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Filed Pursuant to Rule 497(e)
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GMO
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PELICAN FUND
PROSPECTUS
JANUARY 20, 1997
GRANTHAM, MAYO,
VAN OTTERLOO & CO. LLC
40 ROWES WHARF
BOSTON, MASSACHUSETTS 02110
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TABLE OF CONTENTS
Expense Information........................2
Financial Highlights ......................3
General Description of the Fund............4
Investment Objectives, Policies,
and Risks............................4
Management.................................8
How to Purchase Shares.....................8
How to Redeem Shares......................10
How Shares are Priced....................12
Distributions, Reinvestment,
and Taxes..........................12
Performance Data..........................14
Organization and Capitalization
of the Trust.......................14
Description of Shares.....................14
Shareholder Inquiries.....................15
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PROSPECTUS
PELICAN FUND
40 Rowes Wharf, Boston, Massachusetts 02110
(617) 346-7600
The Pelican Fund (the "Fund") is one of twenty-six separate investment
portfolios currently offered by GMO Trust (the "Trust"), an open-end management
investment company. The Fund's investment manager is Grantham, Mayo, Van
Otterloo & Co. LLC (the "Manager").
The Pelican Fund is a diversified portfolio that seeks long term
capital growth primarily through investment in equity securities. Consideration
of current income is secondary to this principal objective. The Fund invests
primarily in securities traded in the United States but may invest up to 25
percent of its assets in foreign securities. The Fund is designed primarily for
institutions and other tax exempt investors.
This Prospectus describes concisely the information which investors
ought to know about the Fund before investing. Please read this Prospectus
carefully and keep it for future reference.
A Statement of Additional Information dated January 20, 1997 is
available free of charge. Write to Grantham, Mayo, Van Otterloo & Co. LLC, 40
Rowes Wharf, Boston, Massachusetts 02110 or telephone 1-617-346-7600. The
Statement, which contains more detailed information about the Fund, has been
filed with the Securities and Exchange Commission and is incorporated by
reference in this Prospectus.
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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.
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January 20, 1997
1
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Pelican Fund
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EXPENSE INFORMATION
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The following information is designed to help investors understand the
various costs and expenses that investors in the Fund bear directly and
indirectly. The expenses are based on annual expenses for the Fund's fiscal year
ended February 29, 1996 but have been restated to reflect the fee reduction
described in footnote 1, which was effective March 1, 1996. The table also
includes a hypothetical illustration of the amount of operating expenses that
would be incurred by an investor who purchases $1,000 of shares of the Fund and
who redeems the investment at the end of the periods shown. The examples are not
representations of past or future expenses, and actual expenses may be larger or
smaller than those shown.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
REDEMPTION FEES: None
EXCHANGE FEES: None
ANNUAL FUND OPERATING EXPENSES: 1
(as a percentage of average net assets)
Management Fee after Fee Waiver 0.80%
Other Operating Expenses 0.15%
TOTAL FUND OPERATING EXPENSES: 1 0.95%
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1 The Manager has voluntarily undertaken to reduce its management fee
and to bear certain expenses with respect to the Fund until further notice
to the extent that the Fund's total annual operating expenses (excluding
brokerage commissions, extraordinary, non-recurring and certain other
expenses (including taxes), and transfer taxes) would otherwise exceed
0.95% of the Fund's average daily net assets. Absent such waiver,
management fees for the Fund would be 0.90% and Total Fund Operating
Expenses would be 1.05%.
EXAMPLE:
You would pay the following expenses on a $1,000 investment, if you
assume a 5 percent annual return (with or without a redemption at the end of
each time period):
One Year $ 10
Three Years $ 30
Five Years $ 53
Ten Years $ 117
The example in the table above is for informational purposes only.
Actual expenses of the Fund may vary significantly from the expenses assumed
above.
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2
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FINANCIAL HIGHLIGHTS
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FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Year ended February 28/29,
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 *
--------------------------------------------------------------------------------
Net asset value, beginning of period $11.99 $12.08 $11.37 $10.70 $ 9.89 $ 9.67 $10.00
-------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.31 0.37 0.29(a) 0.36(a) 0.42(a) 0.49(a) 0.29(a)
Net realized and unrealized gain 3.04 0.46 1.40 1.06 1.02 0.24 (0.35)
------- ------- ------- ------- ------- ------ --------
Total from investment operations 3.35 0.83 1.69 1.42 1.44 0.73 (0.06)
------- ------- ------- ------- ------- ------ --------
Less distributions to shareholders:
From net investment income (0.29) (0.37) (0.37) (0.38) (0.40) (0.51) (0.23)
From net realized gains (0.53) (0.55) (0.61) (0.37) (0.23) -- (0.04)
------- ------- ------- ------- ------- ------ --------
Total distributions (0.82) (0.92) (0.98) (0.75) (0.63) (0.51) (0.27)
------- ------- ------- ------- ------- ------ --------
Net asset value, end of period $14.52 $11.99 $12.08 $11.37 $10.70 $ 9.89 $ 9.67
======= ======= ======= ======= ======= ====== ========
Total Return 28.54% 7.38% 15.14%(b) 13.93%(b) 15.24%(b) 8.17%(b) (0.69%)*(b)
Ratios/Supplemental Data:
Net assets, end of period (000's) $177,238 $117,920 $101,165 $85,401 $65,907 $76,681 $79,650
Net expenses to average
daily net assets 1.05% 1.10% 1.10%(a) 1.10%(a) 1.10%(a) 1.10%(a) 0.80%*(a)
Net investment income to
average daily net assets 2.42% 2.51% 2.42%(a) 3.40%(a) 4.08%(a) 5.13%(a) 3.07%*(a)
Portfolio turnover rate 32% 40% 49% 39% 56% 44% 35%
</TABLE>
* For the period from the commencement of operations June 14, 1989 to
February 28, 1990.
(a) Net of fees and expenses voluntarily waived or borne by the Manager of $
.01, $ .01, $ .01, $ .02, and $ .02 per share for the fiscal years ended
1994, 1993, 1992, 1991, and for the period ended February 28, 1990
respectively.
(b) The total returns would have been lower had certain expenses not been
waived during the periods shown.
The above information has been audited by Price Waterhouse LLP,
independent accountants, whose unqualified report thereon is included in
the Annual Report. The Financial Highlights should be read in conjunction
with the other audited financial statements and related notes which are
included in the Annual Report, which is incorporated by reference in the
Fund's Statement of Additional Information.
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PELICAN FUND
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GENERAL DESCRIPTION OF THE FUND
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GMO Trust ("Trust") is an open-end management investment company
commonly referred to as a "mutual fund". The Trust is a "series investment
company" that consists of separate series of investment portfolios (the
"Series"), each of which is represented by a separate series of shares of
beneficial interest. The Trust currently has twenty-eight Series, twenty-six of
which are currently active: the GMO Core Fund, the GMO Tobacco-Free Core Fund,
the GMO Value Fund, the GMO Growth Fund, the GMO U.S. Sector Fund, the GMO Core
II Secondaries Fund, the GMO Fundamental Value Fund, the GMO REIT Fund, the GMO
International Core Fund, the GMO Currency Hedged International Core Fund, the
GMO Foreign Fund, the GMO International Small Companies Fund, the GMO Japan
Fund, the GMO Emerging Markets Fund, the GMO Short-Term Income Fund, the GMO
Global Hedged Equity Fund, the GMO Domestic Bond Fund, the GMO International
Bond Fund, the GMO Currency Hedged International Bond Fund, the GMO Global Bond
Fund, the GMO Emerging Country Debt Fund, the GMO International Equity
Allocation Fund, the GMO World Equity Allocation Fund, the GMO Global (U.S.+)
Equity Allocation Fund, the GMO Global Balanced Allocation Fund, and the Pelican
Fund. The GMO Conservative Equity Fund and the GMO Core Emerging Country Debt
Fund have not yet commenced operations. Each Series' manager is Grantham, Mayo,
Van Otterloo & Co. LLC (the "Manager"). Shares of the other Series of the Trust
are offered pursuant to a separate prospectus.
