only a few industries or dependent on
revenues from particular commodities. In addition, custodial services and other
costs relating to investment in foreign markets may be more expensive in
-54-
emerging markets than in many developed foreign markets, which could reduce a
Fund's income from such securities. Finally, because publicly traded debt
instruments of emerging markets represent a relatively recent innovation in the
world debt markets, there is little historical data or related market experience
concerning the attributes of such instruments under all economic, market and
political conditions.
In many cases, governments of emerging countries continue to exercise
significant control over their economies, and government actions relative to the
economy, as well as economic developments generally, may affect the capacity of
issuers of emerging country debt instruments to make payments on their debt
obligations, regardless of their financial condition. In addition, there is a
heightened possibility of expropriation or confiscatory taxation, imposition of
withholding taxes on interest payments, or other similar developments that could
affect investments in those countries. There can be no assurance that adverse
political changes will not cause a Fund to suffer a loss of any or all of its
investments or, in the case of fixed-income securities, interest thereon.
DIRECT INVESTMENT IN RUSSIAN SECURITIES. Each of the Emerging Markets
Fund, Foreign Fund, International Core Fund and Currency Hedged International
Core Fund may invest directly in securities of Russian Issuers. Investment in
securities of such issuers presents many of the same risks as investing in
securities of issuers in other emerging market economies, as described in the
immediately preceding section. However, the political, legal and operational
risks of investing in Russian issuers, and having assets custodied within Russia
may be particularly acute.
A risk of particular note with respect to direct investment in Russian
securities is the way in which ownership of shares of private companies is
recorded. When a Fund invests in a Russian issuer, it will receive a "share
extract," but that extract is not legally determinative of ownership. The
official record of ownership of a company's share is maintained by the company's
share registrar. Such share registrars are completely under the control of the
issuer, and the investors are provided with little legal rights against such
registrars.
SECURITIES LENDING
- ------------------
All of the Funds (except for the Asset Allocation Funds) may make
secured loans of portfolio securities amounting to not more than one-third of
the relevant Fund's total assets, except for the International Core and Currency
Hedged International Core Funds, each of which may make loans of portfolio
securities amounting to not more than 25% of their respective total assets. The
risks in lending portfolio securities, as with other extensions of credit,
consist of possible delay in recovery of the securities or possible loss of
rights in the collateral should the borrower fail financially. However, such
loans will be made only to broker-dealers that are believed by the Manager to be
of relatively high credit standing. Securities loans are made to broker-dealers
pursuant to agreements requiring that loans be continuously secured by
collateral in cash or U.S. Government Securities at least equal at all times to
the market value of the securities lent. The borrower pays to the lending Fund
an amount equal to any dividends or interest the Fund would have received had
the securities not been lent. If the loan is collateralized by U.S. Government
Securities, the Fund will receive a fee from the borrower. In the case of loans
collateralized by cash, the Fund typically invests the cash collateral for its
own account in interest-bearing, short-term securities and pays a fee to the
borrower. Although voting rights or rights to consent with respect to the loaned
securities pass to the borrower, the Fund retains the right to call the loans at
any time on reasonable notice, and it will do so in order that the securities
may be voted by the Fund if the holders of such securities are asked to vote
upon or consent to matters materially affecting the investment. The Fund may
also call such loans in order to sell the securities involved. The Manager has
retained lending agents on behalf of several of the Funds that are compensated
based on a percentage of a Fund's return on the securities lending activity. The
Fund also pays various fees in connection with such loans including shipping
fees and reasonable custodian fees approved by the Trustees of the Trust or
persons acting pursuant to direction of the Board.
DEPOSITORY RECEIPTS
- -------------------
Many of the Funds may invest in American Depositary Receipts (ADRs),
Global Depository Receipts (GDRs) and European Depository Receipts (EDRs)
(collectively, "Depository Receipts") if issues of such Depository Receipts are
available that are consistent with a Fund's investment objective. Depository
Receipts generally evidence an ownership interest in a corresponding foreign
security on deposit with a financial institution. Transactions in Depository
Receipts usually do not settle in the same currency in which the underlying
securities are denominated or traded. Generally, ADRs, in registered form, are
designed for use in the U.S. securities markets and EDRs, in bearer form, are
designed for use in European securities markets. GDRs may be traded in any
public or private securities markets and may represent securities held by
institutions located anywhere in the world.
CONVERTIBLE SECURITIES
- ----------------------
A convertible security is a fixed-income security (a bond or preferred
stock) which may be converted at a stated price within a specified period of
time into a certain quantity of the common stock of the same or a different
issuer. Convertible securities are senior to common stock in a corporation's
capital structure, but are usually subordinated to similar non-convertible
securities. Convertible securities provide, through their conversion feature, an
opportunity to participate in capital appreciation resulting from a market price
advance in a convertible security's underlying common stock. The price of a
convertible security is influenced by the market value of the underlying common
stock and tends to increase as the market value of the underlying stock rises,
whereas it tends to decrease as the market value of the underlying stock
declines. The
-55-
Manager regards convertible securities as a form of equity security.
FUTURES AND OPTIONS
- -------------------
As described under "Investment Objectives and Policies" above, many of
the Funds may use futures and options for various purposes. Such transactions
may involve options, futures and related options on futures contracts, and those
instruments may relate to particular equity and fixed income securities, equity
and fixed income indexes, and foreign currencies. The Funds may also enter into
a combination of long and short positions (including spreads and straddles) for
a variety of investment strategies, including protecting against changes in
certain yield relationships.
The use of futures contracts and options on futures contracts involves
risk. Thus, while a Fund may benefit from the use of futures and options on
futures, unanticipated changes in interest rates, securities prices, or currency
exchange rates may result in poorer overall performance for the Fund than if it
had not entered into any futures contracts or options transactions. Losses
incurred in transactions in futures and options on futures and the costs of
these transactions will affect a Fund's performance. See Appendix A, "Risks and
Limitations of Options, Futures and Swaps" for a more detailed discussion of the
limits, conditions and risks of the Funds' investments in futures contracts and
related options.
OPTIONS. As has been noted above, many Funds which may use options (1)
may enter into contracts giving third parties the right to buy the Fund's
portfolio securities for a fixed price at a future date (writing "covered call
options"); (2) may enter into contracts giving third parties the right to sell
securities to the Fund for a fixed price at a future date (writing "covered put
options"); and (3) may buy the right to purchase securities from third parties
("call options") or the right to sell securities to third parties ("put
options") for a fixed price at a future date.
WRITING COVERED OPTIONS. Each Fund (except for the Short-Term Income
Fund and the Asset Allocation Funds) may seek to increase its return by writing
covered call or put options on optionable securities or indexes. A call option
written by a Fund on a security gives the holder the right to buy the underlying
security from the Fund at a stated exercise price; a put option gives the holder
the right to sell the underlying security to the Fund at a stated exercise
price. In the case of options on indexes, the options are usually cash settled
based on the difference between the strike price and the value of the index.
Each such Fund will receive a premium for writing a put or call option,
which increases the Fund's return in the event the option expires unexercised or
is closed out at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price and volatility of the underlying
security or securities index to the exercise price of the option, the remaining
term of the option, supply and demand and interest rates. By writing a call
option on a security, the Fund limits its opportunity to profit from any
increase in the market value of the underlying security above the exercise price
of the option. By writing a put option on a security, the Fund assumes the risk
that it may be required to purchase the underlying security for an exercise
price higher than its then current market value, resulting in a potential
capital loss unless the security subsequently appreciates in value. In the case
of options on an index, if a Fund writes a call, any profit by the Fund in
respect of portfolio securities expected to correlate with the index will be
limited by an increase in the index above the exercise price of the option. If
the Fund writes a put on an index, the Fund may be required to make a cash
settlement greater than the premium received if the index declines.
A call option on a security is "covered" if a Fund owns the underlying
security or has an absolute and immediate right to acquire that security without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the Fund
holds on a share-for-share basis a call on the same security as the call written
where the exercise price of the call held is equal to or less than the exercise
price of the call written or greater than the exercise price of the call written
if the difference is maintained by the Fund in cash, U.S. Government Securities
or other high grade debt obligations in a segregated account with its custodian.
A put option is "covered" if the Fund maintains cash, U.S. Government Securities
or other high grade debt obligations with a value equal to the exercise price in
a segregated account with its custodian, or else holds on a share-for-share
basis a put on the same security as the put written where the exercise price of
the put held is equal to or greater than the exercise price of the put written.
If the writer of an option wishes to terminate its obligation, it may
effect a "closing purchase transaction." This is accomplished, in the case of
exchange traded options, by buying an option of the same series as the option
previously written. The effect of the purchase is that the writer's position
will be canceled by the clearing corporation. The writer of an option may not
effect a closing purchase transaction after it has been notified of the exercise
of an option. Likewise, an investor who is the holder of an option may liquidate
its position by effecting a "closing sale transaction." This is accomplished by
selling an option of the same series as the option previously purchased. There
is no guarantee that a Fund will be able to effect a closing purchase or a
closing sale transaction at any particular time. Also, an over-the-counter
option may be closed out only with the other party to the option transaction.
Effecting a closing transaction in the case of a written call option
will permit the Fund to write another call option on the underlying security
with either a different exercise price or expiration date or both, or in the
case of a written put option will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by deposited cash or high
grade debt obligations. Also, effecting a closing transaction will permit
-56-
the cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
A Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security or
index of securities, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security or securities owned by the Fund.
A Fund may write options in connection with buy-and-write transactions;
that is, a Fund may purchase a security and then write a call option against
that security. The exercise price of the call the Fund determines to write will
depend upon the expected price movement of the underlying security. The exercise
price of a call option may be below ("in-the-money"), equal to ("at-the-money")
or above ("out-of-the-money") the current value of the underlying security at
the time the option is written. Buy-and-write transactions using in-the-money
call options may be used when it is expected that the price of the underlying
security will remain flat or decline moderately during the option period.
Buy-and-write transactions using at-the-money call options may be used when it
is expected that the price of the underlying security will remain fixed or
advance moderately during the option period. Buy-and-write transactions using
out-of-the-money call options may be used when it is expected that the premiums
received from writing the call option plus the appreciation in the market price
of the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. If the call options
are exercised in such transactions, the Fund's maximum gain will be the premium
received by it for writing the option, adjusted upward or downward by the
difference between the Fund's purchase price of the security and the exercise
price. If the options are not exercised and the price of the underlying security
declines, the amount of such decline will be offset in part, or entirely, by the
premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close the position or take
delivery of the security at the exercise price. In that event, the Fund's return
will be the premium received from the put option minus the cost of closing the
position or, if it chooses to take delivery of the security, the premium
received from the put option minus the amount by which the market price of the
security is below the exercise price. Out-of-the-money, at-the-money and
in-the-money put options may be used by the Fund in market environments
analogous to those in which call options are used in buy-and-write transactions.
The extent to which a Fund will be able to write and purchase call and
put options may be restricted by the Fund's intention to qualify as a regulated
investment company under the Internal Revenue Code.
FUTURES. A financial futures contract sale creates an obligation by the
seller to deliver the type of financial instrument called for in the contract in
a specified delivery month for a stated price. A financial futures contract
purchase creates an obligation by the purchaser to pay for and take delivery of
the type of financial instrument called for in the contract in a specified
delivery month, at a stated price. In some cases, the specific instruments
delivered or taken, respectively, at settlement date are not determined until on
or near that date. The determination is made in accordance with the rules of the
exchange on which the futures contract sale or purchase was made. Some futures
contracts are "cash settled" (rather than "physically settled," as described
above) which means that the purchase price is subtracted from the current market
value of the instrument and the net amount if positive is paid to the purchaser,
and if negative is paid by the purchaser. Futures contracts are traded in the
United States only on commodity exchanges or boards of trade -- known as
"contract markets" -- approved for such trading by the Commodity Futures Trading
Commission ("CFTC"), and must be executed through a futures commission merchant
or brokerage firm which is a member of the relevant contract market. Under U.S.
law, futures contracts on individual equity securities are not permitted. See
Appendix A, "Risks and Limitations of Options, Futures and Swaps" for more
information concerning these practices and their accompanying risks.
The purchase or sale of a futures contract differs from the purchase or
sale of a security or option in that no price or premium is paid or received.
Instead, an amount of cash or U.S. Government Securities generally not exceeding
5% of the face amount of the futures contract must be deposited with the broker.
This amount is known as initial margin. Subsequent payments to and from the
broker, known as variation margin, are made on a daily basis as the price of the
underlying futures contract fluctuates making the long and short positions in
the futures contract more or less valuable, a process known as "marking to
market." Prior to the settlement date of the futures contract, the position may
be closed out by taking an opposite position which will operate to terminate the
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid to or released by the broker,
and the purchaser realizes a loss or gain. In addition, a commission is paid on
each completed purchase and sale transaction.
-57-
In most cases futures contracts are closed out before the settlement
date without the making or taking of delivery. Closing out a futures contract
sale is effected by purchasing a futures contract for the same aggregate amount
of the specific type of financial instrument or commodity and the same delivery
date. If the price of the initial sale of the futures contract exceeds the price
of the offsetting purchase, the seller is paid the difference and realizes a
gain. Conversely, if the price of the offsetting purchase exceeds the price of
the initial sale, the seller realizes a loss. Similarly, the closing out of a
futures contract purchase is effected by the purchaser entering into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the
purchaser realizes a gain, and if the purchase price exceeds the offsetting sale
price, a loss will be realized.
The ability to establish and close out positions on options on futures
will be subject to the development and maintenance of a liquid secondary market.
It is not certain that this market will develop or be maintained.
INDEX FUTURES. Each of the Funds (except the Short- Term Income Fund)
may purchase futures contracts on various securities indexes ("Index Futures").
Each of the Domestic Equity Funds may purchase Index Futures on the S&P 500
("S&P 500 Index Futures") and on such other domestic stock indexes as the
Manager may deem appropriate. The Japan Fund may purchase Index Futures on the
Nikkei 225 Stock Average and on the Tokyo Stock Price Index ("TOPIX") (together
with Nikkei 225 futures contracts, "Japanese Index Futures"). The International
Core Fund, Currency Hedged International Core Fund, the Foreign Fund, the Global
Fund, the International Small Companies Fund, the Emerging Markets Fund and the
Global Properties Fund may each purchase Index Futures on foreign stock indexes,
including those which may trade outside the United States. The Domestic Bond
Fund, the International Bond Fund and the Currency Hedged International Bond
Fund, the Global Bond Fund, the Emerging Country Debt Fund and the Inflation
Indexed Bond Fund may each purchase Index Futures on domestic and (except for
the Domestic Bond Fund) foreign fixed income securities indexes, including those
which may trade outside the United States. A Fund's purchase and sale of Index
Futures is limited to contracts and exchanges which have been approved by the
CFTC.
An Index Future may call for "physical delivery" or be "cash settled."
An Index Future that calls for physical delivery is a contract to buy an
integral number of units of the particular securities index at a specified
future date at a price agreed upon when the contract is made. A unit is the
value from time to time of the relevant index. While a Fund that purchases an
Index Future that calls for physical delivery is obligated to pay the face
amount on the stated date, such an Index Future may be closed out on that date
or any earlier date by selling an Index Future with the same face amount and
contract date. This will terminate the Fund's position and the Fund will realize
a profit or a loss based on the difference between the cost of purchasing the
original Index Future and the price obtained from selling the closing Index
Future. The amount of the profit or loss is determined by the change in the
value of the relevant index while the Index Future was held.
Index Futures that are "cash settled" provide by their terms for
settlement on a net basis reflecting changes in the value of the underlying
index. Thus, the purchaser of such an Index Future is never obligated to pay the
face amount of the contract. The net payment obligation may in fact be very
small in relation to the face amount.
The use of Index Futures involves risk. See Appendix A, "Risks and
Limitations of Options, Futures and Swaps" for a more detailed discussion of the
limits, conditions and risks of the Funds' investment in futures contracts.
INTEREST RATE FUTURES. For the purposes previously described, the Fixed
Income Funds (other than the Short-Term Income Fund) may engage in a variety of
transactions involving the use of futures with respect to U.S. Government
Securities and other fixed income securities. The use of interest rate futures
involves risk. See Appendix A, "Risks and Limitations of Options, Futures and
Swaps" for a more detailed discussion of the limits, conditions and risks of the
Fund's investment in futures contracts.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts give the
purchaser the right in return for the premium paid to assume a position in a
futures contract at the specified option exercise price at any time during the
period of the option. Funds may use options on futures contracts in lieu of
writing or buying options directly on the underlying securities or purchasing
and selling the underlying futures contracts. For example, to hedge against a
possible decrease in the value of its portfolio securities, a Fund may purchase
put options or write call options on futures contracts rather than selling
futures contracts. Similarly, a Fund may purchase call options or write put
options on futures contracts as a substitute for the purchase of futures
contracts to hedge against a possible increase in the price of securities which
the Fund expects to purchase. Such options generally operate in the same manner
as options purchased or written directly on the underlying investments. See
"Descriptions and Risks of Fund Investment Practices -- Foreign Currency
Transactions" for a description of the Funds' use of options on currency
futures.
USES OF OPTIONS, FUTURES AND OPTIONS ON FUTURES
- -----------------------------------------------
RISK MANAGEMENT. When futures and options on futures are used for risk
management, a Fund will generally take long positions (e.g., purchase call
options, futures contracts or options thereon) in order to increase the Fund's
exposure to a particular market, market segment or foreign currency. For
example, if a Fixed Income Fund wants to increase its exposure to a particular
fixed income security, the Fund may take long positions in futures contracts on
that security. Likewise, if an Equity Fund holds a portfolio of stocks with an
average volatility (beta) lower
-58-
than that of the Fund's benchmark securities index as a whole (deemed to be
1.00), the Fund may purchase Index Futures to increase its average volatility to
1.00. In the case of futures and options on futures, a Fund is only required to
deposit the initial and variation margin as required by relevant CFTC
regulations and the rules of the contract markets. Because the Fund will then be
obligated to purchase the security or index at a set price on a future date, the
Fund's net asset value will fluctuate with the value of the security as if it
were already included in the Fund's portfolio. Risk management transactions have
the effect of providing a degree of investment leverage, particularly when the
Fund does not segregate assets equal to the face amount of the contract (i.e.,
in cash settled futures contracts) since the futures contract (and related
options) will increase or decrease in value at a rate which is a multiple of the
rate of increase or decrease in the value of the initial and variable margin
that the Fund is required to deposit. As a result, the value of the Fund's
portfolio will generally be more volatile than the value of comparable
portfolios which do not engage in risk management transactions. A Fund will not,
however, use futures and options on futures to obtain greater volatility than it
could obtain through direct investment in securities; that is, a Fund will not
normally engage in risk management to increase the average volatility (beta) of
that Fund's portfolio above 1.00, the level of risk (as measured by volatility)
that would be present if the Fund were fully invested in the securities
comprising the relevant index. However, a Fund may invest in futures and options
on futures without regard to this limitation if the face value of such
investments, when aggregated with the Index Futures equity swaps and contracts
for differences as described below does not exceed 10% of a Fund's assets.
HEDGING. To the extent indicated elsewhere, a Fund may also enter into
options, futures contracts and buy and sell options thereon for hedging. For
example, if a Fund wants to hedge certain of its fixed income securities against
a decline in value resulting from a general increase in market rates of
interest, it might sell futures contracts with respect to fixed income
securities or indexes of fixed income securities. If the hedge is effective,
then should the anticipated change in market rates cause a decline in the value
of the Fund's fixed income security, the value of the futures contract should
increase. Likewise, the Equity Funds may sell equity index futures if a Fund
wants to hedge its equity securities against a general decline in the relevant
equity market(s). The Funds may also use futures contracts in anticipatory hedge
transactions by taking a long position in a futures contract with respect to a
security, index or foreign currency that a Fund intends to purchase (or whose
value is expected to correlate closely with the security or currency to be
purchased) pending receipt of cash from other transactions (including the
proceeds from this offering) to be used for the actual purchase. Then if the
cost of the security or foreign currency to be purchased by the Fund increases
and if the anticipatory hedge is effective, that increased cost should be
offset, at least in part, by the value of the futures contract. Options on
futures contracts may be used for hedging as well. For example, if the value of
a fixed-income security in a Fund's portfolio is expected to decline as a result
of an increase in rates, the Fund might purchase put options or write call
options on futures contracts rather than selling futures contracts. Similarly,
for anticipatory hedging, the Fund may purchase call options or write put
options as a substitute for the purchase of futures contracts. See "Description
and Risks of Fund Investment Practices -- Foreign Currency Transactions" for
more information regarding the currency hedging practices of certain Funds.
INVESTMENT PURPOSES. To the extent indicated elsewhere, a Fund may also
enter into futures contracts and buy and sell options thereon for investment.
For example, a Fund may invest in futures when its Manager believes that there
are not enough attractive securities available to maintain the standards of
diversity and liquidity set for a Fund pending investment in such securities if
or when they do become available. Through this use of futures and related
options, a Fund may diversify risk in its portfolio without incurring the
substantial brokerage costs which may be associated with investment in the
securities of multiple issuers. This use may also permit a Fund to avoid
potential market and liquidity problems (e.g., driving up the price of a
security by purchasing additional shares of a portfolio security or owning so
much of a particular issuer's stock that the sale of such stock depresses that
stock's price) which may result from increases in positions already held by the
Fund.
When any Fund purchases futures contracts for investment, it will
maintain cash, U.S. Government Securities or other high grade debt obligations
in a segregated account with its custodian in an amount which, together with the
initial and variation margin deposited on the futures contracts, is equal to the
face value of the futures contracts at all times while the futures contracts are
held.
Incidental to other transactions in fixed income securities, for
investment purposes a Fund may also combine futures contracts or options on
fixed income securities with cash, cash equivalent investments or other fixed
income securities in order to create "synthetic" bonds which approximate desired
risk and return profiles. This may be done where a "non-synthetic" security
having the desired risk/return profile either is unavailable (e.g., short-term
securities of certain foreign governments) or possesses undesirable
characteristics (e.g., interest payments on the security would be subject to
foreign withholding taxes). A Fund may also purchase forward foreign exchange
contracts in conjunction with U.S. dollar-denominated securities in order to
create a synthetic foreign currency denominated security which approximates
desired risk and return characteristics where the non-synthetic securities
either are not available in foreign markets or possess undesirable
characteristics. For greater detail, see "Foreign Currency Transactions" below.
When a Fund creates a "synthetic" bond with a futures contract, it will maintain
cash, U.S. Government securities or other high grade debt obligations in a
segregated account with its custodian with a value at least equal to the face
amount of the futures contract (less the amount of any initial or variation
margin on deposit).
-59-
SYNTHETIC SALES AND PURCHASES. Futures contracts may also be used to
reduce transaction costs associated with short-term restructuring of a Fund's
portfolio. For example, if a Fund's portfolio includes stocks of companies with
medium-sized equity capitalization (e.g., between $300 million and $5.2 billion)
and, in the opinion of the Manager, such stocks are likely to underperform
larger capitalization stocks, the Fund might sell some or all of its
mid-capitalization stocks, buy large capitalization stocks with the proceeds and
then, when the expected trend had played out, sell the large capitalization
stocks and repurchase the mid-capitalization stocks with the proceeds. In the
alternative, the Fund may use futures to achieve a similar result with reduced
transaction costs. In that case, the Fund might simultaneously enter into short
futures positions on an appropriate index (e.g., the S&P Mid Cap 400 Index) (to
synthetically "sell" the stocks in the Fund) and long futures positions on
another index (e.g., the S&P 500) (to synthetically buy the larger
capitalization stocks). When the expected trend has played out, the Fund would
then close out both futures contract positions. A Fund will only enter into
these combined positions if (1) the short position (adjusted for historic
volatility) operates as a hedge of existing portfolio holdings, (2) the face
amount of the long futures position is less than or equal to the value of the
portfolio securities that the Fund would like to dispose of, (3) the contract
settlement date for the short futures position is approximately the same as that
for the long futures position and (4) the Fund segregates an amount of cash,
U.S. Government Securities and other high-quality debt obligations whose value,
marked-to-market daily, is equal to the Fund's current obligations in respect of
the long futures contract positions. If a Fund uses such combined short and long
positions, in addition to possible declines in the values of its investment
securities, the Fund may also suffer losses associated with a securities index
underlying the long futures position underperforming the securities index
underlying the short futures position. However, the Manager will enter into
these combined positions only if the Manager expects that, overall, the Fund
will perform as if it had sold the securities hedged by the short position and
purchased the securities underlying the long position. A Fund may also use swaps
and options on futures to achieve the same objective. For more information, see
Appendix A, "Risks and Limitations of Options, Futures and Swaps."
SWAP CONTRACTS AND OTHER TWO-PARTY CONTRACTS
- --------------------------------------------
As has been described in the "Investment Objectives and Policies"
section above, many of the Funds may use swap contracts and other two-party
contracts for the same or similar purposes as they may use options, futures and
related options. The use of swap contracts and other two-party contracts
involves risk. See Appendix A, "Risks and Limitations of Options, Futures and
Swaps" for a more detailed discussion of the limits, conditions and risks of the
Funds' investments in swaps and other two-party contracts.
SWAP CONTRACTS. Swap agreements are two-party contracts entered into
primarily by institutional investors for periods ranging from a few weeks to
more than one year. In a standard "swap" transaction, two parties agree to
exchange returns (or differentials in rates of return) calculated with respect
to a "notional amount," e.g., the return on or increase in value of a particular
dollar amount invested at a particular interest rate, in a particular foreign
currency, or in a "basket" of securities representing a particular index. A Fund
will usually enter into swaps on a net basis, i.e., the two returns are netted
out, with the Fund receiving or paying, as the case may be, only the net amount
of the two returns.
INTEREST RATE AND CURRENCY SWAP CONTRACTS. Interest rate swaps involve
the exchange of the two parties' respective commitments to pay or receive
interest on a notional principal amount (e.g., an exchange of floating rate
payments for fixed rate payments). Currency swaps involve the exchange of the
two parties' respective commitments to pay or receive fluctuations with respect
to a notional amount of two different currencies (e.g., an exchange of payments
with respect to fluctuations in the value of the U.S. dollar relative to the
Japanese yen).
EQUITY SWAP CONTRACTS AND CONTRACTS FOR DIFFERENCES. As described under
"Investment Objectives and Policies -- Fixed Income Funds -- Global Hedged
Equity Fund," equity swap contracts involve the exchange of one party's
obligation to pay the loss, if any, with respect to a notional amount of a
particular equity index (e.g., the S&P 500 Index) plus interest on such notional
amount at a designated rate (e.g., the London Inter-Bank Offered Rate) in
exchange for the other party's obligation to pay the gain, if any, with respect
to the notional amount of such index.
If a Fund enters into a long equity swap contract, the Fund's net asset
value will fluctuate as a result of changes in the value of the equity index on
which the equity swap is based as if it had purchased the notional amount of
securities comprising the index. The Funds will not use long equity swap
contracts to obtain greater volatility than it could obtain through direct
investment in securities; that is, a Fund will not normally enter an equity swap
contract to increase the volatility (beta) of the Fund's portfolio above 1.00,
the volatility that would be present in the stocks comprising the Fund's
benchmark index. However, a Fund may invest in long equity swap contracts
without regard to this limitation if the notional amount of such equity swap
contracts, when aggregated with the Index Futures as described above and the
contracts for differences as described below, does not exceed 10% of a Fund's
net assets.
Contracts for differences are swap arrangements in which a Fund may
agree with a counterparty that its return (or loss) will be based on the
relative performance of two different groups or "baskets" of securities. As to
one of the baskets, the Fund's return is based on theoretical long futures
positions in the securities comprising that basket (with an aggregate face value
equal to the notional amount of the contract for differences) and
-60-
as to the other basket, the Fund's return is based on theoretical short futures
positions in the securities comprising the basket. The Fund may also use actual
long and short futures positions to achieve the same market exposure(s) as
contracts for differences. The Funds will only enter into contracts for
differences where payment obligations of the two legs of the contract are netted
and thus based on changes in the relative value of the baskets of securities
rather than on the aggregate change in the value of the two legs. The Funds will
only enter into contracts for differences (and analogous futures positions) when
the Manager believes that the basket of securities constituting the long leg
will outperform the basket constituting the short leg. However, it is possible
that the short basket will outperform the long basket - resulting in a loss to
the Fund, even in circumstances where the securities in both the long and short
baskets appreciate in value.
Except for instances in which a Fund elects to obtain leverage up to
the 10% limitation mentioned above, a Fund will maintain cash, U.S. Government
Securities or other high grade debt obligations in a segregated account with its
custodian in an amount equal to the aggregate of net payment obligations on its
swap contracts and contracts for differences, marked to market daily.
A Fund may enter into swaps and contracts for differences for hedging,
investment and risk management. When using swaps for hedging, a Fund may enter
into an interest rate, currency or equity swap, as the case may be, on either an
asset-based or liability-based basis, depending on whether it is hedging its
assets or its liabilities. For risk management or investment purposes a Fund may
also enter into a contract for differences in which the notional amount of the
theoretical long position is greater than the notional amount of the theoretical
short position. A Fund will not normally enter into a contract for differences
to increase the volatility (beta) of the Fund's portfolio above 1.00. However, a
Fund may invest in contracts for differences without regard to this limitation
if the aggregate amount by which the theoretical long positions of such
contracts exceed the theoretical short positions of such contacts, when
aggregated with the Index Futures and equity swaps contracts as described above,
does not exceed 10% of a Fund's net assets.
INTEREST RATE CAPS, FLOORS AND COLLARS. The Funds may use interest rate
caps, floors and collars for the same purposes or similar purposes as for which
they use interest rate futures contracts and related options. Interest rate
caps, floors and collars are similar to interest rate swap contracts because the
payment obligations are measured by changes in interest rates as applied to a
notional amount and because they are individually negotiated with a specific
counterparty. The purchase of an interest rate cap entitles the purchaser, to
the extent that a specific index exceeds a specified interest rate, to receive
payments of interest on a notional principal amount from the party selling the
interest rate cap. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below specified interest
rates, to receive payments of interest on a notional principal amount from the
party selling the interest rate floor. The purchase of an interest rate collar
entitles the purchaser, to the extent that a specified index exceeds or falls
below two specified interest rates, to receive payments of interest on a
notional principal amount from the party selling the interest rate collar.
Except when using such contracts for risk management, each Fund will maintain
cash, U.S. Government Securities or other high grade debt obligations in a
segregated account with its custodian in an amount at least equal to its
obligations, if any, under interest rate cap, floor and collar arrangements. As
with futures contracts, when a Fund uses notional amount contracts for risk
management it is only required to segregate assets equal to its net payment
obligation, not the notional amount of the contract. In those cases, the
notional amount contract will have the effect of providing a degree of
investment leverage similar to the leverage associated with non-segregated
futures contracts. The Funds' use of interest rate caps, floors and collars for
the same or similar purposes as those for which they use futures contracts and
related options present the same risks and similar opportunities to those
associated with futures and related options. For a description of certain
limitations on the Funds' use of caps, floors and collars, see Appendix A,
"Risks and Limitations of Options, Futures and Swaps -- Additional Regulatory
Limitations on the Use of Futures, Related Options, Interest Rate Floors, Caps
and Collars and Interest Rate and Currency Swap Contracts." Because caps, floors
and collars are recent innovations for which standardized documentation has not
yet been developed they are deemed by the SEC to be relatively illiquid
investments which are subject to a Fund's limitation on investment in illiquid
securities. See "Description and Risks of Fund Investments -- Illiquid
Securities."
FOREIGN CURRENCY TRANSACTIONS
- -----------------------------
To the extent each of the International Funds and the Fundamental Value
Fund is invested in foreign securities, it may buy or sell foreign currencies or
may deal in forward foreign currency contracts, that is, agree to buy or sell a
specified currency at a specified price and future date. These Funds may use
forward contracts for hedging, investment or currency risk management.
These Funds may enter into forward contracts for hedging under three
circumstances. First, when a Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock in"
the U.S. dollar price of the security. By entering into a forward contract for
the purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying security transaction, the Fund will be able
to protect itself against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the subject foreign currency during
the period between the date on which the security is purchased or sold and the
date on which payment is made or received.
Second, when the Manager of a Fund believes that the currency of a
particular foreign country may suffer a substantial
-61-
decline against the U.S. dollar, it may enter into a forward contract to sell,
for a fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency. Maintaining a match between the forward contract amounts and
the value of the securities involved will not generally be possible since the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures.
Third, the Funds may engage in currency "cross hedging" when, in the
opinion of the Manager, the historical relationship among foreign currencies
suggests that the Funds may achieve the same protection for a foreign security
at reduced cost through the use of a forward foreign currency contract relating
to a currency other than the U.S. dollar or the foreign currency in which the
security is denominated. By engaging in cross hedging transactions, the Funds
assume the risk of imperfect correlation between the subject currencies. These
practices may present risks different from or in addition to the risks
associated with investments in foreign currencies. See Appendix A, "Risks and
Limitations of Options, Futures and Swaps."
A Fund is not required to enter into hedging transactions with regard
to its foreign currency-denominated securities and will not do so unless deemed
appropriate by the Manager. By entering into the above hedging transactions, the
Funds may be required to forego the benefits of advantageous changes in the
exchange rates.
Each of the International Funds may also enter foreign currency forward
contracts for investment and currency risk management. When a Fund uses currency
instruments for such purposes, the foreign currency exposure of the Fund may
differ substantially from the currencies in which the Fund's investment
securities are denominated. However, a Fund's aggregate foreign currency
exposure will not normally exceed 100% of the value of the Fund's securities,
except that a Fund may use currency instruments without regard to this
limitation if the amount of such excess, when aggregated with futures contracts,
equity swap contracts and contracts for differences used in similar ways, does
not exceed 10% of a Fund's net assets. The International Bond Fund, the Currency
Hedged International Bond Fund, the Global Bond Fund and the Emerging Country
Debt Fund may each also enter into foreign currency forward contracts to give
fixed income securities denominated in one currency (generally the U.S. dollar)
the risk characteristics of similar securities denominated in another currency
as described above under "Uses of Options, Futures and Options on
Futures--Investment Purposes" or for risk management in a manner similar to such
Funds' use of futures contracts and related options. For a description of the
particular manner in which the Currency Hedged International Core Fund may
engage in foreign currency transactions, see "Investment Objectives and Policies
- -- Currency Hedged International Core Fund."
Except to the extent that the Funds may use such contracts for risk
management, whenever a Fund enters into a foreign currency forward contract,
other than a forward contract entered into for hedging, it will maintain cash,
U.S. Government securities or other high grade debt obligations in a segregated
account with its custodian with a value, marked to market daily, equal to the
amount of the currency required to be delivered. A Fund's ability to engage in
forward contracts may be limited by tax considerations.
A Fund may use currency futures contracts and related options and
options on currencies for the same reasons for which they use currency forwards.
Except to the extent that the Funds may use futures contracts and related
options for risk management, a Fund will, so long as it is obligated as the
writer of a call option on currency futures, own on a contract-for-contract
basis an equal long position in currency futures with the same delivery date or
a call option on currency futures with the difference, if any, between the
market value of the call written and the market value of the call or long
currency futures purchased maintained by the Fund in cash, U.S. Government
securities or other high grade debt obligations in a segregated account with its
custodian. If at the close of business on any day the market value of the call
purchased by a Fund falls below 100% of the market value of the call written by
the Fund, the Fund will maintain an amount of cash, U.S. Government securities
or other high grade debt obligations in a segregated account with its custodian
equal in value to the difference. Alternatively, the Fund may cover the call
option by owning securities denominated in the currency with a value equal to
the face amount of the contract(s) or through segregating with the custodian an
amount of the particular foreign currency equal to the amount of foreign
currency per futures contract option times the number of options written by the
Fund.
REPURCHASE AGREEMENTS
- ---------------------
A Fund may enter into repurchase agreements with banks and
broker-dealers by which the Fund acquires a security (usually an obligation of
the Government where the transaction is initiated or in whose currency the
agreement is denominated) for a relatively short period (usually not more than a
week) for cash and obtains a simultaneous commitment from the seller to
repurchase the security at an agreed-on price and date. The resale price is in
excess of the acquisition price and reflects an agreed-upon market rate
unrelated to the coupon rate on the purchased security. Such transactions afford
an opportunity for the Fund to earn a return on temporarily available cash at no
market risk, although there is a risk that the seller may default in its
obligation to pay the agreed-upon sum on the redelivery date. Such a default may
subject the relevant Fund to expenses, delays and risks of loss including: (a)
possible declines in the value of the underlying security during the period
while the Fund seeks to enforce its rights thereto, (b) possible reduced levels
of income and lack of access to income during this period and (c) inability to
enforce rights and the expenses involved in attempted enforcement.
-62-
DEBT AND OTHER FIXED INCOME SECURITIES GENERALLY
- ------------------------------------------------
Debt and Other Fixed Income Securities include fixed income securities
of any maturity, although, under normal circumstances, a Fixed Income Fund
(other than the Short-Term Income Fund) will only invest in a security if, at
the time of such investment, at least 65% of its total assets will be comprised
of bonds, as defined in "Investment Objectives and Policies -- Fixed Income
Funds" above. Fixed income securities pay a specified rate of interest or
dividends, or a rate that is adjusted periodically by reference to some
specified index or market rate. Fixed income securities include securities
issued by federal, state, local and foreign governments and related agencies,
and by a wide range of private issuers.
