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Filing pursuant to
Rule 497(e)
PELICAN FUND
Statement of Additional Information
June 30, 1998
As Amended July 28, 1998
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 June 30, 1998,
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).
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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........................................................9
Redemption of Shares.............................................10
Systematic Withdrawal Plans......................................10
Description of the Trust and Ownership of Shares.................10
Voting Rights....................................................12
Shareholder and Trustee Liability................................13
Performance Information..........................................14
Financial Statements.............................................15
Specimen Price Make-Up...........................................15
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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.
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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).
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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
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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 names and ages of 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, Address and Age with the Trust during Past Five Years
--------------------- -------------- ----------------------
<S> <C> <C>
R. Jeremy Grantham* (59) President - Member, Grantham, Mayo, Van
Quantitative and Otterloo & Co. LLC
Chairman of the
Trustees
Harvey R. Margolis (55) Trustee Mathematics Professor, Boston
College
Jay O. Light (56) Trustee Professor of Business Administration,
Harvard University; Senior Associate
Dean, Harvard University (1988-92)
Eyk Van Otterloo (61) President- International Member, Grantham, Mayo, Van
Otterloo & Co. LLC
Kingsley Durant (66) Vice President and Member, Grantham, Mayo, Van
Secretary Otterloo & Co. LLC
Richard Mayo (56) President - Domestic Member, Grantham, Mayo, Van
Active Otterloo & Co. LLC
Susan Randall Harbert (41) Secretary and Member, Grantham, Mayo, Van
Treasurer Otterloo & Co. LLC
William R. Royer, Esq. (32) Vice President and General Counsel, Grantham, Mayo,
Assistant Treasurer Van Otterloo & Co. LLC; Associate,
Ropes & Gray, Boston, MA (1992 -95)
4
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
Jui Lai (49) Secretary Member, Grantham, Mayo, Van
Otterloo & Co. LLC
Ann Spruill (44) Secretary Member, Grantham, Mayo, Van
Otterloo & Co. LLC
Alison E. Baur, Esq. (34) Clerk Associate General Counsel,
Grantham, Van Otterloo & Co. LLC
(February 1997 - Present); Attorney,
Securities and Exchange Commission
(April 1991 - January 1997).
Robert V. Brokaw, Jr. (54) Secretary Member, Grantham, Mayo Van Otterloo
& Co. LLC
</TABLE>
* Trustee deemed to be an "interested person" of the Manager and the Trust, as
defined by the 1940 Act.
The mailing address of each of the officers and Trustees is c/o GMO Trust,
40 Rowes Wharf, Boston, Massachusetts 02110. As of June 22, 1998, the Trustees
and officers of the Trust as a group own 1.86% of the Pelican Fund.
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 $70,000. 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, Durant, Lai and Brokaw, and Mses.
Harbert, McGetrick 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
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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.
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 2/28/98 $1,942,753 $108,905 $1,858,891
Year Ended 2/28/97 1,716,394 162,010 1,554,384
Year Ended 2/29/96 1,390,969 -- 1,390,969
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
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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 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
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<PAGE> 10
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 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). For
federal income tax purposes, an exchange of securities for Fund shares is
treated as a sale of the exchanged securities and generally results in a capital
gain or loss. 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 2/28/98 $263,007
Year Ended 2/28/97 $185,762
Year Ended 2/29/96 $164,959
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.
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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. 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 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 ordinary income and
capital gain net 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 (subject to a
holding period requirement imposed pursuant to the Taxpayer Relief Act of 1997)
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 designated by the Fund as deriving from net gains on
securities held for more than one year but not more than 18 months, whether
received in a cash or additional shares, are taxable to the Fund's shareholders
that are not exempt from federal income taxes as such 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, constructive sale, short sale,
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
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<PAGE> 12
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.
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-seven series, one for the Pelican Fund, and one for each of the following
thirty-six series, which are offered in separate
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<PAGE> 13
prospectuses: GMO Asia Fund, GMO Emerging Country Debt Share Fund, GMO U.S. Core
Fund, GMO Tobacco-Free Core Fund, GMO Value Fund, GMO Growth Fund, GMO U.S.
Sector Fund, GMO Small Cap Value Fund, GMO Small Cap Growth Fund, GMO
Fundamental Value Fund, GMO REIT Fund, GMO Tax-Managed U.S. Equities Fund, GMO
International Core Fund, GMO Currency Hedged International Core Fund, GMO
Foreign Fund, GMO International Small Companies Fund, GMO Japan Fund, GMO
Emerging Markets Fund, GMO Evolving Countries Fund, GMO Global Properties Fund,
GMO Tax-Managed International Equities Fund, GMO Domestic Bond Fund, GMO U.S.
Bond/Global Alpha A Fund, GMO U.S. Bond/Global Alpha B Fund, GMO International
Bond Fund, GMO Currency Hedged International Bond Fund, GMO Global Bond Fund,
GMO Emerging Country Debt Fund, GMO Short-Term Income Fund, GMO Global Hedged
Equity 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 and GMO International Core
Plus Allocation Fund. The Trustees have further authorized the issuance of up to
eight classes of shares of the foregoing series, Class I, Class II, Class III,
Class IV, Class V, Class VI, Class VII and Class VIII Shares. 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 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 June 1, 1998:
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<PAGE> 14
<TABLE>
<CAPTION>
Name Address % Ownership
<S> <C> <C>
The Chase Manhattan Bank, as Karen Rice 39.43%
Directed Master Trustee, Corning 3 Metrotech Center, Fifth Floor
Investment Plan Trust New York, NY 11201-3800
New York Life Trust Co. Attn: Client Account 8.13%
51 Madison Ave.; Room 117A
New York, NY 10010-1655
Egleston Children's Hospital Attn: John Hatley 5.60%
375 Dekalb Industrial Way
Decatur, GA 30030-2205
Union Bank of California Attn: TRUSDG SD MUT. FDS 8.66%
FBO Sunkist Growers Inc. A/C 610001154-02
P.O. Box 109
San Diego, CA 92112-4103
Nabank & Co. P.O. Box 2180 7.77%
Tulsa, OK 74101-2180
</TABLE>
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.