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INVESTMENT OBJECTIVES, POLICIES, AND RISKS
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The principal investment objective of the Fund is long-term capital
growth achieved primarily through investment in equity securities. Consideration
of current income is secondary to this principal objective. The Fund invests
primarily in securities traded in the United States, but may invest up to 25
percent of its assets in foreign securities (see "Additional Information
Regarding Foreign Investments" below).
The Fund invests primarily in common stocks of domestic corporations
and generally follows a conservative approach. It seeks to invest in companies
that represent outstanding 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,
financially secure 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 risk levels
relative to the potential for return through a portfolio with an average
volatility (beta) below 1.0. The average volatility (beta) of the Standard &
Poor's 500 Stock Market Index, which serves as a standard for measuring
volatility, is always 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 indica
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4
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tors, which are tracked regularly, include U.S. industry and trade indicators,
interest rates, international stock market indices, and currency levels.
The Manager also analyzes each company considered for investment. The
analysis includes its 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 undervalued companies with
financial and business characteristics that it believes will produce
above-average growth in earnings.
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. Foreign securities in the portfolio are generally
listed on principal overseas exchanges.
Sell decisions are triggered when the stock price and other fundamental
considerations no longer signal further appreciation. The Manager monitors
returns on domestic and international equity securities, returns on fixed income
securities, and the performance of industry sectors.
PORTFOLIO TURNOVER. The rate of portfolio turnover will not be a
limiting factor when portfolio changes are deemed appropriate. In any given
year, turnover may be greater than anticipated in response to market conditions.
The rate of the Fund's turnover may also vary significantly from time to time in
response to market volatility and economic conditions. High portfolio turnover
involves correspondingly greater brokerage commissions and other transaction
costs, which will be borne directly by the Fund.
Because the Fund is directed primarily to institutions and other
tax-exempt investors, it is expected that the tax consequences of portfolio
transactions may be a secondary consideration.
SELECTION OF INVESTMENTS FOR THE FUND. There is no single, specific
formula or technique for the successful pursuit of long-term capital growth. The
investment philosophy of the Fund is to select investments with excellent growth
(and, secondarily, income) potential. 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.
Questions of whether to be fully invested in common stocks or not, or
of whether to be in one type of common stock or another, cannot be answered
categorically. It is anticipated, in view of the Fund's investment objectives,
that at least 65 percent of the asset value of the Fund's portfolio will be
invested principally in common stocks and securities convertible into common
stocks. However, the Fund may invest part or all of its portfolio in debt
securities, preferred stocks, or short-term notes, or it may convert part or all
of its portfolio to cash, when economic or market conditions appear to make such
action or actions desirable. For example, a more defen-
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PELICAN FUND
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sive or conservative position may seem temporarily justified by prevailing
market conditions, or, securities other than common stocks offer a better
opportunity for capital growth based upon relative values at a particular time.
Debt securities purchased by the Fund may include obligations of the U.S.
Government, its agencies, and its instrumentalities and other investment-grade
obligations. The Fund does not engage in aggressive market timing techniques.
The Fund may invest up to 25 percent of its assets in foreign
securities, generally 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.
The Fund seeks to identify rapidly expanding foreign economies and then
searches out growing industries and corporations. It focuses on companies with
established records. Individual securities are selected based on value
indicators, such as low price to earnings ratio. They are reviewed for
fundamental financial strength. Selected companies will generally have at least
a $100 million market capitalization and a solid history of operations.
ADDITIONAL INFORMATION REGARDING FOREIGN INVESTMENTS. Foreign
investments involve certain special risks. Securities prices in different
countries are subject to different economic, financial, political, and social
factors. Changes in currency exchange rates will affect the value of portfolio
securities to U.S. investors. With respect to certain countries, there is the
possibility of expropriation of assets, confiscatory taxation, imposition of
exchange controls, social instability, and political developments which could
affect investments in those countries. Assets of the Fund held by custodians in
foreign countries may also be subject to these risks. There may be less publicly
available information about foreign companies than U.S. companies. Foreign
companies may not be subject to accounting, auditing, and financial reporting
standards comparable to those of U.S. companies. The trading volume of foreign
securities markets is growing, but they generally have substantially smaller
trading volume than U.S. markets. Consequently, foreign securities tend to be
less liquid and their prices more volatile than those of comparable U.S.
companies. Brokerage commissions abroad are generally fixed, and other
transaction costs on foreign securities exchanges are generally higher than in
the U.S.
In order to reduce risks of fluctuations in currency exchange rates,
the Fund may purchase and sell foreign currencies for forward deliveries. Such
transactions may be utilized in connection with the settlement of portfolio
transactions or for the purpose of hedging specific portfolio positions. Hedging
against a decline in the value of a currency does not eliminate fluctuations in
the prices of portfolio securities, and it precludes the opportunity foregone if
the value of the hedged
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currency should rise. The Fund will not engage in foreign currency transactions
for speculative purposes.
ADDITIONAL INFORMATION REGARDING GENERAL INVESTMENT POLICIES OF THE
FUND. The Fund may invest up to 5 percent of its assets in the purchase of put
options and may also write covered call options on securities owned by the Fund
with respect to no more than 25 percent of the Fund's assets (although it is not
presently contemplated that the Fund would write such options on more than 5
percent of its assets). Options purchased or written by the Fund will be limited
to options traded on national exchanges or in the over-the-counter market (such
over-the-counter options shall not exceed 10 percent of the Fund's assets). As
the holder of a put option, the Fund would have the right to sell a portfolio
security at a specified price on or before a specified date. Similarly, a holder
of a call option written by the Fund would have the right to purchase a
portfolio security from the Fund on specified terms. Such option transactions
may involve special risks.
Further information on the investment policies of the Fund is contained
in the Statement of Additional Information, which includes specific investment
restrictions that govern the Fund's investment policies. Among other
restrictions, the Fund may not (a) invest more than 5 percent of the value of
its total assets in the securities of any one issuer (other than obligations of
domestic banks or the U.S. Government and other federal instrumentalities); (b)
hold more than 10 percent of the voting securities of any one issuer; (c) borrow
money, except for temporary purposes, in an amount that exceeds 10 percent of
the value of the total assets of the Fund at the time of such borrowing, also
provided that the Fund may not purchase securities if the level of borrowing is
in excess of 5 percent of the value of such assets; or (d) make an investment in
securities of companies in any one industry (except obligations of domestic
banks or the U.S. Government and other federal instrumentalities) if such
investment would cause investments in such industry to exceed 25 percent of the
Fund's total assets, at market value, at the time of such investment.
Except when specifically indicated to the contrary, the investment
policies described in this Prospectus and in the Statement of Additional
Information are not fundamental, and the Trustees of the Trust may change such
policies without first obtaining shareholder approval. The Trustees have the
power without shareholder approval to make non-material changes (for example,
minor changes in wording or punctuation) in the Fund's objectives. As used in
this paragraph, "shareholder approval" means the vote of a majority of the
outstanding voting securities of the Fund and "majority" means the lesser of (1)
67 percent or more of the outstanding shares of the Fund present at a meeting if
more than 50 percent of the shares are represented at the meeting in person or
by proxy, or (2) more than 50 percent of the outstanding shares of the Fund.
Equity securities and debt securities, including debt securities issued
or guaranteed by the U.S. Government, are subject to significant price
variations from time to time. Shares of the Fund are not intended to represent a
complete investment program. There can be no assurance that the Fund will attain
its investment objective.
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PELICAN FUND
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MANAGEMENT
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MANAGER. The Fund is advised and managed by Grantham, Mayo, Van
Otterloo & Co. LLC, 40 Rowes Wharf, Boston, Massachusetts 02110 (the "Manager")
which provides investment advisory services to a substantial number of
institutional and other investors. The Manager also advises the other
twenty-five active series of the Trust. The Manager was formerly the investment
sub-adviser for the Ivy Institutional Investors Fund, a mutual fund with
substantially identical investment objectives, policies, and restrictions to
those of the Fund. Each of the following four members holds a greater than 5
percent interest in the Manager: R. Jeremy Grantham, Richard A. Mayo, Eyk H.A.