Fixed income securities are subject to market and credit risk. Market
risk relates to changes in a security's value as a result of changes in interest
rates generally. In general, the values of fixed income securities increase when
prevailing interest rates fall and decrease when interest rates rise. Credit
risk relates to the ability of the issuer to make payments of principal and
interest. Obligations of issuers are subject to the provisions of bankruptcy,
insolvency and other laws, such as the Federal Bankruptcy Reform Act of 1978,
affecting the rights and remedies of creditors. Fixed income securities
denominated in foreign currencies are also subject to the risk of a decline in
the value of the denominating currency.
Because interest rates vary, it is impossible to predict the future
income of a Fund investing in such securities. The net asset value of each such
Fund's shares will vary as a result of changes in the value of the securities in
its portfolio and will be affected by the absence and/or success of hedging
strategies.
TEMPORARY HIGH QUALITY CASH ITEMS
- ---------------------------------
As described under "Investment Objectives and Policies" above, many of
the Funds may temporarily invest a portion of their assets in cash or cash items
pending other investments or in connection with the maintenance of a segregated
account. These cash items must be of high quality and may include a number of
money market instruments such as securities issued by the United States
government and agencies thereof, bankers' acceptances, commercial paper, and
bank certificates of deposit. By investing only in high quality money market
securities a Fund will seek to minimize credit risk with respect to such
investments. The Short-Term Income Fund may make many of the same investments,
although it imposes less strict restrictions concerning the quality of such
investments. See "Investment Objectives and Policies -- Fixed Income Funds --
Short-Term Income Fund" for a general description of various types of money
market instruments.
U.S. GOVERNMENT SECURITIES AND FOREIGN GOVERNMENT SECURITIES
- ------------------------------------------------------------
U.S. Government Securities include securities issued or guaranteed by
the U.S. government or its authorities, agencies or instrumentalities. Foreign
Government Securities include securities issued or guaranteed by foreign
governments (including political subdivisions) or their authorities, agencies or
instrumentalities or by supra-national agencies. U.S. Government Securities and
Foreign Government Securities have different kinds of government support. For
example, some U.S. Government Securities, such as U.S. Treasury bonds, are
supported by the full faith and credit of the United States, whereas certain
other U.S. Government Securities issued or guaranteed by federal agencies or
government-sponsored enterprises are not supported by the full faith and credit
of the United States. Similarly, some Foreign Government Securities are
supported by the full faith and credit of a foreign national government or
political subdivision and some are not. In the case of certain countries,
Foreign Government Securities may involve varying degrees of credit risk as a
result of financial or political instability in such countries and the possible
inability of a Fund to enforce its rights against the foreign government issuer.
Supra-national agencies are agencies whose member nations make capital
contributions to support the agencies' activities, and include such entities as
the International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Coal and Steel Community and the
Inter-American Development Bank.
Like other fixed income securities, U.S. Government Securities and
Foreign Government Securities are subject to market risk and their market values
fluctuate as interest rates change. Thus, for example, the value of an
investment in a Fund which holds U.S. Government Securities or Foreign
Government Securities may fall during times of rising interest rates. Yields on
U.S. Government Securities and Foreign Government Securities tend to be lower
than those of corporate securities of comparable maturities.
In addition to investing directly in U.S. Government Securities and
Foreign Government Securities, a Fund may purchase certificates of accrual or
similar instruments evidencing undivided ownership interests in interest
payments or principal payments, or both, in U.S. Government Securities and
Foreign Government Securities. These certificates of accrual and similar
instruments may be more volatile than other government securities.
MORTGAGE-BACKED AND OTHER ASSET-BACKED SECURITIES
- -------------------------------------------------
Mortgage-backed and other asset-backed securities may be issued by the
U.S. government, its agencies or instrumentalities, or by non-governmental
issuers. Interest and principal payments (including prepayments) on the
mortgages underlying mortgage-backed securities are passed through to the
holders of the mortgage-backed security. Prepayments occur when the mortgagor on
an individual mortgage prepays the remaining principal before the mortgage's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying mortgages, mortgage-backed securities are often
subject to more rapid prepayment of principal than their
-63-
stated maturity would indicate. Because the prepayment characteristics of the
underlying mortgages vary, there can be no certainty as to the predicted yield
or average life of a particular issue of pass-through certificates. Prepayments
are important because of their effect on the yield and price of the securities.
During periods of declining interest rates, such prepayments can be expected to
accelerate and a Fund would be required to reinvest the proceeds at the lower
interest rates then available. In addition, prepayments of mortgages which
underlie securities purchased at a premium could result in capital losses
because the premium may not have been fully amortized at the time the obligation
was prepaid. As a result of these principal prepayment features, the values of
mortgage-backed securities generally fall when interest rates rise, but their
potential for capital appreciation in periods of falling interest rates is
limited because of the prepayment feature. The mortgage-backed securities
purchased by a Fund may include Adjustable Rate Securities as such term is
defined in "Descriptions and Risks of Fund Investment Practices -- Adjustable
Rate Securities" below.
Other "asset-backed securities" include securities backed by pools of
automobile loans, educational loans and credit card receivables. Mortgage-backed
and asset-backed securities of non-governmental issuers involve prepayment risks
similar to those of U.S. government guaranteed mortgage-backed securities and
also involve risk of loss of principal if the obligors of the underlying
obligations default in payment of the obligations.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"); STRIPS AND RESIDUALS. A
CMO is a security backed by a portfolio of mortgages or mortgage-backed
securities held under an indenture. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs are issued in multiple classes or series which
have different maturities representing interests in some or all of the interest
or principal on the underlying collateral or a combination thereof. CMOs of
different classes are generally retired in sequence as the underlying mortgage
loans in the mortgage pool are repaid. In the event of sufficient early
prepayments on such mortgages, the class or series of CMO first to mature
generally will be retired prior to its stated maturity. Thus, the early
retirement of a particular class or series of CMO held by a Fund would have the
same effect as the prepayment of mortgages underlying a mortgage-backed
pass-through security.
CMOs include securities ("Residuals") representing the interest in any
excess cash flow and/or the value of any collateral remaining on mortgages or
mortgage-backed securities from the payment of principal of and interest on all
other CMOs and the administrative expenses of the issuer. Residuals have value
only to the extent income from such underlying mortgages or mortgage-backed
securities exceeds the amounts necessary to satisfy the issuer's debt
obligations represented by all other outstanding CMOs.
CMOs also include certificates representing undivided interests in
payments of interest-only or principal-only ("IO/PO Strips") on the underlying
mortgages. IO/PO Strips and Residuals tend to be more volatile than other types
of securities. IO Strips and Residuals also involve the additional risk of loss
of a substantial portion of or the entire value of the investment if the
underlying securities are prepaid. In addition, if a CMO bears interest at an
adjustable rate, the cash flows on the related Residual will also be extremely
sensitive to the level of the index upon which the rate adjustments are based.
COMMERCIAL MORTGAGE-RELATED SECURITIES. The Fund may invest in commercial
mortgage-related securities. Commercial mortgage-related securities are
securities that represent an interest in, or are secured by, mortgage loans
secured by commercial property, such as industrial and warehouse properties,
office buildings, retail space and shopping malls, multifamily properties and
cooperative apartments, hotels and motels, nursing homes, hospitals, and senior
living centers. The commercial mortgage-related securities market is newer and
in terms of total outstanding principal amount of issues is relatively small
compared to the total size of the market for residential mortgage-related
securities.
Commercial mortgage-related securities are generally structured similarly
to pass-through securities or to CMOs, although other structures are possible.
They may pay fixed or adjustable rates of interest. Commercial mortgage-related
securities have been issued in public or private transactions by a variety of
public and private issuers.
The commercial mortgage loans that underlie commercial mortgage-related
securities generally lack standardized terms, which may complicate their
structure. Commercial properties themselves tend to be unique and are more
difficult to value than single family residential properties. Commercial
mortgage loans also tend to have shorter maturities than residential mortgage
loans, and may not be fully amortizing, meaning that they may have a significant
principal balance, or "balloon" payment, due on maturity. Assets underlying
commercial mortgage-related securities may relate only to a few properties or a
single property. The risk involved in single property financings is highly
concentrated. In addition, commercial properties, particularly industrial and
warehouse properties, are subject to environmental risks and the burdens and
costs of compliance with environmental laws and regulations. At the same time,
commercial mortgage-related securities may have a lower prepayment risk than
residential mortgage-related securities, because commercial mortgage loans
generally prohibit or impose penalties on prepayments of principal. In addition,
as described in the next paragraph, commercial mortgage-related securities often
are structured with some form of credit enhancement to protect against potential
losses on the underlying mortgage loans.
Mortgage-related securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors to make payments, such securities may contain
elements of credit support. Such credit support falls into two categories: (i)
liquidity protection and (ii) protection against losses resulting from ultimate
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pool of
assets, designed to ensure that the receipt of payments on the underlying pool
occurs in a timely fashion. Protection against losses resulting from ultimate
default is designed to ensure timely payment of the obligations on at least a
portion of the assets in the pool. Such protection may be provided through
subordination of other debt, guarantees, insurance policies, or letters of
credit obtained by the issuer or sponsor from third parties, through various
means of structuring the transaction or through a combination of such
approaches. The degree of credit support provided for each issue is generally
based on historical information with respect to the level of credit risk
associated with the underlying assets. There can be no assurance that credit
support will be sufficient to ensure the timely payment of principal and/or
interest. Delinquencies or losses in excess of those anticipated could adversely
affect the return on investment in such security. The Fund will not pay any
separately stated fees for such credit support, although the existence of credit
support may increase the price of a security.
ADJUSTABLE RATE SECURITIES
- --------------------------
Adjustable rate securities are securities that have interest rates that
are reset at periodic intervals, usually by reference to some interest rate
index or market interest rate. They may be U.S. Government Securities or
securities of other issuers. Some adjustable rate securities are backed by pools
of mortgage loans. Although the rate adjustment feature may act as a buffer to
reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because the interest
rate is reset only periodically, changes in the interest rates on adjustable
rate securities may lag changes in prevailing market interest rates. Also, some
adjustable rate securities (or, in the case of securities backed by mortgage
loans, the underlying mortgages) are subject to caps or floors that limit the
maximum change in interest rate during a specified period or over the life of
the security. Because of the resetting of interest rates, adjustable rate
securities are less likely than non-adjustable rate securities of comparable
quality and maturity to increase significantly in value when market interest
rates fall.
LOWER RATED SECURITIES
- ----------------------
Certain Funds may invest some or all of their assets in securities
rated below investment grade (that is, rated below BBB by Standard & Poor's or
below Baa by Moody's) at the time of purchase, including securities in the
lowest rating categories, and comparable unrated securities ("Lower Rated
Securities"). A Fund will not necessarily dispose of a security when its rating
is reduced below its rating at the time of purchase, although the Manager will
monitor the investment to determine whether continued investment in the security
will assist in meeting the Fund's investment objective.
Lower Rated Securities generally provide higher yields, but are subject
to greater credit and market risk, than higher quality fixed income securities.
Lower Rated Securities are considered predominantly speculative with respect to
the ability of the issuer to meet principal and interest payments. Achievement
of the investment objective of a Fund investing in Lower Rated Securities may be
more dependent on the Manager's own credit analysis than is the case with higher
quality bonds. The market for Lower Rated Securities may be more severely
affected than some other financial markets by economic recession or substantial
interest rate increases, by changing public
-64-
perceptions of this market or by legislation that limits the ability of certain
categories of financial institutions to invest in these securities. In addition,
the secondary market may be less liquid for Lower Rated Securities. This reduced
liquidity at certain times may affect the values of these securities and may
make the valuation and sale of these securities more difficult. Securities of
below investment grade quality are commonly referred to as "junk bonds."
Securities in the lowest rating categories may be in poor standing or in
default. Securities in the lowest investment grade category (BBB or Baa) have
some speculative characteristics. See Appendix B for more information concerning
commercial paper and corporate debt ratings.
BRADY BONDS
- -----------
Brady Bonds are securities created through the exchange of existing
commercial bank loans to public and private entities in certain emerging markets
for new bonds in connection with debt restructurings under a debt restructuring
plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the
"Brady Plan"). Brady Plan debt restructurings have been implemented in Mexico,
Uruguay, Venezuela, Costa Rica, Argentina, Nigeria, the Philippines and other
countries.
Brady Bonds have been issued only recently, and for that reason do not
have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the dollar)
and are actively traded in over-the-counter secondary markets.
Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized in full as to principal by
U.S. Treasury zero coupon bonds having the same maturity as the bonds.
Brady Bonds are often viewed as having three or four valuation
components: any collateralized repayment of principal at final maturity; any
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (these uncollateralized
amounts constituting the "residual risk"). In light of the residual risk of
Brady bonds and the history of defaults of countries issuing Brady Bonds with
respect to commercial bank loans by public and private entities, investments in
Brady Bonds may be viewed as speculative.
ZERO COUPON SECURITIES
- ----------------------
A Fund investing in "zero coupon" fixed income securities is required
to accrue interest income on these securities at a fixed rate based on the
initial purchase price and the length to maturity, but these securities do not
pay interest in cash on a current basis. Each Fund is required to distribute the
income on these securities to its shareholders as the income accrues, even
though that Fund is not receiving the income in cash on a current basis. Thus,
each Fund may have to sell other investments to obtain cash to make income
distributions. The market value of zero coupon securities is often more volatile
than that of non-zero coupon fixed income securities of comparable quality and
maturity. Zero coupon securities include IO and PO strips.
INDEXED SECURITIES
- ------------------
Indexed Securities are securities the redemption values and/or the
coupons of which are indexed to the prices of a specific instrument or
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 indexes, currencies, precious metals or other
commodities, or other financial indicators. Gold-indexed securities, for
example, typically provide for a maturity value that depends on the price of
gold, resulting in a security whose price tends to rise and fall together with
gold prices. Currency-indexed securities typically are short-term to
intermediate-term debt securities whose maturity values or interest rates are
determined by reference to the values of one or more specified foreign
currencies, and may offer higher yields than U.S. dollar-denominated securities
of equivalent issuers. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their maturity value may
decline when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
government agencies.
Indexed securities in which each Fund may invest include so-called
"inverse floating obligations" or "residual interest bonds" on which the
interest rates typically decline as short-term market interest rates increase
and increase as short-term market rates decline. Such securities have the effect
of providing a degree of investment leverage, since they will generally increase
or decrease in value in response to changes in market interest rates at a rate
which is a multiple of the rate at which fixed-rate long-term securities
increase or decrease in response to such changes. As a result, the market values
of such securities will generally be more volatile than the market values of
fixed rate securities.
FIRM COMMITMENTS
- ----------------
A firm commitment agreement is an agreement with a bank or
broker-dealer for the purchase of securities at an agreed-upon price on a
specified future date. A Fund may enter into
-65-
firm commitment agreements with such banks and broker-dealers with respect to
any of the instruments eligible for purchase by the Fund. A Fund will only enter
into firm commitment arrangements with banks and broker-dealers which the
Manager determines present minimal credit risks. Each such Fund will maintain in
a segregated account with its custodian cash, U.S. Government Securities or
other liquid high grade debt obligations in an amount equal to the Fund's
obligations under firm commitment agreements.
LOANS, LOAN PARTICIPATIONS AND ASSIGNMENTS
- ------------------------------------------
Certain Funds may invest in direct debt instruments which are interests
in amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates (loans and loan participations), to suppliers of goods or
services (trade claims or other receivables), or to other parties. Direct debt
instruments are subject to a Fund's policies regarding the quality of debt
securities.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally recognized
rating agency and yield could be adversely affected. Loans that are fully
secured offer the Fund more protections than an unsecured loan in the event of
non-payment of scheduled interest or principal. However, there is no assurance
that the liquidation of collateral from a secured loan would satisfy the
borrower's obligation, or that the collateral can be liquidated. Indebtedness of
borrowers whose creditworthiness is poor involves substantially greater risks,
and may be highly speculative. Borrowers that are in bankruptcy or restructuring
may never pay off their indebtedness, or may pay only a small fraction of the
amount owed. Direct indebtedness of emerging countries will also involve a risk
that the governmental entities responsible for the repayment of the debt may be
unable, or unwilling, to pay interest and repay principal when due.
When investing in a loan participation, a Fund will typically have the
right to receive payments only from the lender to the extent the lender receives
payments from the borrower, and not from the borrower itself. Likewise, a Fund
typically will be able to enforce its rights only through the lender, and not
directly against the borrower. As a result, a Fund will assume the credit risk
of both the borrower and the lender that is selling the participation.
Investments in loans through direct assignment of a financial
institution's interests with respect to a loan may involve additional risks to
the Fund. For example, if a loan is foreclosed, a Fund could become part owner
of any collateral, and would bear the costs and liabilities associated with
owning and disposing of the collateral. In addition, it is conceivable that
under emerging legal theories of lender liability, a Fund could be held liable
as a co-lender. In the case of a loan participation, direct debt instruments may
also involve a risk of insolvency of the lending bank or other intermediary.
Direct debt instruments that are not in the form of securities may offer less
legal protection to a Fund in the event of fraud or misrepresentation. In the
absence of definitive regulatory guidance, a Fund may rely on the Manager's
research to attempt to avoid situations where fraud or misrepresentation could
adversely affect the fund.
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 apply appropriate credit remedies against a borrower.
Direct indebtedness purchased by a Fund may include letters of credit,
revolving credit facilities, or other standby financing commitments obligating
the Fund to pay additional cash on demand. These commitments may have the effect
of requiring the Fund to increase its investment in a borrower at a time when it
would not otherwise have done so. A Fund will set aside appropriate liquid
assets in a segregated custodial account to cover its potential obligations
under standby financing commitments.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS
- --------------------------------------------------------
Certain Funds may enter into reverse repurchase agreements and dollar
roll agreements with banks and brokers to enhance return. Reverse repurchase
agreements involve sales by a Fund of portfolio assets concurrently with an
agreement by the Fund to repurchase the same assets at a later date at a fixed
price. During the reverse repurchase agreement period, the Fund continues to
receive principal and interest payments on these securities and also has the
opportunity to earn a return on the collateral furnished by the counterparty to
secure its obligation to redeliver the securities.
Dollar rolls are transactions in which a Fund sells securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
A Fund which makes such investments will establish segregated accounts
with its custodian in which the Fund will maintain cash, U.S. Government
Securities or other liquid high grade debt obligations equal in value to its
obligations in respect of reverse repurchase agreements and dollar rolls.
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities retained by a Fund may decline below the price of the
securities the Fund has sold but is obligated to repurchase under the agreement.
In the event the buyer of securities under a reverse repurchase agreement or
dollar roll files for bankruptcy or becomes insolvent, a Fund's
-66-
use of the proceeds of the agreement may be restricted pending a determination
by the other party or its trustee or receiver whether to enforce the Fund's
obligation to repurchase the securities. Reverse repurchase agreements and
dollar rolls are not considered borrowings by a Fund for purposes of a Fund's
fundamental investment restriction with respect to borrowings.
ILLIQUID SECURITIES
- -------------------
Each Fund (except for the Asset Allocation Funds) may purchase
"illiquid securities," i.e., securities which may not be sold or disposed of in
the ordinary course of business within seven days at approximately the value at
which the Fund has valued the investment, which include securities whose
disposition is restricted by securities laws, so long as no more than 15% (or,
in the case of the Foreign Fund only, 10%) of net assets would be invested in
such illiquid securities. Each Fund currently intends to invest in accordance
with the SEC staff view that repurchase agreements maturing in more than seven
days are illiquid securities. The SEC staff has stated informally that it is of
the view that over-the-counter options and securities serving as cover for
over-the-counter options are illiquid securities. While the Trust does not agree
with this view, it will operate in accordance with any relevant formal
guidelines adopted by the SEC.
In addition, the SEC staff considers equity swap contracts, caps,
floors and collars to be illiquid securities. Consequently, while the staff
maintains this position, the Fund will not enter into an equity swap contract or
a reverse equity swap contract or purchase a cap, floor or collar if, as a
result of the investment, the total value (i.e., marked-to-market value) of such
investments (without regard to their notional amount) together with that of all
other illiquid securities which the Fund owns would exceed 15% (or, in the case
of the Foreign Fund only, 10%) of the Fund's total assets.
SPECIAL ASSET ALLOCATION FUND CONSIDERATIONS
- --------------------------------------------
The Manager does not charge an investment management fee for asset
allocation advice provided to the Asset Allocation Funds, but certain other
expenses such as custody, transfer agency and audit fees will be borne by the
Asset Allocation Funds. Investors in Asset Allocation Funds will also indirectly
bear a proportionate share of the Total Operating Expenses (including investment
management, custody, transfer agency, audit and other Fund expenses) of the
underlying Funds in which the Asset Allocation Funds invest, as well as any
purchase premiums or redemption fees charged by such underlying Funds. Since the
Manager will receive fees from the underlying Funds, the Manager has a financial
incentive to invest the assets of the Asset Allocation Funds in underlying Funds
with higher fees, despite the investment interests of the Asset Allocation
Funds. The Manager is legally obligated to disregard that incentive in selecting
shares of the underlying Funds.
MULTIPLE CLASSES
----------------
Each Fund (except the Short-Term Income Fund) offers three classes of
shares: Class I, Class II and Class III. The Short-Term Income Fund offers only
Class III Shares. Eligibility generally depends on the size of a client's total
investment with GMO, as described more fully in this section. The Core Fund,
Value Fund, Growth Fund, U.S. Sector Fund, International Core Fund and Emerging
Markets Fund each offer three additional classes (Class IV, Class V and Class VI
Shares) for clients making very large investments in these Funds or making
investments in these Funds in conjunction with a very large commitment of assets
to GMO. See "Eligibility for Classes."
SHAREHOLDER SERVICE FEES
- ------------------------
The principal economic difference among the various classes of shares
is the level of Shareholder Service Fee which the classes bear for client and
shareholder service, reporting and other support. The existence of multiple
classes reflects the fact that, as the size of a client relationship increases,
the cost to service that client decreases as a percentage of the assets in that
account. Thus, the Shareholder Service Fee is lower for classes where
eligibility criteria require greater total assets under GMO's management.
The Trust has adopted a Shareholder Servicing Plan with respect to the
multiple classes of shares. Pursuant to the terms of the Shareholder Servicing
Plan, the classes will pay the following Shareholder Service Fees, expressed as
an annual percentage of the average daily net assets attributable to that class
of shares:
Shareholder Service Fee
- ----------------------------- ---------- ---------- -----------
Fund Class I Class II Class III
- ----------------------------- ---------- ---------- -----------
All Funds (except Asset 0.28% 0.22% 0.15%
Allocation Funds)
- ----------------------------- ---------- ---------- -----------
Asset Allocation Funds* 0.13% 0.07% 0.00%
- ----------------------------- ---------- ---------- -----------
- ----------------------------- ---------- ---------- -----------
Fund Class IV Class V Class VI
- ----------------------------- ---------- ---------- -----------
Core, Value, Growth and 0.12% 0.09% 0.07%
U.S. Sector Funds
- ----------------------------- ---------- ---------- -----------
International Core Fund 0.11% 0.07% 0.04%
- ----------------------------- ---------- ---------- -----------
Emerging Markets Fund 0.10% 0.05% 0.02%
- ----------------------------- ---------- ---------- -----------
* The Asset Allocation Funds will invest in Class III Shares of underlying Funds
and will therefore also indirectly bear a Shareholder Service Fee of 0.15%.
Thus, the total Shareholder Service Fee borne by Class I, Class II and Class III
-67-
Shares of the Asset Allocation Funds is the same as that borne by Class I, Class
II and Class III Shares, respectively, of the other Funds.
CLIENT SERVICE - GMO AND GMO FUNDS
- ----------------------------------
A significant distinction among classes is that clients eligible for
Class I or Class II Shares are serviced by the Manager's GMO FUNDS DIVISION, a
division of GMO established in April of 1996 to deliver institutional quality
service and reporting to clients generally committing between $1 million and $35
million to GMO's management.
Clients eligible to purchase Class III, Class IV, Class V and Class VI
Shares will be serviced directly by the Manager.
ELIGIBILITY FOR CLASSES
- -----------------------
Class I, Class II and Class III Shares: With certain exceptions
described below, eligibility for Class I, Class II, and Class III Shares depends
on a client's "TOTAL INVESTMENT" with GMO.
For clients establishing a relationship with GMO on or after June 1,
1996: A client's Total Investment is equal at any time to the aggregate of all
amounts contributed by the client to any GMO Fund, less the "INVESTMENT COST" of
all redemptions by the client from such Funds. Where applicable, the market
value of assets managed by GMO for the client other than in a mutual fund, as of
the prior month end, will be added to the client's Total Investment. For
purposes of class eligibility, market appreciation or depreciation of a client's
mutual fund account is not considered; the Total Investment of a client is
affected only by the amount of purchases and redemptions made by the client.
Further, it is assumed that any redemptions made by a client are satisfied first
by market appreciation so that a redemption does not have Investment Cost except
to the extent that the redemption or withdrawal exceeds the market appreciation
of the client's account in a Fund.
Subject to the exceptions set forth following this table, the minimum
Total Investment for a new client (establishing a GMO Account after June 1,
1996) to be eligible for Class I, II or III Shares is set forth in the following
table:
- ---------------------- ----------------------------
MINIMUM TOTAL INVESTMENT
- ---------------------- ----------------------------
Class I $1 Million
- ---------------------- ----------------------------
Class II $10 Million
- ---------------------- ----------------------------
Class III $35 Million
- ---------------------- ----------------------------
Investments by defined contribution pension plans (such as 401(k)
plans) will be accepted only in Class I Shares regardless of the size of the
investment, and will not be eligible to convert to other classes.
For Clients with Accounts as of May 31, 1996: Any client of GMO whose
Total Investment as of May 31, 1996 was equal to or greater than $7 million will
remain eligible for Class III Shares indefinitely, provided that such client
does not make a withdrawal or redemption that causes the client's Total
Investment to fall below $7 million. Any client whose Total Investment as of May
31, 1996 was less than $7 million, but greater than $0, will convert to Class II
Shares on or shortly after July 31, 1997. For clients with GMO accounts as of
May 31, 1996, their initial Total Investment will equal the market value of all
of their GMO investments as of the close of business on May 31, 1996 and will
subsequently be calculated as described in the preceding section.
Class IV, Class V and Class VI Shares: Class IV, Class V and Class VI
Shares bear significantly lower Shareholder Service Fees than other classes and
are designed to accommodate clients making very large investments in the Core
Fund, Value Fund, Growth Fund, U.S. Sector Fund, International Core Fund and/or
Emerging Markets Fund or that are making investments into one or more of these
Funds in conjunction with a very large commitment of assets to quantitative
investment management by GMO.
In order to purchase a particular class of Class IV, Class V and Class
VI Shares, a client must meet either (i) a minimum "TOTAL FUND INVESTMENT"
requirement, which includes only a client's total investment in the Core Fund,
Value Fund, Growth Fund, U.S. Sector Fund, International Core Fund or Emerging
Markets Fund, or (ii) a minimum "Total Investment" requirement, calculated as
described above for Class I, Class II and Class III Shares. A client's Total
Fund Investment and Total Investment will include the market value of all such
accounts as of May 31, 1996, plus the value of all purchases of Fund shares made
after such date and less the value of redemptions of Fund shares after such
date. The minimum Total Fund Investment and Total Investment criteria for each
class of Fund Shares is set forth below:
-68-
- --------------------------- ----------------- -----------------
MINIMUM TOTAL MINIMUM TOTAL
TYPE OF SHARES FUND INVESTMENT INVESTMENT
- --------------------------- ----------------- -----------------
Class IV Shares:
- --------------------------- ----------------- -----------------
Core Fund, Value Fund, $150 million $300 million
Growth Fund, U.S. Sector
Fund and International
Core Fund
- --------------------------- ----------------- -----------------
Emerging Markets Fund $ 50 million $300 million
- --------------------------- ----------------- -----------------
Class V Shares:
- --------------------------- ----------------- -----------------
Core Fund, Value Fund, $300 million $500 million
Growth Fund, U.S. Sector
Fund and International
Core Fund
- --------------------------- ----------------- -----------------
Emerging Markets Fund $100 million $500 million
- --------------------------- ----------------- -----------------
Class VI Shares:
- --------------------------- ----------------- -----------------
Core Fund, Value Fund, $500 million $800 million
Growth Fund, U.S. Sector
Fund and International
Core Fund
- --------------------------- ----------------- -----------------
Emerging Markets Fund $150 million $800 million
- --------------------------- ----------------- -----------------
There is no minimum for subsequent investments into any class of
shares.
The Manager will make all determinations as to aggregation of client
accounts for purposes of determining eligibility.
CONVERSIONS BETWEEN CLASSES
- ---------------------------
On July 31 of each year (the "DETERMINATION DATE") the value of each
client's Total Investment with GMO, as defined above, will be determined. Based
on that determination, each client's shares of all Funds will be automatically
converted to the class with the lowest Shareholder Service Fee for which the
client is eligible based on the amount of their Total Investment (and, in the
case of Class IV, V and VI Shares, such client's Total Fund Investment) on the
Determination Date. The conversion will occur within 15 business days following
the Determination Date. Also, if a client makes an investment in a GMO Fund or
puts additional assets under GMO's management so as to cause the client to be
eligible for a new class of shares, such determination will be made as of the
close of business on the last day of the month in which the investment was made,
and the conversion will be effected within 15 business days of that month-end.
The Trust has been advised by counsel that the conversion of a client's
investment from one class of shares to another class of shares in the same Fund
should not result in the recognition of gain or loss in the converted Fund's
shares. The client's tax basis in the new class of shares immediately after the
conversion should equal the client's basis in the converted shares immediately
before conversion, and the holding period of the new class of shares should
include the holding period of the converted shares.
Certain special rules will be applied by the Manager with respect to
clients for whom GMO managed assets prior to the creation of multiple classes on
May 31, 1996. Clients whose Total Investment as of May 31, 1996 is equal to $7
million or more will be eligible to remain invested in Class III Shares
indefinitely (despite the normal $35 million minimum), provided that such client
does not make a withdrawal or redemption that causes the client's Total
Investment to fall below $7 million. Clients whose Total Investment as of May
31, 1996 is less than $7 million will be converted to Class II Shares, (rather
than Class I Shares), and such conversion will not occur until July 31, 1997 or
slightly thereafter. Of course, if such a client makes an additional investment
prior to July 31, 1997 such that their Total Investment on July 31, 1997 is $35
million or more, the client will remain eligible for Class III Shares.
Investors should be aware that not all classes of all Funds are
available in all jurisdictions.
PURCHASE OF SHARES
------------------
Shares of each Fund are available only from the Trust and may be
purchased on any day when the New York Stock Exchange is open for business (a
"business day"). Class I and Class II Shares may be purchased by calling (617)
790-5000. Class III, Class IV, Class V and Class VI Shares may be purchased by
calling (617) 330-7500. See "Purchase Procedures" below.
The purchase price of a share of each Fund is (i) the net asset value
next determined after a purchase order is received in good order plus (ii) a
premium, if any, established from time to time by the Trust for the particular
Fund and class to be purchased. All purchase premiums are paid to and retained
by the Fund and are intended to cover the brokerage and other costs associated
with putting the investment to work in the relevant markets. Each class of
shares of a Fund has the same rate of purchase premium. The purchase premiums
currently in effect for each Fund are as follows:
Fund Purchase Premium
- ---- ----------------
Short-Term Income Fund,
Domestic Bond Fund, Global Fund,
and Foreign Fund None
Inflation Indexed Bond Fund 0.10%
Core Fund, Tobacco-Free
Core Fund, U.S. Sector
Fund, Value Fund and Growth Fund 0.14%
Fundamental Value Fund,
International Bond Fund, Currency
Hedged International Bond Fund and
Global Bond Fund 0.15%
Global Balanced Allocation Fund 0.31%
-69-
Japan Fund 0.40%
Global (U.S.+) Equity Allocation Fund 0.42%
Small Cap Value Fund,
Small Cap Growth Fund,
Emerging Country Debt Fund and
Global Hedged Equity Fund 0.50%
International Core Fund,
Currency Hedged International
Core Fund and
Global Properties Fund 0.60%
World Equity Allocation Fund 0.69%
REIT Fund 0.75%
International Equity Allocation Fund 0.80%
International Small Companies
Fund 1.00%
Emerging Markets Fund 1.60%
Purchase premiums apply only to cash transactions. These fees are paid
to and retained by the Fund itself and are designed to allocate transaction
costs caused by shareholder activity to the shareholder generating the activity,
rather than to the Fund as a whole. Purchase premiums are not sales loads.
For the Emerging Markets Fund, Emerging Country Debt Fund,
International Bond Fund, Currency Hedged International Bond Fund, Inflation
Indexed Bond Fund and Global Bond Fund only, the Funds will reduce the stated
purchase premium by 50% with respect to any portion of a purchase that is offset
by a corresponding redemption occurring on the same day. For the Fundamental
Value Fund and Japan Fund only, the purchase premium may be waived if, generally
due to off-setting transactions, a purchase resulted in minimal brokerage and/or
other transaction costs. For the Global Properties Fund, it is expected that the
purchase premium will be eliminated once the net assets of the Fund exceed $100
million. In all of these cases, the Manager will determine whether circumstances
exist to waive a portion of the purchase premium. Absent a clear determination,
the full premium will be charged.
For all other Funds, the stated purchase premium may not be waived in
any circumstance.
Normally, no purchase premium is charged with respect to in-kind
purchases of Fund shares. However, in the case of in-kind purchases involving
transfers of large positions in markets where the costs of re-registration
and/or other transfer expenses are high, the International Core Fund, Currency
Hedged International Core Fund, International Small Companies Fund, Japan Fund
and Global Hedged Equity Fund may each charge a premium of 0.10% and the
Emerging Markets Fund may charge a premium of 0.20%.
Shares may be purchased (i) in cash, (ii) in exchange for securities on
deposit at The Depository Trust Company ("DTC") (or such other depository
acceptable to the Manager), subject to the determination by the Manager that the
securities to be exchanged are acceptable, or (iii) by a combination of such
securities and cash. In all cases, the Manager reserves the right to reject any
particular investment. Securities acceptable to the Manager as consideration for
Fund shares will be valued as set forth under "Determination of Net Asset Value"
(generally the last quoted sale price) as of the time of the next determination
of net asset value after such acceptance. All dividends, subscription or other
rights which are reflected in the market price of accepted securities at the
time of valuation become the property of the relevant Fund and must be delivered
to the Trust upon receipt by the investor from the issuer. A gain or loss for
federal income tax purposes may be realized by investors subject to federal
income taxation upon the exchange, depending upon the investor's basis in the
securities tendered.
The Manager will not approve securities as acceptable consideration for
Fund shares unless (1) the Manager, in its sole discretion, believes the
securities are appropriate investments for the Fund; (2) the investor represents
and agrees that all securities offered to the Fund are not subject to any
restrictions upon their sale by the Fund under the Securities Act of 1933, or
otherwise; and (3) the securities may be acquired under the investment
restrictions applicable to the relevant Fund. Investors interested in making
in-kind purchases should telephone the Manager at (617) 330-7500.
For purposes of calculating the purchase price of Trust shares, a
purchase order is received by the Trust on the day that it is in "good order"
and is accepted by the Trust. For a purchase order to be in "good order" on a
particular day, the investor's consideration must be received before the
relevant deadline on that day. If the investor makes a cash investment, the
deadline for wiring Federal funds to the Trust is 2:00 p.m.; if the investor
makes an investment in-kind, the investor's securities must be placed on deposit
at DTC (or such other depository as is acceptable to the Manager) and 2:00 p.m.
is the deadline for transferring those securities to the account designated by
the transfer agent, Investors Bank & Trust Company, One Lincoln Plaza, Boston,
Massachusetts 02205. Investors should be aware that approval of the securities
to be used for purchase must be obtained from the Manager prior to this time.
When the consideration is received by the Trust after the relevant deadline, the
purchase order is not considered to be in good order and is required to be
resubmitted on the following business day. With the prior consent of the
Manager, in certain circumstances the Manager may, in its discretion, permit
purchases based on receiving adequate written assurances that Federal Funds or
securities, as the case may be, will be delivered to the Trust by 2:00 p.m. on
or prior to the fourth business day after such assurances are received.
The International Core Fund may be available through a broker or dealer
who may charge a transaction fee for purchases and redemptions of that Fund's
shares. If shares of the International Core Fund are purchased directly from the
Trust without the intervention of a broker or dealer, no such charge will be
imposed.
