<PAGE> 1
As filed with the Securities and Exchange Commission on
July 26, 2000. File No. 811-4347.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
Amendment No. 64
(Check appropriate box or boxes)
GMO Trust
(Exact name of registrant as specified in charter)
c/o GMO Trust, 40 Rowes Wharf, Boston, Massachusetts 02110
(Address of principal executive offices)
(617) 330-7500
(Registrant's Telephone Number, including Area Code)
R. Jeremy Grantham
GMO Trust
40 Rowes Wharf
Boston, Massachusetts 02110
(Name and address of agent for service)
Copy to:
J. B. Kittredge, Jr., Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
It is intended that this filing become effective immediately upon
filing in accordance with Section 8 under the Investment Company Act of 1940.
<PAGE> 2
THIS FILING RELATES SOLELY TO THE GMO ALPHA LIBOR FUND; IT IS INTENDED THAT NO
INFORMATION RELATING TO ANY OTHER SERIES OF GMO TRUST IS AMENDED OR SUPERSEDED
HEREBY.
<PAGE> 3
PRIVATE PLACEMENT MEMORANDUM
JUNE 30, 2000
GMO ALPHA LIBOR FUND
40 Rowes Wharf, Boston, Massachusetts 02110
The GMO ALPHA LIBOR FUND (the "Fund") is one of forty separate
investment portfolios of GMO Trust (the "Trust"), an open-end management
investment company. Other portfolios are offered pursuant to separate
prospectuses.
INVESTMENT MANAGER
GMO
Grantham, Mayo, Van Otterloo & Co. LLC
---------------------------
This Private Placement Memorandum concisely describes the information
which investors ought to know about the Fund before investing. Please read this
memorandum carefully and keep it for further reference. A Statement of
Additional Information dated June 30, 2000, as revised from time to time, is
available free of charge by writing to GMO Shareholder Services, 40 Rowes Wharf,
Boston, Massachusetts 02110 or by calling (617) 346-7645. The Statement, which
contains more detailed information about the Fund, has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated by reference into
this Private Placement Memorandum.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY
NOT BE TRANSFERRED OR RESOLD UNLESS SO REGISTERED OR EXEMPT THEREFROM. HOWEVER,
THE SECURITIES ARE REDEEMABLE AS DESCRIBED IN THIS PRIVATE PLACEMENT MEMORANDUM.
IN CERTAIN CASES INVESTORS MAY BE REDEEMED "IN KIND" AND RECEIVE PORTFOLIO
SECURITIES HELD BY THE FUND IN LIEU OF CASH UPON REDEMPTION. IN SUCH CASE, AN
INVESTOR WILL INCUR COSTS WHEN THE INVESTOR SELLS THE SECURITIES DISTRIBUTED.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS OR PROVIDE
ANY INFORMATION WITH RESPECT TO THE SHARES EXCEPT SUCH INFORMATION AS IS
CONTAINED IN THIS MEMORANDUM AND IN THE STATEMENT OF ADDITIONAL INFORMATION OR
IN OTHER MATERIALS APPROVED BY THE TRUST. NO SALES MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN MATTERS
DISCUSSED HEREIN SINCE THE DATE HEREOF.
<PAGE> 4
GMO ALPHA LIBOR FUND (the "Fund") is a series of GMO Trust (the
"Trust"). At this time GMO does not intend to publicly offer Fund shares. Fund
shares are principally available for purchase by certain other GMO funds. The
Fund is managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or
"GMO").
The Manager does not charge the Fund any management or service fees. In
addition, the Manager will bear all of the Fund's expenses (excluding brokerage
commissions and other investment-related costs, hedging transaction fees,
extraordinary, non-recurring and certain other unusual expenses (including
taxes), securities lending fees and expenses, interest expense and transfer
taxes) to the extent such expenses exceed 0.00%.
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RELATED RISKS
Note: Except for policies specifically identified as "fundamental," the
trustees of the Trust may change any of the Fund's operating policies and
restrictions without shareholder approval.
Investment Objective & Principal Strategies:
The Fund is a non-diversified investment company. The Fund's investment
objective is high total return. The Fund seeks to achieve its objective by
investing primarily in relatively high quality, low volatility fixed income
instruments. The Fund's benchmark index is the 3-month London Inter-Bank Offer
Rate ("LIBOR") index.