Van Otterloo, and Kingsley Durant.
Under a Management Contract with the Trust, the Manager selects and
reviews the Fund's investments and provides executive and other personnel for
the management of the Trust. Under the Management Contract, the Manager is
compensated by the Fund at the annual rate of 0.90 percent of the average daily
net assets of the Fund's portfolio, subject to the reduction as described below.
This fee is higher than that paid to most managers. The Manager has agreed with
the Fund to reduce its fee and bear certain expenses until further notice to the
extent that the Fund's annual expenses (including the management fee but
excluding brokerage commissions, extraordinary, non-recurring and certain other
unusual expenses (including taxes), and transfer taxes) would exceed 0.95
percent of the Fund's average daily net assets. In addition, the Fund's
organizational expenses are borne by the Manager. Pursuant to the Trust's
Agreement and Declaration of Trust, the Board of Trustees supervises the affairs
of the Trust as conducted by the Manager. In the event that the Manager ceases
to be the manager of the Fund, the right of the Trust to use the identifying
name "GMO" may be withdrawn. The Manager received 0.90 percent of the average
net assets of the Fund during the fiscal year ended February 29, 1996 as
compensation for advisory services rendered during that year.
Mr. Mayo is primarily responsible for the day-to-day management of the
Fund's portfolio. Mr. Mayo serves as President - Domestic Active of the Trust
and is a founding partner of the Manager. He has been a portfolio manager for
more than twenty-five years and has been employed by the Manager in such
capacity since its inception in 1977.
CUSTODIAN, TRANSFER, AND DIVIDEND PAYING AGENT. State Street Bank and
Trust Company ("State Street"), 225 Franklin Street, Boston, Massachusetts,
serves as custodian, and dividend paying agent for the Fund. Boston Financial
Data Services, Inc. (BFDS), Two Heritage Drive, Quincy, Massachusetts, serves as
transfer agent for the Fund.
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HOW TO PUCHASE SHARES
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Shares of the Fund may be purchased directly from the Trust without any sales
charge or underwriting commissions on any day when the New York Stock Exchange
is
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open for business. The Fund reserves the right to refuse additional investments
at any time and may limit the size of individual accounts. Shareholders of the
Fund will continue to be able to reinvest dividend and capital gain
distributions without limitation.
The minimum initial investment in the Fund is $5,000; there is no
required minimum for additional purchases of Fund shares. An initial investment
of at least $1,000 must be made in connection with the establishment of an H.R.
10 plan; there is no minimum in connection with an individual retirement account
(IRA). The minimum initial investment amount may be changed by the Trustees at
any time.
The price at which a purchase order is filled in full and fractional
shares of the Fund is the net asset value per share of the Fund next determined
after a properly completed application and payment are received at the Fund's
office. See "How Shares Are Priced" below.
To wire an investment to the Fund, shareholders should send the wire
to:
State Street Bank
Boston, Massachusetts
ABA # 011 000 028
Attn: Mutual Fund Division, Pelican
Fund; Include your shareholder
account number
Subject to limitations described in the Statement of Additional
Information, the Fund may accept securities as payment for shares of the Fund
(in lieu of payment by check or wire). An investor should not under any
circumstances send cash to the Fund as payment for Fund shares.
Shares of the Fund are maintained under an open account arrangement,
and no share certificates are expected to be issued. After each transaction that
affects the number of shares in an open account, a confirmation will be mailed
to the address in which the account is registered that discloses the current
balance of shares owned. The Fund reserves the right to charge a fee for
providing duplicate information.
Shares of the Fund may be purchased for tax-sheltered retirement plans,
including H.R. 10 (Keogh) plans for self-employed individuals and partnerships,
employer defined-contribution plans, individual retirement accounts (IRAs), and
Simplified Employee Pension Plans (SEPPs). Further details and prototype plans
are available from the Fund. An investor should consult a competent tax or other
adviser as to the suitability of shares of the Fund as a vehicle for funding a
plan, in whole or in part, under the Employee Retirement Income Security Act of
1974 and as to the eligibility requirements for a specific plan and its state
tax as well as federal tax aspects.
All purchase orders are subject to acceptance by the Fund, which may
refuse any purchase order or suspend the offering of shares of the Fund at any
time. The Fund does not accept telephone orders for the purchase of shares.
Reminders to make regularly scheduled investments will be sent to
shareholders upon their request, with no obligation to invest at any time.
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PELICAN FUND
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HOW TO REDEEM SHARES
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Shareholders have the right to redeem their shares at the net asset
value per share next determined after receipt by State Street of an appropriate
written request for redemption together with share certificates, if any,
properly endorsed with signatures guaranteed (see below). Shareholders may also
redeem shares by telephone, as further described below. The value of shares at
redemption depends upon the market value of the Fund's portfolio at the time of
redemption and may be more or less than the cost to the shareholder.
A written request for redemption should specify the shareholder's
account number and the number of shares to be redeemed and should normally be
signed by the person or persons in whose name or names the account is registered
or, in the case of the death of a shareholder, by the legal successor of the
shareholder. Written redemption requests for shares held by tax-sheltered
retirement plans must be submitted by the trustees or custodians of such plans
rather than by the plan participants. The Fund will require proof of the
authenticity of signatures and in certain cases proof of authority of the
signers.
For shareholder protection, all signatures on written requests for
redemption or transfer of ownership and endorsements of any issued share
certificates or stock powers that accompany such certificates must be guaranteed
by a national bank or trust company, a member of the Federal Reserve System, a
savings bank or savings and loan association, or a member of the National
Association of Securities Dealers, Inc. or of the New York, American, Boston,
Midwest, or Pacific Stock Exchanges. A signature "verification" by a savings
bank or savings and loan association or notarization by a notary public is not
acceptable.
A signature guaranty is required to establish telephone redemption on
any account after it has been opened. A signature guaranty will not be required
to establish the telephone redemption option so long as this option is selected
at the time of an initial account application; election of the privilege at a
later date will require completion of an appropriate form accompanied by a
signature guaranty.
Shareholders who elect the telephone redemption option on their
application may redeem, without extra charge, $5,000 or more from their account
by telephone, and the proceeds will be sent by wire transfer to the
shareholder's previously designated bank account within the United States. The
account must be with a bank that is a member of the Federal Reserve System or
that has a correspondent banking relationship with a member bank.
All telephone redemption requests will be recorded.
For telephone redemptions, call
1-(617)-328-5000
between 9:00 A.M. and 5:00 P.M.
Boston time;
please specify the
Pelican Fund
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A redemption request received by telephone in proper form by the Fund
before 4:15 P.M. Eastern Time on any business day will become effective at 4:15
P.M. that day and the proceeds of such redemption will be wired on the next
business day, but if making immediate payment could adversely affect the Fund,
it may take up to seven days for payment to be made.
The shareholder is solely responsible for the authenticity of
redemption instructions received by telephone that the Fund reasonably believes
to be genuine. The Fund will accept such instructions from anyone able to
provide information on an account. The Fund is not responsible for losses due to
unauthorized or fraudulent telephone instructions unless it fails to employ
reasonable procedures to assure the genuine nature of the redemption request,
such as recording such redemption request.
When shares are redeemed, a check in payment will normally be mailed
within seven days. However, a redemption check will not be mailed until all
checks received by the Fund in payment for shares to be redeemed have cleared
(check clearance may take up to 15 days). A shareholder may avoid this delay by
paying for shares with a certified check or by making investments by wire as
described above.
The Fund and State Street each reserve the right at any time to
terminate, suspend or change the terms of any redemption method, except
redemption by mail.
If a request for redemption would reduce a shareholder's shares in the
Fund to a value of $1,000 or less, the Fund will treat the request as a request
for redemption of all the shares of the Fund in the shareholder's account. Upon
sixty days advance written notice, the Fund also has the right to redeem shares
in a shareholder's account which is valued at less than $2,500 for sixty days or
more due to redemptions. During such sixty-day period, the shareholder may avoid
such redemption by increasing his or her account to the $2,500 minimum.