-70-
PURCHASE PROCEDURES:
(a) General: Investors should call the Trust at (617) 790-5000 before
attempting to place an order for Class I or Class II Shares. Investors should
call the Trust at (617) 330-7500 before attempting to place an order for Class
III, Class IV, Class V or Class VI Shares. The Trust reserves the right to
reject any order for Trust shares. DO NOT SEND CASH, CHECKS OR SECURITIES
DIRECTLY TO THE TRUST. Wire transfer and mailing instructions are contained on
the PURCHASE ORDER FORM which can be obtained from the Trust at the telephone
numbers set forth above.
Purchases will be made in full and fractional shares of each Fund
calculated to three decimal places. The Trust will send a written confirmation
(including a statement of shares owned) to shareholders at the time of each
transaction.
(b) Purchase Order Form: Investors must submit an application to the
Trust and it must be accepted by the Trust before it will be considered in "good
order."
Class I and Class II Shares: A Purchase Order Form for Class I and
Class II Shares may be obtained by calling the Trust at (617) 790-5000. This
Order Form may be submitted to the Trust (i) By Mail to GMO Trust c/o GMO Funds
Division, 40 Rowes Wharf, Boston, MA 02110; or (ii) By Facsimile to (617)
439-4290.
Class III, Class IV, Class V and Class VI Shares: A Purchase Order Form
for Class III Shares may be obtained by calling the Trust at (617) 330-7500.
This Order Form may be submitted to the Trust (i) By Mail to GMO Trust c/o
Grantham, Mayo, Van Otterloo & Co. LLC, 40 Rowes Wharf, Boston, MA 02110;
Attention: Shareholder Services, or (ii) By Facsimile to (617) 439-4192;
Attention: Shareholder Services.
(c) Acceptance of Order: No purchase order is in "good order" until it
has been accepted by the Trust. As noted above, investors should call the Trust
at the telephone numbers indicated before attempting to place an order. If a
Purchase Order Form is faxed to the Trust without first contacting the Trust,
investors should not consider their order acknowledged until they have received
notification from the Trust or have confirmed receipt of the order by contacting
the Trust. A shareholder may confirm acceptance of a mailed or faxed purchase
order by calling the Trust at (617) 330-7500 in the case of Class III, Class IV,
Class V or Class VI Shares, or at (617) 790-5000 in the case of Class I or II
Shares. If a Purchase Order is mailed to the Trust, it will be acted upon when
received.
(d) Payment: All Federal funds must be transmitted to Investors Bank &
Trust Company for the account of the specific Fund of GMO Trust. "Federal funds"
are monies credited to Investors Bank & Trust Company's account with the Federal
Reserve Bank of Boston.
Note: The Trust may attempt to process orders for Trust shares that are
submitted less formally than as described above but, in such cases, the investor
should carefully review confirmations sent by the Trust to verify that the order
was properly executed. The Trust cannot be held responsible for failure to
execute orders or improperly executing orders that are not submitted in
accordance with these procedures.
REDEMPTION OF SHARES
--------------------
Shares of each Fund may be redeemed on any business day in cash or in
kind. The redemption price is the net asset value per share next determined
after receipt of the redemption request in "good order" less any applicable
redemption fee. All redemption fees are paid to and retained by the Fund and are
intended to cover the brokerage and other Fund costs associated with
redemptions. All classes of a particular Fund bear the same redemption fee rate,
if any.
The redemption fees currently in effect for each Fund are as follows:
Fund Redemption Fee
- ---- --------------
Global Balanced Allocation Fund 0.03%
Global (U.S.+) Equity Allocation Fund 0.05%
World Equity Allocation Fund 0.09%
International Equity Allocation Fund 0.10%
Inflation Indexed Bond Fund 0.10%
Emerging Country Debt Fund 0.25%1
Global Properties Fund 0.30%4
Emerging Markets Fund 0.40%2
Small Cap Value Fund 0.50%
Small Cap Growth Fund 0.50%
International Small Companies Fund 0.60%
Japan Fund 0.61%
REIT Fund 0.75%
Global Hedged Equity Fund 1.40%3
1 Applies only to shares acquired on or after July 1, 1995 (including shares
acquired through the reinvestment of dividends and other distributions after
such date).
2 Applies only to shares acquired on or after June 1, 1995 (including shares
acquired through the reinvestment of dividends and other distributions after
such date).
3 This redemption fee will be 0% unless the size of a redemption forces the
Manager to an early termination of a hedging transaction to meet the redemption
request.
4 It is expected that the redemption fee will be eliminated once the net assets
of the Fund exceed $100 million.
No redemption fees apply to redemptions of shares of any Funds other
than the Funds listed above.
Redemption fees apply only to cash transactions. These fees are paid to
and retained by the Fund itself and are employed to allocate transaction costs
caused by shareholder activity to the shareholder generating the activity,
rather than to the Fund as a
-71-
whole. Redemption fees are not sales loads or contingent deferred sales charges.
For the Emerging Markets Fund, Emerging Country Debt Fund and
Inflation Indexed Bond Fund only, the Funds will reduce the stated redemption
fee by 50% with respect to any portion of a redemption that is offset by a
corresponding purchase occurring on the same day. For the Japan Fund only, the
redemption fee may be waived if, generally due to off-setting transactions, a
redemption resulted in minimal brokerage and/or other transaction costs. For the
Global Properties Fund, it is expected that the redemption fee will be
eliminated once the net assets of the Fund exceed $100 million. In each case,
the Manager will determine if circumstances exist to waive a portion of the
redemption fee. Absent a clear determination, the full fee will be charged.
For all other Funds (except the Global Hedged Equity Fund),
the redemption fee may not be waived in any circumstance.
If the Manager determines, in its sole discretion, that it
would be detrimental to the best interests of the remaining shareholders of a
Fund to make payment wholly or partly in cash, the Fund may pay the redemption
price in whole or in part by a distribution in-kind of securities held by the
Fund in lieu of cash. Securities used to redeem Fund shares in-kind will be
valued in accordance with the relevant Fund's procedures for valuation described
under "Determination of Net Asset Value." Securities distributed by a Fund
in-kind will be selected by the Manager in light of the Fund's objective and
will not generally represent a pro rata distribution of each security held in
the Fund's portfolio. Any in-kind redemptions will be of readily marketable
securities to the extent available. Investors may incur brokerage charges on the
sale of any such securities so received in payment of redemptions.
Payment on redemption will be made as promptly as possible and
in any event within seven days after the request for redemption is received by
the Trust in "good order." A redemption request is in "good order" if it
includes the exact name in which shares are registered, the investor's account
number and the number of shares or the dollar amount of shares to be redeemed
and if it is signed exactly in accordance with the form of registration. In
addition, for a redemption request to be in "good order" on a particular day,
the investor's request must be received by the Trust by 4:15 p.m. on a business
day. When a redemption request is received after 4:15 p.m., the redemption
request will not be considered to be in "good order" and is required to be
resubmitted on the following business day. Persons acting in a fiduciary
capacity, or on behalf of a corporation, partnership or trust must specify, in
full, the capacity in which they are acting. The redemption request will be
considered "received" by the Trust only after (i) it is mailed to, and received
by, the Trust at the appropriate address set forth above for purchase orders, or
(ii) it is faxed to the Trust at the appropriate facsimile number set forth
above for purchase orders, and the investor has confirmed receipt of the faxed
request by calling the Trust at (617) 330-7500 in the case of Class III, Class
IV, Class V or Class VI Shares, or at (617) 790-5000 in the case of Class I or
Class II Shares. In-kind distributions will be transferred and delivered as
directed by the investor. Cash payments will be made by transfer of Federal
funds for payment into the investor's account.
When opening an account with the Trust, shareholders will be required
to designate the account(s) to which funds or securities may be transferred upon
redemption. Designation of additional accounts and any change in the accounts
originally designated must be made in writing.
Each Fund may suspend the right of redemption and may postpone payment
for more than seven days when the New York Stock Exchange is closed for other
than weekends or holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange is restricted or
during an emergency which makes it impracticable for the Fund to dispose of its
securities or to fairly determine the value of the net assets of the Fund, or
during any other period permitted by the Securities and Exchange Commission for
the protection of investors. Because the International Funds each hold portfolio
securities listed on foreign exchanges which may trade on days on which the New
York Stock Exchange is closed, the net asset value of such Funds' shares may be
significantly affected on days when shareholders have no access to such Funds.
DETERMINATION OF NET ASSET VALUE
--------------------------------
The net asset value of a share is determined for each Fund once on each
day on which the New York Stock Exchange is open as of 4:15 p.m., New York City
Time, except that a Fund may not determine its net asset value on days during
which no security is tendered for redemption and no order to purchase or sell
such security is received by the relevant Fund. A Fund's net asset value is
determined by dividing the total market value of the Fund's portfolio
investments and other assets, less any liabilities, by the total outstanding
shares of the Fund. Portfolio securities listed on a securities exchange for
which market quotations are available are valued at the last quoted sale price
on each business day, or, if there is no such reported sale, at the most recent
quoted bid price. Price information on listed securities is generally taken from
the closing price on the exchange where the security is primarily traded.
Unlisted securities for which market quotations are readily available are valued
at the most recent quoted bid price, except that debt obligations with sixty
days or less remaining until maturity may be valued at their amortized cost,
unless circumstances dictate otherwise. Circumstances may dictate otherwise,
among other times, when the issuer's creditworthiness has become impaired.
All other fixed income securities (which includes bonds, loans
and structured notes) and options thereon are valued at the closing bid for such
securities as supplied by a primary pricing source chosen by the Manager. While
the Manager evaluates such primary pricing sources on an ongoing basis, and may
-72-
change any pricing source at any time, the Manager will not normally evaluate
the prices supplied by the pricing sources on a day-to-day basis. However, the
Manager is kept informed of erratic or unusual movements (including unusual
inactivity) in the prices supplied for a security and has the power to override
any price supplied by a source (by taking a price supplied from another source)
because of such price activity or because the Manager has other reasons to
suspect that a price supplied may not be reliable.
Other assets and securities for which no quotations are
readily available are valued at fair value as determined in good faith by the
Trustees or persons acting at their direction. The values of foreign securities
quoted in foreign currencies are translated into U.S. dollars at current
exchange rates or at such other rates as the Trustees may determine in computing
net asset value.
Because of time zone differences, foreign exchanges and
securities markets will usually be closed prior to the time of the closing of
the New York Stock Exchange and values of foreign options and foreign securities
will be determined as of the earlier closing of such exchanges and securities
markets. However, events affecting the values of such foreign securities may
occasionally occur between the earlier closings of such exchanges and securities
markets and the closing of the New York Stock Exchange which will not be
reflected in the computation of the net asset value of the International Funds.
If an event materially affecting the value of such foreign securities occurs
during such period, then such securities will be valued at fair value as
determined in good faith by the Trustees or persons acting at their direction.
Because foreign securities, options on foreign securities and
foreign futures are quoted in foreign currencies, fluctuations in the value of
such currencies in relation to the U.S. dollar will affect the net asset value
of shares of the International Funds even though there has not been any change
in the values of such securities and options, measured in terms of the foreign
currencies in which they are denominated.
DISTRIBUTIONS
-------------
Each Fund intends to pay out as dividends substantially all of
its net investment income (which comes from dividends and interest it receives
from its investments and net short-term capital gains). For these purposes and
for federal income tax purposes, a portion of the premiums from certain expired
call or put options written by a Fund, net gains from certain closing purchase
and sale transactions with respect to such options and a portion of net gains
from other options and futures transactions are treated as short-term capital
gain. Each Fund also intends to distribute substantially all of its net
long-term capital gains, if any, after giving effect to any available capital
loss carryover. The policy of each Domestic Equity Fund, the Short-Term Income
Fund and the Domestic Bond Fund is to declare and pay distributions of its
dividends and interest quarterly. The policy of each International Fund, each
Asset Allocation Fund and the REIT Fund is to declare and pay distributions of
its dividends, interest and foreign currency gains semi-annually. Each Fund also
intends to distribute net short-term capital gains and net long-term gains at
least annually.
All dividends and/or distributions will be paid in shares of the
relevant Fund, at net asset value, unless the shareholder elects to receive
cash. There is no purchase premium on reinvested dividends or distributions.
Shareholders may make this election by marking the appropriate box on the
Application or by writing to the Trust.
TAXES
-----
Each Fund is treated as a separate taxable entity for federal income
tax purposes. Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended. So
long as a Fund so qualifies, the Fund itself will not pay federal income tax on
the amount distributed.
Fund distributions derived from interest, dividends and certain other
income, including in general short-term capital gains, will be taxable as
ordinary income to shareholders subject to federal income tax whether received
in cash or reinvested shares. Designated distributions of any long-term capital
gains whether received in cash or reinvested shares are taxable as such to
shareholders subject to federal income tax, regardless of how long a shareholder
may have owned shares in the Fund. Any loss realized upon a taxable disposition
of shares held for six months or less will be treated as long-term capital loss
to the extent of any long-term capital gain distributions received by a
shareholder with respect to those shares. A distribution paid to shareholders by
a Fund in January of a year generally is deemed to have been received by
shareholders on December 31 of the preceding year, if the distribution was
declared and payable to shareholders of record on a date in October, November or
December of that preceding year. The Trust will provide federal tax information
annually, including information about dividends and distributions paid during
the preceding year to taxable investors and others requesting such information.
For corporate shareholders, any distributions received by the REIT Fund
or the Global Properties Fund from REITs will not qualify for the corporate
dividends-received deduction. A Fund's investments in REIT equity securities may
require such Fund to accrue and distribute income not yet received. In order to
generate sufficient cash to make the requisite distributions, the Fund may be
required to sell securities in its portfolio that it otherwise would have
continued to hold. A Fund's investments in REIT equity securities may at other
times result in the Fund's receipt of cash in excess of the REIT's earnings; if
the Fund distributes such amounts, such distribution could constitute a return
of capital to Fund shareholders for federal income tax purposes.
The back-up withholding rules do not apply to tax exempt entities so
long as each such entity furnishes the Trust with an appropriate certification.
However, other shareholders are subject to back-up withholding at a rate of 31%
on all
-73-
distributions of net investment income and capital gain, whether received in
cash or reinvested in shares of the relevant Fund, and on the amount of the
proceeds of any redemption of Fund shares paid or credited to any shareholder
account for which an incorrect or no taxpayer identification number has been
provided, where appropriate certification has not been provided for a foreign
shareholder, or where the Trust is notified that the shareholder has
underreported income in the past (or the shareholder fails to certify that he is
not subject to such withholding).
The foregoing is a general summary of the federal income tax
consequences for shareholders who are U.S. citizens, residents or domestic
corporations. Shareholders should consult their own tax advisors about the tax
consequences of an investment in a Fund in light of each shareholder's
particular tax situation. Shareholders should also consult their own tax
advisors about consequences under foreign, state, local or other applicable tax
laws.
WITHHOLDING ON DISTRIBUTIONS TO FOREIGN INVESTORS
- -------------------------------------------------
Dividend distributions (including distributions derived from short-term
capital gains) are in general subject to a U.S. withholding tax of 31% when paid
to a nonresident alien individual, foreign estate or trust, a foreign
corporation, or a foreign partnership ("foreign shareholder"). Persons who are
resident in a country, such as the U.K., that has an income tax treaty with the
U.S. may be eligible for a reduced withholding rate (upon filing of appropriate
forms), and are urged to consult their tax advisors regarding the applicability
and effect of such a treaty. Distributions of net long-term capital gains to a
foreign shareholder, and any gain realized upon the sale of Fund shares by such
a shareholder will ordinarily not be subject to U.S. taxation, unless the
recipient or seller is a nonresident alien individual who is present in the
United States for more than 182 days during the taxable year. However, foreign
shareholders with respect to whom income from a Fund is "effectively connected"
with a U.S. trade or business carried on by such shareholder will in general be
subject to U.S. federal income tax on the income derived from the Fund at the
graduated rates applicable to U.S. citizens, residents or domestic corporations,
whether received in cash or reinvested in shares, and, in the case of a foreign
corporation, may also be subject to a branch profits tax. Again, foreign
shareholders who are resident in a country with an income tax treaty with the
United States may obtain different tax results, and are urged to consult their
tax advisors.
FOREIGN TAX CREDITS
- -------------------
If, at the end of the fiscal year, more than 50% of the total assets of
any Fund is represented by stock of foreign corporations, the Fund intends to
make an election with respect to the relevant Fund which allows shareholders
whose income from the Fund is subject to U.S. taxation at the graduated rates
applicable to U.S. citizens, residents or domestic corporations to claim a
foreign tax credit or deduction (but not both) on their U.S. income tax return.
In such case, the amounts of foreign income taxes paid by the Fund would be
treated as additional income to Fund shareholders from non-U.S. sources and as
foreign taxes paid by Fund shareholders. Investors should consult their tax
advisors for further information relating to the foreign tax credit and
deduction, which are subject to certain restrictions and limitations.
Shareholders of any of the International Funds whose income from the Fund is not
subject to U.S. taxation at the graduated rates applicable to U.S. citizens,
residents or domestic corporations may receive substantially different tax
treatment of distributions by the relevant Fund, and may be disadvantaged as a
result of the election described in this paragraph.
LOSS OF REGULATED INVESTMENT COMPANY STATUS
- -------------------------------------------
A Fund may experience particular difficulty qualifying as a regulated
investment company in the case of highly unusual market movements, in the case
of high redemption levels and/or during the first year of its operations. If the
Fund does not qualify for taxation as a regulated investment company for any
taxable year, the Fund's income will be taxed at the Fund level at regular
corporate rates, and all distributions from earnings and profits, including
distributions of net long-term capital gains, will be taxable to shareholders as
ordinary income and subject to withholding in the case of non-U.S. shareholders.
In addition, in order to requalify for taxation as a regulated investment
company, the Fund may be required to recognize unrealized gains, pay taxes on
such gains, and make certain distributions.
MANAGEMENT OF THE TRUST
-----------------------
Each Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co.
LLC, 40 Rowes Wharf, Boston, Massachusetts 02110 (the "Manager" or "GMO") which
provides investment advisory services to a substantial number of institutional
and other investors, including one other registered investment company.
Grantham, Mayo, Van Otterloo & Co. LLC converted from a general partnership to a
limited liability company ("LLC") on December 16, 1996. Each of the following
four general partners holds a greater than 5% interest in the Manager: R. Jeremy
Grantham, Richard A. Mayo, Eyk H.A. Van Otterloo and Kingsley Durant.
Under separate Management Contracts with the Trust, the Manager selects
and reviews each Fund's investments and provides executive and other personnel
for the management of the Trust. Pursuant to the Trust's Agreement and
Declaration of Trust, the Board of Trustees supervises the affairs of the Trust
as conducted by the Manager. In the event that the Manager ceases to be the
manager of any Fund, the right of the Trust to use the identifying name "GMO"
may be withdrawn.
The Manager has entered into a Consulting Agreement (the "Consulting
Agreement") with Dancing Elephant, Ltd., 1936 University Avenue, Berkeley,
California 94704 (the "Consultant"), with respect to the management of the
portfolio of the Emerging Markets Fund. The Consultant is wholly-owned by Mr.
Arjun Divecha. Under the Consulting Agreement, the
-74-
Manager pays the Consultant a monthly fee at an annual rate equal to the greater
of 0.50% of the Fund's average daily net assets or $500,000. The Consultant may
from time to time waive all or a portion of its fee. Payments made by the
Manager to the Consultant will not affect the amounts payable by the Fund to the
Manager or the Fund's expense ratio.
Each Management Contract provides for payment to the Manager of a
management fee at the stated annual rates set forth under Schedule of Fees and
Expenses. The Management fee is computed and accrued daily, and paid monthly. In
addition, with respect to each Fund, the Manager has voluntarily agreed to waive
its fee and to bear certain expenses until further notice in order to limit each
Fund's annual expenses to specified limits (with certain exclusions). These
limits and the terms applicable to them are described under Schedule of Fees and
Expenses.
During the fiscal year ended February 29, 1996, the Manager
received, as compensation for management services rendered in such year (after
waiver), the percentages of each Fund's average daily net assets as set forth
below:
Fund % of Average Net Assets
- ---- -----------------------
Core Fund 0.45%
Tobacco-Free Core Fund 0.30%
Value Fund 0.56%
Growth Fund 0.43%
U.S. Sector Fund 0.42%
Small Cap Value Fund 0.37%
Fundamental Value Fund 0.70%
International Core Fund 0.61%
International Small Companies Fund 0.56%
Japan Fund 0.60%
Emerging Markets Fund 0.98%
Global Hedged Equity Fund 0.59%
Domestic Bond Fund 0.19%
Short-Term Income Fund 0.00%
International Bond Fund 0.27%
Currency Hedged International Bond Fund 0.26%
Emerging Country Debt Fund 0.34%
Currency Hedged International Core Fund 0.32%
Global Bond Fund 0.00%
Mr. R. Jeremy Grantham and Christopher Darnell are primarily
responsible for the day-to-day management of the Core Fund, the Tobacco-Free
Core Fund, the Growth Fund, the U.S. Sector Fund, the Small Cap Value Fund and
the Small Cap Growth Fund. Each has served in this capacity for more than five
years. Mr. William L. Nemerever, Mr. Thomas F. Cooper and Mr. Steven Edelstein
are primarily responsible for the day-to-day management of the Fixed Income
Funds other than the Global Hedged Equity Fund. Each of Messrs. Nemerever and
Cooper has served in this capacity since the inception of all of these Funds
except the Short-Term Income Fund. Messrs. Nemerever and Cooper have served as
the managers of the Short-Term Income Fund since 1993. Mr. Edelstein has served
in this capacity since 1995. Prior to 1993, the Short-Term Income Fund was
managed by Mr. Robert Brokaw. Mr. Richard A. Mayo has been primarily responsible
for the day-to-day management of the Fundamental Value Fund since the Fund's
inception. Mr. Mayo and Mr. Christopher Darnell have been primarily responsible
for the day-to-day management of the Value Fund since the Fund's inception. Mr.
Darnell, Mr. Brokaw and Mr. Richard McQuaid will be primarily responsible for
the day-to-day Management of the REIT Fund. Mr. Grantham, Mr. Darnell and Mr.
Forrest Berkley have been primarily responsible for the day-to-day management of
each of the Currency Hedged International Core Fund, the International Small
Companies Fund, the Japan Fund and the Global Hedged Equity Fund since inception
of the Funds and have served as managers of the International Core Fund for the
last six years. Mr. Arjun Bhagwan Divecha has been primarily responsible for the
day-to-day management of the Emerging Markets Fund since the inception of the
Fund. Day-to-day management of the Foreign Fund, the Global Fund and each of the
Asset Allocation Funds is the responsibility of a committee and no person or
persons is primarily responsible for making recommendations to that committee.
Mr. Eyk H.A. Van Otterloo has been primarily responsible for the day-to-day
management of the Global Properties Fund since its inception.
Mr. Grantham, Mr. Mayo and Mr. Van Otterloo are all founding partners
of the Manager and have been engaged by the Manager in equity and fixed-income
portfolio management since its inception in 1977. Mr. Grantham serves as
President - Quantitative, Mr. Mayo serves as President - Domestic Active and Mr.
Van Otterloo serves as President- International of the Trust. Mr. Darnell has
been with the Manager since 1979 and has been involved in equity portfolio
management for more than ten years. Mr. Berkley and Ms. Chu have each been with
the Manager for more than eight years and have each been involved in equity
portfolio management (principally of international equities) for more than six
years. Mr. Nemerever and Mr. Cooper have been employed by the Manager in
fixed-income portfolio management since October, 1993. For the five years prior
to October, 1993, Mr. Nemerever was employed by Boston International Advisors
and Fidelity Management Trust Company in fixed-income portfolio management. For
the five years prior to October, 1993, Mr. Cooper was employed by Boston
International Advisors, Goldman Sachs Asset Management and Western Asset
Management in fixed-income portfolio management. Mr. Edelstein joined the
Manager in June 1995. For the five years prior to that, Mr. Edelstein was Vice
President in the Fixed Income Futures and Options Group at Morgan Stanley &
Company. Mr. Divecha is the sole shareholder and President of the Consultant
which he organized in September 1993. From 1981 until September 1993, Mr.
Divecha was employed by BARRA and during this period he was involved in equity
portfolio management for more than five years.
Pursuant to an Administrative Services Agreement with GMO, Investors
Bank & Trust Company provides administrative services to each of the Funds. GMO
pays Investors Bank & Trust Company an annual fee for its services to each Fund.
Pursuant to a Servicing Agreement with the Trust on behalf of each
class of shares of each Fund, Grantham, Mayo, Van Otterloo & Co. LLC, in its
capacity as the Trust's shareholder servicer (the "Shareholder Servicer")
provides direct client service, maintenance and reporting to shareholders of
each
-75-
class of shares. Such servicing and reporting services include, without
limitation, professional and informative reporting, client account information,
personal and electronic access to Fund information, access to analysis and
explanations of Fund reports, and assistance in the correction and maintenance
of client-related information.
ORGANIZATION AND CAPITALIZATION
-------------------------------
OF THE TRUST
------------
The Trust was established on June 24, 1985 as a business trust under
Massachusetts law. The Trust has an unlimited authorized number of shares of
beneficial interest which may, without shareholder approval, be divided into an
unlimited number of series of such shares, and which are presently divided into
twenty-nine series of shares: one for each Fund and one for the Pelican Fund.
All shares of all series are entitled to vote at any meetings of shareholders.
The Trust does not generally hold annual meetings of shareholders and will do so
only when required by law. All shares entitle their holders to one vote per
share. Matters submitted to shareholder vote must be approved by each Fund
separately except (i) when required by the 1940 Act shares shall be voted
together as a single class and (ii) when the Trustees have determined that the
matter does not affect a Fund, then only shareholders of the Fund(s) affected
shall be entitled to vote on the matter. Shareholders of a particular class of
shares do not have separate class voting rights except with respect to matters
that affect only that class of shares or as otherwise required by law. Shares
are freely transferable, are entitled to dividends as declared by the Trustees,
and, in liquidation of the Trust, are entitled to receive the net assets of
their Fund, but not of any other Fund. Shareholders holding a majority of the
outstanding shares of all series may remove Trustees from office by votes cast
in person or by proxy at a meeting of shareholders or by written consent.
On January 2, 1997, the following shareholders held greater than 25% of
the outstanding shares of a series of the Trust:
Fund Shareholders
- ---- ------------
Tobacco-Free Core Fund Dewitt Wallace - Reader's Digest Fund, Inc.; Lila
Wallace - Reader's Digest Fund, Inc.
U.S. Sector Fund John D. MacArthur & Catherine T. MacArthur
Foundation; Yale University; Bost & Co. /BAMF8721002
Fundamental Value Fund Yale University; Leland Stanford Junior University II
Small Cap Growth Fund Bankers Trust Company as Trustee, GTE Service Corp.
Pension Trust
Domestic Bond Fund Bankers Trust Company as Trustee, GTE Service Corp.
Pension Trust
Short-Term Income Fund The Directors Fund Limited Partnership
Currency Hedged Bankers Trust Company as Trustee, GTE Service Corp.
International Bond Fund Pension Trust
Global Hedged Equity Fund Bankers Trust Company as Trustee, GTE Service Corp.
Pension Trust
Global Bond Fund Essex & Company
REIT Fund Bankers Trust Company as Trustee, GTE Service Corp.
Pension Trust
Global Properties Fund Eyk Van Otterloo
Global Balanced Providence Washington Insurance Co. Employees'
Allocation Fund Pension Plan
Global (U.S.+) Equity Milbank Foundation for Rehabilitation
Allocation Fund
International Equity M.D. Co. FBO Memorial Drive Trust
Allocation Fund
World Equity Allocation RJR Nabisco Canada Master Trust
Fund
As a result, such shareholders may be deemed to "control" their respective
series as such term is defined in the 1940 Act.
Shareholders could, under certain circumstances, be held personally
liable for the obligations of the Trust. However, the risk of a shareholder
incurring financial loss on account of that liability is considered remote since
it may arise only in very limited circumstances.
CERTAIN FINANCIAL INFORMATION RELATING
--------------------------------------
TO THE GMO FOREIGN FUND
-----------------------
As discussed in "Financial Highlights -- Foreign Fund" above, the
Foreign Fund commenced operations on June 28, 1996 subsequent to a transaction
involving, in essence, the reorganization of the GMO International Equities Pool
of The Common Fund for Nonprofit Organizations (the "GMO Pool") as the Foreign
Fund, pursuant to an Agreement and Plan of Reorganization which provided that
(i) the GMO Pool be discontinued and its assets and liabilities distributed pro
rata to the unitholders of the GMO Pool as a liquidating distribution, and (ii)
such assets and liabilities immediately thereafter be transferred by the
unitholders to the Foreign Fund in exchange for shares of the Foreign Fund. The
Foreign Fund's portfolio of investments on June 28, 1996 was the same as the
portfolio of the GMO Pool immediately prior to the transfer, and the Foreign
Fund will operate under investment policies, objectives, guidelines and
restrictions that are in all material respects equivalent to those of the GMO
Pool.
The GMO Pool was not a registered investment company as it was exempt
from registration under the 1940 Act. Since, in a practical sense, the GMO Pool
constitutes a predecessor of the Foreign Fund, the Trust calculates the
performance for the Foreign Fund for periods prior to June 28, 1996 by including
the total return of the GMO Pool.
Average Annual Total Return. The Foreign Fund from time to time may advertise
certain investment performance figures. These figures are based on historical
earnings but past performance data is not necessarily indicative of future
performance of the Fund. All performance information will be provided net of
Fund and GMO Pool expenses. The Fund may, in conformance with SEC guidelines,
advertise its total return for various periods of time by determining, over a
period of time stated in the advertisement, the average annual compounded rate
-76-
of return that an investment in the Fund earned over that period, assuming
reinvestment of all distributions.
The performance data quoted below includes the performance of the GMO Pool for
periods before the commencement of operations of the Foreign Fund. Performance
data relating to Class II and Class III Shares of the Foreign Fund has not been
restated because the historical level of expenses for the GMO Pool (0.83% per
annum) was higher than the expenses anticipated for Class II and Class III
Shares of the Foreign Fund (0.75% and 0.82% per annum). Performance data
relating to Class I Shares of the Foreign Fund has been restated because the
historical level of expenses for the GMO Pool (0.83% per annum) was lower than
the expenses anticipated for the Class I Shares of the Foreign Fund (0.88% per
annum). The GMO Pool was not registered under the 1940 Act and therefore was not
subject to certain investment restrictions imposed by the 1940 Act. If the GMO
Pool had been registered under the 1940 Act, its performance may have been
adversely affected.
Average Annual total Return for the periods ended December 31, 1995:
Class II and III Shares Class I Shares
----------------------- --------------
1-year return 13.85% 13.80%
3-year return 19.63% 19.57%
5-year return 12.87% 12.81%
10-year return 15.95% 15.88%
Since inception (9/1/84) 19.73% 19.67%
- --------------------------------------------------------------------------------
SHAREHOLDER INQUIRIES
---------------------
Shareholders may direct inquiries regarding CLASS III,
CLASS IV, CLASS V OR CLASS VI Shares
to Grantham, Mayo, Van Otterloo & Co. LLC,
40 Rowes Wharf, Boston, MA 02110
(1-617-330-7500)
Shareholders may direct inquiries regarding CLASS I or CLASS II Shares
to GMO Funds Division,
40 Rowes Wharf, Boston, MA 02110
(1-617-790-5000)
- --------------------------------------------------------------------------------
-77-
APPENDIX A
----------
RISKS AND LIMITATIONS OF OPTIONS, FUTURES AND SWAPS
---------------------------------------------------
Limitations on the Use of Options and Futures Portfolio Strategies. As
noted in "Descriptions and Risks of Fund Investment Practices--Futures and
Options" above, the Funds may use futures contracts and related options for
hedging and, in some circumstances, for risk management or investment but not
for speculation. Thus, except when used for risk management or investment, each
such Fund's long futures contract positions (less its short positions) together
with the Fund's cash (i.e., equity or fixed income) positions will not exceed
the Fund's total net assets.
The Funds' ability to engage in the options and futures strategies
described above will depend on the availability of liquid markets in such
instruments. Markets in options and futures with respect to currencies are
relatively new and still developing. It is impossible to predict the amount of
trading interest that may exist in various types of options or futures.
Therefore no assurance can be given that a Fund will be able to utilize these
instruments effectively for the purposes set forth above. Furthermore, each
Fund's ability to engage in options and futures transactions may be limited by
tax considerations.
Risk Factors in Options Transactions. The option writer has no control
over when the underlying securities or futures contract must be sold, in the
case of a call option, or purchased, in the case of a put option, since the
writer may be assigned an exercise notice at any time prior to the termination
of the obligation. If an option expires unexercised, the writer realizes a gain
in the amount of the premium. Such a gain, of course, may, in the case of a
covered call option, be offset by a decline in the market value of the
underlying security or futures contract during the option period. If a call
option is exercised, the writer realizes a gain or loss from the sale of the
underlying security or futures contract. If a put option is exercised, the
writer must fulfill the obligation to purchase the underlying security or
futures contract at the exercise price, which will usually exceed the then
market value of the underlying security or futures contract.
An exchange-traded option may be closed out only on a national
securities exchange ("Exchange") which generally provides a liquid secondary
market for an option of the same series. An over-the-counter option may be
closed out only with the other party to the option transaction. If a liquid
secondary market for an exchange-traded option does not exist, it might not be
possible to effect a closing transaction with respect to a particular option
with the result that the Fund holding the option would have to exercise the
option in order to realize any profit. For example, in the case of a written
call option, if the Fund is unable to effect a closing purchase transaction in a
secondary market (in the case of a listed option) or with the purchaser of the
option (in the case of an over-the-counter-option), the Fund will not be able to
sell the underlying security (or futures contract) until the option expires or
it delivers the underlying security (or futures contract) upon exercise. Reasons
for the absence of a liquid secondary market on an Exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an Exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an Exchange; (v) the facilities of an Exchange or
the Options Clearing Corporation may not at all times be adequate to handle
current trading volume; or (vi) one or more Exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that Exchange (or in that class or series of options)
would cease to exist, although outstanding options on that Exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
Exchange should continue to be exercisable in accordance with their terms.
The Exchanges have established limitations governing the maximum number
of options which may be written by an investor or group of investors acting in
concert. It is possible that the Funds, the Manager and other clients of the
Manager may be considered to be such a group. These position limits may restrict
a Fund's ability to purchase or sell options on a particular security.
The amount of risk a Fund assumes when it purchases an option is the
premium paid for the option plus related transaction costs. In addition to the
correlation risks discussed below, the purchase of an option also entails the
risk that changes in the value of the underlying security or futures contract
will not be fully reflected in the value of the option purchased.
Risk Factors in Futures Transactions. Investment in futures contracts
involves risk. If the futures are used for hedging, some of that risk may be
caused by an imperfect correlation between movements in the price of the futures
contract and the price of the security or currency being hedged. The correlation
is higher between price movements of futures contracts and the instrument
underlying that futures contract. The correlation is lower when futures are used
to hedge securities other than such underlying instrument, such as when a
futures contract on an index of securities is used to hedge a single security, a
futures contract on one security (e.g., U.S. Treasury bonds) is used to hedge a
different security (e.g., a mortgage-backed security) or when a futures contract
in one currency (e.g., the German Mark) is used to hedge a security denominated
in another currency (e.g., the Spanish Peseta). In the event of an imperfect
correlation between a futures position and a portfolio
-78-
position (or anticipated position) which is intended to be protected, the
desired protection may not be obtained and a Fund may be exposed to risk of
loss. In addition, it is not always possible to hedge fully or perfectly against
currency fluctuations affecting the value of the securities denominated in
foreign currencies because the value of such securities also is likely to
fluctuate as a result of independent factors not related to currency
fluctuations. The risk of imperfect correlation generally tends to diminish as
the maturity date of the futures contract approaches.
A hedge will not be fully effective where there is such imperfect
correlation. To compensate for imperfect correlations, a Fund may purchase or
sell futures contracts in a greater amount than the hedged securities if the
volatility of the hedged securities is historically greater than the volatility
of the futures contracts. Conversely, a Fund may purchase or sell fewer
contracts if the volatility of the price of the hedged securities is
historically less than that of the futures contract.
As noted in the Prospectus, a Fund may also purchase futures contracts
(or options thereon) as an anticipatory hedge against a possible increase in the
price of currency in which is denominated the securities the Fund anticipates
purchasing. In such instances, it is possible that the currency may instead
decline. If the Fund does not then invest in such securities because of concern
as to possible further market and/or currency decline or for other reasons, the
Fund may realize a loss on the futures contract that is not offset by a
reduction in the price of the securities purchased.
The liquidity of a secondary market in a futures contract may be
adversely affected by "daily price fluctuation limits" established by commodity
exchanges which limit the amount of fluctuation in a futures contract price
during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures positions. Prices have in the past
exceeded the daily limit on a number of consecutive trading days. Short
positions in index futures may be closed out only by entering into a futures
contract purchase on the futures exchange on which the index futures are traded.