Fixed income instruments in which the Fund may invest include those
securities issued by federal, state, local, and foreign governments, and a wide
range of private issuers. The Fund may invest in government securities,
corporate debt securities, mortgage-related and asset-backed securities, money
market instruments, reverse repurchase agreements, and repurchase agreements.
The Fund's fixed income investments may have all types of interest rate, payment
and reset terms, including fixed rate, adjustable rate, zero coupon, contingent,
deferred, payment-in-kind, and auction rate features. The Fund will generally
have a dollar-weighted portfolio duration of zero to two years (excluding
short-term investments).
The Fund may use derivative instruments, including options, futures,
options on futures, and swap contracts.
The Fund will invest primarily in investment-grade instruments, but may
invest up to 5% of its total assets in securities rated below investment grade
(that is, rated below BBB by Standard & Poor's Ratings Services ("S&P"), below
Baa by Moody's Investors Service, Inc. ("Moody's"), or comparable unrated
securities) at the time of purchase.
Related Investment Risks:
The value of your investment in the Fund changes with the value of the
Fund's investments. Many factors can affect those values, and you can lose money
by investing in the Fund. Factors that may affect the portfolio as a whole are
called "principal risks" and are
-1-
<PAGE> 5
summarized in this section. This summary describes the nature of these general
risks but is not intended to include every potential risk. The Fund could be
subject to additional risks because the types of investments it makes change
over time. The Statement of Additional Information (the "SAI") includes more
information about the Fund and its investments. The SAI is available free of
charge by contacting the Trust.
- Market Risk
The Fund is subject to market risk, which is the risk of unfavorable
market-induced changes in the value of the securities owned by the Fund. The
following summarizes certain general market risks associated with investments in
fixed income securities.
The value of the Fund's investments in fixed income securities
(including bonds, notes and asset-backed securities) will typically change as
interest rates fluctuate. During periods of rising interest rates, values of
fixed income securities generally decline. Conversely, during periods of falling
interest rates, values of fixed income securities generally rise. This kind of
market risk, also called interest rate risk, is generally greater for fixed
income securities with longer maturities and when the Fund's portfolio is
characterized by longer durations (a measure of the expected cash flows of a
fixed income security). This risk is also present, but to a somewhat lesser
extent, in securities with short durations. Because the Fund invests primarily
in fixed income securities, this risk will be particularly pronounced. While
interest rate risk is attendant with all fixed income securities and tends to
depend mostly on the duration of the security, interest rate risk is generally
more pronounced with lower-rated securities and so may be more significant to
the extent the Fund invests in lower-rated securities (also called "junk bonds")
or comparable unrated securities.
In addition, a related market risk exists when the Fund invests to a
material extent in mortgage-related or other asset-backed securities that may be
prepaid. Because prepayments generally increase when interest rates fall, these
investments are subject to the risk that cash flows from securities will have to
be reinvested at lower rates. Likewise, since prepayments decrease when interest
rates rise, these securities have maturities that tend to be longer when that is
least desirable -- when interest rates are rising. The Fund may also invest to a
material extent in debt securities paying no interest, such as zero coupon,
principal-only and interest-only securities and, to the extent it makes such
investments, the Fund will be exposed to additional market risk.
- Liquidity Risk
Liquidity risk exists when particular investments are difficult to
purchase or sell due to a limited market or to legal restrictions, such that the
Fund may be prevented from selling particular securities at the price at which
the Fund values them. Securities of companies with smaller market
capitalizations, foreign securities, derivatives, or securities with substantial
market and/or credit risk tend to have the greatest exposure to liquidity risk.
This risk may be particularly pronounced when the Fund invests a significant
portion of its assets in foreign securities and related derivatives that are not
widely traded and that may be subject to purchase and sale restrictions.
-2-
<PAGE> 6
- Derivatives Risk
The Fund may use derivatives, which are financial contracts whose value
depends upon, or is derived from, the value of an underlying asset, reference
rate or index. Derivatives may relate to stocks, bonds, interest rates,
currencies or currency exchange rates, commodities, and related indexes. The
Fund may use derivatives for hedging purposes. The Fund may also use derivatives
as a way to efficiently adjust the exposure of the Fund to various securities,
markets and currencies without the Fund having to actually sell current assets
and purchase different ones. This is generally done either because the
adjustment is expected to be relatively temporary or in anticipation of
effecting the sale and purchase of Fund assets over time. For a description of
the various derivative instruments that may be utilized by the Fund, refer to
the SAI.