SYSTEMATIC WITHDRAWAL PLAN. Eligible shareholders who wish to receive a
fixed amount periodically may elect to participate in the Systematic Withdrawal
Plan. A shareholder whose account contains shares of the Fund worth $5,000 or
more may elect to receive automatic payments of $100 or more each quarter. A
shareholder whose account contains shares of the Fund worth at least $10,000 may
elect to receive monthly payments of $100 or more. Redemptions under the
Systematic Withdrawal Plan are exempt from any applicable redemption fees.
Please contact the Fund for further information about and application materials
for the Systematic Withdrawal Plan.
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PELICAN FUND
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HOW SHARES ARE PRICED
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The net asset value per share of the Fund is computed by State Street
as of 4:15 P.M., New York City Time, on each day on which the New York Stock
Exchange is open.
Equity securities for which market quotations are readily available are
stated at market value. Debt securities with remaining terms of more than sixty
days are valued at the quoted bid prices or yield equivalents for such
securities or for securities of comparable maturity, quality, and type, as
obtained from market makers. Debt securities with remaining terms of sixty days
or less are stated at amortized cost.
All other securities and assets are valued at their fair value as
determined in good faith by the Trustees. Liabilities of the Fund, including
daily accruals of expenses, are deducted from the total valuation and the
resulting amount is divided by the number of shares of the Fund outstanding to
produce the "net asset value" per share of the Fund. Expenses directly charged
or attributable to the Fund will be paid from the assets of the Fund. General
expenses of the Trust will be allocated among and charged to the assets of each
Series on a fair and equitable basis, which may be based on the relative assets
of each Series or the nature of the services performed and relative
applicability to each Series.
- --------------------------------------------------------------------------------
DISTRIBUTIONS, REINVESTMENT, AND TAXES
- --------------------------------------------------------------------------------
The Fund intends to pay dividends quarterly from net investment income
and to distribute annually any net realized capital gains. Unless a shareholder
otherwise requests, all dividends and distributions are credited to a
shareholder's account as full and fractional shares of the Fund at the net asset
value in effect as of the dividend or distribution date. Shareholders may elect
to receive in cash all of their future dividends and distributions on shares of
the Fund by so notifying the Trust in writing. Such an election may be changed
at any time by subsequent written notice to the Trust.
It is the policy of the Fund each year to distribute to shareholders
substantially all of its net investment income and gains and to meet all
applicable requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), for qualifying as a regulated investment company in order for the Fund
to be relieved of liability for federal income taxes. The Code requires the
Fund, in general, to distribute, prior to the calendar year end, virtually all
of its ordinary income for the calendar year and virtually all of the capital
gain net income realized by the Fund in the one-year period ending October 31 in
order to avoid the imposition of a 4 percent excise tax on undistributed income.
Dividends declared in October, November, or December to shareholders of record
on a specified date in such a month and paid in the following January will
- --------------------------------------------------------------------------------
12
================================================================================
- --------------------------------------------------------------------------------
be treated as distributed by the Fund and received by the Fund shareholders on
December 31 of such calendar year.
For those shareholders subject to federal income tax, dividends are
taxable whether credited in shares or paid in cash.
Dividends from net investment income are taxable as ordinary income to
shareholders subject to tax. Any long-term gains distributions to shareholders
are taxable for federal income tax purposes as such to shareholders subject to
tax, regardless of how long they have held their shares. The Fund will provide
federal tax information annually, including information about dividends paid
during the preceding year.
The Trust is required by federal law to withhold 31 percent of
reportable payments (which may include Fund dividends, capital gain
distributions and redemptions) paid to shareholders who have under-reported
dividend or interest income or who have not certified on their applications, or
on separate W-9 Forms, that their Social Security or Taxpayer Identification
Numbers are correct and that they are not currently subject to backup
withholding, or that they are exempt from backup withholding. Payments reported
to the Internal Revenue Service by the Trust that omit your social security
number or tax identification number will subject the Trust to charges and
penalties of $50 or more each year, all of which will be charged against your
account if you fail to provide the certification by the time the report is
filed. Such amounts charged against your account are not refundable.
Payees specifically exempted from backup withholding on dividends and
other distributions include: (i) a corporation; (ii) a financial institution;
(iii) an organization exempt from tax under Section 501(a) of the Code or an
individual retirement plan; (iv) the United States or any agency or
instrumentality thereof; (v) a state, the District of Columbia, a possession of
the United States, or subdivision or instrumentality thereof; (vi) a foreign
government, a political subdivision of a foreign government or any agency or
instrumentality thereof; (vii) an international organization or any agency or
instrumentality thereof; (viii) a registered dealer in securities or commodities
in the U.S. or a possession of the U.S.; (ix) a real estate investment trust;
(x) a common trust fund operated by a bank under Section 584(a) of the Code;
(xi) an exempt charitable remainder trust or a non-exempt trust described in
Section 4947(a)(1) of the Code; (xii) an entity registered at all times under
the Investment Company Act of 1940; (xiii) a foreign central bank of issue; and
(xiv) a middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporate Secretaries,
Inc. Nominee List.
The foregoing is a general summary of the federal income tax
consequences for shareholders who are U.S. Citizens or corporations.
Shareholders should consult their own tax advisers about consequences under
state, local or other applicable tax laws. The Fund will report the federal
income tax status of all distributions to shareholders annually.
- --------------------------------------------------------------------------------
13
================================================================================
- --------------------------------------------------------------------------------
PERFORMANCE DATA
- --------------------------------------------------------------------------------
The Fund may furnish to existing or prospective shareholders
information about the average annual total return on an investment in the Fund
for a designated period of time. The average annual total return quotation for a
given period is computed by calculating the average annual compounded rate of
return that would cause a hypothetical investment made on the first day of the
designated period to equal the resulting net asset value of such hypothetical
investment (assuming all dividends and distributions are reinvested) on the last
day of the designated period.
Average annual total return of the Fund does not take into account any
required payments for federal, state, or other income taxes. The average annual
total return of the Fund will vary from time to time and depends on market
conditions, the composition of the Fund's portfolio, and operating expenses of
the Fund. These factors and possible differences in the methods used to
calculate returns should be considered when one compares performance information
about the Fund to information published for other investment companies and other
investment vehicles. Return quotations should also be considered relative to
changes in the values of the Fund's shares and the risks associated with the
Fund's investment objectives and policies. At any time in the future, return
quotations may be higher or lower than past return quotations and there can be
no assurance that any historical return quotation will continue in the future.
The Manager's discussion of the performance of the Fund in the fiscal
year ended February 29, 1996 as well as a comparison of the Fund's performance
over the life of the Fund with that of the Standard & Poor's 500 Stock Market
Index is included in the Fund's Annual Report for the fiscal year ended February
29, 1996. Copies of the Annual Report are available upon request without charge.
The Fund may also include comparative performance information in
advertising or marketing the Fund's shares. For more information about the
computation of average annual total return quotations, see the Statement of
Additional Information
- --------------------------------------------------------------------------------
ORGANIZATION AND CAPITALIZATION OF THE TRUST
- --------------------------------------------------------------------------------
The Trust was established on June 24, 1985 as a business trust under
Massachusetts law. The Fund commenced operations on June 14, 1989.
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
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-eight series of shares, one for each of the Series. These shares 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.
Matters submitted to share
- --------------------------------------------------------------------------------
14
================================================================================
- --------------------------------------------------------------------------------
holder vote must be approved by each Series separately except (i) when the
Investment Company Act of 1940 requires that shares shall be voted together as a
single class, and (ii) when the Trustees determine that only shareholders of the
Series affected shall be entitled to vote on the matter. 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
Series, but not of any other Series. Shareholders who hold a majority of the
outstanding shares may remove Trustees from office by votes cast in person or by
proxy at a meeting of shareholders or by written consent.