The successful use of transactions in futures and related options for
hedging and risk management also depends on the ability of the Manager to
forecast correctly the direction and extent of exchange rate, interest rate and
stock price movements within a given time frame. For example, to the extent
interest rates remain stable during the period in which a futures contract or
option is held by a Fund investing in fixed income securities (or such rates
move in a direction opposite to that anticipated), the Fund may realize a loss
on the futures transaction which is not fully or partially offset by an increase
in the value of its portfolio securities. As a result, the Fund's total return
for such period may be less than if it had not engaged in the hedging
transaction.
Unlike trading on domestic commodity exchanges, trading on foreign
commodity exchanges is not regulated by the CFTC and may be subject to greater
risks than trading on domestic exchanges. For example, some foreign exchanges
may be principal markets so that no common clearing facility exists and a trader
may look only to the broker for performance of the contract. In addition, unless
a Fund hedges against fluctuations in the exchange rate between the U.S. dollar
and the currencies in which trading is done on foreign exchanges, any profits
that a Fund might realized in trading could be eliminated by adverse changes in
the exchange rate, or the Fund could incur losses as a result of those changes.
Risk Factors in Swap Contracts, OTC Options and other Two-Party
Contracts. A Fund may only close out a swap, contract for differences, cap floor
or collar or OTC option, with the particular counterparty. Also, if the
counterparty defaults, a Fund will have contractual remedies pursuant to the
agreement related to the transaction, but there is no assurance that contract
counterparties will be able to meet their obligations pursuant to such contracts
or that, in the event of default, a Fund will succeed in pursuing contractual
remedies. The Fund thus assumes the risk that it may be delayed or prevented
from obtaining payments owed to it pursuant to swap contracts. The Manager will
closely monitor subject to the oversight of the Trustees, the creditworthiness
of contract counterparties and a Fund will not enter into any swaps, caps,
floors or collars, unless the unsecured senior debt or the claims-paying ability
of the other party thereto is rated at least A by Moody's Investors Service or
Standard and Poor's Corporation at the time of entering into such transaction or
if the counterparty has comparable credit as determined by the Manager. However,
the credit of the counterparty may be adversely affected by larger-than-average
volatility in the markets, even if the counterparty's net market exposure is
small relative to its capital. The management of caps, floors, collars and swaps
may involve certain difficulties because the characteristics of many derivatives
have not been observed under all market conditions or through a full market
cycle.
Additional Regulatory Limitations on the Use of Futures and Related
Options, Interest Rate Floors, Caps and Collars and Interest Rate and Currency
Swap Contracts. In accordance with CFTC regulations, investments by any Fund as
provided in the Prospectus in futures contracts and related options for purposes
other than bona fide hedging are limited such that the aggregate amount that a
Fund may commit to initial margin on such contracts or time premiums on such
options may not exceed 5% of that Fund's net assets.
The Manager and the Trust do not believe that the Fund's respective
obligations under equity swap contracts, reverse equity swap contracts or Index
Futures are senior securities and, accordingly, the Fund will not treat them as
being subject to its borrowing restrictions. However, the net amount of the
excess, if any, of the Fund's obligations over its entitlements with respect to
each equity swap contract will be accrued on a daily basis and an amount of
cash, U.S. Government Securities or other high grade debt obligations having an
aggregate market value at least equal to the accrued excess will be maintained
in a segregated account by the Fund's custodian. Likewise, when a Fund takes a
short position with
-79-
respect to an Index Futures contract the position must be covered or the Fund
must maintain at all times while that position is held by the Fund, cash, U.S.
government securities or other high grade debt obligations in a segregated
account with its custodian, in an amount which, together with the initial margin
deposit on the futures contract, is equal to the current delivery or cash
settlement value.
The use of unsegregated futures contracts, related written options,
interest rate floors, caps and collars and interest rate and currency swap
contracts for risk management by a Fund permitted to engage in any or all of
such practices is limited to no more than 10% of a Fund's total net assets when
aggregated with such Fund's traditional borrowings in accordance with SEC
pronouncements. This 10% limitation applies to the face amount of unsegregated
futures contracts and related options and to the amount of a Fund's net payment
obligation that is not segregated against in the case of interest rate floors,
caps and collars and interest rate and currency swap contracts.
-80-
APPENDIX B
----------
COMMERCIAL PAPER AND CORPORATE DEBT RATINGS
-------------------------------------------
COMMERCIAL PAPER RATINGS
- ------------------------
Commercial paper ratings of Standard & Poor's Corporation ("Standard &
Poor's") are current assessments of the likelihood of timely payment of debts
having original maturities of no more than 365 days. Commercial paper rated A-1
by Standard & Poor's indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted A-1+. Commercial paper
rated A-2 by Standard and Poor's indicates that capacity for timely payment on
issues is strong. However, the relative degree of safety is not as high as for
issues designated A-1. Commercial paper rated A-3 indicates capacity for timely
payment. It is, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) have a strong capacity for repayment of
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of Prime-1 rated issuers, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variations.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternative liquidity is maintained. Issuers rated
Prime-3 have an acceptable capacity for repayment of short-term promissory
obligations. The effect of industry characteristics and market composition may
be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and the requirement of
relatively high financial leverage. Adequate alternate liquidity is maintained.
CORPORATE DEBT RATINGS
- ----------------------
Standard & Poor's Corporation. A Standard & Poor's corporate debt
rating is a current assessment of the creditworthiness of an obligor with
respect to a specific obligation. The following is a summary of the ratings used
by Standard & Poor's for corporate debt:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C - The rating C is reserved for income bonds on which no interest is being
paid.
D - Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Moody's Investors Service, Inc. The following is a summary of the
ratings used by Moody's Investor Services, Inc. for corporate debt:
AAA - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large, or by an exceptionally
stable, margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
AA - Bonds that are rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds.
-81-
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make the long-term
risks appear somewhat larger than in Aaa securities.1
A - Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.1
BAA - Bonds that are rated Baa are considered as medium grade obligations; i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
BA - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often, the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Should no rating be assigned by Moody's, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.
3. There is lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols 1Aa1,
A1, Baa1, and B1.
-82-
GMO TRUST
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements: See "Financial Highlights" in the Prospectus and
"Financial Statements" and "Report of Independent Accountants" in the
Statement of Additional Information. The Financial Statements required
pursuant to Item 23 of Form N-1A are hereby incorporated by reference
to the Annual Reports and Semi-Annual Reports to shareholders
previously filed with the Commission by means of EDGAR pursuant to the
requirements of Section 30(d) of the 1940 Act and the rules promulgated
thereunder.
(b) Exhibits
1. Amended and Restated Agreement and Declaration of Trust --
Exhibit 1.
2. Amended and Restated By-laws of the Trust -- Exhibit 2.
3. None.
4. Not Applicable.
5. (a) Form of Management Contracts between the Trust, on behalf of
each of its GMO Core Fund, GMO Currency Hedged International
Bond Fund, GMO International Core Fund, GMO Growth Fund
(formerly "GMO Growth Allocation Fund"), Pelican Fund, GMO
Value Fund (formerly "GMO Value Allocation Fund"), GMO
International Small Companies Fund, GMO Japan Fund, GMO
Short-Term Income Fund, GMO Small Cap Value Fund (formerly
"GMO Core II Secondaries Fund"), GMO Fundamental Value Fund,
GMO Tobacco-Free Core Fund, GMO U.S. Sector Fund (formerly
"GMO U.S. Sector Allocation Fund"), GMO International Bond
Fund, GMO Emerging Country Debt Fund, GMO Emerging Markets
Fund, GMO Domestic Bond Fund, GMO Global Hedged Equity Fund
and GMO Currency Hedged International Core Fund, and
Grantham, Mayo, Van Otterloo & Co. ("GMO")1;
(b) Form of Consulting Agreement (sub-advisory agreement)
between GMO, on behalf of its GMO Emerging Markets Fund, and
Dancing Elephant, Ltd.1;
(c) Form of Management Contract between the Trust, on behalf of
each of its GMO REIT Fund, GMO Global Bond Fund, GMO Foreign
Fund, GMO International Equity Allocation Fund, GMO Global
(U.S.+) Equity Allocation Fund, GMO World Equity Allocation
Fund, GMO Global Balanced Allocation Fund, GMO Global Fund,
GMO Small Cap Growth Fund and GMO Inflation Indexed Bond
Fund, and GMO2;
(d) Form of Management Contract between the Trust, on behalf of
the GMO Global Properties Fund, and Grantham, Mayo, Van
Otterloo & Co. LLC-Exhibit 5.
6. None.
7. None.
8. (a) Custodian Agreement (the "IBT Custodian Agreement") among
the Trust, on behalf of its GMO Core Fund, GMO Currency
Hedged International Bond Fund (formerly "GMO SAF Core
Fund"), GMO Value Fund (formerly "GMO Value Allocation
Fund"), GMO Growth Fund (formerly "GMO Growth Allocation
Fund"), and GMO Short-Term Income Fund, GMO and Investors
Bank & Trust Company ("IBT")1;
(b) Custodian Agreement ("BBH Custodian Agreement") among the
Trust, on behalf of its GMO International Core Fund and GMO
Japan Fund, GMO and Brown Brothers Harriman & Co. ("BBH")1;
(c) Custodian Agreement ("State Street Custodian Agreement")
among the Trust, on behalf of its Pelican Fund, GMO and
State Street Bank and Trust Company ("State Street")1;
(d) Forms of Letter Agreements with respect to the IBT Custodian
Agreement among the Trust, on behalf of its GMO Tobacco-Free
Core Fund, GMO Fundamental Value Fund, GMO U.S. Sector Fund
(formerly "GMO U.S. Sector Allocation Fund"), GMO
International Bond Fund, GMO Small Cap Value Fund (formerly
"GMO Core II Secondaries Fund"), GMO Emerging Country Debt
Fund, GMO Domestic Bond Fund, GMO Currency Hedged
International Core Fund, GMO and IBT1;
(e) Forms of Letter Agreements with respect to the BBH Custodian
Agreement among the Trust, on behalf of its GMO Emerging
Markets Fund, GMO Global Hedged Equity Fund and GMO
International Small Companies Fund, GMO and BBH1;
-2-
(f) Forms of Letter Agreements with respect to the IBT Custodian
Agreement among the Trust, on behalf of its GMO REIT Fund,
GMO Global Bond Fund, GMO International Equity Allocation
Fund, GMO Global (U.S.+) Equity Allocation Fund, GMO World
Equity Allocation Fund, GMO Global Balanced Allocation Fund,
GMO Small Cap Growth Fund and Inflation Indexed Bond Fund,
GMO and IBT2;
(g) Forms of Letter Agreements with respect to the BBH Custodian
Agreement among the Trust, on behalf of its GMO Foreign
Fund, GMO Global Fund (formerly "GMO Global Active Fund"),
GMO and BBH2.
(h) Form of Letter Agreement with respect to the BBH Custodian
Agreement among the Trust, on behalf of its GMO Global
Properties Fund, Grantham, Mayo, Van Otterloo & Co. LLC and
BBH - Exhibit 8.
9. (a) Transfer Agency Agreement among the Trust, on behalf of its
GMO Core Fund, GMO Currency Hedged International Bond Fund,
GMO Growth Fund (formerly "GMO Growth Allocation Fund"), GMO
Value Fund (formerly "GMO Growth Allocation Fund"), GMO
Short-Term Income Fund, GMO International Core Fund and GMO
Japan Fund, GMO and IBT1;
(b) Forms of Letter Agreements to the Transfer Agency Agreement
among the Trust, on behalf of each of its GMO Fundamental
Value Fund, GMO Tobacco-Free Core Fund, GMO U.S. Sector
Fund, GMO International Bond Fund, GMO Emerging Markets
Fund, GMO Emerging Country Debt Fund, GMO Domestic Bond
Fund, GMO Global Hedged Equity Fund, GMO Small Cap Value
Fund (formerly "GMO Core II Secondaries Fund"), GMO
International Small Companies Fund, Pelican Fund and GMO
Currency Hedged International Core Fund, GMO and IBT1;
(c) Forms of Letter Agreements to the Transfer Agency Agreement
among the Trust, on behalf of each of its GMO REIT Fund, GMO
Global Bond Fund, GMO Foreign Fund, GMO International Equity
Allocation Fund, GMO Global (U.S.+) Equity Allocation Fund,
GMO World Equity Allocation Fund, GMO Global Balanced
Allocation Fund, GMO Global Fund, GMO Small Cap Growth Fund
and GMO Inflation Indexed Bond Fund, GMO and IBT2;
(d) Form of Letter Agreement to the Transfer Agency Agreement
among the Trust, on behalf of its GMO Global Properties
Fund, Grantham, Mayo, Van Otterloo & Co. LLC and IBT --
Exhibit 9.1.
-3-
(e) Form of Notification of Fee Waiver and Expense Limitation by
Grantham, Mayo, Van Otterloo & Co. LLC to the Trust relating
to all Funds of the Trust -- Exhibit 9.2.
(f) Form of Amended and Restated Servicing Agreement between the
Trust, on behalf of the Funds, and Grantham, Mayo, Van
Otterloo & Co. LLC -- Exhibit 9.3.
10. (a) Opinion and Consent of Ropes & Gray with respect to all
Funds of the Trust (except with respect to the GMO REIT
Fund, GMO Foreign Fund, GMO International Equity Allocation
Fund, GMO World Equity Allocation Fund, GMO Global (U.S.+)
Equity Allocation Fund, GMO Global Balanced Allocation Fund,
GMO Global Fund, GMO Small Cap Growth Fund, GMO Inflation
Indexed Bond Fund and GMO Global Properties Fund)2;
(b) Opinion and Consent of Ropes & Gray with respect to the GMO
REIT Fund, GMO Foreign Fund, GMO International Equity
Allocation Fund, GMO Global (U.S.+) Equity Allocation Fund,
GMO World Equity Allocation Fund, GMO Global Balanced
Allocation Fund, GMO Global Active Fund, GMO Small Cap
Growth Fund, GMO Inflation Indexed Bond Fund and GMO Global
Properties Fund (to be filed with Rule 24f-2 Notice).
11. Consent of Price Waterhouse LLP -- Exhibit 11.
12. None.
13. None.
14. Prototype Retirement Plans1.
15. None.
16. Not Applicable.
17. Financial Data Schedule -- Exhibit 17.
18. Form of Rule 18f-3 Multiclass Plan2.
Item 25. Persons Controlled by or Under Common Control with Registrant
None.
-4-
Item 26. Number of Holders of Securities
The following table sets forth the number of record holders of
each class of securities of the Trust as of January 2, 1997:
(1) (2)
Number of
Title of Class Record Holders
Shares of Beneficial Interest
Core Fund
Class I - 3
Class II - 2
Class III - 246
Shares of Beneficial Interest
Growth Fund
Class III - 133
Shares of Beneficial Interest
Value Fund
Class III - 156
Shares of Beneficial Interest
Short-Term Income Fund
Class III - 61
Shares of Beneficial Interest
International Core Fund
Class I - 1
Class II - 2
Class III - 451
Shares of Beneficial Interest
Japan Fund
Class III - 51
Shares of Beneficial Interest
Tobacco-Free Core Fund
Class III - 5
-5-
Shares of Beneficial Interest
Fundamental Value Fund
Class III - 14
Shares of Beneficial Interest
International Small Companies Fund
Class III - 257
Shares of Beneficial Interest
Small Cap Value Fund
Class III - 142
Shares of Beneficial Interest
U.S. Sector Fund
Class I - 1
Class III - 10
Shares of Beneficial Interest
International Bond Fund
Class III - 130
Shares of Beneficial Interest
Small Cap Growth Fund
Class III - 30
Shares of Beneficial Interest
Emerging Markets Fund
Class II - 1
Class III - 404
Shares of Beneficial Interest
Emerging Country Debt Fund
Class I - 6
Class III - 351
Shares of Beneficial Interest
Global Hedged Equity Fund
Class III - 122
-6-
Shares of Beneficial Interest
Domestic Bond Fund
Class I - 1
Class III - 149
Shares of Beneficial Interest
Currency Hedged Int'l Bond Fund
Class III - 221
-7-
Shares of Beneficial Interest
Currency Hedged Int'l Core Fund
Class III - 77
Shares of Beneficial Interest
Global Bond Fund
Class III - 11
Shares of Beneficial Interest
REIT Fund
Class I - 6
Class III - 101
Shares of Beneficial Interest
Foreign Fund
Class I - 6
Class II - 1
Class III - 63
Shares of Beneficial Interest
International Equity Allocation Fund
Class II - 1
Class III - 7
Shares of Beneficial Interest
World Equity Allocation Fund
Class I - 4
Class III - 4
Shares of Beneficial Interest
Global (U.S.+) Equity Allocation Fund
Class III - 94
Shares of Beneficial Interest
Global Balanced Allocation Fund
Class I - 7
Class II - 1
Shares of Beneficial Interest
Global Properties Fund
Class III - 16
Shares of Beneficial Interest - 997
-8-
Pelican Fund (as of 5/31/96)
Item 27. Indemnification
See Item 27 of Pre-Effective Amendment No. 1 which is hereby
incorporated by reference.
Item 28. Business and Other Connections of Investment Adviser
See Item 28 of Pre-Effective Amendment No. 1 which is hereby
incorporated by reference.
Item 29. Principal Underwriters
Not Applicable.
Item 30. Location of Accounts and Records
See Item 30 of Pre-Effective Amendment No. 1 which is hereby
incorporated by reference.
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) See Item 33 of Post-Effective Amendment No. 1 which is hereby
incorporated by reference.
(b) See Item 33 of Post-Effective Amendment No. 1 which is hereby
incorporated by reference.
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders containing the information
required by Item 5A of Form N-1A omitted from the Prospectus,
upon request and without charge.
- ----------------
-9-
1 = Previously manually filed with the Securities and Exchange Commission
and incorporated herein by reference.
2 = Previously electronically filed with the Securities and Exchange
Commission and incorporated herein by reference.
-10-
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 33 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston and The Commonwealth of
Massachusetts, on the 12th day of January, 1997.
GMO Trust
By: R. JEREMY GRANTHAM*
----------------------------
R. Jeremy Grantham
President - Quantitative;
Principal Executive Officer;
Title: Trustee
Pursuant to the Securities Act of 1933, this Post-Effective Amendment No. 33
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
R. JEREMY GRANTHAM* President - Quantitative; Principal January 12,
- ------------------- Executive Officer; Trustee 1997
R. Jeremy Grantham
KINGSLEY DURANT* Treasurer; Principal Financial and January 12,
- ------------------- Accounting Officer 1997
Kingsley Durant
HARVEY R. MARGOLIS* Trustee January 12,
- -------------------
Harvey R. Margolis 1997
JAY O. LIGHT* Trustee January 12,
- -------------------
Jay O. Light 1997
* By: /s/ William R. Royer
----------------------
William R. Royer
Attorney-in-Fact
POWER OF ATTORNEY
We, the undersigned officers and trustees of GMO Trust, a Massachusetts
business trust, hereby severally constitute and appoint William R. Royer our
true and lawful attorney, with full power to him to sign for us, and in our
names and in the capacities indicated below, any and all amendments to the
Registration Statement filed with the Securities and Exchange Commission for the
purpose of registering shares of beneficial interest of GMO Trust, hereby
ratifying and confirming our signatures as they may be signed by our said
attorneys on said Registration Statement.
Witness our hands and common seal on the date set forth below.
(Seal)
Signature Title Date
- --------- ----- ----
President-Domestic;
Principal Executive
/S/ R. Jeremy Grantham Officer; Trustee March 12, 1996
- --------------------------
R. Jeremy Grantham
/S/ Eyk H.A. Van Otterloo President-International March 12, 1996
- --------------------------
Eyk H.A. Van Otterloo
/S/ Harvey Margolis Trustee March 12, 1996
- --------------------------
Harvey Margolis
Treasurer; Principal
Financial and
/S/ Kingsley Durant Accounting Officer March 12, 1996
- --------------------------
Kingsley Durant
POWER OF ATTORNEY
I, the undersigned trustee of GMO Trust, a Massachusetts business trust,
hereby constitute and appoint William R. Royer my true and lawful attorney, with
full power to him to sign for me, and in my names and in the capacity indicated
below, any and all amendments to the Registration Statement filed with the
Securities and Exchange Commission for the purpose of registering shares of
beneficial interest of GMO Trust, hereby ratifying and confirming my signature
as it may be signed by my said attorney on said Registration Statement.
Witness my hand and common seal on the date set forth below.
(Seal)
Signature Title Date
- --------- ----- ----
/S/ JAY O. LIGHT Trustee May 23, 1996
- --------------------
Jay O. Light
EXHIBIT INDEX
-------------
GMO TRUST
Exhibit No. Title of Exhibit
----------- ----------------
1 Form of Amended and Restated Agreement and Declaration of
Trust.
2 Form of Amended and Restated By-Laws of the Trust.
5 Form of Management Contract between the Trust, on behalf of
the GMO Global Properties Fund, and Grantham, Mayo, Van
Otterloo & Co. LLC.
8 Form of Letter Agreement with respect to the BBH Custodian
Agreement among the Trust, on behalf of its GMO Global
Properties Fund, Grantham, Mayo, Van Otterloo & Co. LLC and
BBH.
9.1 Form of Letter Agreement to the Transfer Agency Agreement
among the Trust, on behalf of its GMO Global Properties,
Fund, Grantham, Mayo, Van Otterloo & Co. LLC and IBT.
9.2 Form of Notification of fee waiver and Expense Limitation by
Grantham, Mayo, Van Otterloo & Co. LLC to the Trust relating
to all Funds of the Trust.
9.3 Form of Amended and Restated Servicing Agreement between the
Trust, on behalf of the Funds, and Grantham, Mayo, Van
Otterloo & Co. LLC.
11 Consent of Price Waterhouse LLP.
17 Financial Data Schedule.
EXHIBIT 1
----------
FIRST AMENDED AND RESTATED
--------------------------
AGREEMENT AND DECLARATION OF TRUST
----------------------------------
GMO TRUST
---------
THIS FIRST AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST made
at Boston, Massachusetts this 20th day of December, 1996 by the Trustees
hereunder and the holders of shares of beneficial interest issued hereunder and
to be issued hereunder as hereinafter provided:
WITNESSETH that
WHEREAS the Trustees desire to restate all prior Amendments to the
original Agreement and Declaration of Trust made to date and additionally desire
to amend and restate this Agreement and Declaration of Trust in connection with
the creation of Classes within each Series of the GMO Trust pursuant to the
power of the Trustees set forth in Article III, Section 5 of the original
Agreement and Declaration of Trust.
WHEREAS the Trustees have agreed to manage all property coming into
their hands as trustees of a Massachusetts business trust in accordance with the
provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby direct that this First Amended and
Restated Agreement and Declaration of Trust be filed with the Secretary of The
Commonwealth of Massachusetts and with the City Clerk of the City of Boston and
do hereby declare that they will hold all cash, securities and other assets,
which they may from time to time acquire in any manner as Trustees hereunder IN
TRUST to manage and dispose of the same upon the following terms and conditions
for the pro rata benefit of the holders from time to time of Shares in this
Trust as hereinafter set forth.
ARTICLE I.
Name and Definitions
Section 1. This Trust shall be known as GMO Trust and the Trustees shall conduct
the business of the Trust under that name or any other name as they may from
time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required by the
context or specifically provided
(a) "Trust" refers to the Massachusetts business trust established by this First
Amended and Restated Agreement and Declaration of Trust, as amended from time to
time;
(b) "Trustees" refers to the Trustees of the Trust named in Article IV hereof or
elected in accordance with such Article;
(c) "Shares" means the equal proportionate units of interest into which the
beneficial interest in the Trust or in the Trust property belonging to any
Series of the Trust (or in the property belonging to any Series allocable to any
Class of that Series) (as the context may require) shall be divided from time to
time;
(d) "Shareholder" means a record owner of Shares;
(e) "1940 Act" refers to the Investment Company Act of 1940 and the Rules and
Regulations thereunder, all as amended from time to time;
(f) The terms "Commission" and "principal underwriter" shall have the meanings
given to them in the 1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and Declaration of Trust,
as amended or restated from time to time;
(h) "By-Laws" shall mean the By-Laws of the Trust as amended from time to time;
(i) "Series Company" refers to the form of registered open-end investment
company described in Section 18(f)(2) of the 1940 Act or in any successor
statutory provision;
(j) "Series" refers to Series of Shares established and designated under or in
accordance with the provisions of Article III; and
(k) "Class" refers to any Class of Shares established and designated under or in
accordance with the provisions of Article III. The Shares of any Class shall
represent a subset of Shares of a Series, and together with all other Classes of
the same Series, shall constitute all Shares of that Series.
ARTICLE II.
Purpose of Trust
The purpose of the Trust is to provide investors a managed investment
primarily in securities (including options), debt instruments, commodities,
commodity contracts and options thereon.
-2-
ARTICLE III.
Shares
Section 1. Division of Beneficial Interest. The beneficial interest in the Trust
shall at all times be divided into an unlimited number of Shares, without par
value. Subject to the provisions of Section 6 of this Article III, each Share
shall have voting rights as provided in Article V hereof, and holders of the
Shares of any Series or Class shall be entitled to receive dividends, when and
as declared with respect thereto in the manner provided in Article VI, Section 1
hereof. No Share shall have any priority or preference over any other Share of
the same Series and Class with respect to dividends or distributions upon
termination of the Trust or of such Series or Class made pursuant to Article
VIII, Section 4 hereof. All dividends and distributions shall be made ratably
among all Shareholders of a particular Series or Class from the assets belonging
to such Series (or, in the case of a Class, allocable to such Class) according
to the number of Shares of such Series or Class held of record by such
Shareholders on the record date for any dividend or on the date of termination,
as the case may be. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust. The
Trust may from time to time divide or combine the Shares of any particular
Series or Class into a greater or lesser number of Shares of that Series or
Class without thereby changing the proportionate beneficial interest of the
Shares of that Series or Class in the assets belonging to that Series (or, in
the case of a Class, allocable to such Class) in any way affecting the rights of
Shares of any other Series or Class.
Section 2. Ownership of Shares. The ownership of Shares shall be recorded on the
books of the Trust or a transfer or similar agent for the Trust, which books
shall be maintained separately for the Shares of each Series and Class. No
certificates certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the transfer of Shares of each Series and
Class and similar matters. The record books of the Trust as kept by the Trust or
any transfer or similar agent, as the case may be, shall be conclusive as to who
are the Shareholders of each Series and Class and as to the number of Shares of
each Series and Class held from time to time by each.
Section 3. Investments in the Trust. The Trustees shall accept investments in
the Trust from such persons and on such terms and for such consideration as they
from time to time authorize.
Section 4. Status of Shares and Limitation of Personal Liability. Shares shall
be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder during the continuance of the
Trust shall not operate to terminate the same nor entitle the representative of
any deceased Shareholder to an accounting or to take any action in court or
elsewhere
-3-
against the Trust or the Trustees, but entitles such representative only to the
rights of said deceased Shareholder under this Trust. Ownership of Shares shall
not entitle the Shareholder to any title in or to the whole or any part of the
Trust property or right to call for a partition or division of the same or for
an accounting, nor shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any officer, employee or agent
of the Trust shall have any power to bind personally any Shareholders, nor
except as specifically provided herein to call upon any Shareholder for the
payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay.
Section 5. Power of Trustees to Change Provisions Relating to Shares.
Notwithstanding any other provisions of this Declaration of Trust and without
limiting the power of the Trustees to amend the Declaration of Trust as provided
elsewhere herein, the Trustees shall have the power to amend this Declaration of
Trust, at any time and from time to time, in such manner as the Trustees may
determine in their sole discretion, without the need for Shareholder action, so
as to add to, delete, replace or otherwise modify any provisions relating to the
Shares contained in this Declaration of Trust for the purpose of (i) responding
to or complying with any regulations, orders, rulings or interpretations of any
governmental agency or any laws, now or hereafter applicable to the Trust, or
(ii) designating and establishing Series and Classes in addition to the Series
and Classes established in Section 6 of this Article III; provided that before
adopting any such amendment without Shareholder approval the Trustees shall
determine that it is consistent with the fair and equitable treatment of all
Shareholders. The establishment and designation of any Series or Class of Shares
in addition to the Series and Classes established and designated in Section 6 of
this Article III shall be effective upon the execution by a majority of the then
Trustees of an amendment to this Declaration of Trust, taking the form of a
complete restatement or otherwise, setting forth such establishment and
designation and the relative rights and preferences of such Series or Class, as
the case may be, or as otherwise provided in such instrument.
Without limiting the generality of the foregoing, the Trustees may, for
the above-stated purposes, amend the Declaration of Trust to:
(a) create one or more Series or Classes of Shares (in addition to any Series or
Classes already existing or otherwise) with such rights and preferences and such
eligibility requirements for investment therein as the Trustees shall determine
and reclassify any or all outstanding Shares as shares of particular Series or
Classes in accordance with such eligibility requirements;
(b) amend any of the provisions set forth in paragraphs (a) through (j) of
Section 6 of this Article III;
(c) combine one or more Series or Classes of Shares into a single Series or
Class on such terms and conditions as the Trustees shall determine;
-4-
(d) change or eliminate any eligibility requirements for investment in Shares of
any Series or Class, including without limitation the power to provide for the
issue of Shares of any Series or Class in connection with any merger or
consolidation of the Trust with another trust or company or any acquisition by
the Trust of part or all of the assets of another trust or company;
(e) change the designation of any Series or Class of Shares;
(f) change the method of allocating dividends among the various Series and
Classes of Shares;
(g) allocate any specific assets or liabilities of the Trust or any specific
items of income or expense of the Trust to one or more Series or Classes of
Shares;
(h) specifically allocate assets to any or all Series or Classes of Shares or
create one or more additional Series or Classes of Shares which are preferred
over all other Series or Classes of Shares in respect of assets specifically
allocated thereto or any dividends paid by the Trust with respect to any net
income, however determined, earned from the investment and reinvestment of any
assets so allocated or otherwise and provide for any special voting or other
rights with respect to such Series or Classes.
Section 6. Establishment and Designation of Series. Without limiting the
authority of the Trustees set forth in Section 5, inter alia, to establish and
designate any further Series or Classes or to modify the rights and preferences
of any Series, each Series set forth on Schedule 3.6 hereto (as may be amended
from time to time by the Trustees) shall be, and are hereby, established and
designated. In addition, with respect to each such Series, the Class I Shares,
Class II Shares, Class III Shares, Class IV Shares, Class V Shares and Class VI
Shares, which each such Series may issue from time to time, shall be, and are
hereby, established and designated, which Classes shall have the respective
rights and preferences as are set forth in Exhibit 3.6 attached hereto as it may
be amended from time to time by the Board of Trustees.
Shares of each Series (or Class, as the case may be) established in this Section
6 shall have the following relative rights and preferences:
(a) Assets belonging to Series. All consideration received by the Trust for the
issue or sale of Shares of a particular Series, together with all assets in
which such consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof from whatever source derived, including, without
limitation, any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that Series for
all purposes, subject only to the rights of creditors, and shall be so recorded
upon the books of
-5-
account of the Trust. Such consideration, assets, income, earnings, profits and
proceeds thereof, from whatever source derived, including, without limitation,
any proceeds derived from the sale, exchange or liquidation of such assets, and
any funds or payments derived from any reinvestment of such proceeds, in
whatever form the same may be, are herein referred to as "assets belonging to"
that Series. In the event that there are any assets, income, earnings, profits
and proceeds thereof, funds or payments which are not readily identifiable as
belonging to any particular Series (collectively "General Assets"), the Trustees
shall allocate such General Assets to, between or among any one or more of the
Series established and designated from time to time in such manner and on such
basis as they, in their sole discretion, deem fair and equitable, and any
General Asset so allocated to a particular Series shall belong to that Series.
Each such allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all Series for all purposes.
(b) Liabilities Belonging to Series. The assets belonging to each particular
Series shall be charged solely with the liabilities of the Trust in respect to
that Series, expenses, costs, charges and reserves attributable to that Series,
and any general liabilities of the Trust which are not readily identifiable as
belonging to any particular Series but which are allocated and charged by the
Trustees to and among any one or more of the Series established and designated
from time to time in a manner and on such basis as the Trustees in their sole
discretion deem fair and equitable. The liabilities, expenses, costs, charges,
and reserves so charged to a Series are herein referred to as "liabilities
belonging to" that Series. Each allocation of liabilities, expenses, costs,
charges and reserves by the Trustees shall be conclusive and binding upon the
holders of all Series for all purposes.
(c) Dividends, Distributions, Redemptions, and Repurchases. Notwithstanding any
other provisions of this Declaration, including, without limitation, Article VI,
no dividend or distribution (including, without limitation, any distribution
paid upon termination of the Trust or of any Series or Class) with respect to,
nor any redemption or repurchase of, the Shares of any Series shall be effected
by the Trust other than from the assets belonging to such Series, nor shall any
Shareholder of any particular Series otherwise have any right or claim against
the assets belonging to any other Series except to the extent that such
Shareholder has such a right or claim hereunder as a Shareholder of such other
Series.
(d) Voting. Notwithstanding any of the other provisions of this Declaration,
including, without limitation, Section 1 of Article V, the Shareholders of any
particular Series or Class shall not be entitled to vote on any matters as to
which such Series or Class is not affected except as otherwise required by the
1940 Act or other applicable law. On any matter submitted to a vote of
Shareholders, all Shares of the Trust then entitled to vote shall be voted by
individual Series, unless otherwise required by the 1940 Act or other applicable
law.
(e) Equality. All the Shares of each particular Class of a Series shall
represent an equal proportionate interest in the assets allocable to that Class,
and each Share of any particular
-6-
Series shall be equal to each other Share of that Series (subject to the
liabilities allocated to each Class of that Series).
(f) Fractions. Any fractional Share of a Series or Class shall carry
proportionately all the rights and obligations of a whole share of that Series
or Class, including rights with respect to voting, receipt of dividends and
distributions, redemption of Shares and termination of the Trust.
(g) Exchange Privilege. The Trustees shall have the authority to provide that
the holders of Shares of any Series or Class shall have the right to exchange
said Shares for Shares of one or more other Series or Class of Shares in
accordance with such requirements and procedures as may be established by the
Trustees.
(h) Combination of Series or Classes. The Trustees shall have the authority,
without the approval of the Shareholders of any Series or Class unless otherwise
required by applicable law, to combine the assets and liabilities belonging to
any two or more Series (or the assets allocable to any two or more Classes) into
assets and liabilities belonging (or allocable) to a single Series (or Class).
(i) Elimination of Series or Classes. At any time that there are no Shares
outstanding of any particular Series or Class previously established and
designated, the Trustees may amend this Declaration of Trust to abolish that
Series or Class and to rescind the establishment and designation thereof, such
amendment to be effected in the manner provided in Section 5 of this Article
III.
(j) Assets and Liabilities Allocable to a Class. The assets and liabilities
belonging to a Series shall be proportionately allocated among all the Classes
of that Series according to the percentage of net assets allocated to each
particular Class. For purposes of determining the assets and liabilities
belonging to a Series that are allocable to a Class of that Series, subject to
the provisions of paragraph (g) of Section 5 of this Article III, expenses shall
be accrued as set forth in Exhibit 3.6 attached hereto.
Section 7. Indemnification of Shareholders. In case any Shareholder or former
Shareholder shall be held to be personally liable solely by reason of his or her
being or having been a Shareholder of the Trust or of a particular Series and
not because of his or her acts or omissions or for some other reason, the
Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled out of
the assets of the Series of which he is a Shareholder or former Shareholder to
be held harmless from and indemnified against all loss and expense arising from
such liability.
Section 8. No Preemptive Rights. Shareholders shall have no preemptive or other
right to subscribe to any additional Shares or other securities issued by the
Trust.
-7-
The Trustees
Section 9. Election and Tenure. The Trustees may fix the number of vacancies
arising from an increase in the number of Trustees, or remove Trustees with or
without cause. Each Trustee shall serve during the continued lifetime of the
Trust until he dies, resigns or is removed, or if sooner, until the next meeting
of Shareholders called for the purpose of electing Trustees and until the
election and qualification of his successor. Any Trustee may resign at any time
by written instrument signed by him and delivered to any officer of the Trust or
to a meeting of the Trustees. Such resignation shall be effective upon receipt
unless specified to be effective at some other time. Except to the extent
expressly provided in a written agreement with the Trust, no Trustee resigning
and no Trustee removed shall have any right to any compensation for any period
following his resignation or removal, or any right to damages on account of such
removal. The Shareholders may fix the number of Trustees and elect Trustees at
any meeting of Shareholders called by the Trustees for that purpose.
Section 10. Effect of Death, Resignation, etc. of a Trustee. The death,
declination, resignation, retirement, removal, or incapacity of the Trustees, or
any of them, shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of this Declaration of Trust.
Section 11. Powers. Subject to the provisions of this Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and they shall have all
powers necessary or convenient to carry out that responsibility including the
power to engage in securities transactions of all kinds on behalf of the Trust.