The use of derivative instruments involves risks different from, or
greater than, the risks associated with investing directly in securities and
other more traditional investments. Derivatives are subject to a number of risks
described elsewhere in this section, including market risk, liquidity risk and
the credit risk of the counterparty to the derivatives contract. Since their
value is calculated and derived from the value of other assets, instruments or
references, there is greater risk that derivatives will be improperly valued.
Derivatives also involve the risk that changes in the value of the derivative
may not correlate perfectly with relevant assets, rates or indexes they are
designed to hedge or to closely track. Also, suitable derivative transactions
may not be available in all circumstances and there can be no assurance that the
Fund will engage in these transactions to reduce exposure to other risks when
that would be beneficial.
- Non-Diversification Risk
Most analysts believe that overall risk can be reduced through
diversification, while concentration of investments in a small number of
securities increases risk. The Fund is not "diversified" within the meaning of
the Investment Company Act of 1940, as amended (the "1940 Act"). This means it
is allowed to invest in a relatively small number of issuers and/or foreign
currencies with greater concentration of risk. As a result, credit, market and
other risks associated with the Fund's investment strategies or techniques may
be more pronounced.
- Leveraging Risk
The Fund's portfolio may at times be economically leveraged when the
Fund temporarily borrows money to meet redemption requests and/or to settle
investment transactions. Additionally, the Fund may invest in derivatives and
may enter into reverse repurchase agreements. While the Fund does not intend to
use derivatives to create net exposure to securities or other assets in amounts
greater than the total assets of the Fund, the Fund will often consider
derivative instruments as offsetting one another or other assets such that only
the net difference in value of the derivatives and/or assets that are offsetting
will be considered for these purposes. This practice is significant as the Fund
may use derivatives and offsetting derivatives as the principal means of
achieving desired economic exposure. To the extent that the offsetting positions
do not behave in relation to one another as expected, the Fund may perform as if
it was leveraged.
-3-
<PAGE> 7
- Credit and Counterparty Risk
This is the risk that the issuer or guarantor of a fixed income
security, the counterparty to an OTC derivatives contract, or a borrower of the
Fund's securities, will be unable or unwilling to make timely principal,
interest or settlement payments, or to otherwise honor its obligations.
Credit risk associated with investments in fixed income securities
relates to the ability of the issuer to make scheduled payments of principal and
interest on an obligation. The Fund is subject to the risk that the issuers of
the securities it owns will have their credit ratings downgraded or will
default, potentially reducing the Fund's share price and income level. Nearly
all fixed income securities are subject to some credit risk, which may vary
depending upon whether the issuers of the securities are corporations, domestic
or foreign governments, or their subdivisions or instrumentalities. Even certain
U.S. Government securities are subject to credit risk. Additional risk exists
where there is no rating for the fixed income security and the Manager has to
assess the risk subjectively.
Credit risk is particularly acute for lower-rated securities (also
called "junk bonds"), which are fixed income securities rated lower than Baa by
Moody's or BBB by S&P, or are determined by the Manager to be of comparable
quality to securities so rated. Lower-rated securities carry a high degree of
credit risk and are considered predominantly speculative with respect to the
issuer's continuing ability to meet principal and interest payments. Lower-rated
securities may also be more susceptible to real or perceived adverse economic
and competitive industry conditions and may be less liquid than higher-rated
securities.
In addition, the Fund is also exposed to credit risk because it may
generally make use of OTC derivatives (such as swap contracts) and because it
may engage to a significant extent in the lending of the Fund's securities or
use of repurchase agreements.
- Management Risk
The Fund is subject to management risk because it relies on the
Manager's ability to pursue its objective. The Manager will apply investment
techniques and risk analyses in making investment decisions for the Fund, but
there can be no guarantee that these will produce the desired results. As noted
above, the Manager may also fail to use derivatives effectively, for example,
choosing to hedge or not to hedge positions precisely when it is least
advantageous to do so. As indicated above, however, the Fund is generally not
subject to the risk of market timing because it generally stays fully invested
in fixed income securities and related derivative instruments.