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
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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 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 or law. However, nothing in
the Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office. The By-laws of the Trust provide for indemnification by the Trust of
the Trustees and the officers of the Trust except 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.
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Performance Information
The Pelican Fund may from time to time include its total return in
advertisements or in information furnished to present or prospective
shareholders.
Quotations of average annual total return for the Pelican Fund will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund over periods of one, three, five, and ten
years (or for such shorter period as shares of the Fund have been offered),
calculated pursuant to the following formula: P (1 + T)n = ERV (where P = a
hypothetical initial payment of $1,000, T = the average annual total return, n =
the number of years, and ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the period). All total return figures
reflect the deduction of a proportional share of Fund expenses on an annual
basis, and assume that all dividends and distributions are reinvested when paid.
Quotations of total return may also be shown for other periods. The Fund may
also, with respect to certain periods of less than one year, provide total
return information for that period that is unannualized. Any such information
would be accompanied by standardized total return information. 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.
The table below sets forth the average annual total return for the Pelican
Fund for the one, three, and five year periods ending June 30, 1998, and for the
period from the commencement of the Fund's operations until June 30, 1998:
<TABLE>
<CAPTION>
- --------------------- --------------- ---------------- ------------------ ---------------- ----------------------
<S> <C> <C> <C> <C> <C>
Inception Date 1 Year 3 Year 5 Year Inception to Date (%)
Fund (%) (%) (%)
- --------------------- --------------- ---------------- ------------------ ---------------- ----------------------
Pelican Fund 5/31/89 24.44 22.69 18.71 15.13
- --------------------- --------------- ---------------- ------------------ ---------------- ----------------------
</TABLE>
The Pelican Fund may also from time to time advertise net return data for
each month and calendar quarter since the Fund's inception. Monthly and
quarterly return data is calculated by linking daily performance for the Fund
(current net asset value divided by prior net asset value), and assumes
reinvestment of all dividends and gains. All quotations of monthly and quarterly
returns would be accompanied by standardized total return information.
Information relating to the Pelican Fund's return for a particular month or
calendar quarter is provided to permit evaluation of the Fund's performance and
volatility in different market conditions, and should not be considered in
isolation.
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
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<PAGE> 17
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.
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.
Sample calculations of average annual total return for the Pelican Fund
have been attached as Appendix A to this Statement of Additional Information.
Financial Statements
The report of Price Waterhouse LLP and the Fund's audited Financial
Statements for the year ended February 28, 1998 are incorporated by reference to
the Fund's Annual Report filed with the Securities and Exchange Commission on
May 8, 1998 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 28, 1998:
Net Assets at Value (Equivalent to $17.78
per share based on 13,286,924 shares) . . . . . . . . . $236,285,810
Offering Price . . . . . . . . . . . . . . . . . . . . . . $17.78
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Appendix A - Sample Performance Calculations
Pelican Fund
A) Average Annual Total Return
P (1+T)n=ERV
P=Hypothetical initial payment of $1,000
T=Average annual total return
n=Number of years
ERV=Ending redeemable value for hypothetical $1,000 payment made
1 Year
P(1+T)1=ERV
$1,000 (1+24.44%)1=$1,244.40
3 Year
P(1+T)3=ERV
$1,000 (1+22.69%)3=$1,846.83
5 Year
P(1+T)5=ERV
$1,000 (1+18.71%)5=$2,357.42
Since Inception
P(1+T)9.0822=ERV
$1,000 (1+15.13%)9.0822=$3,595.23
B) Annual Total Return
Compounding of Periodic Returns shown below:
(1.0385050963)*(1.0803167421)*(0.9867507886)*(1.1319277108)*
(0.9930592632)=24.44%
C) Annual Total Return
6/30/97 - 7/8/97
NAV End of Period + Dividend
____________________________ - 1 X 100
NAV Beginning of Period
$17.68 + $0.66
____________________ - 1 X 100 = 3.85050963%
$17.66
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7/8/97 - 10/10/97
NAV End of Period + Dividend
____________________________ - 1 X 100
NAV Beginning of Period
$19.02 + $.08
_________________ - 1 X 100 = 8.03167421%
$17.68
10/10/97 - 12/29/97
NAV End of Period + Dividend
____________________________ - 1 X 100
NAV Beginning of Period
$16.60 + $2.168
______________________ - 1 X 100 = (1.32492114%)
$19.02
12/29/97 - 4/13/98
NAV End of Period + Dividend
____________________________ - 1 X 100
NAV Beginning of Period
$18.73 + $.06
___________________ - 1 X 100 = 13.19277108%
$16.60
4/13/98 - 6/30/98
NAV End of Period
_________________ - 1 X 100
NAV Beginning of Period
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$18.60
_______ - 1 X 100 = (0.694073679%)
$18.73
18