As of May 31,1996, The Chase Manhattan Bank, as Directed Master Trustee
of Corning Investment Plan Trust, held greater than 25 percent of the
outstanding shares of the Pelican Fund. As a result, such shareholder may be
deemed to "control" the Pelican Fund 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 that a shareholder
will incur financial loss on account of that liability is considered remote,
since it may arise only in very limited circumstances
- --------------------------------------------------------------------------------
SHAREHOLDER INQUIRIES
- --------------------------------------------------------------------------------
Shareholders may direct inquiries to:
Pelican Fund
c/o Grantham, Mayo, Van Otterloo & Co. LLC
40 Rowes Wharf
Boston, Massachusetts 02110
(Telephone Number: 1-617-346-7600)
For price, share position, or information on account activity, please call:
1-800-447-3167 Outside Massachusetts, or
1-617-328-5000 Inside Massachusetts
- --------------------------------------------------------------------------------
DIVIDEND PAYING AGENT
AND CUSTODIAN INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company Price Waterhouse LLP
Mutual Funds Division 160 Federal Street
Boston, Massachusetts 02102 Boston, Massachusetts 02110
TRANSFER AGENT LEGAL COUNSEL
Boston Financial Data Services, Inc. Ropes & Gray
Two Heritage Drive One International Place
Quincy, Massachusetts 02171 Boston, Massachusetts 02110
- --------------------------------------------------------------------------------
15
PELICAN FUND
Statement of Additional Information
January 20, 1997
This Statement of Additional Information contains information which may
be of interest to investors but which is not included in the Prospectus of the
Pelican Fund (the "Fund"), a series of GMO Trust (the "Trust"). This Statement
of Additional Information is not a Prospectus and is only authorized for
distribution when accompanied by the Prospectus of the Fund dated January 20,
1997, and should be read in conjunction with the Prospectus. Investors may
obtain a free copy of the Prospectus from Grantham, Mayo, Van Otterloo & Co.
LLC, 40 Rowes Wharf, Boston, Massachusetts 02110 (telephone: 617-330-7500).
Table of Contents
-----------------
Caption Page
- ------- ----
Investment Objectives, Policies and Restrictions............................1
Trustees and Officers.......................................................4
Management Arrangements.....................................................5
Portfolio Transactions......................................................7
Pricing of Shares...........................................................8
Tax Status..................................................................8
Redemption of Shares........................................................9
Systematic Withdrawal Plans................................................10
Description of the Trust and Ownership of Shares...........................10
Voting Rights..............................................................12
Shareholder and Trustee Liability..........................................12
Calculation of Average Annual Total Return.................................13
Financial Statements.......................................................14
-i-
Investment Objectives, Policies and Restrictions
- ------------------------------------------------
The Fund seeks to achieve long-term growth of capital primarily through
investment in equity securities. Consideration of current income is secondary to
this principal objective. The Fund pursues its objectives through differing
investment policies which are described in the Prospectus. This Statement of
Additional Information includes additional information regarding certain
incidental investment policies as well as a statement of investment restrictions
applicable to the Fund. Except as identified in the Prospectus and this
Statement of Additional Information, there are no specific limitations on the
extent to which the Fund may engage in the investment policies described in the
Prospectus and this Statement of Additional Information.
Writing Covered Call Options. The Fund may write call options which are
traded on national securities exchanges with respect to not more than 25% of its
assets. The Fund must at all times have in its portfolio the securities which it
may be obligated to deliver if the option is exercised.
The Fund may write call options on the Fund's securities in an attempt
to realize a greater current return than would be realized on the securities
alone. The Fund may also sell (write) call options to hedge a possible stock or
bond market decline (only to the extent of the premium paid to the Fund for the
options). In view of the investment objectives of the Fund, the Fund generally
would write call options only in circumstances where the Manager to the Fund
does not anticipate significant appreciation of the underlying security in the
near future or has otherwise determined to dispose of the security.
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
The Fund may also enter into "closing purchase transactions" in order
to terminate its obligation as a writer of a call option prior to the expiration
of the option. Although the writing of call options only on national securities
exchanges increases the likelihood of the Fund's being able to make closing
purchase transactions, there is no assurance that the Fund will be able to
effect such transactions at any particular time or at any acceptable price.
The writing of call options could result in increases in the Fund's
portfolio turnover rate, especially during periods when market prices of the
underlying securities appreciate.
Purchasing Put Options. The Fund may invest up to 5% of its total
assets at market value in the purchase of put options. As the holder of a put
option, the Fund has the right to sell the underlying security at the exercise
price at any time during the option period. The Fund may enter into closing sale
transactions with respect to such options, exercise them or permit them to
expire.
The Fund may purchase a put option on an underlying security owned by
the Fund as a defensive technique in order to protect against an anticipated
decline in the value of the security. The premium paid for the put option would
reduce any capital gain otherwise available for distribution when the security
is eventually sold. The purchase of put options will not be used by the Fund for
leverage purposes.
The Fund may also purchase a put option on an underlying security which
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return.
A Fund will purchase put options only to the extent permitted by the
policies of state securities authorities where shares of the Fund are qualified
for offer and sale. Such authorities may impose further limitations on the
ability of the Fund to purchase options.
The Fund anticipates that it will not engage in the writing of call
options or the purchase of put options with respect to more than 5% of the
Fund's assets.
Investment Restrictions. The Fund is also subject to the following
investment restrictions (A-L below) which may not be changed without the
approval of the lesser of (1) 67% or more of the outstanding shares of the Fund
present at a meeting if more than 50% of the shares are represented at the
meeting in person or by proxy or (2) more than 50% of the outstanding shares of
the Fund. The Fund may not:
A. Borrow money except for temporary purposes where investment
transactions might advantageously require it. Any such loan may not be
for a period in excess of 60 days, and the aggregate amount of all
outstanding loans may not at any time exceed 10% of the value of the
total assets of the Fund at the time any such loan is made.
B. Purchase securities on margin.
C. Sell securities short.
D. Lend any funds or other assets (the Fund may enter into
repurchase agreements and purchase publicly distributed bonds,
debentures and other securities of a similar type, or privately placed
municipal or corporate bonds, debentures and other securities which are
of a type customarily purchased by institutional investors or publicly
traded in the securities markets).
2
E. Participate in an underwriting or selling group in
connection with the public distribution of securities except for its
own capital stock.
F. Invest more than 5% of the value of its total assets in the
securities of any one issuer (except obligations of domestic banks or
the U.S. Government, its agencies, authorities and instrumentalities).
G. Hold more than 10% of the voting securities of any one
issuer (except obligations of domestic banks or the U.S. Government,
its agencies, authorities and instrumentalities).
H. Purchase from or sell to any of its officers or trustees,
or firms of which any of them are members or which they control, any
securities (other than capital stock of the Fund), but such persons or
firms may act as brokers for the Fund for customary commissions to the
extent permitted by the Investment Company Act of 1940.
I. Purchase and sell real estate or commodities and commodity
contracts.
J. Purchase the securities of any other open-end investment
company, except as part of a plan of merger or consolidation.
K. Make an investment in securities of companies in any one
industry (except obligations of domestic banks or the U.S. Government,
its agencies, authorities, or instrumentalities) if such investment
would cause investments in such industry to exceed 25% of the market
value of the Fund's total assets at the time of such investment.
L. Issue senior securities, as defined in the 1940 Act and as
amplified by rules, regulations and pronouncements of the SEC. The SEC
has concluded that even though reverse repurchase agreements, firm
commitments and standby commitment agreements fall within the
functional meaning of "evidence of indebtedness", the issue of
compliance with Section 18 of the 1940 Act will not be raised with the
SEC by the Division of Investment Management if the Fund covers such
securities by maintaining "segregated accounts." Similarly, so long as
such segregated accounts are maintained, the issue of compliance with
Section 18 will not be raised with the SEC with respect to any of the
following: any swap contract or contract for differences; any pledge or
encumbrance of assets; any borrowing permitted by restriction A above;
any collateral arrangements with respect to initial and variational
margin permitted by restriction B above; and the purchase or sale of
options, forward contracts or options on future contracts.