-4-
<PAGE> 8
<TABLE>
<S> <C>
FEES AND EXPENSES
The following tables describe the fees and expenses you may pay if you
buy and hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets):
(as a percentage of average net assets)
Investment Management Fee........................................................................ 0.00%
Shareholder Service Fee.......................................................................... 0.00%
Interest Expense................................................................................. 0.40%(1)
Other Operating Expenses(2)...................................................................... 0.05%
Total Fund Operating Expenses.................................................................... 0.45%
Expense Reimbursement............................................................................ 0.05%
NET EXPENSES..................................................................................... 0.40%(2)
</TABLE>
-5-
<PAGE> 9
Notes to Fees and Expenses:
1. Interest expense was incurred as a result of Fund's use of reverse
repurchase agreements. See Financial Highlights. Income earned on
investing proceeds from reverse repurchase agreement is included in
interest income.
2. Expenses shown are based on estimated amounts for the Fund's first
fiscal year.
EXAMPLE:
The example below illustrates the expenses you would incur on a $10,000
investment in the Fund over the stated periods, assuming your investment had a
5% return each year and the Fund's operating expenses remained the same (with or
without redemption at the end of each time period). The example is for
comparative purposes only and does not represent past or future expenses or
performance. Actual expenses and performance may be higher or lower. Except as
otherwise noted, the expenses shown assume no reimbursement of expenses by the
Manager.
<TABLE>
<S> <C>
1 Year (after reimbursement)............. $ 51
3 Years.................................. $149
</TABLE>
MANAGEMENT, ORGANIZATION, CAPITAL STRUCTURE
Management of the Trust:
The Fund is a series of the Trust, which is advised and managed by
Grantham, Mayo, Van Otterloo & Co. LLC, 40 Rowes Wharf, Boston, Massachusetts
02110 (the "Manager" or "GMO") which provides investment advisory services to a
substantial number of institutional and other investors.
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. In addition to management services, the Manager
administers the Fund's affairs. 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.
Mr. William L. Nemerever, Mr. Thomas F. Cooper and Mr. Steven Edelstein
are primarily responsible for the day-to-day management of the Fund, and have
served in such capacity since the Fund's inception. Mr. Nemerever and Mr. Cooper
are each members of the Manager and have been employed by the Manager in
fixed-income portfolio management since October, 1993. Prior to joining GMO, Mr.
Edelstein was Vice President in the Fixed Income Futures and Options Group at
Morgan Stanley & Company.
CUSTODIANS
-6-
<PAGE> 10
Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston,
Massachusetts 02116, and Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts 02109, serve as the Fund's custodian.
TRANSFER AGENT
IBT serves as the Fund's transfer agent.
SHAREHOLDER INFORMATION
Purchase of Fund Shares:
Currently, shares of the Fund are principally available for purchase
by certain other GMO funds. All investors must be "accredited investors" as
defined in Regulation D under the Securities Act of 1933.
All investments are made at the net asset value next determined plus
the applicable purchase premium after an order and payment for the investment
are received by the Fund by the designated cutoff time for each accredited
investor. There is no minimum initial or subsequent investment in the Fund. The
Fund reserves the right to cease accepting investments in the Fund at any time
or to reject any investment order.
Shares may be purchased (i) in cash, (ii) in exchange for securities
subject to the determination by the Manager that the securities to be exchanged
are acceptable, or (iii) by a combination of such securities and cash.
Securities acceptable to the Manager as consideration for Fund shares will be
valued as set forth under "Determination of Net Asset Value" (generally the last
quoted sale price) as of the time of the next determination of net asset value
after such acceptance. All dividends, subscription or other rights which are
reflected in the market price of accepted securities at the time of valuation
become the property of the Fund and must be delivered to the Trust upon receipt
by the investor from the issuer. A gain or loss for federal income tax purposes
may be realized by investors upon the exchange, depending upon the investor's
basis in the securities tendered. The Manager will not approve securities as
acceptable consideration for Fund shares unless (1) the Manager, in its sole
discretion, believes the securities are appropriate investments for the Fund;
(2) the investor represents and agrees that all securities offered to the Fund
are not subject to any restrictions upon their sale by the Fund under the
Securities Act of 1933, or otherwise; and (3) the securities may be acquired
under the investment restrictions applicable to the Fund.