Without limiting the foregoing, the Trustees may adopt By-Laws not inconsistent
with this Declaration of Trust providing for the regulation and management of
the affairs of the Trust and may amend and repeal them to the extent that such
By-Laws do not reserve that right to the Shareholders; they may fill vacancies
in or remove from their number (including any vacancies created by an increase
in the number of Trustees); they may remove from their number with or without
cause; they may elect and remove such officers and appoint and terminate such
agents as they consider appropriate; they may appoint from their own number and
terminate one or more committees consisting of two or more Trustees which may
exercise the powers and authority of the Trustees to the extent that the
Trustees determine; they may employ one or more custodians of the assets of the
Trust and may authorize such custodians to employ subcustodians and to deposit
all or any part of such assets in a system or systems for the central handling
of securities or with a Federal Reserve Bank, retain a transfer agent or a
shareholder servicing agent, or both, provide for the distribution of Shares by
the Trust, through one or more principal underwriters or otherwise, set record
dates for the determination of Shareholders with respect to various matters, and
in general delegate such authority as they consider desirable to any officer of
the Trust, to any committee of the Trustees and to any agent or employee of the
Trust or to any such custodian or underwriter.
-8-
Without limiting the foregoing, the Trustees shall have power
and authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or write
options with respect to or otherwise deal in any property rights relating to any
or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of ownership, with respect to
stock or other securities or property; and to execute and deliver proxies or
powers of attorney to such person or persons as the Trustees shall deem proper,
granting to such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(d) To exercise power and rights of subscription or otherwise which in any
manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any trust, whether
in bearer, unregistered or other negotiable form, or in its own name or in the
name of a custodian or subcustodian or a nominee or nominees or otherwise;
(f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;
(h) To compromise, arbitrate or otherwise adjust claims in favor of or against
the Trust or any matter in controversy, including but not limited to claims for
taxes;
(i) To enter into joint ventures, general or limited partnerships and any other
combinations or associations;
(j) To borrow funds or other property;
-9-
(k) To endorse or guarantee the payment of any notes or other obligations of any
person; to make contracts of guaranty or suretyship, or otherwise assume
liability for payment thereof;
(l) To purchase and pay for entirely out of Trust property such insurance as
they may deem necessary or appropriate for the conduct of the business,
including without limitation, insurance policies insuring the assets of the
Trust and payment of distributions and principal on its portfolio investments,
and insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers, principal underwriters, or independent contractors
of the Trust individually against all claims and liabilities of every nature
arising by reason of holding being or having held any such office or position,
or by reason of any action alleged to have been taken or omitted by any such
person as Trustee, officer, employee, agent, investment adviser, principal
underwriter, or independent contractor, including any action taken or omitted
that may be determined to constitute negligence, whether or not the Trust would
have the power to indemnify such person against liability; and
(m) To pay pensions as deemed appropriate by the Trustees and to adopt,
establish and carry out pension, profit-sharing, share bonus, share purchase,
savings, thrift and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity contracts as
a means of providing such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by Trustees. The Trustees shall
not be required to obtain any court order to deal with any assets of the Trust
or take any other action hereunder.
Section 12. Payment of Expenses by the Trust. The Trustees are authorized to pay
or cause to be paid out of the principal or income of the Trust, or partly out
of principal and partly out of income, as they deem fair, all expenses, fees,
charges, taxes and liabilities incurred or arising in connection with the Trust,
or in connection with the management thereof, including but not limited to, the
Trustees' compensation and such expenses and charges for the services of the
Trust's officers, employees, investment adviser or manager, principal
underwriter, auditor, counsel, custodian, transfer agent, shareholder servicing
agent, and such other agents or independent contractors and such other expenses
and charges as the Trustees may deem necessary or proper to incur.
Section 13. Payment of Expenses by Shareholders. The Trustees shall have the
power, as frequently as they may determine, to cause each Shareholder, or each
Shareholder of any particular Series or Class, to pay directly, in advance or
arrears, for charges of the Trust's custodian or transfer, shareholder servicing
or similar agent, an amount fixed from time to time by the Trustees, by setting
off such charges due from such Shareholder from declared but unpaid dividends
owed such Shareholder and/or by reducing the number of Shares in the
-10-
account of such Shareholder by that number of full and/or fractional Shares
which represents the outstanding amount of such charges due from such
Shareholder.
Section 14. Ownership of Assets of the Trust. Title to all of the assets of the
Trust shall at all times be considered as vested in the Trustees.
Section 15. Advisory, Management and Distribution Contracts. Subject to such
requirements and restrictions as may be set forth in the By-Laws, the Trustees
may, at any time and from time to time, contract for exclusive or nonexclusive
advisory and/or management services for the Trust or for any Series with
Grantham, Mayo, Van Otterloo & Co. (including any limited liability company,
provided that a majority of the beneficial owners of Grantham, Mayo, Van
Otterloo & Co. hold a majority of the equity interest in such entity and
substantially all business of Grantham, Mayo, Van Otterloo & Co. is assigned
thereto) or any other partnership, corporation, trust, association or other
organization (the "Manager"); and any such contract may contain such other terms
as the Trustees may determine, including, without limitation, authority for a
Manager to determine from time to time without prior consultation with the
Trustees what investments shall be purchased, held, sold or exchanged and what
portion, if any, of the assets of the Trust shall be held uninvested and to make
changes in the Trust's investments. The Trustees may also, at any time and from
time to time, contract with the Manager or any other partnership, corporation,
trust, association or other organization, appointing it exclusive or
nonexclusive distributor or principal underwriter for the Shares, every such
contract to comply with such requirements and restrictions as may be set forth
in the By-Laws; and any such contract may contain such other terms as the
Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager, adviser,
principal underwriter, distributor or affiliate or agent of or for any
partnership, corporation, trust, association, or other organization, or of or
for any parent or affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or distributor's contract, or
transfer, shareholder servicing or other agency contract may have been or may
hereafter be made, or that any such organization, or any parent or affiliate
thereof, is a Shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other organization with
which an advisory or management contract or principal underwriter's or
distributor's contract, or transfer, shareholder servicing or other agency
contract may have been or may hereafter be made also has an advisory or
management contract, or principal underwriter's or distributor's contract, or
transfer, shareholder servicing or other agency contract with one or more other
corporations, trusts, associations, or other organizations, or has other
business or interests,
-11-
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE IV.
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. The Shareholders shall have power to vote only (i) for
the election of Trustees as provided in Article IV, Section 1, (ii) with respect
to any amendment of this Declaration of Trust to the extent and as provided in
Article VIII, Section 8, (iii) to the same extent as the stockholders of a
Massachusetts business corporation as to whether or not a court action,
proceeding or claim should or should not be brought or maintained derivatively
or as a class action on behalf of the Trust or the Shareholders, (iv) with
respect to the termination of the Trust or any Series or Class to the extent and
as provided in Article VIII, Section 4, and (v) with respect to such additional
matters relating to the Trust as may be required by this Declaration of Trust,
the By-Laws or any registration of the Trust with the Commission (or any
successor agency) or any state, or as the Trustees may consider necessary or
desirable. Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two or more persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them. A
proxy purporting to be executed by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. At any time when no Shares of a Series
or Class are outstanding the Trustees may exercise all rights of Shareholders of
that Series or Class with respect to matters affecting that Series or Class and
may with respect to that Series or Class take any action required by law, this
Declaration of Trust or the By-Laws to be taken by the Shareholders.
Section 2. Voting Power and Meetings. Meetings of the Shareholders may be called
by the Trustees for the purpose of electing Trustees as provided in Article IV,
Section 1 and for such other purposes as may be prescribed by law, by this
Declaration of Trust or by the ByLaws. Meetings of the Shareholders may also be
called by the Trustees from time to time for the purpose of taking action upon
any other matter deemed by the Trustees to be necessary or desirable. A meeting
of Shareholders may be held at any place designated by the Trustees. Written
notice of any meeting of Shareholders shall be given or caused to be given by
the Trustees by mailing such notice at least seven days before such meeting,
postage prepaid, stating the time and place of the meeting, to each Shareholder
at the Shareholder's address as it appears on the records of the Trust. Whenever
notice of a meeting is required to be given to a Shareholder under this
Declaration of Trust or the By-Laws, a written waiver thereof,
-12-
executed before or after the meeting by such Shareholder or his attorney
thereunto authorized and filed with the records of the meeting, shall be deemed
equivalent to such notice.
Section 3. Quorum and Required Vote. Except when a larger quorum is required by
law, by the By-Laws or by this Declaration of Trust, 40% of the Shares entitled
to vote shall constitute a quorum at a Shareholders' meeting. When any one
Series or Class is to vote separately from any other Shares which are to vote on
the same matters as a separate Series or Class, 40% of the Shares of each such
Series or Class entitled to vote shall constitute a quorum at a Shareholder's
meeting of that Series or Class. Any meeting of Shareholders may be adjourned
from time to time by a majority of the votes property cast upon the question,
whether or not a quorum is present, and the meeting may be held as adjourned
within a reasonable time after the date set for the original meeting without
further notice. When a quorum is present at any meeting, a majority of the
Shares voted shall decide any questions and a plurality shall elect a Trustee,
except when a larger vote is required by any provision of this Declaration of
Trust or the By-Laws or by law. If any question on which the Shareholders are
entitled to vote would adversely affect the rights of any Series or Class of
Shares, the vote of a majority (or such larger vote as is required as aforesaid)
of the Shares of such Series or Class which are entitled to vote, voting
separately, shall also be required to decide such question.
Section 4. Action by Written Consent. Any action taken by Shareholders may be
taken without a meeting if Shareholders holding a majority of the Shares
entitled to vote on the matter (or such larger proportion thereof as shall be
required by any express provision of this Declaration of Trust or by the
By-Laws) and holding a majority (or such larger proportion as aforesaid) of the
Shares of any Series or Class entitled to vote separately on the matter consent
to the action in writing and such written consents are filed with the records of
the meetings of Shareholders. Such consent shall be treated for all purposes as
a vote taken at a meeting of Shareholders.
Section 5. Record Dates. For the purpose of determining the Shareholders of any
Series or Class who are entitled to vote or act at any meeting or any
adjournment thereof, the Trustees may from time to time fix a time, which shall
be not more than 60 days before the date of any meeting of Shareholders, as the
record date for determining the Shareholders of such Series or Class having the
right to notice of and to vote at such meeting and any adjournment thereof, and
in such case only Shareholders of record on such record date shall have such
right, notwithstanding any transfer of shares on the books of the Trust after
the record date. For the purpose of determining the Shareholders of any Series
or Class who are entitled to receive payment of any dividend or of any other
distribution, the Trustees may from time to time fix a date, which shall be
before the date for the payment of such dividend or such other payment, as the
record date for determining the Shareholders of such Series or Class having the
right to receive such dividend or distribution. Without fixing a record date the
Trustees may for voting and/or distribution purposes close the register or
transfer books for one or more Series or Class for all or any part of the period
between a record date and a
-13-
meeting of shareholders or the payment of a distribution. Nothing in this
section shall be construed as precluding the Trustees from setting different
record dates for different Series or Classes.
Section 6. Additional Provisions. The By-Laws may include further provisions for
Shareholders' votes and meetings and related matters.
ARTICLE V.
Net Income, Distributions, and Redemptions and Repurchases
Section 1. Distributions of Net Income. The Trustees shall each year, or more
frequently if they so determine in their sole discretion, distribute to the
Shareholders of each Series or Class, in shares of that Series or Class, cash or
otherwise, an amount approximately equal to the net income attributable to the
assets belonging to such Series (or the assets allocable to such Class) and may
from time to time distribute to the Shareholders of each Series or Class, in
shares of that Series, cash or otherwise, such additional amounts, but only from
the assets belonging to such Series (or allocable to that Class), as they may
authorize. All dividends and distributions on Shares of a particular Series or
Class shall be distributed pro rata to the holders of that Series or Class in
proportion to the number of Shares of that Series or Class held by such holders
and recorded on the books of the Trust at the date and time of record
established for that payment or such dividend or distributions.
The manner of determining net income, income, asset values, capital gains,
expenses, liabilities and reserves of any Series or Class may from time to time
be altered as necessary or desirable in the judgment of the Trustees to conform
such manner of determination to any other method prescribed or permitted by
applicable law. Net income shall be determined by the Trustees or by such person
as they may authorize at the times and in the manner provided in the By-Laws.
Determinations of net income of any Series or Class and determination of income,
asset value, capital gains, expenses, and liabilities made by the Trustees, or
by such person as they may authorize, in good faith, shall be binding on all
parties concerned. The foregoing sentence shall not be construed to protect any
Trustee, officer or agent of the Trust against any liability to the Trust or its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
If, for any reason, the net income of any Series or Class determined at any time
is a negative amount, the pro rata share of such negative amount allocable to
each Shareholder of such Series or Class shall constitute a liability of such
Shareholder to that Series or Class which shall be paid out of such
Shareholder's account at such times and in such manner as the Trustees may from
time to time determine (x) out of the accrued dividend account of such
Shareholder, (y) by reducing the number of Shares of that Series or Class in the
account of such Shareholder, or (z) otherwise.
-14-
Section 2. Redemptions and Repurchases. The Trust shall purchase such Shares as
are offered by any Shareholder for redemption, upon the presentation of a proper
instrument of transfer together with a request directed to the Trust or a person
designated by the Trust that the Trust purchase such Shares or in accordance
with such other procedures for redemption as the Trustees may from time to time
authorize; and the Trust will pay therefor the net asset value thereof, as
determined in accordance with the By-Laws, next determined. Payment for said
Shares shall be made by the Trust to the Shareholder within seven days after the
date on which the request is made. The obligation set forth in this Section 2 is
subject to the provision that in the event that any time the New York Stock
Exchange is closed for other than weekends or holidays, or if permitted by the
rules of the Commission during periods when trading on the Exchange is
restricted or during any emergency which makes it impracticable for the Trust to
dispose of the investments of the applicable Series or to determine fairly the
value of the net assets belonging to such Series (or net assets allocable to
such Class) or during any other period permitted by order of the Commission for
the protection of investors, such obligations may be suspended or postponed by
the Trustees. The Trust may also purchase or repurchase Shares at a price not
exceeding the net asset value of such Shares in effect when the purchase or
repurchase or any contract to purchase or repurchase is made.
The redemption price may in any case or cases be paid wholly or partly
in kind if the Trustees determine that such payment is advisable in the interest
of the remaining Shareholders of the Series or Class the Shares of which are
being redeemed. In making any such payment wholly or partly in kind, the Trust
shall, so far as may be practicable, deliver assets which approximate the
diversification of all of the assets belonging at the time to the Series (or
allocable to the Class) the Shares of which are being redeemed. Subject to the
foregoing, the fair value, selection and quantity of securities or other
property so paid or delivered as all or part of the redemption price may be
determined by or under authority of the Trustees. In no case shall the Trust be
liable for any delay of any corporation or other person in transferring
securities selected for delivery as all or part of any payment in kind.
Section 3. Redemptions at the Option of the Trust. The Trust shall have the
right at its option and at any time to redeem Shares of any Shareholder at the
net asset value thereof as described in Section 1 of this Article VI: (i) if at
such time such Shareholder owns Shares of any Series or Class having an
aggregate net asset value of less than an amount determined from time to time by
the Trustees; or (ii) to the extent that such Shareholder owns Shares equal to
or in excess of a percentage determined from time to time by the Trustees of the
outstanding Shares of the Trust or of any Series or Class.
ARTICLE VI.
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein
-15-
shall in any way prevent the employment of any Trustee for advisory, management,
legal, accounting, investment banking or other services and payment for the same
by the Trust.
Section 2. Limitation of Liability. The Trustees shall not be responsible or
liable in any event for any neglect or wrong-doing of any officer, agent,
employee, Manager or principal underwriter of the Trust, nor shall any Trustee
be responsible for the act or omission of any other Trustee, but nothing herein
contained shall protect any Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Every note, bond, contract, instrument, certificate or undertaking and every
other act or thing whatsoever issued, executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
ARTICLE VII.
Miscellaneous
Section 1. Trustees, Shareholders, etc. Not Personally Liable; Notice. All
persons extending credit to, contracting with or having any claim against the
Trust or any Series or Class shall look only to the assets of the Trust, or, to
the extent that the liability of the Trust may have been expressly limited by
contract to the assets of a particular Series (or the assets allocable to a
particular Class), only to the assets belonging to the relevant Series (or
allocable to the relevant Class), for payment under such credit, contract or
claim; and neither the Shareholders nor the Trustees, nor any of the Trust's
officers, employees or agents, whether past, present or future, shall be
personally liable therefor. Nothing in this Declaration of Trust shall protect
any Trustee against any liability to which such Trustee would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of
Trustee.
Every note, bond, contract, instrument, certificate or undertaking made
or issued on behalf of the Trust by the Trustees, by any officers or officer or
otherwise shall give notice that this Declaration of Trust is on file with the
Secretary of The Commonwealth of Massachusetts and shall recite that the same
was executed or made by or on behalf of the Trust or by them as Trustee or
Trustees or as officers or officer or otherwise and not individually and that
the obligations of such instrument are not binding upon any of them or the
shareholders individually but are binding only upon the assets and property of
the Trust or upon the assets belonging to the Series (or allocable to the Class)
for the benefit of which the Trustees have caused the note, bond, contract,
instrument, certificate or undertaking to be made, or issued, and may contain
such further recital as he or they may deem appropriate, but
-16-
the omission of any such recital shall not operate to bind any Trustee or
Trustees or officers or officer or Shareholders or any other person
individually.
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or Surety. The
exercise by the Trustees of their powers and discretions hereunder shall be
binding upon everyone interested. A Trustee shall be liable for his own willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and for nothing else, and
shall not be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Declaration of Trust, and shall be under no liability for
any act or omission in accordance with such advice or for failing to follow such
advice. The Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.
Section 3. Liability of Third Persons Dealing with Trustees. No person dealing
with the Trustees shall be bound to make any inquiry concerning the validity of
any transaction made or to be made by the Trustees or to see to the application
of any payments made or property transferred to the Trust or upon its order.
Section 4. Termination of Trust or Series or Class. Unless terminated as
provided herein, the Trust shall continue without limitation of time. The Trust
may be terminated at any time by vote of at least 66-2/3% of the Shares of each
Series entitled to vote and voting separately by Series or by the Trustees by
written notice to the Shareholders. Any Series may be terminated at any time by
vote of at least 66-2/3% of the Shares of that Series or by the Trustees by
written notice to the Shareholders of that Series. Any Class may be separately
terminated at any time by vote of at least a majority of the Shares of that
Class present and voting on the question (a quorum being present) or by the
Trustees by written notice to the Shareholders of that Class.
Upon termination of the Trust (or any Series or Class, as the case may
be), after paying or otherwise providing for all charges, taxes, expenses and
liabilities belonging, severally, to each Series or allocable to each Class (or
the applicable Series or Classes, as the case may be), whether due or accrued or
anticipated as may be determined by the Trustees, the Trust shall in accordance
with such procedures as the Trustees consider appropriate reduce the remaining
assets belonging, severally, to each Series or allocable to each Class (or the
applicable Series or Classes, as the case may be), to distributable form in cash
or shares or other securities, or any combination thereof, and distribute the
proceeds belonging to each Series or allocable to each Class (or the applicable
Series or Classes, as the case may be), to the Shareholders of that Series or
Class, as a Series or Class, ratably according to the number of Shares of that
Series or Class held by the several Shareholders on the date of termination.
Section 5. Merger and Consolidation. The Trustees may cause the Trust to be
merged into or consolidated with another trust or company or its shares
exchanged under or pursuant to any state or federal statute, if any, or
otherwise to the extent permitted by law, if such merger
-17-
or consolidation or share exchange has been authorized by vote of a majority of
the outstanding Shares; provided that in all respects not governed by statute or
applicable law, the Trustees shall have power to prescribe the procedure
necessary or appropriate to accomplish a sale of assets, merger or
consolidation.
Section 6. Filing of Copies, References, Headings. The original or a copy of
this instrument and of each amendment hereto shall be kept at the office of the
Trust where it may be inspected by any Shareholder. A copy of this instrument
and of each amendment hereto shall be filed by the Trust with the Secretary of
The Commonwealth of Massachusetts and with any other governmental office where
such filing may from time to time be required. Anyone dealing with the Trust may
rely on a certificate by an officer of the Trust as to whether or not any such
amendments have been made and as to any matters in connection with the Trust
hereunder; and, with the same effect as if it were the original, may rely on a
copy certified by an officer of the Trust to be a copy of this instrument or of
any such amendments. In this instrument and in any such amendment, references to
this instrument, and all expressions like "herein", "hereof" and "hereunder",
shall be deemed to refer to this instrument as amended or affected by any such
amendments. Headings are placed herein for convenience of reference only and
shall not be taken as a part hereof or control or affect the meaning,
construction or effect of this instrument. This instrument may be executed in
any number of counterparts each of which shall be deemed an original.
Section 7. Applicable Law. This Declaration of Trust is made in The Commonwealth
of Massachusetts, and it is created under and is to be governed by and construed
and administered according to the laws of said Commonwealth. The Trust shall be
of the type commonly called a Massachusetts business trust, and without limiting
the provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Section 8. Amendments. This Declaration of Trust may be amended at any time by
an instrument in writing signed by a majority of the then Trustees when
authorized so to do by vote of a majority of the Shares entitled to vote, except
that amendments described in Article III, Section 5 hereof or having the purpose
of changing the name of the Trust or of supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or inconsistent
provision contained herein shall not require authorization by Shareholder vote.
-18-
IN WITNESS WHEREOF, all of the Trustees as aforesaid do hereto set
their hands this 20th day of December, 1996.
/s/ R. Jeremy Grantham
----------------------------------
R. Jeremy Grantham
/s/ Jay O. Light
----------------------------------
Jay O. Light
----------------------------------
Harvey R. Margolis
-19-
EXHIBIT 3.6
GMO TRUST
Plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940
Effective June 1, 1996
This Plan (the "Plan") is adopted by GMO Trust (the "Trust") pursuant
to Rule 18f-3 under the Investment Company Act of 1940 (the "Act") and sets
forth the general characteristics of, and the general conditions under which the
Trust may offer, multiple classes of shares of its now existing and hereafter
created portfolios ("Funds"). This Plan may be revised or amended from time to
time as provided below.
CLASS DESIGNATIONS
Each Fund of the Trust may from time to time issue one or more of the
following classes of shares: Class I Shares, Class II Shares, Class III Shares,
Class IV Shares, Class V Shares and Class VI Shares. Each of the classes of
shares of any Fund will represent interests in the same portfolio of investments
and, except as described herein, shall have the same rights and obligations as
each other class. Each class shall be subject to such investment minimums and
other conditions of eligibility as are set forth in the Trust's prospectus or
statement of additional information as from time to time in effect (the
"Prospectus").
CLASS ELIGIBILITY
Class eligibility is generally dependent on the size of the client's
total account under the management of Grantham, Mayo, Van Otterloo & Co., the
Trust's investment adviser (referred to herein as "GMO" or the "Adviser"), as
described from time to time in the Prospectus. Eligibility for Class I, Class II
and Class III Shares in dependent on the size of a client's minimum "Total
Investment" with GMO. For clients that have accounts with GMO as of May 31,
1996, their initial Total Investment will equal the market value of all of their
investments advised by GMO as of the close of business on May 31, 1996. For
clients establishing a relationship with GMO on or after June 1, 1996, their
Total Investment at any date is equal to the aggregate of all amounts
contributed (and less amounts withdrawn) to any Fund on or after June 1, 1996,
plus the market value of any non-mutual fund investment with GMO as of the
month-end prior to the date that "Total Investment" is being computed. For
purposes of class eligibility, market appreciation or depreciation of a Fund's
account is not considered; the Total Investment of a client is impacted only by
the amount of contributions to and withdrawals from Funds made by the client. It
is assumed that any Fund redemptions or withdrawals made by a client are
satisfied first from market appreciation in their shares, so that a redemption
or withdrawal does not lower a client's Total Investment unless the
-20-
redemption or withdrawal exceeds the value of market appreciation. Market value
of non- mutual fund accounts at GMO will be considered, however.
Eligibility for Class IV, Class V and Class VI Shares is dependent upon
the client meeting either (i) a minimum "Total Fund Investment" requirement
which includes only a client's total investment in the particular Fund, or (ii)
a minimum "Total Investment" requirement (calculated as described above for
Class I, II and III shares). A client's Total Fund Investment and Total
Investment will be determined similarly to the determination of Total Investment
for purposes of eligibility for Class I, Class II and Class III Shares, i.e.,
appreciation and depreciation of mutual fund shares is not considered but these
two calculations do include the market value of all such accounts as of May 31,
1996, and the market value of non-mutual fund accounts as of the month-end prior
to determination.
CLASS CHARACTERISTICS
The differences among the various classes of shares are solely (i) the
level of shareholder service fee ("Shareholder Service Fee") borne by the class
for client and shareholder service, reporting and other support, and (ii)
whether GMO itself or the GMO Funds Division provides service and reporting to
the shareholders.
The multiple class structure reflects the fact that, as the size of the
client relationship increases, the cost to service that relationship is expected
to decrease as a percentage of the account. Thus, the Shareholder Service Fee is
lower for classes for which eligibility criteria generally require greater
assets under GMO's management.
Certain Funds are subject to either an initial purchase premium, a
redemption fee, or both. The initial purchase premium and redemption fee, if
any, may, in some limited cases, be subject to reduction or waiver if the
Adviser determines that there are minimal brokerage and/or transaction costs
incurred as a result of the purchase or redemption, as set forth in the
Prospectus in effect from time to time.1
- ----------------------------
1 All purchase premiums are paid to and retained by the relevant Fund
and are intended to cover the brokerage and other costs associated with putting
an investment to work in the relevant markets. All redemption fees are paid to
and retained by the relevant Fund and are designed to allocate transaction costs
caused by shareholder activity to the shareholder generating the activity.
-21-
ALLOCATIONS TO EACH CLASS
EXPENSE ALLOCATIONS
Shareholder Service Fees payable by the Trust to the shareholder
servicer of the Trust's shares (the "Shareholder Servicer") shall be allocated,
to the extent practicable, on a class-by-class basis. Subject to the approval of
the Trust's Board of Trustees, including a majority of the independent Trustees,
the following "Class Expenses" may (if such expense is properly assessable at
the class level) in the future be allocated on a class-by-class basis: (a)
transfer agency costs attributable to each class, (b) printing and postage
expenses related to preparing and distributing materials such as shareholder
reports, prospectuses and proxy statements to current shareholders of a specific
Class, (c) SEC registration fees incurred with respect to a specific class, (d)
blue sky and foreign registration fees and expenses incurred with respect to a
specific class, (e) the expenses of administrative personnel and services
required to support shareholders of a specific class (including, but not limited
to, maintaining telephone lines and personnel to answer shareholder inquiries
about their accounts or about the Trust), (f) litigation and other legal
expenses relating to a specific class of shares, (g) Trustees' fees or expenses
incurred as a result of issues relating to a specific class of shares, (h)
accounting and consulting expenses relating to a specific class of shares, (i)
any fees imposed pursuant to a non-Rule 12b-1 shareholder service plan that
relate to a specific class of shares, and (j) any additional expenses, not
including advisory or custodial fees or other expenses related to the management
of the Trust's assets, if these expenses are actually incurred in a different
amount with respect to a class, or if services are provided with respect to a
class, or if services are provided with respect to a class that are of a
different kind or to a different degree than with respect to one or more other
classes.
All expenses not now or hereafter designated as Class Expenses ("Fund
Expenses") will be allocated to each class on the basis of the net asset value
of that class in relation to the net asset value of the relevant Fund.
However, notwithstanding the above, a Fund may allocate all expenses
other than Class Expenses on the basis of relative net assets (settled shares),
as permitted by rule 18f-3(c)(2) under the Act.
WAIVERS AND REIMBURSEMENTS
The Adviser and the Shareholder Servicer may choose to waive or
reimburse Shareholder Service Fees, or any other Class Expenses on a voluntary
or temporary basis.
-22-
INCOME, GAINS AND LOSSES
Income and realized and unrealized capital gains and losses shall be
allocated to each class on the basis of the net asset value of that class in
relation to the net asset value of the relevant Fund.
Each Fund may allocate income and realized and unrealized capital gains
and losses to each share based on relative net assets (i.e. settled shares), as
permitted by Rule 18f-3(c)(2) under the Act.
CONVERSION AND EXCHANGE FEATURES
On July 31 of each year (the "Conversion Date") each client's Total
Investment, as previously defined and as described in the Prospectus, will be
determined. Based on that determination, the client's shares will be
automatically converted to the class of shares (Class I, Class II or Class III
Shares) of such Fund with the lowest Shareholder Service Fee which the client
would be eligible to purchase based on such Total Investment. Further, if a
client makes an investment in a GMO Fund or other product that causes the client
to be eligible for a new class of shares, such conversion will be effected
within 15 days after the end of the month during which such investment was made.
The rules for conversion to and among Class IV, Class V and Class VI Shares are
the same, with determinations of a client's Total Fund Investment and Total
Investment made according to the same schedule, as described in the Prospectus.
Shares of one class will always convert into shares of another class on
the basis of the relative net asset value of the two classes, without the
imposition of any sales load, fee or other charge. The conversion of a client's
investment from one class of shares to another is not a taxable event, and will
not result in the realization of gain or loss that may exist in Fund shares held
by the client. The client's tax basis in the new class of shares will equal
their basis in the old class before conversion. The conversion of shares from
one class to another class of shares may be suspended if the opinion of counsel
obtained by the Trust that the conversion does not constitute a taxable event
under current federal income tax law is no longer available.
Certain special rules will be applied by the Adviser with respect to
clients who owned shares of the Funds upon the creation of multiple classes on
May 31, 1996. First, all clients existing on May 31, 1996 will receive Class III
Shares on June 1, 1996 regardless of the size of their GMO investment. Second,
the conversion of existing clients to any class of shares with a higher
Shareholder Service Fee will not occur until July 31, 1997, based on the
client's Total Investment as of such date. Further, existing clients whose Total
Investment as of May 31, 1996 is equal to $7 million or more will be eligible to
remain invested in Class III Shares (despite the normal $35 million minimum),
provided such client makes no subsequent redemptions or withdrawals other than
of amounts attributable to market appreciation of their account value as of June
1, 1996. Existing clients whose Total Investment as of May 31, 1996
-23-
is less than $7 million but greater than $0 will be eligible to convert to Class
II Shares rather than Class I Shares on July 31, 1997, provided that such client
makes no subsequent redemptions or withdrawals other than of amounts
attributable to market appreciation of their account value as of June 1, 1996.
Clients making additional investments prior to June 1, 1997, such that their
Total Investment on June 1, 1997 is $35 million or more, will remain eligible
for Class III Shares.
DIVIDENDS
Dividends paid by the Trust with respect to its Class I, Class II,
Class III, Class IV, Class V and Class VI Shares, to the extent any dividends
are paid, will be calculated in the same manner, at the same time and will be in
the same amount, except that any Service Fee payments relating to a class of
shares will be borne exclusively by that class and, if applicable, Class
Expenses relating to a class shall be borne exclusively by that class.
VOTING RIGHTS
Each share of the Trust entitles the shareholder of record to one vote.
Each class of shares of the Trust will vote separately as a class on matters for
which class voting is required under applicable law.
RESPONSIBILITIES OF THE TRUSTEES
On an ongoing basis, the Trustees will monitor the Trust for the
existence of any material conflicts among the interests of the six classes of
shares. The Trustees shall further monitor on an ongoing basis the use of
waivers or reimbursement of expenses by the Adviser to guard against
cross-subsidization between classes. The Trustees, including a majority of the
independent Trustees, shall take such action as is reasonably necessary to
eliminate any such conflict that may develop.
Reports to the trustees
The Adviser and the Shareholder Servicer will be responsible for
reporting any potential or existing conflicts among the six classes of shares to
the Trustees.
-24-
AMENDMENTS
The Plan may be amended from time to time in accordance with the
provisions and requirements of Rule 18f-3 under the Act.
Adopted this ____ day of ___________, 1996
By:________________________
William R. Royer
Clerk
-25-
SCHEDULE 3.6
SERIES
- ------
GMO Core Fund
GMO Tobacco-Free Core Fund
GMO Value Fund
GMO Growth Fund
GMO U.S.Sector Fund
GMO Small Cap Value Fund
GMO Fundamental Value Fund
GMO REIT Fund
GMO Small Cap Growth Fund
GMO International Core Fund
GMO Currency Hedged International Core Fund
GMO Foreign Fund
GMO Global Fund
GMO International Small Companies Fund
GMO Japan Fund
GMO Emerging Markets Fund
GMO Global Properties Fund
GMO Short-Term Income Fund
GMO Global Hedged Equity Fund
GMO Domestic Bond Fund
GMO International Bond Fund
GMO Currency Hedged International Bond Fund
GMO Global Bond Fund
GMO Emerging Country Debt Fund
GMO Inflation Indexed Bond Fund
GMO International Equity Allocation Fund
GMO World Equity Allocation Fund
GMO Global (U.S.+) Equity Allocation Fund
GMO Global Balanced Allocation Fund Pelican Fund
-26-
EXHIBIT 2
---------
AMENDED AND RESTATED BY-LAWS
OF
GMO TRUST
ARTICLE 1
Agreement and Declaration
of Trust and Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject to the
Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of GMO Trust (the "Trust"), the Massachusetts business
trust established by the Declaration of Trust.
1.2 Principal Office of the Trust. The principal office of the Trust shall be
located in Boston, Massachusetts.
ARTICLE 2
Meetings of Trustees
2.1 Regular Meetings. Regular meetings of the Trustees may be held without call
or notice at such places and at such times as the Trustees may from time to time
determine, provided that notice of the first regular meeting following any such
determination shall be given to absent Trustees.
2.2 Special Meetings. Special meetings of the Trustees may be held, at any time
and at any place designated in the call of the meeting, when called by the
Chairman of the Board, if any, the President-Domestic or the Treasurer or by two
or more Trustees, sufficient notice thereof being given to each Trustee by the
Clerk or an Assistant Clerk or by the officer or the Trustees calling the
meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to
send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting addressed to the Trustee at his usual or
last known business or residence address or to give notice to him in person or
by telephone at least twenty-four hours before the meeting. Notice of a meeting
need not be given to any Trustee if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protesting prior thereto or at its
commencement
the lack of notice to him. Neither notice of a meeting nor a waiver of a notice
need specify the purposes of the meeting.
2.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in
office shall constitute a quorum. Any meeting may be adjourned from time to time
by a majority of the votes cast upon the question, whether or not a quorum is
present, and the meeting may be held as adjourned without further notice.
2.5 Action by Vote. When a quorum is present at any meeting, a majority of
Trustees present may take any action, except when a larger vote is expressly
required by law, by the Declaration of Trust or by these By-Laws.
2.6 Action by Writing. Except as required by law, any action required or
permitted to be taken at any meeting of the Trustees may be taken without a
meeting if a majority of the Trustees (or such larger proportion thereof as
shall be required by any express provision of the Declaration of Trust or these
By-Laws) consent to the action in writing and such written consents are filed
with the records of the meetings of Trustees. Such consent shall be treated for
all purposes as a vote taken at a meeting of Trustees.
2.7 Presence through Communications Equipment. Except as required by law, the
Trustees may participate in a meeting of Trustees by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
ARTICLE 3
Officers
3.1 Enumeration; Qualification. The officers of the Trust shall be a
President-Domestic, a President-International, a Treasurer, a Clerk, and such
other officers, if any, as the Trustees from time to time may in their
discretion elect. The Trust may also have such agents as the Trustees from time
to time may in their discretion appoint. If a Chairman of the Board is elected,
he shall be a Trustee and may but need not be a Shareholder; and any other
officer may be but none need be a Trustee or Shareholder. Any two or more
offices may be held by the same person.
3.2 Election and Tenure. The President-Domestic, the President-International,
the Treasurer, the Clerk and such other officers as the Trustees may in their
discretion from time to time elect shall each be elected by the Trustees to
serve until his successor is elected or qualified, or until he sooner dies,
resigns, is removed or becomes disqualified. Each officer shall hold office and
each agent shall retain authority at the pleasure of the Trustees.
-2-
3.3 Powers. Subject to the other provisions of these By-Laws, in addition to the
duties and powers set forth herein and in the Declaration of Trust and in
addition to such duties and powers as may be determined by the Trustees, the
President-Domestic shall have such duties and powers with respect to the GMO
Core Fund, the GMO Growth Fund, the GMO Value Fund, the GMO Small Cap Growth
Fund, the GMO Fundamental Value Fund, the GMO Tobacco-Free Core Fund, the
Pelican Fund, the GMO Short-Term Income Fund, the GMO U.S. Sector Fund, the GMO
Small Cap Value Fund, the GMO Inflation Indexed Bond Fund, the GMO REIT Fund,
the GMO Global (U.S.+) Equity Allocation Fund and the GMO Domestic Bond Fund of
the Trust as are commonly incident to the President of a Massachusetts business
corporation as if each such Fund were organized as a separate Massachusetts
business corporation; the President-International shall have such duties and
powers with respect to the GMO International Core Fund, the GMO International
Small Companies Fund, the GMO International Bond Fund, the GMO Currency Hedged
International Bond Fund, the GMO Global Bond Fund, the GMO Japan Fund, the GMO
Emerging Markets Fund, the GMO Global Properties Fund, the GMO Currency Hedged
International Core Fund, the GMO Foreign Fund, the GMO Emerging Country Debt
Fund, the GMO Global Hedged Equity Fund, the GMO International Equity Allocation
Fund, the GMO World Equity Allocation Fund, the GMO Global Balanced Allocation
Fund and the GMO Global Fund as are commonly incident to the president of a
Massachusetts business corporation as if each such Fund were organized as a
separate Massachusetts business corporation; and each other officer shall have
such duties and powers as are commonly incident to the office occupied by him or
her as if the Trust were organized as a Massachusetts business corporation.