Under the Investment Company Act of 1940 (the "1940 Act"), the Fund is
permitted, subject to the above investment restrictions, to borrow money only
from banks. (The Trust has no current intention of borrowing amounts in excess
of 5% of the Fund's assets.) In addition, under the securities laws or
regulations of certain states in which shares of the Fund
3
may be qualified for sale, the Fund may not invest in oil, gas or other mineral
exploration or development programs and it may not invest more than 5% of the
value of its total assets in the securities of unseasoned issuers, including
their predecessors, which have been in operation for less than three years, and
securities of issuers which are not readily marketable.
It is, moreover, the expressed policy of the Fund not to engage in the
purchase and sale of puts, calls, straddles or spreads (except to the extent
described in the Prospectus and in this Statement of Additional Information),
not to invest in companies for the purpose of exercising control of management,
and not to purchase any security which it is restricted from selling to the
public without registration under the Securities Act of 1933. The policies set
forth in this paragraph may be changed by vote of the Trustees of the Trust.
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
Trustees and Officers
The Trustees and executive officers of the Trust, and their principal
business experience during the past five years, are as follows:
<TABLE>
<CAPTION>
Position Held Principal Occupation
Name and Address with the Trust during Past Five Years
- ---------------- -------------- ----------------------
<S> <C> <C>
R. Jeremy Grantham* President - Quantitative Member, Grantham, Mayo, Van
and Trustee Otterloo & Co. LLC
Harvey R. Margolis Trustee Mathematics Professor, Boston College
Jay O. Light Trustee Professor of Business Administration,
Harvard University; Senior Associate
Dean, Harvard University (1988-92)
Eyk Van Otterloo President - International Member, Grantham, Mayo, Van
Otterloo & Co. LLC
Kingsley Durant Vice President, Treasurer Member, Grantham, Mayo, Van
and Secretary Otterloo & Co. LLC
Richard Mayo President - Domestic Member, Grantham, Mayo, Van
Active Otterloo & Co. LLC
Susan Randall Harbert Secretary and Assistant Member, Grantham, Mayo, Van
Treasurer Otterloo & Co. LLC
William R. Royer Clerk General Counsel, Grantham, Mayo,
Van Otterloo & Co. LLC; Associate,
Ropes & Gray, Boston, MA (1992 -95)
4
Margaret McGetrick Secretary of the Trust Member, Grantham, Mayo, Van
Otterloo & Co. LLC
Jui Lai Secretary of the Trust Member, Grantham, Mayo, Van
Otterloo & Co. LLC
Ann Spruill Secretary of the Trust Member, Grantham, Mayo, Van
Otterloo & Co. LLC
* Trustee deemed to be an "interested person" of the Manager and the Trust, as defined by the 1940 Act.
</TABLE>
The mailing address of each of the officers and Trustees is c/o GMO
Trust, 40 Rowes Wharf, Boston, Massachusetts 02110. The Trustees and officers of
the Trust as a group own less than 1% of any class of outstanding shares of the
Trust.
Except as stated above, the principal occupations of the officers and
Trustees for the last five years have been with the employers as shown above,
although in some cases they have held different positions with such employers.
The Manager pays the Trustees other than those who are interested
persons an annual fee of $40,000. Mr. Margolis and Mr. Light are currently the
only Trustees who are not interested persons, and thus the only Trustees
compensated directly by the Trust. No other Trustee receives any direct
compensation from the Trust or any series thereof.
Messrs. Grantham, Mayo, Van Otterloo and Durant, and Mses. Harbert,
McGetrick, Lai and Spruill, as Members of the Manager, will benefit from the
management fee paid by the Fund.
Management Arrangements
- -----------------------
As disclosed in the Prospectus under the heading "MANAGEMENT", under a
Management Contract between the Trust on behalf of the Fund and Grantham, Mayo,
Van Otterloo & Co. LLC (the "Manager"), subject to such policies as the Trustees
of the Trust may determine, the Manager will furnish continuously an investment
program for the Fund and will make investment decisions on behalf of the Fund
and place all orders for the purchase and sale of portfolio securities. Each of
the following four Members of the Manager hold a greater than 5% interest in the
Manager: R. Jeremy Grantham, Richard A. Mayo, Eyk H.A. Van Otterloo and Kingsley
Durant. Subject to the control of the Trustees, the Manager also manages,
supervises and conducts the other affairs and business of the Trust, furnishes
office space and equipment, provides bookkeeping and certain clerical services
and pays all salaries, fees and expenses of officers and Trustees of the Trust
who are affiliated with the Manager. As indicated under "Portfolio Transaction -
Brokerage and Research Services," the Fund's portfolio transactions may be
placed with broker-dealers which furnish the Manager, at no cost, certain
research, statistical and quotation services of value to the Manager in advising
the Fund or its other clients.
5
The Management Contract provides that the Manager shall not be subject
to any liability in connection with the performance of its services thereunder
in the absence of wilful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
Under the Management Contract, the Manager is compensated by the Fund
at the annual rate of 0.90% of average daily net assets of the Fund's portfolio,
subject to the reduction, as described in the Prospectus. The Management
Contract was approved by the Trustees of the Trust (including all of the
Trustees who are not "interested persons" of the Manager) and by the relevant
Fund's sole shareholder in connection with the organization of the Trust and the
establishment of the Fund. The Management Contract will continue in effect for a
period more than two years from the date of its execution only so long as its
continuance is approved at least annually by (i) vote, cast in person at a
meeting called for that purpose, of a majority (or one, if there is only one) of
those Trustees who are not "interested persons" of the Manager or the Trust, and
by (ii) the majority vote of either the full Board of Trustees or the vote of a
majority of the outstanding shares of the Fund. The Management Contract
automatically terminates on assignment, and is terminable on not more than 60
days' notice by the Trust to the Manager. In addition, the Management Contract
may be terminated on not more than 60 days' written notice by the Manager.
In the last three fiscal years the Fund paid the following amount as a
Management Fee to the Manager pursuant to the Management Contract:
Gross Reduction Net
----- --------- ---
Year Ended 2/29/96 $1,390,969 -- $1,390,969
Year Ended 2/28/95 $942,753 -- $942,753
Year Ended 2/28/94 $849,300 $ 18,310 $830,990
Custodial Arrangements. State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, is the Trust's custodian. As such,
State Street Bank holds in safekeeping certificated securities and cash
belonging to the Fund and, in such capacity, is the registered owner of
securities in book-entry form belonging to the Fund. Upon instruction, State
Street Bank receives and delivers cash and securities of the Fund in connection
with Fund transactions and collects all dividends and other distributions made
with respect to Fund portfolio securities. State Street Bank also maintains
certain accounts and records of the Trust and calculates the total net asset
value, total net income and net asset value per share of the Fund on a daily
basis. As noted in the Prospectus under "MANAGEMENT," the management fee for the
Fund is waived by the Manager to the extent of certain Fund expenses including
custodial fees.
Independent Accountants. The Trust's independent accountants are Price
Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110. Price
Waterhouse LLP conducts an annual audit of the Trust's financial statements,
assists in the preparation of the Trust's federal and state income tax returns,
consults with the Trust as to matters of accounting and federal
6
and state income taxation and provides assistance in connection with the
preparation of various Securities and Exchange Commission filings.
Portfolio Transactions
- ----------------------
The purchase and sale of portfolio securities for the Fund and for the
other investment advisory clients of the Manager are made by the Manager with a
view to achieving their respective investment objectives. For example, a
particular security may be bought or sold for certain clients of the Manager
even though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more clients when
one or more other clients are selling the security. In some instances,
therefore, one client may sell indirectly a particular security to another
client. It also happens that two or more clients may simultaneously buy or sell
the same security, in which event purchases or sales are effected on a pro rata,
rotating or other equitable basis so as to avoid any one account's being
preferred over any other account.