Notwithstanding any powers granted to the President- International, to the
extent required in the particular circumstances, the President-Domestic shall
have such powers with respect to the Trust as a whole as are commonly incident
to the president of a Massachusetts business corporation as if the Trust were
organized as a Massachusetts business corporation.
3.4 Presidents and Vice Presidents. The President-Domestic and the President-
International shall each have the duties and powers specified in these By-Laws
and shall have such other duties and powers as may be determined by the
Trustees.
Any Vice Presidents shall have such duties and powers as shall be designated
from time to time by the Trustees.
3.5 Chief Executive Officer. The Chief Executive Officer of the Trust shall be
the Chairman of the Board, if any, the President-Domestic or such other officer
as is designated by the Trustees and shall, subject to the control of the
Trustees, have general charge and supervision of the business of the Trust and,
unless there is a Chairman of the Board, or except as the Trustees (or the
Chairman of the Board if the Trustees do not act) shall otherwise determine,
preside at all meetings of the stockholders and of the Trustees. If no such
designation is made, the President-Domestic shall be the Chief Executive
Officer.
-3-
3.6 Chairman of the Board. If a Chairman of the Board of Trustees is elected, he
shall have the duties and powers specified in these By-Laws and shall have such
other duties and powers as may be determined by the Trustees. The Chairman of
the Board shall, unless the Trustees (or the Chairman of the Board if the
Trustees do not act) shall otherwise determine, preside at all meetings of the
stockholders and of the Trustees.
3.7 Treasurer. The Treasurer shall be the chief financial and accounting officer
of the Trust, and shall, subject to the provisions of the Declaration of Trust
and to any arrangement made by the Trustees with a custodian, investment adviser
or manager or transfer, shareholder servicing or similar agent, be in charge of
the valuable papers, books of account and accounting records of the Trust, and
shall have such other duties and powers as may be designated from time to time
by the Trustees or by the Chief Executive Officer.
3.8 Clerk. The Clerk shall record all proceedings of the Shareholders and the
Trustees in books to be kept therefor, which books or a copy thereof shall be
kept at the principal office of the Trust. In the absence of the Clerk from any
meeting of the Shareholders or Trustees, an assistant Clerk, or if there be none
or if he is absent, a temporary clerk chosen at such meeting shall record the
proceedings thereof in the aforesaid books.
3.9 Resignations and Removals. Any officer may resign at any time by written
instrument signed by him and delivered to the President-Domestic or the Clerk or
to a meeting of the Trustees. Such resignation shall be effective upon receipt
unless specified to be effective at some other time. The Trustees may remove any
officer with or without cause. Except to the extent expressly provided in a
written agreement with the Trust, no officer resigning and no officer removed
shall have any right to any compensation for any period following his
resignation or removal, or any right to damages on account of such removal.
ARTICLE 4
Indemnification
4.1 Trustees, Officers, etc. The Trust shall indemnify each of its Trustees and
officers (including persons who serve at the Trust's request as directors,
officers or trustees of another organization in which the Trust has any interest
as a shareholder, creditor or otherwise) (hereinafter referred to as a "Covered
Person") against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceedings, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of any alleged act or
omission as a Trustee or officer or by reason
-4-
of his being or having been such a Trustee or officer, except with respect to
any matter as to which such Covered Person shall have been finally adjudicated
in any such action, suit or other proceeding not to have acted in good faith in
the reasonable belief that such Covered Person's action was in the best interest
of the Trust and except that no Covered Person shall be indemnified against any
liability to the Trust or its Shareholders to which such Covered Person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office. Expenses, including counsel fees so incurred by any
such Covered Person, may be paid from time to time by the Trust in advance of
the final disposition of any such action, suit or proceeding on the condition
that the amounts so paid shall be repaid to the Trust if it is ultimately
determined that indemnification of such expenses is not authorized under this
Article.
4.2 Compromise Payment. As to any matter disposed of by a compromise payment by
any such Covered Person referred to in Section 4.1 above, pursuant to a consent
decree or otherwise, no such indemnification either for said payment or for any
other expenses shall be provided unless such compromise shall be approved as in
the best interests of the Trust, after notice that it involved such
indemnification, (a) by a disinterested majority of the Trustees then in office;
or (b) by a majority of the disinterested Trustees then in office; or (c) by any
disinterested person or persons to whom the question may be referred by the
Trustees, provided that in the case of approval pursuant to clause (b) or (c)
there has been obtained an opinion in writing of independent legal counsel to
the effect that such Covered Person appears to have acted in good faith in the
reasonable belief that his or her action was in the best interests of the Trust
and that such indemnification would not protect such person against any
liability to the Trust or its Shareholders to which such person would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of office; or (d) by
vote of Shareholders holding a majority of the Shares entitled to vote thereon,
exclusive of any Shares beneficially owned by any interested Covered Person.
Approval by the Trustees pursuant to clause (a) or (b) or by any disinterested
person or persons pursuant to clause (c) of this Section shall not prevent the
recovery from any Covered Person of any amount paid to such Covered Person in
accordance with any of such clauses as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that such Covered Person's action was in
the best interests of the Trust or to have been liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office.
4.3 Indemnification Not Exclusive. The right of indemnification hereby provided
shall not be exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article 4, the term "Covered Person"
shall include such person's heirs, executors and administrators; an "interested
Covered Person" is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding
-5-
on the same or similar grounds is then or has been pending; and a "disinterested
Trustee" or "disinterested person" is a Trustee or a person against whom none of
such actions, suits or other proceedings or another action, suit or other
proceeding on the same or similar grounds is then or has been pending. Nothing
contained in this Article shall affect any rights to indemnification to which
personnel of the Trust, other than Trustees and officers, and other persons may
be entitled by contract or otherwise under law, nor the power of the Trust to
purchase and maintain liability insurance on behalf of any such person.
ARTICLE 5
5.1 General. The Trustees and officers shall render reports at the time and in
the manner required by the Declaration of Trust or any applicable law. Officers
shall render such additional reports as they may deem desirable or as may from
time to time be required by the Trustees.
ARTICLE 6
Fiscal Year
6.1 General. Except as from time to time otherwise provided by the Trustees, the
initial fiscal year of the Trust shall end on such date as is determined in
advance or in arrears.
ARTICLE 7
Seal
7.1 General. The seal of the Trust shall consist of a flat-faced die with the
word "Massachusetts", together with the name of the Trust and the year of its
organization cut or engraved thereon, but, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on, and its absence shall
not impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 General. Except as the Trustees may generally or in particular cases
authorize the execution thereof in some other manner, all checks, notes, drafts
and other obligations and all registration statements and amendments thereto and
all applications and amendments thereto to the Securities and Exchange
Commission shall be signed by the Chairman, if any, the President-Domestic, the
President-International, any Vice President or the Treasurer or any of such
other officers or agents as shall be designated for that purpose by a vote of
the Trustees.
-6-
ARTICLE 9
Provisions Relating to the
Conduct of the Trust's Business
9.1 Certain Definitions. When used herein the following words shall have the
following meanings: "Distributor" shall mean any one or more partnerships,
corporations, firms or associations which have distributor's or principal
underwriter's contracts in effect with the Trust providing that redeemable
shares of any class or series issued by the Trust shall be offered and sold by
such Distributor. "Adviser" shall mean any partnership, corporation, firm or
association which may at the time have an advisory or management contract with
the Trust.
9.2 Limitation on Dealings with Officers or Trustees. The Trust will not lend
any of its assets to the Distributor or Adviser or to any officer or director of
the Distributor or Adviser or any officer or Trustee of the Trust and shall not
permit any officer or Trustee or any officer or director of the Distributor or
Adviser, to deal for or on behalf of the Trust with himself as principal or
agent, or with any partnership, association or corporation in which he has a
financial interest; provided that the foregoing provisions shall not prevent (a)
officers and Trustees of the Trust or officers and directors of the Distributor
or Adviser from buying, holding or selling shares in the Trust or from being
partners, officers or directors of or otherwise financially interested in the
Distributor or the Adviser; (b) a purchase or sale of securities or other
property if such transaction is permitted by or is exempt or exempted from the
provisions of the Investment Company Act of 1940 and does not involve any
commission or profit to any securities dealer who is, or one or more of whose
partners, shareholders, officers or directors is, an officer or Trustee of the
Trust or an officer or director of the Distributor or Adviser; (c) employment of
legal counsel, registrars, transfer agents, shareholder servicing agents,
dividend disbursing agents or custodians who are or any one of which has a
partner, shareholder, officer or director who is, an officer or Trustee of the
Trust or an officer or director of the Distributor or Adviser if only customary
fees are charged for services to the Trust; (d) sharing of statistical,
research, legal and management expenses and office hire and expenses with any
other investment company in which an officer or Trustee of the Trust or an
officer or director of the Distributor or Adviser is an officer or director or
otherwise financially interested.
9.3 Limitation on Dealing in Securities of the Trust by Certain Officers,
Trustees, Distributor or Adviser. Neither the Distributor nor Adviser, nor any
officer or Trustee of the Trust or officer, director or partner of the
Distributor or Adviser shall take long or short positions in securities issued
by the Trust; provided, however, that:
(a) The Distributor may purchase from the Trust and otherwise deal in
shares issued by the Trust pursuant to the terms of its contract with the Trust;
-7-
(b) Any officer or Trustee of the Trust or officer or director or
partner of the Distributor or Adviser or any trustee or fiduciary for the
benefit of any of them may at any time, or from time to time, purchase from the
Trust or from the Distributor shares issued by the Trust at the price available
to the public or to such officer, Trustee, director, partner or fiduciary, no
such purchase to be in contravention of any applicable state or federal
requirement; and
(c) The Distributor or the Adviser may at any time, or from time to
time, purchase for investment shares issued by the Trust.
9.4 Securities and Cash of the Trust to be Held by Custodian Subject to Certain
Terms and Conditions.
(a) All securities and cash owned by the Trust shall, as hereinafter
provided, be held by or deposited with one or more banks or trust companies
having (according to its last published report) not less than $2,000,000
aggregate capital, surplus and undivided profits (any such bank or trust company
being hereby designated as "Custodian"), provided such a Custodian can be found
ready and willing to act. The Trust may, or may permit any Custodian to, deposit
all or any part of the securities owned by any class or series of shares of the
Trust in a system for the central handling of securities established by a
national securities exchange or national securities association registered with
the Securities and Exchange Commission under the Securities Exchange Act of
1934, or such other person as may be permitted by said Commission, including,
without limitation, a clearing agency registered under Section 17A of said
Securities Exchange Act of 1934, pursuant to which system all securities of any
particular class or series of any issue deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry, without
physical delivery of such securities.
(b) The Trust shall enter into a written contract with each Custodian
regarding the powers, duties and compensation of such Custodian with respect to
the cash and securities of the Trust held by such Custodian. Said contract and
all amendments thereto shall be approved by the Trustees.
(c) The Trust shall upon the resignation or inability to serve of any
Custodian or upon change of any Custodian:
(i) in case of such resignation or inability to serve, use its
best efforts to obtain a successor Custodian;
(ii) require that the cash and securities owned by any class
or series of shares of the Trust and in the possession of the resigning or
disqualified Custodian be delivered directly to the successor Custodian; and
-8-
(iii) in the event that no successor Custodian can be found,
submit to the shareholders, before permitting delivery of the cash and
securities owned by any class or series of shares of the Trust and in the
possession of the resigning or disqualified Custodian otherwise than to a
successor Custodian, the question whether that class or series shall be
liquidated or shall function without a Custodian.
9.5 Determination of Net Asset Value. The Trustees or any officer or officers or
agent or agents of the Trust designated from time to time for this purpose by
the Trustees shall determine at least once daily the net income and the value of
all the assets attributable to any class or series of shares of the Trust on
each day upon which the New York Stock Exchange is open for unrestricted trading
or at such other times as the Trustees shall, consistent with the 1940 Act and
the rules of the Commission, designate. In determining asset values, all
securities for which representative market quotations are readily available
shall be valued at market value and other securities and assets shall be valued
at fair value, all as determined in good faith by the Trustees or an officer or
officers or agent or agents, as aforesaid, in accordance with accounting
principles generally accepted at the time. Notwithstanding the foregoing, the
assets belonging to any class or series of shares of the Trust may, if so
authorized by the Trustees, be valued in accordance with the amortized cost
method, subject to the power of the Trustees to alter the method for determining
asset values. The value of such assets so determined, less total liabilities
belonging to that class or series of shares (exclusive of capital stock and
surplus) shall be the net asset value until a new asset value is determined by
the Trustees or such officers or agents. In determining the net asset value the
Trustees or such officers or agents may include in liabilities such reserves for
taxes, estimated accrued expenses and contingencies in accordance with
accounting principles generally accepted at the time as the Trustees or such
officers or agents may in their best judgment deem fair and reasonable under the
circumstances. The manner of determining net asset value may from time to time
be altered as necessary or desirable in the judgment of the Trustees to conform
it to any other method prescribed or permitted by applicable law or regulation.
Determinations of net asset value made by the Trustees or such officers or
agents in good faith shall be binding on all parties concerned. The foregoing
sentence shall not be construed to protect any Trustee, officer or agent of the
Trust against any liability to the Trust or its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
ARTICLE 10
Amendment to the By-Laws
10.1 General. These By-Laws may be amended or repealed, in whole or in part, by
a majority of the Trustees then in office at any meeting of the Trustees.
-9-
ARTICLE 11
Meetings of Shareholders
11.1 Presence through Communications Equipment. Except as required by law, the
Shareholders of the Trust may participate in a meeting of Shareholders by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other at the same time
and participation by such means shall constitute presence in person at a
meeting. Participation by such means shall be pursuant to reasonable procedures
approved by the officers of the Trust in connection with such meeting.
-10-
EXHIBIT 5
---------
MANAGEMENT CONTRACT
-------------------
Management Contract executed as of December 20, 1996 between GMO TRUST,
a Massachusetts business trust (the "Trust") on behalf of its GMO Global
Properties Fund (the "Fund"), and GRANTHAM, MAYO, VAN OTTERLOO & CO., a
Massachusetts limited liability company (the "Manager").
W I T N E S S E T H:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY MANAGER TO THE TRUST.
(a) Subject always to the control of the Trustees of the Trust and to
such policies as the Trustees may determine, the Manager will, at its expense,
(i) furnish continuously an investment program for the Fund and will make
investment decisions on behalf of the Fund and place all orders for the purchase
and sale of its portfolio securities and (ii) furnish office space and
equipment, provide bookkeeping and clerical services (excluding determination of
net asset value, shareholder accounting services and the fund accounting
services for the Fund being supplied by Investors Bank & Trust Company) and pay
all salaries, fees and expenses of officers and Trustees of the Trust who are
affiliated with the Manager. In the performance of its duties, the Manager will
comply with the provisions of the Agreement and Declaration of Trust and By-laws
of the Trust and the Fund's stated investment objective, policies and
restrictions.
(b) In placing orders for the portfolio transactions of the Fund, the
Manager will seek the best price and execution available, except to the extent
it may be permitted to pay higher brokerage commissions for brokerage and
research services as described below. In using its best efforts to obtain for
the Fund the most favorable price and execution available, the Manager shall
consider all factors it deems relevant, including, without limitation, the
overall net economic result to the Fund (involving price paid or received and
any commissions and other costs paid), the efficiency with which the transaction
is effected, the ability to effect the transaction at all where a large block is
involved, availability of the broker to stand ready to execute possibly
difficult transactions in the future and financial strength and stability of the
broker. Subject to such policies as the Trustees may determine, the Manager
shall not be deemed to have acted unlawfully or to have breached any duty
created by this Contract or otherwise solely by reason of its having caused a
Fund to pay a broker or dealer that provides brokerage and research services to
the Manager an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if the Manager determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the Manager's overall
responsibilities with respect to the Trust and to other clients of the Manager
as to which the Manager exercises investment discretion.
(c) The Manager shall not be obligated under this agreement to pay any
expenses of or for the Trust or of or for the Fund not expressly assumed by the
Manager pursuant to this Section 1 other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a partner, shareholder, director, officer or
employee of, or be otherwise interested in, the Manager, and in any person
controlled by or under common control with the Manager, and that the Manager and
any person controlled by or under common control with the Manager may have an
interest in the Trust. It is also understood that the Manager and persons
controlled by or under common control with the Manager have and may have
advisory, management service, distribution or other contracts with other
organizations and persons, and may have other interests and businesses.
3. COMPENSATION TO BE PAID BY THE TRUST TO THE MANAGER.
The Fund will pay to the Manager as compensation for the Manager's
services rendered, for the facilities furnished and for the expenses borne by
the Manager pursuant to Section 1, a fee, computed and paid monthly at the
annual rate of 0.75% of the Fund's average daily net asset value. Such average
daily net asset value of the Fund shall be determined by taking an average of
all of the determinations of such net asset value during such month at the close
of business on each business day during such month while this Contract is in
effect. Such fee shall be payable for each month within five (5) business days
after the end of such month.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the Trust
are qualified for offer and sale, the compensation due the Manager for such
fiscal year shall be reduced by the amount of such excess by a reduction or
refund thereof. In the event that the expenses of the Fund exceed any expense
limitation which the Manager may, by written notice to the Trust, voluntarily
declare to be effective with respect to the Fund, subject to such terms and
conditions as the Manager may prescribe in such notice, the compensation due the
Manager shall be reduced, and, if necessary, the Manager shall bear the Fund's
expenses to the extent required by such expense limitation.
-2-
If the Manager shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS
CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Contract shall not be amended
unless such amendment is approved at a meeting by the affirmative vote of a
majority of the outstanding shares of the Fund, and by the vote, cast in person
at a meeting called for the purpose of voting on such approval, of a majority of
the Trustees of the Trust who are not interested persons of the Trust or of the
Manager.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4)
until terminated as follows:
(a) Either party hereto may at any time terminate this Contract by not
more than sixty days' written notice delivered or mailed by registered mail,
postage prepaid, to the other party, or
(b) If (i) the Trustees of the Trust or the shareholders by the
affirmative vote of a majority of the outstanding shares of the Fund, and (ii) a
majority of the Trustees of the Trust who are not interested persons of the
Trust or of the Manager, by vote cast in person at a meeting called for the
purpose of voting on such approval, do not specifically approve at least
annually the continuance of this Contract, then this Contract shall
automatically terminate at the close of business on the second anniversary of
its execution, or upon the expiration of one year from the effective date of the
last such continuance, whichever is later; provided, however, that if the
continuance of this Contract is submitted to the shareholders of the Fund for
their approval and such shareholders fail to approve such continuance of this
Contract as provided herein, the Manager may continue to serve hereunder in a
manner consistent with the Investment Company Act of 1940 and the rules and
regulations thereunder.
Action by the Trust under (a) above may be taken either (i) by vote of
a majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 shall be
without the payment of any penalty.
-3-
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting are present in person or by proxy, or (b)
of the holders of more than 50% of the outstanding shares of the Fund entitled
to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940 and the rules and
regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act; and the phrase
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940 and the rules and regulations
thereunder.
7. NONLIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust, or to
any shareholder of the Trust, for any act or omission in the course of, or
connected with, rendering services hereunder.
8. INITIALS "GMO".
The Manager owns the initials "GMO" which may be used by the Trust only
with the consent of the Manager. The Manager consents to the use by the Trust of
the name "GMO Trust" or any other name embodying the initials "GMO", in such
forms as the Manager shall in writing approve, but only on condition and so long
as (i) this Contract shall remain in full force and (ii) the Trust shall fully
perform, fulfill and comply with all provisions of this Contract expressed
herein to be performed, fulfilled or complied with by it. No such name shall be
used by the Trust at any time or in any place or for any purposes or under any
conditions except as in this section provided. The foregoing authorization by
the Manager to the Trust to use said initials as part of a business or name is
not exclusive of the right of the Manager itself to use, or to authorize others
to use, the same; the Trust acknowledges and agrees that as between the Manager
and the Trust, the Manager has the exclusive right so to authorize others to use
the same; the Trust acknowledges and agrees that as between the Manager and the
Trust, the Manager has the exclusive right so to use, or authorize others to
use, said initials and the Trust agrees to take such action as may reasonably be
requested by the Manager to give full effect to the provisions of this section
(including, without limitation, consenting to such use of said initials).
Without limiting the generality of the foregoing, the Trust agrees that, upon
any termination of this Contract by either party or upon the violation
-4-
of any of its provisions by the Trust, the Trust will, at the request of the
Manager made within six months after the Manager has knowledge of such
termination or violation, use its best efforts to change the name of the Trust
so as to eliminate all reference, if any, to the initials "GMO" and will not
thereafter transact any business in a name containing the initials "GMO" in any
form or combination whatsoever, or designate itself as the same entity as or
successor to an entity of such name, or otherwise use the initials "GMO" or any
other reference to the Manager. Such covenants on the part of the Trust shall be
binding upon it, its trustees, officers, stockholders, creditors and all other
persons claiming under or through it.
9. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or shareholders individually
but are binding only upon the assets and property of the Fund.
-5-
IN WITNESS WHEREOF, GMO TRUST and GRANTHAM, MAYO, VAN
OTTERLOO & CO. LLC have each caused this instrument to be signed in duplicate on
its behalf by its duly authorized representative, all as of the day and year
first above written.
GMO TRUST
By_______________________________________
Title:
GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC
By_______________________________________
Title:
-6-
EXHIBIT 8
---------
December ___, 1996
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Re: Custodian Agreement dated September 1, 1991 by and among
GMO Trust, Grantham, Mayo, Van Otterloo & Co. LLC and
Brown Brothers Harriman & Co. (the "Agreement")
---------------------------------------------------------
Ladies and Gentlemen:
GMO Trust (the "Trust") hereby notifies you that it has established an
additional series of shares, namely, the "GMO Global Properties Fund" (the "New
Fund"). The Trust and the Manager (as defined in the Agreement) desire that you
serve as custodian of the assets of the New Fund under the terms of the
Agreement.
If you agree to so serve as custodian for the New Fund, kindly sign and
return to the Trust the enclosed counterpart hereof, whereupon the New Fund
shall be deemed a "Fund" under the Agreement. This letter agreement shall
constitute an amendment to the Agreement and, as such, a binding agreement among
the Trust, the Manager and you in accordance with its terms.
Very truly yours,
GMO TRUST
By__________________________________
Name:
Title:
GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC
By__________________________________
Name:
Title:
The foregoing is hereby accepted and agreed.
BROWN BROTHERS HARRIMAN & CO.
By__________________________________
Name:
Title:
EXHIBIT 9.1
-----------
December ___, 1996
Investors Bank & Trust Company
Financial Product Services
One Lincoln Plaza
Boston, MA 02205-1537
Re: Transfer Agency and Service Agreement dated August 1, 1991
by and among GMO Trust, Grantham, Mayo, Van Otterloo &
Co. LLC and Investors Bank & Trust Co. (the "Agreement")
--------------------------------------------------------
Ladies and Gentlemen:
Pursuant to Article 17 of the Agreement, GMO Trust (the "Company")
hereby notifies you that it has established an additional series of shares,
namely, the "GMO Global Properties Fund" (the "New Fund"), with respect to each
of which the Company and the manager (as defined in the Agreement) desire that
you serve as transfer agent under the terms of the Agreement.
If you agree to so serve as transfer agent for the New Fund, kindly
sign and return to the Company the enclosed counterpart hereof, whereupon each
New Fund shall be deemed a "Fund" under the Agreement. This letter agreement
shall constitute an amendment to the Agreement and, as such, a binding agreement
among the Trust, the Manager and you in accordance with its terms.
Very truly yours,
GMO TRUST
By__________________________________
Name:
Title:
GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC
By__________________________________
Name:
Title:
The foregoing is hereby
accepted and agreed.
INVESTORS BANK & TRUST COMPANY
By__________________________________
Name:
Title:
EXHIBIT 9.2
-----------
GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC
NOTIFICATION OF FEE WAIVER AND
EXPENSE LIMITATION
------------------
NOTIFICATION made February 6, 1997 by GRANTHAM, MAYO, VAN OTTERLOO &
CO. LLC, a Massachusetts general partnership (the "Advisor"), to GMO TRUST, a
Massachusetts business trust (the "Trust").
WITNESSETH:
WHEREAS, the Advisor has organized the Trust to serve primarily as an
investment vehicle for certain large institutional accounts; and
WHEREAS, the Advisor believes it would benefit from a high sales volume
of shares of the Trust in that such a volume would maximize the Advisor's fee as
investment advisor to each series of the Trust constituting a separate
investment portfolio set forth below (each a "Fund" and, collectively, the
"Funds"); and
WHEREAS, the Advisor has agreed to furnish certain services or to bear
the costs thereof so as to enable the Funds to offer competitive returns with
respect to investments in the Funds.
NOW, THEREFORE, pursuant to Section 3 of each Management Contract (each
a "Management Contract") currently in effect between the Advisor and the Trust,
on behalf of each Fund, the Advisor hereby notifies the Trust that the Advisor
shall voluntarily, until further notice, reduce its compensation due under each
Management Contract, and, if necessary, to the extent that a Fund's total annual
operating expenses (excluding Shareholder Service Fees, brokerage commissions
and other investment- related costs, hedging transaction fees, extraordinary,
non-recurring and certain other unusual expenses (including taxes), securities
lending fees and expenses and transfer taxes; and, in the case of the GMO
Emerging Markets Fund, GMO Emerging Country Debt Fund, GMO Global Hedged Equity
Fund and GMO Global Properties Fund, excluding custodial fees; and, in the case
of the International Equity Allocation Fund, World Equity Allocation Fund,
Global (U.S.+) Equity Allocation Fund and Global Balanced Allocation Fund,
excluding expenses indirectly incurred by investment in other Funds of the
Trust), will not exceed the following annual rate of such Fund's average daily
net asset value:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GMO Core Fund 0.33% GMO Foreign Fund 0.60%
GMO Tobacco-Free Core Fund 0.33% GMO Global Fund 0.60%
GMO Value Fund 0.46% GMO International Small Companies Fund 0.60%
GMO Growth Fund 0.33% GMO Japan Fund 0.54%
GMO U.S. Sector Fund 0.33% GMO Emerging Markets Fund 0.81%
GMO Small Cap Value Fund 0.33% GMO Short-Term Income Fund 0.05%
GMO Fundamental Value Fund 0.60% GMO Global Hedged Equity Fund 0.50%
GMO REIT Fund 0.54% GMO Domestic Bond Fund 0.10%
GMO Small Cap Growth Fund 0.33% GMO International Bond Fund 0.25%
GMO International Core Fund 0.54% GMO Currency Hedged International Bond Fund 0.25%
GMO Currency Hedged International Core Fund 0.54% GMO Global Bond Fund 0.19%
GMO Emerging Country Debt Fund 0.35% GMO World Equity Allocation Fund 0.00%
GMO Inflation Indexed Bond Fund 0.10% GMO Global (U.S.+) Equity Allocation Fund 0.00%
GMO International Equity Allocation Fund 0.00% GMO Balanced Allocation Fund 0.00%
GMO Global Properties Fund 0.60% Pelican Fund 0.95%
</TABLE>
Please be advised that all previous notifications by the Advisor with
respect to expense limitations regarding any of the Funds shall hereafter be
null and void and of no further force and effect.
IN WITNESS WHEREOF, the Advisor has executed this Notification of
Expense Limitation on the day and year first above written.
GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC
By:
----------------------------------
Title: Partner
The foregoing is hereby accepted:
GMO TRUST
on behalf of each
Fund named above
By:
-------------------------------------
Title: President-Quantitative
EXHIBIT 9.3
-----------
AMENDED AND RESTATED SERVICING AGREEMENT
----------------------------------------
The Servicing Agreement executed as of May 30, 1996 between GMO TRUST,
a Massachusetts business trust (the "Trust") on behalf of each of its Class I,
Class II, Class III, Class IV, Class V and Class VI (each a "Class" and
collectively the "Classes") Shares (the "Shares") of each Fund listed on Exhibit
I hereto, (collectively, the "Funds"), and GRANTHAM, MAYO, VAN OTTERLOO & CO.
LLC, a Massachusetts limited liability company (the "Shareholder Servicer"), is
hereby amended and restated on December ___, 1996 by the Trustees:
W I T N E S S E T H:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY SERVICING AGENT TO THE TRUST.
(a) The Shareholder Servicer will, at its expense, provide direct
client service, maintenance and reporting to shareholders of each Class of
Shares of each Fund set forth on Exhibit 1 hereto, such services and reporting
to include, without limitation, professional and informative reporting, client
account information, personal and electronic access to Fund information, access
to analysis and explanations of Fund reports, and assistance in the correction
and maintenance of client-related information.
(b) The Shareholder Servicer shall not be obligated under this
agreement to pay any expenses of or for the Trust or of or for the Fund not
expressly assumed by the Shareholder Servicer pursuant to this Section 1.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a partner, shareholder, director, officer or
employee of, or be otherwise interested in, the Shareholder Servicer, and in any
person controlled by or under common control with the Shareholder Servicer, and
that the Shareholder Servicer and any person controlled by or under common
control with the Shareholder Servicer may have an interest in the Trust. It is
also understood that the Shareholder Servicer and persons controlled by or under
common control with the Shareholder Servicer may have advisory, servicing,
distribution or other contracts with other organizations and persons, and may
have other interests and businesses.
3. COMPENSATION TO BE PAID BY THE TRUST TO THE SERVICING AGENT.
Each Class of Shares of each Fund will pay to the Shareholder Servicer
as compensation for the Shareholder Servicer's services rendered and for the
expenses borne by the Shareholder Servicer with respect to such Class of Shares
of such Fund pursuant to Section 1, a fee, computed and accrued daily, and paid
monthly or at such other intervals as the Trustees shall determine, at the
annual rate of such Class' average daily net asset value set forth on the Fee
Rate Schedule attached as Exhibit II hereto. Such fee shall be payable for each
month (or other interval) within five (5) business days after the end of such
month (or other interval).
If the Servicing Agent shall serve for less than the whole of a month
(or other interval), the foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS
CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; provided, however, in the event of
consolidation or merger in which the Shareholder Servicer is not the surviving
corporation or which results in the acquisition of substantially all the
Shareholder Servicer's outstanding stock by a single person or entity or by a
group of persons and/or entities acting in concert, or in the event of the sale
or transfer of substantially all the Shareholder Servicer's assets, the
Shareholder Servicer may assign any such agreement to such surviving entity,
acquiring entity, assignee or purchaser, as the case may be. This Contract shall
not be amended unless such amendment is approved by the vote, cast in person at
a meeting called for the purpose of voting on such approval, of a majority of
the Trustees of the Trust who are not interested persons of the Trust or of the
Shareholder Servicer.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4)
until terminated as follows:
(a) Either party hereto may at any time terminate this Contract (or
this Contract's application to one or more Classes or Funds) by not more than
sixty days' written notice delivered or mailed by registered mail, postage
prepaid, to the other party, or
(b) If (i) a majority of the Trustees of the Trust, and (ii) a majority
of the Trustees of the Trust who are not interested persons of the Trust or of
the Shareholder Servicer, by vote cast in person at a meeting called for the
purpose of voting on such approval, do not specifically approve at least
annually the continuance of this Contract, then this Contract shall
automatically terminate at the close of business on the second anniversary of
its execution, or
-2-
upon the expiration of one year from the effective date of the last such
continuance, whichever is later.
Termination of this Contract pursuant to this Section 5 shall be
without the payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940 and the rules and
regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act; and the phrase
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940 and the rules and regulations
thereunder.
7. NONLIABILITY OF SERVICING AGENT.
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Shareholder Servicer, or reckless disregard of its obligations
and duties hereunder, the Shareholder Servicer shall not be subject to any
liability to the Trust, or to any shareholder of the Trust, for any act or
omission in the course of, or connected with, rendering services hereunder.
8. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or shareholders individually
but are binding only upon the assets and property of the Fund.
-3-
IN WITNESS WHEREOF, GMO TRUST and GRANTHAM, MAYO, VAN
OTTERLOO & CO. LLC have each caused this instrument to be signed in duplicate on
its behalf by its duly authorized representative, all as of the day and year
first above written.
GMO TRUST
By_______________________________________
Title:
GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC
By_______________________________________
Title:
-4-
EXHIBIT I
---------
GMO Core Fund
GMO Tobacco-Free Core Fund
GMO Value Fund
GMO Growth Fund
GMO U.S. Sector Fund
GMO Small Cap Value Fund
GMO Fundamental Value Fund
GMO Small Cap Growth Fund
GMO REIT Fund
GMO International Core Fund
GMO Currency Hedged International Core Fund
GMO Foreign Fund
GMO Global Fund
GMO International Small Companies Fund
GMO Japan Fund
GMO Emerging Markets Fund
GMO Global Properties Fund
GMO Domestic Bond Fund
GMO Global Hedged Equity Fund
GMO Short-Term Income Fund
GMO International Bond Fund
GMO Currency Hedged International Bond Fund
GMO Global Bond Fund
GMO Emerging Country Debt Fund
GMO Inflation Indexed Bond Fund
GMO International Equity Allocation Fund
GMO Global (U.S.+) Equity Allocation Fund
GMO World Equity Allocation Fund
GMO Global Balanced Allocation Fund
-5-
SERVICE FEE SCHEDULE EXHIBIT II
- -------------------- ----------
CLASS I SHARES
FUND SERVICE FEE
---- -----------
GMO Core Fund 0.28%
GMO Tobacco-Free Core Fund 0.28%
GMO Value Fund 0.28%
GMO Growth Fund 0.28%
GMO U.S. Sector Fund 0.28%
GMO Small Cap Value Fund 0.28%
GMO Fundamental Value Fund 0.28%
GMO Small Cap Growth Fund 0.28%
GMO REIT Fund 0.28%
GMO International Core Fund 0.28%
GMO Currency Hedged International Core Fund 0.28%
GMO Foreign Fund 0.28%
GMO Global Fund 0.28%
GMO International Small Companies Fund 0.28%
GMO Japan Fund 0.28%
GMO Emerging Markets Fund 0.28%
GMO Global Properties Fund 0.28%
GMO Domestic Bond Fund 0.28%
GMO Global Hedged Equity Fund 0.28%
GMO International Bond Fund 0.28%
GMO Currency Hedged International Bond Fund 0.28%
GMO Global Bond Fund 0.28%
GMO Emerging Country Debt Fund 0.28%
GMO Inflation Indexed Bond Fund 0.28%
GMO International Equity Allocation Fund 0.13%
GMO Global (U.S.+) Equity Allocation Fund 0.13%
GMO World Equity Allocation Fund 0.13%
GMO Global Balanced Allocation Fund 0.13%
-6-
SERVICE FEE SCHEDULE EXHIBIT II (cont'd)
- -------------------- -------------------
CLASS II SHARES
FUND SERVICE FEE
---- -----------
GMO Core Fund 0.22%
GMO Tobacco-Free Core Fund 0.22%
GMO Value Fund 0.22%
GMO Growth Fund 0.22%
GMO U.S. Sector Fund 0.22%
GMO Small Cap Value Fund 0.22%
GMO Fundamental Value Fund 0.22%
GMO Small Cap Growth Fund 0.22%
GMO REIT Fund 0.22%
GMO International Core Fund 0.22%
GMO Currency Hedged International Core Fund 0.22%
GMO Foreign Fund 0.22%
GMO Global Fund 0.22%
GMO International Small Companies Fund 0.22%
GMO Japan Fund 0.22%
GMO Emerging Markets Fund 0.22%
GMO Global Properties Fund 0.22%
GMO Domestic Bond Fund 0.22%
GMO Global Hedged Equity Fund 0.22%
GMO International Bond Fund 0.22%
GMO Currency Hedged International Bond Fund 0.22%
GMO Global Bond Fund 0.22%
GMO Emerging Country Debt Fund 0.22%
GMO Inflation Indexed Bond Fund 0.22%
GMO International Equity Allocation Fund 0.07%
GMO Global (U.S.+) Equity Allocation Fund 0.07%
GMO World Equity Allocation Fund 0.07%
GMO Global Balanced Allocation Fund 0.07%
-7-
SERVICE FEE SCHEDULE EXHIBIT II (CONT'D)
- -------------------- -------------------
CLASS III SHARES
FUND SERVICE FEE
---- -----------
GMO Core Fund 0.15%
GMO Tobacco-Free Core Fund 0.15%
GMO Value Fund 0.15%
GMO Growth Fund 0.15%
GMO U.S. Sector Fund 0.15%
GMO Small Cap Value Fund 0.15%
GMO Fundamental Value Fund 0.15%
GMO Small Cap Growth Fund 0.15%
GMO REIT Fund 0.15%
GMO International Core Fund 0.15%
GMO Currency Hedged International Core Fund 0.15%
GMO Foreign Fund 0.15%
GMO Global Bond Fund 0.15%
GMO International Small Companies Fund 0.15%
GMO Japan Fund 0.15%
GMO Emerging Markets Fund 0.15%
GMO Global Properties Fund 0.15%
GMO Domestic Bond Fund 0.15%
GMO Short-Term Income Fund 0.15%
GMO Global Hedged Equity Fund 0.15%
GMO International Bond Fund 0.15%
GMO Currency Hedged International Bond Fund 0.15%
GMO Global Fund 0.15%
GMO Emerging Country Debt Fund 0.15%
GMO Inflation Indexed Bond Fund 0.15%
GMO International Equity Allocation Fund 0.00%
GMO Global (U.S.+) Equity Allocation Fund 0.00%
GMO World Equity Allocation Fund 0.00%
GMO Global Balanced Allocation Fund 0.00%
-8-
SERVICE FEE SCHEDULE EXHIBIT II (cont'd)
- -------------------- ----------
CLASS IV SHARES
FUND SERVICE FEE
- ---- -----------
GMO Core Fund 0.12%
GMO Value Fund 0.12%
GMO Growth Fund 0.12%
GMO U.S. Sector Fund 0.12%
GMO International Core Fund 0.11%
GMO Emerging Markets Fund 0.10%
CLASS V SHARES
FUND SERVICE FEE
- ---- -----------
GMO Core Fund 0.09%
GMO Value Fund 0.09%
GMO Growth Fund 0.09%
GMO U.S. Sector Fund 0.09%
GMO International Core Fund 0.07%
GMO Emerging Markets Fund 0.05%
CLASS VI SHARES
FUND SERVICE FEE
- ---- -----------
GMO Core Fund 0.07%
GMO Value Fund 0.07%
GMO Growth Fund 0.07%
GMO U.S. Sector Fund 0.07%
GMO International Core Fund 0.04%
GMO Emerging Markets Fund 0.02%
-9-
EXHIBIT 99.11
-------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Post-Effective Amendment No. 35 to GMO Trust's
registration statement under the Investment Company Act of 1940 on Form N-1A
(the "Registration Statement"), and in the Statement of Additional Information
incorporated by reference to Post-Effective Amendment No. 32 of GMO Trust, of
our reports dated April 12, 1996, April 17, 1996 and April 23, 1996, relating to
the financial statements and financial highlights of each series of GMO Trust,
except for the Pelican Fund, which appear in the related February 29, 1996
Annual Reports and which are also incorporated by reference in the Registration
Statement. We also consent to the references to us under the headings
"Investment Advisory and Other Services - Independent Accountants" and
"Financial Statements" in such Statement of Additional Information and to the
reference to us under the heading "Financial Highlights" in such Prospectus.
We also consent to the incorporation by reference in such Registration Statement
of our report dated April 12, 1996, relating to the February 29, 1996 financial
statements and financial highlights of GMO Pelican Fund, which are incorporated
by reference in the prospectus and statement of additional information of
Post-Effective Amendment No. 29 to the registration statement of GMO Trust and
which are also incorporated by reference in this Registration Statement.
Price Waterhouse LLP
Boston, Massachusetts
January 10, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> Core Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 2,683,007,287
<INVESTMENTS-AT-VALUE> 3,362,042,325
<RECEIVABLES> 100,847,993
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,462,890,318
<PAYABLE-FOR-SECURITIES> 67,454,307
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 216,121,691
<TOTAL-LIABILITIES> 283,575,998
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,314,886,733
<SHARES-COMMON-STOCK> 163,404,368
<SHARES-COMMON-PRIOR> 149,509,336
<ACCUMULATED-NII-CURRENT> 9,884,952
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 180,108,269
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 674,434,366
<NET-ASSETS> 3,179,314,320
<DIVIDEND-INCOME> 71,408,642
<INTEREST-INCOME> 6,419,038
<OTHER-INCOME> 0
<EXPENSES-NET> 13,681,463
<NET-INVESTMENT-INCOME> 64,146,217
<REALIZED-GAINS-CURRENT> 403,829,023
<APPREC-INCREASE-CURRENT> 457,594,296
<NET-CHANGE-FROM-OPS> 925,569,536
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (64,258,886)
<DISTRIBUTIONS-OF-GAINS> (221,987,205)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25,285,500
<NUMBER-OF-SHARES-REDEEMED> (25,442,869)
<SHARES-REINVESTED> 14,052,401
<NET-CHANGE-IN-ASSETS> 870,066,382
<ACCUMULATED-NII-PRIOR> 9,992,385
<ACCUMULATED-GAINS-PRIOR> (1,721,805)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 14,964,100
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,734,114
<AVERAGE-NET-ASSETS> 2,850,304,743
<PER-SHARE-NAV-BEGIN> 15.45
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> 5.49
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.89)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 19.46
<EXPENSE-RATIO> 0.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> Growth Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 336,984,327
<INVESTMENTS-AT-VALUE> 413,746,051
<RECEIVABLES> 26,718,669
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 440,464,720
<PAYABLE-FOR-SECURITIES> 27,733,123
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,365,684
<TOTAL-LIABILITIES> 49,098,807
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 290,142,619
<SHARES-COMMON-STOCK> 69,297,026
<SHARES-COMMON-PRIOR> 53,657,221
<ACCUMULATED-NII-CURRENT> 1,067,492
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 24,019,748
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 76,136,054
<NET-ASSETS> 391,365,913
<DIVIDEND-INCOME> 5,852,767
<INTEREST-INCOME> 941,958
<OTHER-INCOME> 0
<EXPENSES-NET> 1,617,624
<NET-INVESTMENT-INCOME> 5,177,101
<REALIZED-GAINS-CURRENT> 39,524,050
<APPREC-INCREASE-CURRENT> 61,683,361
<NET-CHANGE-FROM-OPS> 106,384,512
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,668,104)
<DISTRIBUTIONS-OF-GAINS> (23,225,614)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 28,535,818
<NUMBER-OF-SHARES-REDEEMED> (17,613,541)
<SHARES-REINVESTED> 4,717,528
<NET-CHANGE-IN-ASSETS> 152,359,596
<ACCUMULATED-NII-PRIOR> 558,495
<ACCUMULATED-GAINS-PRIOR> 9,725,239
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,685,025
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,858,869
<AVERAGE-NET-ASSETS> 337,004,892
<PER-SHARE-NAV-BEGIN> 4.45
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 1.54
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.42)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 5.65
<EXPENSE-RATIO> 0.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 8
<NAME> Value Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 278,983,865
<INVESTMENTS-AT-VALUE> 339,320,642
<RECEIVABLES> 3,324,944
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 342,645,586
<PAYABLE-FOR-SECURITIES> 3,858,071
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,175,666
<TOTAL-LIABILITIES> 25,033,737
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 237,295,574
<SHARES-COMMON-STOCK> 22,292,408
<SHARES-COMMON-PRIOR> 29,095,761
<ACCUMULATED-NII-CURRENT> 1,384,221
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 18,914,947
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 60,017,107
<NET-ASSETS> 317,611,849
<DIVIDEND-INCOME> 9,864,421
<INTEREST-INCOME> 869,152
<OTHER-INCOME> 0
<EXPENSES-NET> 2,000,965
<NET-INVESTMENT-INCOME> 8,732,608
<REALIZED-GAINS-CURRENT> 57,961,119
<APPREC-INCREASE-CURRENT> 33,360,660
<NET-CHANGE-FROM-OPS> 100,054,387
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,263,106)
<DISTRIBUTIONS-OF-GAINS> (32,854,343)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,619,182
<NUMBER-OF-SHARES-REDEEMED> (11,220,138)
<SHARES-REINVESTED> 2,797,603
<NET-CHANGE-IN-ASSETS> (33,082,612)
<ACCUMULATED-NII-PRIOR> 1,914,719
<ACCUMULATED-GAINS-PRIOR> (4,119,787)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,296,190
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,464,225
<AVERAGE-NET-ASSETS> 328,027,141
<PER-SHARE-NAV-BEGIN> 12.05
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 3.71
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.90)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.25
<EXPENSE-RATIO> 0.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> Short Term Income Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 10,996,843
<INVESTMENTS-AT-VALUE> 11,019,613
<RECEIVABLES> 73,137
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,092,750
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26,725
<TOTAL-LIABILITIES> 26,725
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,991,134
<SHARES-COMMON-STOCK> 1,132,734
<SHARES-COMMON-PRIOR> 856,832
<ACCUMULATED-NII-CURRENT> 146,175
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (94,054)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22,770
<NET-ASSETS> 11,066,025
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 577,145
<OTHER-INCOME> 0
<EXPENSES-NET> 21,067
<NET-INVESTMENT-INCOME> 556,078
<REALIZED-GAINS-CURRENT> 74,630
<APPREC-INCREASE-CURRENT> 31,945
<NET-CHANGE-FROM-OPS> 662,653
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (509,777)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,044,961
<NUMBER-OF-SHARES-REDEEMED> (2,819,011)
<SHARES-REINVESTED> 49,952
<NET-CHANGE-IN-ASSETS> 2,872,529
<ACCUMULATED-NII-PRIOR> 99,101
<ACCUMULATED-GAINS-PRIOR> (167,936)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 21,431
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 54,513
<AVERAGE-NET-ASSETS> 8,572,412
<PER-SHARE-NAV-BEGIN> 9.56
<PER-SHARE-NII> 0.57
<PER-SHARE-GAIN-APPREC> 0.20
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.56)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.77
<EXPENSE-RATIO> 0.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> International Core Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 4,181,451,437
<INVESTMENTS-AT-VALUE> 4,528,012,182
<RECEIVABLES> 126,560,571
<ASSETS-OTHER> 279,733,637
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,934,306,390
<PAYABLE-FOR-SECURITIES> 39,581,605
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 356,688,562
<TOTAL-LIABILITIES> 396,270,167
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,121,905,163
<SHARES-COMMON-STOCK> 184,341,225
<SHARES-COMMON-PRIOR> 116,104,099
<ACCUMULATED-NII-CURRENT> (5,469,509)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 94,418,541
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 327,182,028
<NET-ASSETS> 4,538,036,223
<DIVIDEND-INCOME> 74,224,279
<INTEREST-INCOME> 14,976,030
<OTHER-INCOME> 0
<EXPENSES-NET> 23,894,111
<NET-INVESTMENT-INCOME> 65,306,198
<REALIZED-GAINS-CURRENT> 109,487,879
<APPREC-INCREASE-CURRENT> 289,471,168
<NET-CHANGE-FROM-OPS> 464,265,245
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (62,905,553)
<DISTRIBUTIONS-OF-GAINS> (102,400,553)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 83,979,899
<NUMBER-OF-SHARES-REDEEMED> (21,748,238)
<SHARES-REINVESTED> 6,005,465
<NET-CHANGE-IN-ASSETS> 1,946,390,371
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 100,721,946
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 25,419,063
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 28,809,394
<AVERAGE-NET-ASSETS> 3,389,208,429
<PER-SHARE-NAV-BEGIN> 22.32
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> 3.09
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.15)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 24.62
<EXPENSE-RATIO> 0.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 7
<NAME> Japan Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 132,821,526
<INVESTMENTS-AT-VALUE> 131,836,083
<RECEIVABLES> 15,085,697
<ASSETS-OTHER> 9,196,965
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 156,118,745
<PAYABLE-FOR-SECURITIES> 16,148,713
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,863,073
<TOTAL-LIABILITIES> 30,011,786
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 127,976,536
<SHARES-COMMON-STOCK> 14,792,650
<SHARES-COMMON-PRIOR> 6,591,242
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (189,728)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (127,763)
<ACCUM-APPREC-OR-DEPREC> (1,552,086)
<NET-ASSETS> 126,106,959
<DIVIDEND-INCOME> 584,529
<INTEREST-INCOME> 95,895
<OTHER-INCOME> 0
<EXPENSES-NET> 790,268
<NET-INVESTMENT-INCOME> (109,844)
<REALIZED-GAINS-CURRENT> 4,140,734
<APPREC-INCREASE-CURRENT> 1,050,216
<NET-CHANGE-FROM-OPS> 5,081,106
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (12,090,051)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,808,517
<NUMBER-OF-SHARES-REDEEMED> (2,001,579)
<SHARES-REINVESTED> 1,394,470
<NET-CHANGE-IN-ASSETS> 65,983,796
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 11,647,848
<OVERDISTRIB-NII-PRIOR> (401,346)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 647,675
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 915,930
<AVERAGE-NET-ASSETS> 86,356,630
<PER-SHARE-NAV-BEGIN> 9.12
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 0.79
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.38)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.52
<EXPENSE-RATIO> 0.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 9
<NAME> Tobacco Free Core Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 50,558,803
<INVESTMENTS-AT-VALUE> 62,304,922
<RECEIVABLES> 1,051,797
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 63,356,719
<PAYABLE-FOR-SECURITIES> 2,000,846
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,870,858
<TOTAL-LIABILITIES> 5,871,704
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 41,371,537
<SHARES-COMMON-STOCK> 4,444,322
<SHARES-COMMON-PRIOR> 4,502,238
<ACCUMULATED-NII-CURRENT> 167,328
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,248,984
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,697,166
<NET-ASSETS> 57,485,015
<DIVIDEND-INCOME> 1,387,360
<INTEREST-INCOME> 167,012
<OTHER-INCOME> 0
<EXPENSES-NET> 272,934
<NET-INVESTMENT-INCOME> 1,281,438
<REALIZED-GAINS-CURRENT> 9,934,207
<APPREC-INCREASE-CURRENT> 7,259,517
<NET-CHANGE-FROM-OPS> 18,475,162
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,114,110)
<DISTRIBUTIONS-OF-GAINS> (6,201,500)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 781,571
<NUMBER-OF-SHARES-REDEEMED> (1,434,132)
<SHARES-REINVESTED> 594,645
<NET-CHANGE-IN-ASSETS> 9,516,284
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 515,529
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 284,306
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 386,859
<AVERAGE-NET-ASSETS> 56,861,166
<PER-SHARE-NAV-BEGIN> 10.65
<PER-SHARE-NII> 0.28
<PER-SHARE-GAIN-APPREC> 3.71
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.71)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.93
<EXPENSE-RATIO> 0.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 10
<NAME> Fundamental Value Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 181,017,167
<INVESTMENTS-AT-VALUE> 223,270,485
<RECEIVABLES> 1,293,014
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 224,563,499
<PAYABLE-FOR-SECURITIES> 143,225
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,991,928
<TOTAL-LIABILITIES> 12,135,153
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 161,524,955
<SHARES-COMMON-STOCK> 14,123,445
<SHARES-COMMON-PRIOR> 14,581,927
<ACCUMULATED-NII-CURRENT> 875,858
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,774,215
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 42,253,318
<NET-ASSETS> 212,428,346
<DIVIDEND-INCOME> 6,369,970
<INTEREST-INCOME> 324,869
<OTHER-INCOME> 0
<EXPENSES-NET> 1,496,155
<NET-INVESTMENT-INCOME> 5,198,684
<REALIZED-GAINS-CURRENT> 15,932,806
<APPREC-INCREASE-CURRENT> 30,653,753
<NET-CHANGE-FROM-OPS> 51,785,243
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,212,954)
<DISTRIBUTIONS-OF-GAINS> (10,547,076)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 616,745
<NUMBER-OF-SHARES-REDEEMED> (1,900,841)
<SHARES-REINVESTED> 825,614
<NET-CHANGE-IN-ASSETS> 29,557,439
<ACCUMULATED-NII-PRIOR> 890,128
<ACCUMULATED-GAINS-PRIOR> 2,388,485
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,496,155
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,604,692
<AVERAGE-NET-ASSETS> 199,487,344
<PER-SHARE-NAV-BEGIN> 12.54
<PER-SHARE-NII> 0.37
<PER-SHARE-GAIN-APPREC> 3.26
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.13)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.04
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 13
<NAME> International Small Companies Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 190,949,046
<INVESTMENTS-AT-VALUE> 195,554,669
<RECEIVABLES> 9,699,879
<ASSETS-OTHER> 32,341,641
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 237,596,189
<PAYABLE-FOR-SECURITIES> 17,121,507
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,510,952
<TOTAL-LIABILITIES> 18,632,459
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 210,963,609
<SHARES-COMMON-STOCK> 16,902,821
<SHARES-COMMON-PRIOR> 15,585,433
<ACCUMULATED-NII-CURRENT> 476,295
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,752,355
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,771,471
<NET-ASSETS> 218,963,730
<DIVIDEND-INCOME> 4,495,477
<INTEREST-INCOME> 628,663
<OTHER-INCOME> 0
<EXPENSES-NET> 1,499,671
<NET-INVESTMENT-INCOME> 3,624,469
<REALIZED-GAINS-CURRENT> 4,417,938
<APPREC-INCREASE-CURRENT> 13,287,476
<NET-CHANGE-FROM-OPS> 21,329,883
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,117,132)
<DISTRIBUTIONS-OF-GAINS> (2,401,896)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,283,845
<NUMBER-OF-SHARES-REDEEMED> (2,315,294)
<SHARES-REINVESTED> 348,837
<NET-CHANGE-IN-ASSETS> 32,778,530
<ACCUMULATED-NII-PRIOR> 706,457
<ACCUMULATED-GAINS-PRIOR> 981,267
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,467,267
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,858,509
<AVERAGE-NET-ASSETS> 197,381,326
<PER-SHARE-NAV-BEGIN> 11.95
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 1.16
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.34)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.95
<EXPENSE-RATIO> 0.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 11
<NAME> Core II Secondaries Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 221,501,092
<INVESTMENTS-AT-VALUE> 241,886,269
<RECEIVABLES> 6,787,969
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 248,674,238
<PAYABLE-FOR-SECURITIES> 6,196,613
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,944,194
<TOTAL-LIABILITIES> 17,140,807
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 206,204,739
<SHARES-COMMON-STOCK> 16,666,567
<SHARES-COMMON-PRIOR> 17,325,736
<ACCUMULATED-NII-CURRENT> 686,982
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,220,996
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,420,714
<NET-ASSETS> 231,533,431
<DIVIDEND-INCOME> 3,243,700
<INTEREST-INCOME> 518,116
<OTHER-INCOME> 0
<EXPENSES-NET> 838,310
<NET-INVESTMENT-INCOME> 2,923,506
<REALIZED-GAINS-CURRENT> 35,136,350
<APPREC-INCREASE-CURRENT> 2,918,309
<NET-CHANGE-FROM-OPS> 40,978,165
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,725,107)
<DISTRIBUTIONS-OF-GAINS> (38,332,108)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,303,210
<NUMBER-OF-SHARES-REDEEMED> (8,644,888)
<SHARES-REINVESTED> 2,682,509
<NET-CHANGE-IN-ASSETS> (4,247,216)
<ACCUMULATED-NII-PRIOR> 707,076
<ACCUMULATED-GAINS-PRIOR> 7,270,940
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 873,239
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,064,994
<AVERAGE-NET-ASSETS> 174,647,869
<PER-SHARE-NAV-BEGIN> 13.61
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> 3.20
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (3.15)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.89
<EXPENSE-RATIO> 0.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 14
<NAME> U.S. Sector Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 192,676,752
<INVESTMENTS-AT-VALUE> 229,763,018
<RECEIVABLES> 3,901,002
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 233,664,020
<PAYABLE-FOR-SECURITIES> 6,529,338
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,815,966
<TOTAL-LIABILITIES> 22,345,304
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 141,122,078
<SHARES-COMMON-STOCK> 15,503,866
<SHARES-COMMON-PRIOR> 18,734,305
<ACCUMULATED-NII-CURRENT> 774,923
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 32,641,217
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36,780,498
<NET-ASSETS> 211,318,716
<DIVIDEND-INCOME> 5,849,216
<INTEREST-INCOME> 514,453
<OTHER-INCOME> 0
<EXPENSES-NET> 1,111,279
<NET-INVESTMENT-INCOME> 5,252,390
<REALIZED-GAINS-CURRENT> 52,195,479
<APPREC-INCREASE-CURRENT> 18,654,244
<NET-CHANGE-FROM-OPS> 76,102,113
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,069,167)
<DISTRIBUTIONS-OF-GAINS> (19,784,233)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,735,802
<NUMBER-OF-SHARES-REDEEMED> (5,734,152)
<SHARES-REINVESTED> 767,911
<NET-CHANGE-IN-ASSETS> 4,027,618
<ACCUMULATED-NII-PRIOR> 918,110
<ACCUMULATED-GAINS-PRIOR> (96,031)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,134,431
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,281,119
<AVERAGE-NET-ASSETS> 231,516,522
<PER-SHARE-NAV-BEGIN> 11.06
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 3.90
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.62)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.63
<EXPENSE-RATIO> 0.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 16
<NAME> International Bond Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 179,513,993
<INVESTMENTS-AT-VALUE> 192,436,110
<RECEIVABLES> 12,437,036
<ASSETS-OTHER> 582,285
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 205,455,431
<PAYABLE-FOR-SECURITIES> 2,863,675
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,671,440
<TOTAL-LIABILITIES> 11,535,115
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 174,300,100
<SHARES-COMMON-STOCK> 17,765,600
<SHARES-COMMON-PRIOR> 15,687,479
<ACCUMULATED-NII-CURRENT> 4,884,754
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,966,474
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,768,988
<NET-ASSETS> 193,920,316
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,699,901
<OTHER-INCOME> 0
<EXPENSES-NET> 779,352
<NET-INVESTMENT-INCOME> 15,920,549
<REALIZED-GAINS-CURRENT> 6,632,580
<APPREC-INCREASE-CURRENT> 14,322,520
<NET-CHANGE-FROM-OPS> 36,875,649
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10,442,087)
<DISTRIBUTIONS-OF-GAINS> (5,446,434)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,762,649
<NUMBER-OF-SHARES-REDEEMED> (10,775,703)
<SHARES-REINVESTED> 1,091,175
<NET-CHANGE-IN-ASSETS> 42,730,945
<ACCUMULATED-NII-PRIOR> 3,765,102
<ACCUMULATED-GAINS-PRIOR> (3,341,397)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 779,352
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,037,010
<AVERAGE-NET-ASSETS> 194,872,468
<PER-SHARE-NAV-BEGIN> 9.64
<PER-SHARE-NII> 0.62
<PER-SHARE-GAIN-APPREC> 1.55
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.89)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.92
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> Pelican Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 138,264,540
<INVESTMENTS-AT-VALUE> 178,239,841
<RECEIVABLES> 768,978
<ASSETS-OTHER> 4,452
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 179,013,271
<PAYABLE-FOR-SECURITIES> 1,470,267
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 304,711
<TOTAL-LIABILITIES> 1,774,978
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 134,003,101
<SHARES-COMMON-STOCK> 12,204,124
<SHARES-COMMON-PRIOR> 9,831,023
<ACCUMULATED-NII-CURRENT> 646,595
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,613,296
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 39,975,301
<NET-ASSETS> 177,238,293
<DIVIDEND-INCOME> 3,397,889
<INTEREST-INCOME> 1,965,985
<OTHER-INCOME> 0
<EXPENSES-NET> 1,628,504
<NET-INVESTMENT-INCOME> 3,735,370
<REALIZED-GAINS-CURRENT> 9,082,971
<APPREC-INCREASE-CURRENT> 25,308,348
<NET-CHANGE-FROM-OPS> 38,126,689
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,369,047)
<DISTRIBUTIONS-OF-GAINS> (6,173,331)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,841,802
<NUMBER-OF-SHARES-REDEEMED> (1,115,726)
<SHARES-REINVESTED> 647,025
<NET-CHANGE-IN-ASSETS> 59,318,522
<ACCUMULATED-NII-PRIOR> 280,272
<ACCUMULATED-GAINS-PRIOR> (296,344)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,390,969
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,628,504
<AVERAGE-NET-ASSETS> 154,549,331
<PER-SHARE-NAV-BEGIN> 11.99
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 3.04
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.82)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.52
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 15
<NAME> Emerging Markets Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 926,742,924
<INVESTMENTS-AT-VALUE> 898,092,615
<RECEIVABLES> 11,943,059
<ASSETS-OTHER> 3,791,639
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 913,827,313
<PAYABLE-FOR-SECURITIES> 4,631,539
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,016,254
<TOTAL-LIABILITIES> 6,647,793
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 954,919,906
<SHARES-COMMON-STOCK> 86,054,424
<SHARES-COMMON-PRIOR> 40,355,453
<ACCUMULATED-NII-CURRENT> 7,846,974
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (28,277,467)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (27,309,893)
<NET-ASSETS> 907,179,520
<DIVIDEND-INCOME> 13,673,072
<INTEREST-INCOME> 2,192,601
<OTHER-INCOME> 0
<EXPENSES-NET> 8,053,755
<NET-INVESTMENT-INCOME> 7,811,918
<REALIZED-GAINS-CURRENT> (25,051,517)
<APPREC-INCREASE-CURRENT> 66,409,381
<NET-CHANGE-FROM-OPS> 49,169,782
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (615,855)
<DISTRIBUTIONS-OF-GAINS> (7,081,456)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 47,019,289
<NUMBER-OF-SHARES-REDEEMED> (2,004,988)
<SHARES-REINVESTED> 684,670
<NET-CHANGE-IN-ASSETS> 522,920,758
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,506,417
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,944,710
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,143,828
<AVERAGE-NET-ASSETS> 594,471,021
<PER-SHARE-NAV-BEGIN> 9.52
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 1.06
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.14)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.54
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 17
<NAME> Emerging Country Debt Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 540,192,223
<INVESTMENTS-AT-VALUE> 623,365,913
<RECEIVABLES> 16,841,240
<ASSETS-OTHER> 1,250,746
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 641,457,899
<PAYABLE-FOR-SECURITIES> 16,231,181
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,741,675
<TOTAL-LIABILITIES> 25,972,856
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 496,046,665
<SHARES-COMMON-STOCK> 52,339,284
<SHARES-COMMON-PRIOR> 29,024,789
<ACCUMULATED-NII-CURRENT> 13,630,078
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 17,949,090
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 87,859,210
<NET-ASSETS> 615,485,043
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 67,635,234
<OTHER-INCOME> 0
<EXPENSES-NET> 2,504,494
<NET-INVESTMENT-INCOME> 65,130,740
<REALIZED-GAINS-CURRENT> 61,081,420
<APPREC-INCREASE-CURRENT> 119,723,421
<NET-CHANGE-FROM-OPS> 245,935,581
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (55,195,795)
<DISTRIBUTIONS-OF-GAINS> (30,587,693)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34,834,354
<NUMBER-OF-SHARES-REDEEMED> (17,191,233)
<SHARES-REINVESTED> 5,671,374
<NET-CHANGE-IN-ASSETS> 372,033,699
<ACCUMULATED-NII-PRIOR> 2,358,106
<ACCUMULATED-GAINS-PRIOR> (7,744,126)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,504,503
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,314,606
<AVERAGE-NET-ASSETS> 500,868,125
<PER-SHARE-NAV-BEGIN> 8.39
<PER-SHARE-NII> 1.35
<PER-SHARE-GAIN-APPREC> 3.84
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.82)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.76
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 18
<NAME> Global Hedged Equity Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 348,492,841
<INVESTMENTS-AT-VALUE> 382,835,454
<RECEIVABLES> 3,012,573
<ASSETS-OTHER> 848,731
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 386,696,758
<PAYABLE-FOR-SECURITIES> 360,615
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,402,387
<TOTAL-LIABILITIES> 3,763,002
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 358,608,814
<SHARES-COMMON-STOCK> 35,975,948
<SHARES-COMMON-PRIOR> 21,216,892
<ACCUMULATED-NII-CURRENT> 2,926,013
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (10,487,331)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31,886,260
<NET-ASSETS> 382,933,756
<DIVIDEND-INCOME> 7,173,291
<INTEREST-INCOME> 3,070,970
<OTHER-INCOME> 0
<EXPENSES-NET> 2,477,026
<NET-INVESTMENT-INCOME> 7,767,235
<REALIZED-GAINS-CURRENT> (16,123,360)
<APPREC-INCREASE-CURRENT> 31,582,518
<NET-CHANGE-FROM-OPS> 23,226,393
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,135,996)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,601,167
<NUMBER-OF-SHARES-REDEEMED> (4,235,364)
<SHARES-REINVESTED> 393,253
<NET-CHANGE-IN-ASSETS> 168,295,635
<ACCUMULATED-NII-PRIOR> 745,109
<ACCUMULATED-GAINS-PRIOR> 110,686
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,071,406
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,676,295
<AVERAGE-NET-ASSETS> 318,675,757
<PER-SHARE-NAV-BEGIN> 10.12
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 0.47
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.24)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.64
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 19
<NAME> Domestic Bond Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 321,777,755
<INVESTMENTS-AT-VALUE> 323,690,023
<RECEIVABLES> 1,501,580
<ASSETS-OTHER> 653,125
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 325,844,728
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,895,383
<TOTAL-LIABILITIES> 14,895,383
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 303,088,382
<SHARES-COMMON-STOCK> 29,888,776
<SHARES-COMMON-PRIOR> 20,670,984
<ACCUMULATED-NII-CURRENT> 3,439,616
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,567,277
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 854,070
<NET-ASSETS> 310,949,345
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 19,134,985
<OTHER-INCOME> 0
<EXPENSES-NET> 707,127
<NET-INVESTMENT-INCOME> 18,427,858
<REALIZED-GAINS-CURRENT> 14,899,226
<APPREC-INCREASE-CURRENT> (1,699,294)
<NET-CHANGE-FROM-OPS> 31,627,790
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (16,310,249)
<DISTRIBUTIONS-OF-GAINS> (11,149,215)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,635,774
<NUMBER-OF-SHARES-REDEEMED> (3,664,474)
<SHARES-REINVESTED> 2,246,492
<NET-CHANGE-IN-ASSETS> 101,572,097
<ACCUMULATED-NII-PRIOR> 1,322,007
<ACCUMULATED-GAINS-PRIOR> (103,743)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 707,127
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 865,518
<AVERAGE-NET-ASSETS> 282,850,898
<PER-SHARE-NAV-BEGIN> 10.13
<PER-SHARE-NII> 0.66
<PER-SHARE-GAIN-APPREC> 0.58
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.97)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.40
<EXPENSE-RATIO> 0.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 20
<NAME> Currency Hedged International Bond Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 214,883,688
<INVESTMENTS-AT-VALUE> 237,208,395
<RECEIVABLES> 10,452,575
<ASSETS-OTHER> 186,716
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 247,847,686
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,685,828
<TOTAL-LIABILITIES> 11,685,828
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 211,381,989
<SHARES-COMMON-STOCK> 21,628,308
<SHARES-COMMON-PRIOR> 23,885,450
<ACCUMULATED-NII-CURRENT> 2,213,016
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 27,472
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22,539,381
<NET-ASSETS> 236,161,858
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 20,805,867
<OTHER-INCOME> 0
<EXPENSES-NET> 930,505
<NET-INVESTMENT-INCOME> 19,875,362
<REALIZED-GAINS-CURRENT> 14,407,640
<APPREC-INCREASE-CURRENT> 23,912,792
<NET-CHANGE-FROM-OPS> 58,195,794
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (19,852,732)
<DISTRIBUTIONS-OF-GAINS> (13,715,828)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,674,966
<NUMBER-OF-SHARES-REDEEMED> (14,452,061)
<SHARES-REINVESTED> 2,519,953
<NET-CHANGE-IN-ASSETS> (2,502,580)
<ACCUMULATED-NII-PRIOR> 2,072,925
<ACCUMULATED-GAINS-PRIOR> 37,085
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,163,131
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,483,311
<AVERAGE-NET-ASSETS> 232,622,008
<PER-SHARE-NAV-BEGIN> 9.99
<PER-SHARE-NII> 1.05
<PER-SHARE-GAIN-APPREC> 1.62
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.74)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.92
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 21
<NAME> Currency Hedged International Core Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 394,217,295
<INVESTMENTS-AT-VALUE> 404,698,822
<RECEIVABLES> 3,314,295
<ASSETS-OTHER> 561,169
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 408,574,286
<PAYABLE-FOR-SECURITIES> 230,238
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,117,470
<TOTAL-LIABILITIES> 1,347,708
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 385,991,253
<SHARES-COMMON-STOCK> 35,278,555
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 6,114,326
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,838,672
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,282,327
<NET-ASSETS> 407,226,578
<DIVIDEND-INCOME> 1,782,250
<INTEREST-INCOME> 1,993,262
<OTHER-INCOME> 0
<EXPENSES-NET> 1,013,900
<NET-INVESTMENT-INCOME> 2,761,612
<REALIZED-GAINS-CURRENT> 9,472,130
<APPREC-INCREASE-CURRENT> 12,282,327
<NET-CHANGE-FROM-OPS> 24,516,069
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,491,247)
<DISTRIBUTIONS-OF-GAINS> (1,789,497)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35,069,613
<NUMBER-OF-SHARES-REDEEMED> (44,625)
<SHARES-REINVESTED> 253,567
<NET-CHANGE-IN-ASSETS> 407,226,578
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,097,558
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,647,265
<AVERAGE-NET-ASSETS> 222,244,180
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> 1.44
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.13)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.54
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended February 29, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 22
<NAME> Global Bond Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 30,715,132
<INVESTMENTS-AT-VALUE> 30,240,346
<RECEIVABLES> 1,323,627
<ASSETS-OTHER> 34,375
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 31,598,348
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 525,930
<TOTAL-LIABILITIES> 525,930
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,527,501
<SHARES-COMMON-STOCK> 3,143,053
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 145,359
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (255,309)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (345,133)
<NET-ASSETS> 31,072,418
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 321,498
<OTHER-INCOME> 0
<EXPENSES-NET> 16,812
<NET-INVESTMENT-INCOME> 304,686
<REALIZED-GAINS-CURRENT> (414,636)
<APPREC-INCREASE-CURRENT> (345,133)
<NET-CHANGE-FROM-OPS> (455,083)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,143,053
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 31,072,418
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 17,307
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 72,104
<AVERAGE-NET-ASSETS> 29,189,806
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (0.16)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.89
<EXPENSE-RATIO> 0.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> Core Fund, Class I
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 2,716,861,139
<INVESTMENTS-AT-VALUE> 3,150,005,640
<RECEIVABLES> 13,966,225
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,163,971,865
<PAYABLE-FOR-SECURITIES> 14,539,443
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 102,157,618
<TOTAL-LIABILITIES> 116,697,061
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,362,142,401
<SHARES-COMMON-STOCK> 326,936
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 7,987,272
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 242,089,815
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 435,055,316
<NET-ASSETS> 5,995,766
<DIVIDEND-INCOME> 16,449
<INTEREST-INCOME> 2,123
<OTHER-INCOME> 0
<EXPENSES-NET> 5,701
<NET-INVESTMENT-INCOME> 12,871
<REALIZED-GAINS-CURRENT> 49,451
<APPREC-INCREASE-CURRENT> (249,421)
<NET-CHANGE-FROM-OPS> (187,099)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 326,936
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,995,766
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,233,581
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,725,385
<AVERAGE-NET-ASSETS> 5,582,172
<PER-SHARE-NAV-BEGIN> 18.97
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> (0.67)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 18.34
<EXPENSE-RATIO> 0.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 102
<NAME> Core Fund, Class II
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 2,716,861,139
<INVESTMENTS-AT-VALUE> 3,150,005,640
<RECEIVABLES> 13,966,225
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,163,971,865
<PAYABLE-FOR-SECURITIES> 14,539,443
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 102,157,618
<TOTAL-LIABILITIES> 116,697,061
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,362,142,401
<SHARES-COMMON-STOCK> 1,384,183
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 7,987,272
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 242,089,815
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 435,055,316
<NET-ASSETS> 25,376,930
<DIVIDEND-INCOME> 104,112
<INTEREST-INCOME> 13,438
<OTHER-INCOME> 0
<EXPENSES-NET> 31,827
<NET-INVESTMENT-INCOME> 85,723
<REALIZED-GAINS-CURRENT> 747,986
<APPREC-INCREASE-CURRENT> (1,582,769)
<NET-CHANGE-FROM-OPS> (749,060)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (129,826)
<DISTRIBUTIONS-OF-GAINS> (1,499,489)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,298,520
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 85,663
<NET-CHANGE-IN-ASSETS> 25,376,930
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,233,581
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,725,385
<AVERAGE-NET-ASSETS> 25,049,937
<PER-SHARE-NAV-BEGIN> 20.12
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> (0.60)
<PER-SHARE-DIVIDEND> (0.10)
<PER-SHARE-DISTRIBUTIONS> (1.16)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 18.33
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 103
<NAME> Core Fund, Class III
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 2,716,861,139
<INVESTMENTS-AT-VALUE> 3,150,005,640
<RECEIVABLES> 13,966,225
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,163,971,865
<PAYABLE-FOR-SECURITIES> 14,539,443
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 102,157,618
<TOTAL-LIABILITIES> 116,697,061
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,362,142,401
<SHARES-COMMON-STOCK> 164,491,589
<SHARES-COMMON-PRIOR> 163,404,368
<ACCUMULATED-NII-CURRENT> 7,987,272
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 242,089,815
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 435,055,316
<NET-ASSETS> 3,015,902,108
<DIVIDEND-INCOME> 32,323,268
<INTEREST-INCOME> 4,172,121
<OTHER-INCOME> 0
<EXPENSES-NET> 7,495,599
<NET-INVESTMENT-INCOME> 28,999,790
<REALIZED-GAINS-CURRENT> 240,592,321
<APPREC-INCREASE-CURRENT> (237,546,860)
<NET-CHANGE-FROM-OPS> 32,045,251
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (30,866,238)
<DISTRIBUTIONS-OF-GAINS> (177,908,723)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,879,792
<NUMBER-OF-SHARES-REDEEMED> 18,120,509
<SHARES-REINVESTED> 10,327,938
<NET-CHANGE-IN-ASSETS> (163,412,212)
<ACCUMULATED-NII-PRIOR> 9,884,952
<ACCUMULATED-GAINS-PRIOR> 180,108,269
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,233,581
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,725,385
<AVERAGE-NET-ASSETS> 3,114,435,965
<PER-SHARE-NAV-BEGIN> 19.46
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> (0.19)
<PER-SHARE-DISTRIBUTIONS> (1.16)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 18.33
<EXPENSE-RATIO> 0.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> Growth Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 293,653,069
<INVESTMENTS-AT-VALUE> 334,547,876
<RECEIVABLES> 7,416,087
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 341,963,963
<PAYABLE-FOR-SECURITIES> 2,343,494
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,069,080
<TOTAL-LIABILITIES> 20,412,574
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 236,632,735