Brokerage and Research Services. In placing orders for the portfolio
transactions of the Fund, the Manager will seek the best price and execution
available, except to the extent it may be permitted to pay higher brokerage
commissions for brokerage and research services as described below. The
determination of what may constitute best price and execution by a broker-dealer
in effecting a securities transaction involves a number of considerations,
including without limitation, the overall net economic result to the Fund
(involving price paid or received and any commissions and other costs paid), the
efficiency with which the transaction is effected, the ability to effect the
transaction at all where a large block is involved, availability of the broker
to stand ready to execute possibly difficult transactions in the future and the
financial strength and stability of the broker. Because of such factors, a
broker-dealer effecting a transaction may be paid a commission higher than that
charged by another broker-dealer. Most of the foregoing are judgmental
considerations.
Over-the-counter transactions often involve dealers acting for their
own account. It is the Manager's policy to place over-the-counter market orders
for the Fund with primary market makers unless better prices or executions are
available elsewhere.
Although the Manager does not consider the receipt of research services
as a factor in selecting brokers to effect portfolio transactions for the Fund,
the Manager will receive such services from brokers who are expected to handle a
substantial amount of the Fund's portfolio transactions. Research services may
include a wide variety of analyses, reviews and reports on such matters as
economic and political developments, industries, companies, securities and
portfolio strategy. The Manager uses such research in servicing other clients as
well as the Fund.
As permitted by Section 28(e) of the Securities Exchange Act of 1934
(the "1934 Act") and subject to such policies as the Trustees of the Trust may
determine, the Manager may pay an unaffiliated broker or dealer that provides
"brokerage and research services" (as defined in the 1934 Act) to the Manager an
amount of commission for effecting a portfolio investment
7
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Manager will not approve the acceptance of
securities in exchange 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; (3) the securities may be acquired under
the investment restrictions applicable to the Fund; and (4) the securities are
listed on the New York Stock Exchange, American Stock Exchange or National
Association of Securities Dealers Automated Quotation System (NASDAQ). Investors
interested in purchases through exchange should telephone the Manager at (617)
330-7500. The acceptance of securities by the Trust must comply with applicable
laws of certain states.
During the last three fiscal years, the Trust paid, on behalf of the
Fund, the following amounts in brokerage commissions:
Year Ended 2/29/96 $164,959
Year Ended 2/28/95 $203,712
Year Ended 2/28/94 $184,899
Pricing of Shares
- -----------------
The net asset value per share of the Fund is computed as of 4:15 p.m.
New York City Time on each day on which the New York Stock Exchange is open. The
Prospectus contains a description of the methods used to compute net asset
value.
The portfolio securities of the Fund may include equity securities
which are listed on foreign exchanges. Certain foreign exchanges may be open on
Saturdays and customary United States business holidays. As a consequence, the
portfolio securities of the Fund may be traded, and the net asset value of
shares of the Fund may be significantly affected, on days on which shares of the
Fund may not be purchased or redeemed.
Tax Status
- ----------
It is the Fund's policy to meet the requirements to be taxed as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended from time to time (the "Code"), which requires, among other
things, that at least 90% of the Fund's gross income be derived from dividends,
interest and gains from the sale or other disposition of securities or foreign
currencies, or other income derived with respect to its business of investing in
such stock, securities or currencies, and that less than 30% of the Fund's gross
income be derived from the sale or other disposition of securities and certain
other assets held for less than three months. The Code also requires the Fund to
diversify its holdings so that at the end of each fiscal quarter (i) at least 50
percent of the market value of the Fund's assets is
8
represented by cash items, U.S. government securities, securities of other
regulated investment companies, and other securities, limited in respect of any
one issuer to a value not greater than 5 percent of the value of the Fund's
total assets and 10 percent of the outstanding voting securities of such issuer,
and (ii) not more than 25 percent of the value of its assets is invested in the
securities (other than those of the U.S. government or other regulated
investment companies) of any one issuer or of two or more issuers which the Fund
controls and which are engaged in the same, similar or related trades or
businesses. If the Fund meets all such requirements and distributes to its
shareholders all of its income, the Fund will not be required to pay federal
income tax. Shareholders of the Fund that are not exempt from Federal income
taxes will be subject to income taxes on dividends and capital gains
distributions received from the Fund.
A portion of the dividends paid by the Fund may be eligible for the
dividends-received deduction for the Fund's corporate shareholders.
Dividends and interest received by the Fund may be subject to income
withholding or other taxes imposed by foreign countries and the U.S. which may
reduce the yield of the Fund. Tax conventions between certain countries and the
U.S. may reduce or eliminate these foreign taxes. Foreign countries generally do
not impose taxes on capital gains in respect of investments by foreign
investors.
Distributions from net long-term capital gains, whether received in a
cash or additional shares, are taxable to the Fund's shareholders that are not
exempt from federal income taxes as long-term capital gains for federal income
tax purposes without regard to the length of time shares of the Fund have been
held. If a shareholder receives a dividend that is taxed as long-term capital
gain on shares held for six months or less and sells those shares at a loss, the
loss will be treated as a long-term capital loss. The federal income tax status
of all distributions will be reported to shareholders annually.
Special rules (including mark-to-market, straddle and wash-sale rules)
exist for determining the timing of the recognition of income or loss, the
character of such income or loss, and the holding periods of certain of the
Fund's assets in the case of certain transactions, including transactions
involving futures contracts, forward contracts and options. The Fund will
endeavor to make any available elections pertaining to such transactions in a
manner believed to be in the best interest of the Fund.
Redemption of Shares
- --------------------
The right of redemption is generally described in the Prospectus. The
Trust may suspend the right of redemption during any period when (a) the New
York Stock Exchange is closed for other than weekends or holidays or trading
thereon is restricted under conditions set forth by the Securities and Exchange
Commission ("SEC"); (b) the SEC has by order permitted such suspension; or (c)
an emergency as defined by the rules of the SEC exists making disposal of
portfolio securities or valuation of the net assets of the Fund not reasonably
practicable.
9
Systematic Withdrawal Plans
- ---------------------------
Eligible shareholders who wish to receive a fixed amount periodically
may elect to participate in a Systematic Withdrawal Plan. A shareholder whose
account in the Fund contains shares worth $5,000 or more may elect to receive
automatic payments of $100 or more each quarter. A shareholder whose account in
the Fund contains at least $10,000 worth of shares may elect to receive monthly
payments of $100 or more. All such accounts are exempt from any applicable
redemption fee.
Amounts paid under the plan are derived from the proceeds of redemption
of shares held in the shareholder's account. Under the plan, all dividends and
capital gains distributions must be reinvested in shares of the Fund. All shares
obtained through reinvestment and all shares held under the plan must remain on
deposit with the Fund. If redemptions for these periodic payments exceed
distributions reinvested in an account, such redemptions will reduce or possibly
exhaust the number of shares in the account. The minimum withdrawal amounts have
been established for administrative convenience and should not be considered as
recommended for all investors. For tax purposes, shareholders may realize a
capital gain or loss on each payment.
The plan is administered by the Trust without separate charge to the
participating shareholders and may be terminated at any time by a shareholder or
the Trust.
Description of the Trust and Ownership of Shares
- ------------------------------------------------
The Trust is organized as a Massachusetts business trust under the laws
of Massachusetts by an Agreement and Declaration of Trust ("Declaration of
Trust") dated June 24, 1985. A copy of the Declaration of Trust is on file with
the Secretary of The Commonwealth of Massachusetts. The fiscal year for the Fund
ends on the last day of February.
Pursuant to the Declaration of Trust, the Trustees have currently
authorized the issuance of an unlimited number of full and fractional shares of
thirty series, twenty-nine of which are described in the Prospectus. Interests
in each portfolio are represented by shares of the corresponding series. Each
share of each series represents an equal proportionate interest, together with
each other share, in the corresponding series. The shares of such series do not
have any preemptive rights. Upon liquidation of a series shareholders of the
corresponding series are entitled to share pro rata in the net assets of the
series available for distribution to shareholders. The Declaration of Trust also
permits the Trustees to charge shareholders directly for custodial, transfer
agency and servicing expenses, but there is no present intention to make such
charges.