<SHARES-COMMON-STOCK> 60,348,814
<SHARES-COMMON-PRIOR> 69,297,026
<ACCUMULATED-NII-CURRENT> 529,139
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 43,790,065
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 40,599,450
<NET-ASSETS> 321,551,389
<DIVIDEND-INCOME> 2,835,363
<INTEREST-INCOME> 484,920
<OTHER-INCOME> 0
<EXPENSES-NET> 868,866
<NET-INVESTMENT-INCOME> 2,451,417
<REALIZED-GAINS-CURRENT> 43,701,353
<APPREC-INCREASE-CURRENT> (35,536,605)
<NET-CHANGE-FROM-OPS> 10,616,165
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,989,770)
<DISTRIBUTIONS-OF-GAINS> (23,931,036)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,549,841
<NUMBER-OF-SHARES-REDEEMED> (14,681,369)
<SHARES-REINVESTED> 4,183,316
<NET-CHANGE-IN-ASSETS> (69,814,524)
<ACCUMULATED-NII-PRIOR> 1,067,492
<ACCUMULATED-GAINS-PRIOR> 24,019,748
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 905,068
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,105,801
<AVERAGE-NET-ASSETS> 360,823,000
<PER-SHARE-NAV-BEGIN> 5.65
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.12
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.48)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 5.33
<EXPENSE-RATIO> 0.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 8
<NAME> Value Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 299,146,312
<INVESTMENTS-AT-VALUE> 338,805,712
<RECEIVABLES> 2,226,543
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 341,032,255
<PAYABLE-FOR-SECURITIES> 165,765
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26,448,715
<TOTAL-LIABILITIES> 26,614,480
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 256,621,103
<SHARES-COMMON-STOCK> 23,721,468
<SHARES-COMMON-PRIOR> 22,292,408
<ACCUMULATED-NII-CURRENT> 1,509,300
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 16,658,536
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 39,628,836
<NET-ASSETS> 314,417,775
<DIVIDEND-INCOME> 4,376,672
<INTEREST-INCOME> 318,979
<OTHER-INCOME> 0
<EXPENSES-NET> 974,936
<NET-INVESTMENT-INCOME> 3,720,715
<REALIZED-GAINS-CURRENT> 19,148,239
<APPREC-INCREASE-CURRENT> (20,388,271)
<NET-CHANGE-FROM-OPS> 2,480,683
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,595,636)
<DISTRIBUTIONS-OF-GAINS> (21,404,650)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 509,997
<NUMBER-OF-SHARES-REDEEMED> (770,638)
<SHARES-REINVESTED> 1,689,701
<NET-CHANGE-IN-ASSETS> (3,194,074)
<ACCUMULATED-NII-PRIOR> 1,384,221
<ACCUMULATED-GAINS-PRIOR> 18,914,947
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,118,778
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,316,196
<AVERAGE-NET-ASSETS> 318,751,000
<PER-SHARE-NAV-BEGIN> 14.25
<PER-SHARE-NII> 0.16
<PER-SHARE-GAIN-APPREC> (0.03)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.13)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.25
<EXPENSE-RATIO> 0.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> Short Term Income Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 23,252,037
<INVESTMENTS-AT-VALUE> 23,209,033
<RECEIVABLES> 2,196,420
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,405,453
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 20,397
<TOTAL-LIABILITIES> 20,397
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,278,829
<SHARES-COMMON-STOCK> 2,612,653
<SHARES-COMMON-PRIOR> 1,132,734
<ACCUMULATED-NII-CURRENT> 252,908
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (103,677)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (43,004)
<NET-ASSETS> 25,385,056
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 610,627
<OTHER-INCOME> 0
<EXPENSES-NET> 20,061
<NET-INVESTMENT-INCOME> 590,566
<REALIZED-GAINS-CURRENT> (9,623)
<APPREC-INCREASE-CURRENT> (65,774)
<NET-CHANGE-FROM-OPS> 515,169
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (483,833)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,114,034
<NUMBER-OF-SHARES-REDEEMED> (1,670,658)
<SHARES-REINVESTED> 36,543
<NET-CHANGE-IN-ASSETS> 14,319,031
<ACCUMULATED-NII-PRIOR> 146,175
<ACCUMULATED-GAINS-PRIOR> (94,054)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 25,240
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 49,446
<AVERAGE-NET-ASSETS> 20,155,000
<PER-SHARE-NAV-BEGIN> 9.77
<PER-SHARE-NII> 0.22
<PER-SHARE-GAIN-APPREC> (0.02)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.25)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.72
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> International Core Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 4,347,028,540
<INVESTMENTS-AT-VALUE> 4,516,570,224
<RECEIVABLES> 64,400,761
<ASSETS-OTHER> 38,634,989
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,619,605,974
<PAYABLE-FOR-SECURITIES> 36,473,043
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 329,870,956
<TOTAL-LIABILITIES> 366,343,999
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,907,873,359
<SHARES-COMMON-STOCK> 175,896,874
<SHARES-COMMON-PRIOR> 184,341,225
<ACCUMULATED-NII-CURRENT> 58,175,243
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 140,448,857
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 146,764,516
<NET-ASSETS> 4,253,261,975
<DIVIDEND-INCOME> 81,786,136
<INTEREST-INCOME> 10,172,141
<OTHER-INCOME> 0
<EXPENSES-NET> 15,673,176
<NET-INVESTMENT-INCOME> 76,285,101
<REALIZED-GAINS-CURRENT> 128,103,567
<APPREC-INCREASE-CURRENT> (180,417,512)
<NET-CHANGE-FROM-OPS> 23,971,156
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,640,349)
<DISTRIBUTIONS-OF-GAINS> (82,073,251)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,016,730
<NUMBER-OF-SHARES-REDEEMED> (31,049,450)
<SHARES-REINVESTED> 3,588,369
<NET-CHANGE-IN-ASSETS> (284,774,248)
<ACCUMULATED-NII-PRIOR> (5,469,509)
<ACCUMULATED-GAINS-PRIOR> 94,418,541
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16,915,544
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 20,168,338
<AVERAGE-NET-ASSETS> 4,473,938,000
<PER-SHARE-NAV-BEGIN> 24.62
<PER-SHARE-NII> 0.43
<PER-SHARE-GAIN-APPREC> (0.34)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.53)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 24.18
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 7
<NAME> Japan Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 280,399,353
<INVESTMENTS-AT-VALUE> 267,677,616
<RECEIVABLES> 379,546
<ASSETS-OTHER> 29,685,599
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 297,742,761
<PAYABLE-FOR-SECURITIES> 21,066
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 34,283,938
<TOTAL-LIABILITIES> 34,305,004
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 277,129,017
<SHARES-COMMON-STOCK> 32,080,230
<SHARES-COMMON-PRIOR> 14,792,650
<ACCUMULATED-NII-CURRENT> (203,586)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (77,316)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (13,410,358)
<NET-ASSETS> 263,437,757
<DIVIDEND-INCOME> 442,765
<INTEREST-INCOME> 153,859
<OTHER-INCOME> 0
<EXPENSES-NET> 610,482
<NET-INVESTMENT-INCOME> (13,858)
<REALIZED-GAINS-CURRENT> 50,447
<APPREC-INCREASE-CURRENT> (11,858,272)
<NET-CHANGE-FROM-OPS> (11,821,683)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,076,822
<NUMBER-OF-SHARES-REDEEMED> (1,789,242)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 137,330,798
<ACCUMULATED-NII-PRIOR> (189,728)
<ACCUMULATED-GAINS-PRIOR> (127,763)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 654,196
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 872,094
<AVERAGE-NET-ASSETS> 173,013,000
<PER-SHARE-NAV-BEGIN> 8.52
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> (0.31)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.21
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 9
<NAME> Tobacco Free Core Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 51,763,405
<INVESTMENTS-AT-VALUE> 57,250,025
<RECEIVABLES> 239,311
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 57,489,336
<PAYABLE-FOR-SECURITIES> 177,591
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,301,051
<TOTAL-LIABILITIES> 3,478,642
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42,687,046
<SHARES-COMMON-STOCK> 4,514,874
<SHARES-COMMON-PRIOR> 4,444,322
<ACCUMULATED-NII-CURRENT> 146,239
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,723,414
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,453,995
<NET-ASSETS> 54,010,694
<DIVIDEND-INCOME> 525,618
<INTEREST-INCOME> 95,028
<OTHER-INCOME> 0
<EXPENSES-NET> 126,134
<NET-INVESTMENT-INCOME> 494,512
<REALIZED-GAINS-CURRENT> 5,816,445
<APPREC-INCREASE-CURRENT> (6,243,171)
<NET-CHANGE-FROM-OPS> 67,786
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (515,601)
<DISTRIBUTIONS-OF-GAINS> (4,342,015)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 754,930
<NUMBER-OF-SHARES-REDEEMED> (1,074,672)
<SHARES-REINVESTED> 390,294
<NET-CHANGE-IN-ASSETS> (3,474,321)
<ACCUMULATED-NII-PRIOR> 167,328
<ACCUMULATED-GAINS-PRIOR> 4,248,984
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 131,390
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 202,221
<AVERAGE-NET-ASSETS> 52,421,000
<PER-SHARE-NAV-BEGIN> 12.93
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 0.07
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.16)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.96
<EXPENSE-RATIO> 0.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 10
<NAME> Fundamental Value Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 185,190,932
<INVESTMENTS-AT-VALUE> 221,295,538
<RECEIVABLES> 960,607
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 222,256,145
<PAYABLE-FOR-SECURITIES> 369,904
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,643,035
<TOTAL-LIABILITIES> 19,012,939
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 159,947,802
<SHARES-COMMON-STOCK> 14,047,972
<SHARES-COMMON-PRIOR> 14,123,445
<ACCUMULATED-NII-CURRENT> 1,254,338
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,936,460
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36,104,606
<NET-ASSETS> 203,243,206
<DIVIDEND-INCOME> 3,158,945
<INTEREST-INCOME> 122,867
<OTHER-INCOME> 0
<EXPENSES-NET> 790,473
<NET-INVESTMENT-INCOME> 2,491,339
<REALIZED-GAINS-CURRENT> 6,672,458
<APPREC-INCREASE-CURRENT> (6,148,712)
<NET-CHANGE-FROM-OPS> 3,015,085
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,112,859)
<DISTRIBUTIONS-OF-GAINS> (8,510,213)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,586
<NUMBER-OF-SHARES-REDEEMED> (677,878)
<SHARES-REINVESTED> 595,819
<NET-CHANGE-IN-ASSETS> (9,185,140)
<ACCUMULATED-NII-PRIOR> 875,858
<ACCUMULATED-GAINS-PRIOR> 7,774,215
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 790,473
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 916,947
<AVERAGE-NET-ASSETS> 210,173,000
<PER-SHARE-NAV-BEGIN> 15.04
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 0.03
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.78)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.47
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 13
<NAME> International Small Companies Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 194,701,143
<INVESTMENTS-AT-VALUE> 203,769,082
<RECEIVABLES> 607,292
<ASSETS-OTHER> 23,292,583
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 227,668,957
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,243,102
<TOTAL-LIABILITIES> 1,243,102
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 218,170,006
<SHARES-COMMON-STOCK> 17,439,466
<SHARES-COMMON-PRIOR> 16,902,821
<ACCUMULATED-NII-CURRENT> 2,775,612
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,402,268)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,882,505
<NET-ASSETS> 226,425,855
<DIVIDEND-INCOME> 3,209,805
<INTEREST-INCOME> 573,068
<OTHER-INCOME> 0
<EXPENSES-NET> 875,812
<NET-INVESTMENT-INCOME> 2,907,061
<REALIZED-GAINS-CURRENT> (1,751,254)
<APPREC-INCREASE-CURRENT> 3,111,034
<NET-CHANGE-FROM-OPS> 4,266,841
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (607,744)
<DISTRIBUTIONS-OF-GAINS> (3,403,369)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 932,056
<NUMBER-OF-SHARES-REDEEMED> (671,448)
<SHARES-REINVESTED> 276,037
<NET-CHANGE-IN-ASSETS> 7,462,125
<ACCUMULATED-NII-PRIOR> 476,295
<ACCUMULATED-GAINS-PRIOR> 3,752,355
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,454,408
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,749,676
<AVERAGE-NET-ASSETS> 230,788,000
<PER-SHARE-NAV-BEGIN> 12.95
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> 0.10
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.24)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.98
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 11
<NAME> Core II Secondaries Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 249,776,570
<INVESTMENTS-AT-VALUE> 276,444,963
<RECEIVABLES> 703,136
<ASSETS-OTHER> 64,446,606
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 341,594,705
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,217,361
<TOTAL-LIABILITIES> 11,217,361
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 303,579,424
<SHARES-COMMON-STOCK> 23,309,621
<SHARES-COMMON-PRIOR> 16,666,567
<ACCUMULATED-NII-CURRENT> 1,453,178
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,253,044
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24,091,698
<NET-ASSETS> 330,377,344
<DIVIDEND-INCOME> 2,298,642
<INTEREST-INCOME> 1,866,299
<OTHER-INCOME> 0
<EXPENSES-NET> 731,768
<NET-INVESTMENT-INCOME> 3,433,173
<REALIZED-GAINS-CURRENT> 2,471,754
<APPREC-INCREASE-CURRENT> 3,670,984
<NET-CHANGE-FROM-OPS> 9,575,911
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,666,977)
<DISTRIBUTIONS-OF-GAINS> (5,439,706)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,919,600
<NUMBER-OF-SHARES-REDEEMED> (1,718,491)
<SHARES-REINVESTED> 441,945
<NET-CHANGE-IN-ASSETS> 98,843,913
<ACCUMULATED-NII-PRIOR> 686,982
<ACCUMULATED-GAINS-PRIOR> 4,220,996
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 762,258
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 965,730
<AVERAGE-NET-ASSETS> 304,213,000
<PER-SHARE-NAV-BEGIN> 13.89
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> 0.49
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.36)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.17
<EXPENSE-RATIO> 0.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> Pelican Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 144,282,119
<INVESTMENTS-AT-VALUE> 180,625,523
<RECEIVABLES> 1,789,164
<ASSETS-OTHER> 4,466
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 182,419,153
<PAYABLE-FOR-SECURITIES> 188,753
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 222,758
<TOTAL-LIABILITIES> 411,511
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 142,567,905
<SHARES-COMMON-STOCK> 12,797,474
<SHARES-COMMON-PRIOR> 12,204,124
<ACCUMULATED-NII-CURRENT> 994,234
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,102,099
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36,343,404
<NET-ASSETS> 182,007,642
<DIVIDEND-INCOME> 1,823,338
<INTEREST-INCOME> 1,146,125
<OTHER-INCOME> 0
<EXPENSES-NET> 878,257
<NET-INVESTMENT-INCOME> 2,091,206
<REALIZED-GAINS-CURRENT> 3,472,919
<APPREC-INCREASE-CURRENT> (3,631,897)
<NET-CHANGE-FROM-OPS> 1,932,228
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,743,567)
<DISTRIBUTIONS-OF-GAINS> (3,984,116)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 927,821
<NUMBER-OF-SHARES-REDEEMED> (712,170)
<SHARES-REINVESTED> 377,699
<NET-CHANGE-IN-ASSETS> 4,769,349
<ACCUMULATED-NII-PRIOR> 646,595
<ACCUMULATED-GAINS-PRIOR> 2,613,296
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 832,034
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 968,377
<AVERAGE-NET-ASSETS> 183,372,000
<PER-SHARE-NAV-BEGIN> 14.52
<PER-SHARE-NII> 0.16
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.46)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.22
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 14
<NAME> U.S. Sector Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 213,891,494
<INVESTMENTS-AT-VALUE> 233,809,311
<RECEIVABLES> 984,748
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 234,794,059
<PAYABLE-FOR-SECURITIES> 539,995
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,746,093
<TOTAL-LIABILITIES> 9,286,088
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 186,375,402
<SHARES-COMMON-STOCK> 19,210,683
<SHARES-COMMON-PRIOR> 15,503,866
<ACCUMULATED-NII-CURRENT> 614,511
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 18,444,220
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,073,838
<NET-ASSETS> 225,507,971
<DIVIDEND-INCOME> 2,317,176
<INTEREST-INCOME> 348,814
<OTHER-INCOME> 0
<EXPENSES-NET> 535,777
<NET-INVESTMENT-INCOME> 2,130,213
<REALIZED-GAINS-CURRENT> 18,606,954
<APPREC-INCREASE-CURRENT> (16,706,660)
<NET-CHANGE-FROM-OPS> 4,030,507
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,290,625)
<DISTRIBUTIONS-OF-GAINS> (32,803,951)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,529,655
<NUMBER-OF-SHARES-REDEEMED> (1,334,220)
<SHARES-REINVESTED> 1,511,382
<NET-CHANGE-IN-ASSETS> 14,189,255
<ACCUMULATED-NII-PRIOR> 774,923
<ACCUMULATED-GAINS-PRIOR> 32,641,217
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 546,939
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 696,231
<AVERAGE-NET-ASSETS> 222,646,000
<PER-SHARE-NAV-BEGIN> 13.63
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 0.09
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (2.10)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.74
<EXPENSE-RATIO> 0.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 16
<NAME> International Bond Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 204,063,285
<INVESTMENTS-AT-VALUE> 212,047,045
<RECEIVABLES> 8,696,890
<ASSETS-OTHER> 57,840
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 220,801,775
<PAYABLE-FOR-SECURITIES> 5,297,555
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,699,467
<TOTAL-LIABILITIES> 17,997,022
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 172,537,116
<SHARES-COMMON-STOCK> 17,563,164
<SHARES-COMMON-PRIOR> 17,765,600
<ACCUMULATED-NII-CURRENT> 8,133,415
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,801,190
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,333,032
<NET-ASSETS> 202,804,753
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,194,831
<OTHER-INCOME> 0
<EXPENSES-NET> 377,492
<NET-INVESTMENT-INCOME> 6,817,339
<REALIZED-GAINS-CURRENT> 14,111,565
<APPREC-INCREASE-CURRENT> (4,435,956)
<NET-CHANGE-FROM-OPS> 16,492,948
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,568,678)
<DISTRIBUTIONS-OF-GAINS> (2,276,849)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,019,441
<NUMBER-OF-SHARES-REDEEMED> (4,626,675)
<SHARES-REINVESTED> 404,798
<NET-CHANGE-IN-ASSETS> 8,884,437
<ACCUMULATED-NII-PRIOR> 4,884,754
<ACCUMULATED-GAINS-PRIOR> 1,966,474
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 379,254
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 563,159
<AVERAGE-NET-ASSETS> 189,188,000
<PER-SHARE-NAV-BEGIN> 10.92
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> 0.58
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.36)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.55
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 15
<NAME> Emerging Markets Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 1,243,913,640
<INVESTMENTS-AT-VALUE> 1,209,858,328
<RECEIVABLES> 20,654,339
<ASSETS-OTHER> 15,945,195
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,246,457,862
<PAYABLE-FOR-SECURITIES> 24,546,201
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,514,416
<TOTAL-LIABILITIES> 26,060,617
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,247,146,379
<SHARES-COMMON-STOCK> 111,608,650
<SHARES-COMMON-PRIOR> 86,054,424
<ACCUMULATED-NII-CURRENT> 11,249,129
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,358,044)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (31,640,219)
<NET-ASSETS> 1,220,397,245
<DIVIDEND-INCOME> 16,367,257
<INTEREST-INCOME> 2,569,290
<OTHER-INCOME> 0
<EXPENSES-NET> 6,751,664
<NET-INVESTMENT-INCOME> 12,184,883
<REALIZED-GAINS-CURRENT> 21,919,423
<APPREC-INCREASE-CURRENT> (4,330,326)
<NET-CHANGE-FROM-OPS> 29,773,980
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,782,728)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27,412,967
<NUMBER-OF-SHARES-REDEEMED> (2,262,129)
<SHARES-REINVESTED> 403,388
<NET-CHANGE-IN-ASSETS> 313,217,725
<ACCUMULATED-NII-PRIOR> 7,846,974
<ACCUMULATED-GAINS-PRIOR> (28,277,467)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,714,385
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,442,447
<AVERAGE-NET-ASSETS> 1,133,601,000
<PER-SHARE-NAV-BEGIN> 10.54
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 0.38
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.08)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.93
<EXPENSE-RATIO> 0.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 17
<NAME> Emerging Country Debt Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 505,398,828
<INVESTMENTS-AT-VALUE> 656,488,824
<RECEIVABLES> 51,350,551
<ASSETS-OTHER> 2,355
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 707,841,730
<PAYABLE-FOR-SECURITIES> 11,279,672
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49,735,204
<TOTAL-LIABILITIES> 61,014,876
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 399,403,787
<SHARES-COMMON-STOCK> 45,031,574
<SHARES-COMMON-PRIOR> 52,339,284
<ACCUMULATED-NII-CURRENT> 32,108,591
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 69,870,779
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 145,443,697
<NET-ASSETS> 646,826,854
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 33,025,583
<OTHER-INCOME> 0
<EXPENSES-NET> 1,881,184
<NET-INVESTMENT-INCOME> 31,144,399
<REALIZED-GAINS-CURRENT> 76,128,691
<APPREC-INCREASE-CURRENT> 57,584,487
<NET-CHANGE-FROM-OPS> 164,857,577
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,665,886)
<DISTRIBUTIONS-OF-GAINS> (24,207,002)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,780,799
<NUMBER-OF-SHARES-REDEEMED> (14,421,005)
<SHARES-REINVESTED> 2,332,496
<NET-CHANGE-IN-ASSETS> 31,341,811
<ACCUMULATED-NII-PRIOR> 13,630,078
<ACCUMULATED-GAINS-PRIOR> 17,949,090
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,627,727
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,202,106
<AVERAGE-NET-ASSETS> 649,442,000
<PER-SHARE-NAV-BEGIN> 11.76
<PER-SHARE-NII> 0.71
<PER-SHARE-GAIN-APPREC> 2.65
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.76)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.36
<EXPENSE-RATIO> 0.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 18
<NAME> Global Hedged Equity Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 300,699,579
<INVESTMENTS-AT-VALUE> 312,064,318
<RECEIVABLES> 6,745,757
<ASSETS-OTHER> 1,633,095
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 320,443,170
<PAYABLE-FOR-SECURITIES> 956,828
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,357,263
<TOTAL-LIABILITIES> 3,314,091
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 301,306,310
<SHARES-COMMON-STOCK> 29,771,691
<SHARES-COMMON-PRIOR> 35,975,948
<ACCUMULATED-NII-CURRENT> 4,131,701
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,604,957)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18,296,025
<NET-ASSETS> 317,129,079
<DIVIDEND-INCOME> 4,669,233
<INTEREST-INCOME> 1,088,841
<OTHER-INCOME> 0
<EXPENSES-NET> 1,501,714
<NET-INVESTMENT-INCOME> 4,256,360
<REALIZED-GAINS-CURRENT> 9,329,574
<APPREC-INCREASE-CURRENT> (13,590,235)
<NET-CHANGE-FROM-OPS> (4,301)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (422,864)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,387,660
<NUMBER-OF-SHARES-REDEEMED> (8,615,714)
<SHARES-REINVESTED> 23,797
<NET-CHANGE-IN-ASSETS> (65,804,677)
<ACCUMULATED-NII-PRIOR> 298,205
<ACCUMULATED-GAINS-PRIOR> (15,934,531)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,169,808
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,687,038
<AVERAGE-NET-ASSETS> 357,003,000
<PER-SHARE-NAV-BEGIN> 10.64
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> (0.12)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.65
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 19
<NAME> Domestic Bond Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 544,210,475
<INVESTMENTS-AT-VALUE> 538,660,189
<RECEIVABLES> 3,579,804
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 542,239,993
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 91,109,000
<TOTAL-LIABILITIES> 91,109,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 457,203,017
<SHARES-COMMON-STOCK> 45,181,741
<SHARES-COMMON-PRIOR> 29,888,776
<ACCUMULATED-NII-CURRENT> 4,071,870
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,630,576)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (7,513,318)
<NET-ASSETS> 451,130,993
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,680,445
<OTHER-INCOME> 0
<EXPENSES-NET> 456,848
<NET-INVESTMENT-INCOME> 11,223,597
<REALIZED-GAINS-CURRENT> (3,637,045)
<APPREC-INCREASE-CURRENT> (8,367,388)
<NET-CHANGE-FROM-OPS> (780,836)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10,591,343)
<DISTRIBUTIONS-OF-GAINS> (2,560,808)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,851,216
<NUMBER-OF-SHARES-REDEEMED> (670,418)
<SHARES-REINVESTED> 1,112,167
<NET-CHANGE-IN-ASSETS> 140,181,648
<ACCUMULATED-NII-PRIOR> 3,439,616
<ACCUMULATED-GAINS-PRIOR> 3,567,277
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 456,847
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 664,166
<AVERAGE-NET-ASSETS> 364,952,000
<PER-SHARE-NAV-BEGIN> 10.40
<PER-SHARE-NII> 0.28
<PER-SHARE-GAIN-APPREC> (0.33)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.37)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.98
<EXPENSE-RATIO> 0.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 20
<NAME> Currency Hedged International Bond Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 343,169,932
<INVESTMENTS-AT-VALUE> 359,039,272
<RECEIVABLES> 12,752,268
<ASSETS-OTHER> 74,411
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 371,865,951
<PAYABLE-FOR-SECURITIES> 12,496,996
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,238,437
<TOTAL-LIABILITIES> 22,735,433
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 299,691,288
<SHARES-COMMON-STOCK> 29,089,838
<SHARES-COMMON-PRIOR> 21,628,308
<ACCUMULATED-NII-CURRENT> 11,891,234
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,241,430
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,306,566
<NET-ASSETS> 349,130,518
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,570,099
<OTHER-INCOME> 0
<EXPENSES-NET> 541,580
<NET-INVESTMENT-INCOME> 10,028,519
<REALIZED-GAINS-CURRENT> 21,014,646
<APPREC-INCREASE-CURRENT> (5,232,815)
<NET-CHANGE-FROM-OPS> 25,810,350
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (350,301)
<DISTRIBUTIONS-OF-GAINS> (800,688)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,451,675
<NUMBER-OF-SHARES-REDEEMED> (2,075,035)
<SHARES-REINVESTED> 84,890
<NET-CHANGE-IN-ASSETS> 112,968,660
<ACCUMULATED-NII-PRIOR> 2,213,016
<ACCUMULATED-GAINS-PRIOR> 27,472
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 676,972
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 917,830
<AVERAGE-NET-ASSETS> 270,496,000
<PER-SHARE-NAV-BEGIN> 10.92
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> 0.80
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.00
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 21
<NAME> Currency Hedged International Core Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 498,815,329
<INVESTMENTS-AT-VALUE> 506,799,670
<RECEIVABLES> 4,543,449
<ASSETS-OTHER> 2,614,640
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 513,957,759
<PAYABLE-FOR-SECURITIES> 1,918,639
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,867,971
<TOTAL-LIABILITIES> 5,786,610
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 490,112,713
<SHARES-COMMON-STOCK> 44,087,812
<SHARES-COMMON-PRIOR> 35,278,555
<ACCUMULATED-NII-CURRENT> 12,845,398
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 722,304
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,490,734
<NET-ASSETS> 508,171,149
<DIVIDEND-INCOME> 7,524,292
<INTEREST-INCOME> 2,344,414
<OTHER-INCOME> 0
<EXPENSES-NET> 1,662,544
<NET-INVESTMENT-INCOME> 8,206,162
<REALIZED-GAINS-CURRENT> 7,635,617
<APPREC-INCREASE-CURRENT> (7,791,593)
<NET-CHANGE-FROM-OPS> 8,050,186
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,475,090)
<DISTRIBUTIONS-OF-GAINS> (9,751,985)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,351,325
<NUMBER-OF-SHARES-REDEEMED> (3,419,505)
<SHARES-REINVESTED> 877,437
<NET-CHANGE-IN-ASSETS> 100,944,571
<ACCUMULATED-NII-PRIOR> 6,114,326
<ACCUMULATED-GAINS-PRIOR> 2,838,672
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,800,980
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,428,880
<AVERAGE-NET-ASSETS> 476,329,000
<PER-SHARE-NAV-BEGIN> 11.54
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> 0.12
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.28)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.53
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 22
<NAME> Global Bond Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 64,366,596
<INVESTMENTS-AT-VALUE> 64,934,015
<RECEIVABLES> 1,723,990
<ASSETS-OTHER> 1,903
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 66,659,908
<PAYABLE-FOR-SECURITIES> 6,006
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,333,389
<TOTAL-LIABILITIES> 3,339,395
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 59,926,522
<SHARES-COMMON-STOCK> 6,042,003
<SHARES-COMMON-PRIOR> 3,143,053
<ACCUMULATED-NII-CURRENT> 1,877,630
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 887,898
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 628,463
<NET-ASSETS> 63,320,513
<DIVIDEND-INCOME> 143,369
<INTEREST-INCOME> 1,837,824
<OTHER-INCOME> 0
<EXPENSES-NET> 98,116
<NET-INVESTMENT-INCOME> 1,883,077
<REALIZED-GAINS-CURRENT> 1,143,207
<APPREC-INCREASE-CURRENT> 973,596
<NET-CHANGE-FROM-OPS> 3,999,880
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (150,806)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,917,015
<NUMBER-OF-SHARES-REDEEMED> (27,833)
<SHARES-REINVESTED> 9,768
<NET-CHANGE-IN-ASSETS> 32,248,095
<ACCUMULATED-NII-PRIOR> 145,359
<ACCUMULATED-GAINS-PRIOR> (255,309)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 101,684
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 186,006
<AVERAGE-NET-ASSETS> 57,978,000
<PER-SHARE-NAV-BEGIN> 9.89
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 0.33
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.03)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.48
<EXPENSE-RATIO> 0.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 23
<NAME> REIT
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 77,112,096
<INVESTMENTS-AT-VALUE> 79,006,534
<RECEIVABLES> 192,585
<ASSETS-OTHER> 1,398
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 79,200,517
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 89,684
<TOTAL-LIABILITIES> 89,684
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 76,102,948
<SHARES-COMMON-STOCK> 7,464,598
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 609,173
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 535,267
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,863,445
<NET-ASSETS> 79,110,833
<DIVIDEND-INCOME> 596,106
<INTEREST-INCOME> 80,006
<OTHER-INCOME> 0
<EXPENSES-NET> 66,939
<NET-INVESTMENT-INCOME> 609,173
<REALIZED-GAINS-CURRENT> 535,267
<APPREC-INCREASE-CURRENT> 1,863,445
<NET-CHANGE-FROM-OPS> 3,007,885
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,464,598
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 79,110,833
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 72,759
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 108,278
<AVERAGE-NET-ASSETS> 40,675,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 0.52
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.60
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 241
<NAME> Foreign Fund, Class I
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 575,331,857
<INVESTMENTS-AT-VALUE> 564,128,177
<RECEIVABLES> 2,727,708
<ASSETS-OTHER> 6,084,523
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 572,940,408
<PAYABLE-FOR-SECURITIES> 2,202,193
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,003,447
<TOTAL-LIABILITIES> 3,205,640
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 580,085,691
<SHARES-COMMON-STOCK> 354,251
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,719,661
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (448,722)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (11,621,862)
<NET-ASSETS> 3,476,181
<DIVIDEND-INCOME> 7,947
<INTEREST-INCOME> 2,434
<OTHER-INCOME> 0
<EXPENSES-NET> 4,365
<NET-INVESTMENT-INCOME> 6,016
<REALIZED-GAINS-CURRENT> (2,522)
<APPREC-INCREASE-CURRENT> (27,311)
<NET-CHANGE-FROM-OPS> (23,817)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 354,251
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,476,183
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 715,455
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,015,715
<AVERAGE-NET-ASSETS> 3,464,970
<PER-SHARE-NAV-BEGIN> 9.88
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> (0.09)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.81
<EXPENSE-RATIO> 0.88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 243
<NAME> Foreign Fund, Class III
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 575,331,857
<INVESTMENTS-AT-VALUE> 564,128,177
<RECEIVABLES> 2,727,708
<ASSETS-OTHER> 6,084,523
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 572,940,408
<PAYABLE-FOR-SECURITIES> 2,202,193
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,003,447
<TOTAL-LIABILITIES> 3,205,640
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 580,085,691
<SHARES-COMMON-STOCK> 57,710,422
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,719,661
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (448,722)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (11,621,862)
<NET-ASSETS> 566,258,587
<DIVIDEND-INCOME> 1,979,647
<INTEREST-INCOME> 449,179
<OTHER-INCOME> 0
<EXPENSES-NET> 715,181
<NET-INVESTMENT-INCOME> 1,713,645
<REALIZED-GAINS-CURRENT> (446,200)
<APPREC-INCREASE-CURRENT> (11,594,551)
<NET-CHANGE-FROM-OPS> (10,327,106)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 57,723,777
<NUMBER-OF-SHARES-REDEEMED> (13,355)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 566,258,585
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 715,455
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,015,715
<AVERAGE-NET-ASSETS> 558,697,943
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> (0.22)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.81
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 251
<NAME> World Equity Allocation Fund, Class I
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 10,183,099
<INVESTMENTS-AT-VALUE> 9,634,863
<RECEIVABLES> 5,597
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9,640,460
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,171
<TOTAL-LIABILITIES> 7,171
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,928,909
<SHARES-COMMON-STOCK> 582,229
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 33,867
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 218,749
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (548,236)
<NET-ASSETS> 5,639,148
<DIVIDEND-INCOME> 20,037
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (1,614)
<NET-INVESTMENT-INCOME> 18,423
<REALIZED-GAINS-CURRENT> 120,854
<APPREC-INCREASE-CURRENT> (305,597)
<NET-CHANGE-FROM-OPS> (166,320)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 582,229
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,639,148
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,996
<AVERAGE-NET-ASSETS> 5,514,528
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> (0.34)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.69
<EXPENSE-RATIO> 0.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 252
<NAME> World Equity Allocation Fund, Class II
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 10,183,099
<INVESTMENTS-AT-VALUE> 9,634,863
<RECEIVABLES> 5,597
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9,640,460
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,171
<TOTAL-LIABILITIES> 7,171
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,928,909
<SHARES-COMMON-STOCK> 412,344
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 33,867
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 218,749
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (548,236)
<NET-ASSETS> 3,994,141
<DIVIDEND-INCOME> 16,229
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (785)
<NET-INVESTMENT-INCOME> 15,444
<REALIZED-GAINS-CURRENT> 97,895
<APPREC-INCREASE-CURRENT> (242,639)
<NET-CHANGE-FROM-OPS> (129,300)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 412,344
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,994,141
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,996
<AVERAGE-NET-ASSETS> 3,998,001
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> (0.35)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.69
<EXPENSE-RATIO> 0.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from GMO Trust, form
N-SAR for the period ended August 31, 1996
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 26
<NAME> Global Balanced Allocation Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 2,999,978
<INVESTMENTS-AT-VALUE> 3,073,494
<RECEIVABLES> 3,769
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,077,263
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,233
<TOTAL-LIABILITIES> 4,233
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,000,000
<SHARES-COMMON-STOCK> 300,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (486)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 73,516
<NET-ASSETS> 3,073,030
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 486
<NET-INVESTMENT-INCOME> (486)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 73,516
<NET-CHANGE-FROM-OPS> 73,030
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 300,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,073,030
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,255
<AVERAGE-NET-ASSETS> 1,618,659
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.24
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.24
<EXPENSE-RATIO> 0.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