The Declaration of Trust also permits the Trustees, without shareholder
approval, to subdivide any series of shares into various sub-series of shares
with such dividend preferences and other rights as the Trustees may designate.
While the Trustees have no current intention to exercise this power, it is
intended to allow them to provide for an equitable allocation of the
10
impact of any future regulatory requirements which might affect various classes
of shareholders differently. The Trustees may also, without shareholder
approval, establish one or more additional separate portfolios for investments
in the Trust or merge two or more existing portfolios. Shareholders' investments
in such a portfolio would be evidenced by a separate series of shares.
The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust, however, may be terminated at any time by vote of at least
two-thirds of the outstanding shares of the Trust. While the Declaration of
Trust further provides that the Trustees may also terminate the Trust upon
written notice to the shareholders, the 1940 Act requires that the Trust receive
the authorization of a majority of its outstanding shares in order to change the
nature of its business so as to cease to be an investment company.
The following chart sets forth the names, addresses and percentage
ownership of those shareholders owning beneficially 5% or more of the
outstanding shares of the Fund as of May 31, 1996:
Name Address % Ownership
---- ------- -----------
The Chase Manhattan Bank, as Attn: M. Ali 37.89%
Directed Master Trustee, 114 W 47th St, 3rd Fl.
Corning Investment Plan Trust New York, NY 10036-1510
Bank of New York TTEE Attn: Linda McAtee 6.81%
FBO Sunkist Growers IOC 383 700 Flower Street, Floor 2
Master Trust/Master Custody Los Angeles, CA 40017-4101
Egleston Children's Hospital Attn: Gary Christian 6.46%
375 Dekalb Industrial Way
Decatur, GA 30030-2205
Boat & Co. Attn: Mutual Funds LBTOOP2 8.68%
P.O. Box 14737
St. Louis, MO 63178-4737
PNC Bank New England TIEE NYL Benefit Services Company 8.01%
Dynatech Corporation One University Office Prk, Box 8992
Profit Sharing & 401(k) Sav. Waltham, MA 02254-8992
Trust
As depicted in the above chart, certain shareholder(s) may hold greater
than 25% of the outstanding shares of the Pelican Fund. As a result, such
shareholders could be deemed to "control" the Fund as such term is defined in
the 1940 Act.
11
Voting Rights
- -------------
As summarized in the Prospectus, shareholders are entitled to one vote
for each full share held (with fractional votes for fractional shares held) and
will vote (to the extent provided herein) in the election of Trustees and the
termination of the Trust and on other matters submitted to the vote of
shareholders. Shareholders vote by individual Fund on all matters except (i)
when required by the 1940 Act, shares shall be voted in the aggregate and not by
individual Fund and (ii) when the Trustees have determined that the matter
affects only the interests of one or more Fund, then only shareholders of such
Fund shall be entitled to vote thereon. Shareholders of one Fund shall not be
entitled to vote on matters exclusively affecting another Fund, such matters
including, without limitation, the adoption of or change in the investment
objectives, policies or restrictions of the other Fund and the approval of the
investment advisory contracts of the other Fund.
There will normally be no meetings of shareholders for the purpose of
electing Trustees except that in accordance with the 1940 Act (i) the Trust will
hold a shareholders' meeting for the election of Trustees at such time as less
than a majority of the Trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy in the Board of Trustees,
less than two-thirds of the Trustees holding office have been elected by the
shareholders, that vacancy may only be filled by a vote of the shareholders. In
addition, Trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with the Trust's
custodian or by a vote of the holders of two-thirds of the outstanding shares at
a meeting duly called for the purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by the holders of at least 1% of the outstanding shares
stating that such shareholders wish to communicate with the other shareholders
for the purpose of obtaining the signatures necessary to demand a meeting to
consider removal of a Trustee, the Trust has undertaken to provide a list of
shareholders or to disseminate appropriate materials (at the expense of the
requesting shareholders). Except as set forth above, the Trustees shall continue
to hold office and may appoint successor Trustees. Voting rights are not
cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust except (i)
to change the Trust's name or to cure technical problems in the Declaration of
Trust and (ii) to establish, designate or modify new and existing series or
sub-series of Trust shares or other provisions relating to Trust shares in
response to applicable laws or regulations.
Shareholder and Trustee Liability
- ---------------------------------
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or executed by the Trust
or the Trustees. The Declaration of Trust provides for indemnification out of
all the property of the relevant Fund for all loss and expense of any
shareholder of that Fund held
12
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
considered remote since it is limited to circumstances in which the disclaimer
is inoperative and the Fund of which he is or was a shareholder would be unable
to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact of law. However, nothing in
the Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office. The By-laws of the Trust provide for indemnification by the Trust of
the Trustees and the officers of the Trust except with respect to any matter as
to which any such person did not act in good faith in the reasonable belief that
his action was in or not opposed to the best interests of the Trust. Such person
may not be indemnified against any liability to the Trust or the Trust
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Calculation of Average Annual Total Return
- ------------------------------------------
The Fund's average annual total return quotations as they may appear in
the Prospectus, this Statement of Additional Information or in advertising and
sales material are calculated by standard methods prescribed by the SEC.
Average annual total return quotations are computed by finding the
average annual compounded rates of return that would cause a hypothetical
investment made on the first day of a designated period (assuming all dividends
and distributions are reinvested) to equal the ending redeemable value ("ERV")
of such hypothetical investment on the last day of the designated period in
accordance with the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1000 payment
made at the end of a designated period (or fractional
portion thereof).
For purposes of the above computation for the Fund, it is assumed that all
dividends and distributions made by the Fund are reinvested at net asset value
during the designated period. The average annual total return quotation is
determined to the nearest 1/100 of 1%.
13
In determining the average annual total return, recurring fees, if any,
that are charged to all shareholder accounts are taken into consideration. For
any account fees that vary with the size of the account of the Fund, the account
fee used for purposes of the above computation is assumed to be the fee that
would be charged to the mean account size of the Fund.
From time to time, in advertisements, in sales literature, or in
reports to shareholders, the Fund may compare its respective performance to that
of other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the Fund may compare its total return to rankings
prepared by Lipper Analytical Services, Inc., a widely recognized independent
service which monitors mutual fund performance; the Standard & Poor's 500 Stock
Index ("S&P 500"), an index of unmanaged groups of common stock; or the Dow
Jones Industrial Average, a recognized unmanaged index of common stocks of 30
industrial companies listed on the New York Stock Exchange.
The Fund's total return is not fixed or guaranteed and the Fund's
principal is not insured. Investment performance quotations should not be
considered to be representations of the performance for any period in the
future. Total return is a function of the value of the Fund's portfolio
securities over time, which may be expected to fluctuate, as well as of income
earned by the Fund on such securities and of the Fund's operating expenses.
Performance rankings and listings reported in national financial
publications, such as Money Magazine, Barron's and Changing Times, may also be
cited (if the Fund is listed in any such publication) or used for comparison, as
well as performance listings and rankings from various other sources including
No Load Fund X, CDA Investment Technologies, Inc., Weisenberger Investment
Companies Service, and Donoghue's Mutual Fund Almanac.
Financial Statements
- --------------------
The report of Price Waterhouse LLP and the Fund's audited Financial
Statements for the year ended February 29, 1996 are incorporated by reference to
the Fund's Annual Report filed with the Securities and Exchange Commission on
May 7, 1996 pursuant to Section 30(d) of the Investment Company Act of 1940, as
amended, and the rules promulgated thereunder.
Specimen Price Make-Up
- ----------------------
Following is a computation of the total offering price per share for
the Pelican Fund based upon its net asset value and shares of beneficial
interest outstanding at the close of business on February 29, 1996:
Net Assets at Value (Equivalent to $14.52
per share based on 12,204,124 shares) . . . . . . . . $177,238,293
Offering Price . . . . . . . . . . . . . . . . . . . . . $14.52
14