Redemption of Fund Shares:
An investor in the Fund may redeem all or a portion of its investment
at the net asset value next determined after receipt by the Fund of a redemption
request in proper form on any day the New York Stock Exchange ("Exchange") is
open for business ("business day"). The redemption request must be received by
the close of regular trading on the Exchange (normally 4:00 p.m. Eastern time).
Proceeds of the redemption will be paid as promptly as possible but in any event
within seven business days after receipt of the request.
-7-
<PAGE> 11
If the Manager determines, in its sole discretion, that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in-kind of securities held by the Fund in
lieu of cash. Securities used to redeem Fund shares in-kind will be valued in
accordance with the Fund's procedures for valuation described under
"Determination of Net Asset Value." Securities distributed by the Fund in-kind
will be selected by the Manager in light of the Fund's objective and will not
generally represent a pro rata distribution of each security held in the Fund's
portfolio. Any in-kind redemptions will be of readily marketable securities to
the extent available. Investors may incur brokerage charges on the sale of any
such securities so received in payment of redemptions.
The Fund may suspend the right of redemption and may postpone payment
for more than seven days when the Exchange is closed for other than weekends or
holidays, or if permitted by the rules of the Securities and Exchange Commission
during periods when trading on the Exchange is restricted or during an emergency
which makes it impracticable for the Fund to dispose of its securities or to
fairly determine the value of the net assets of the Fund, or during any other
period permitted by the Securities and Exchange Commission for the protection of
investors.
Determination of Net Asset Value:
The net asset value or "NAV" of a share is determined as of the close
of regular trading on the New York Stock Exchange ("NYSE"), generally 4:00 p.m.
New York City time. The Fund may not determine its NAV on days during which no
security is tendered for redemption and no order to purchase or sell such
security is received by the Fund. The Fund's net asset value is determined by
dividing the total market value of the Fund's portfolio investments and other
assets, less any liabilities, by the total outstanding shares of the Fund. The
market value of the Fund's investments is generally determined as follows:
Exchange listed securities
- Last sale price or
- Most recent bid price (if no reported sale) or
- Broker bid (if the private market is more relevant in
determining market value than the exchange), based on where
the securities are principally traded and what their intended
disposition is
Unlisted securities (if market quotations are readily available)
- Most recent quoted bid price
Certain debt obligations (if less than sixty days remain until maturity)
- Amortized costs (unless circumstances dictate otherwise; for
example, if the issuer's creditworthiness has become impaired)
-8-
<PAGE> 12
All other fixed income securities and options on those securities (includes
bonds, loans, structured notes)
- Closing bid supplied by a primary pricing source chosen by the
Manager
All other assets and securities (if no quotations are readily available)
- Fair value as determined in good faith by the Trustees or
persons acting at their direction
The Manager evaluates primary pricing sources on an ongoing basis, and
may change any pricing source at any time. However, the Manager will not
normally evaluate the prices supplied by the pricing sources on a day-to-day
basis. The Manager is kept informed of erratic or unusual movements (including
unusual inactivity) in the prices supplied for a security and may in its
discretion override a price supplied by a source (by taking a price supplied
from another) because of such price activity or because the Manager has other
reasons to believe that a price supplied may not be reliable. Certain securities
may be valued on the basis of a price provided by a principal market maker.
Prices provided by principal market makers may vary from the value that would be
realized if the securities were sold.
The values of foreign securities quoted in foreign currencies are
translated into U.S. dollars at current exchange rates or at such other rates as
the Trustees or persons acting at their direction may determine in computing net
asset value. Fluctuations in the value of foreign currencies in relation to the
U.S. dollar will affect the net asset value of shares of the Fund even though
there has not been any change in the values of such securities and options
measured in terms of the foreign currencies in which they are denominated.
Foreign exchanges and securities markets usually close prior to the
time the NYSE closes and values of foreign options and foreign securities will
be determined as of those earlier closings. Events affecting the values of
foreign securities may occasionally occur between the earlier closings and the
closing of the NYSE which will not be reflected in the computation of the Fund's
net asset value. If an event materially affecting the value of foreign
securities occurs during that period, then those securities may be valued at
fair value as determined in good faith by the Trustees or persons acting at
their direction. In addition, because the Fund holds portfolio securities listed
on foreign exchanges which may trade on days on which the NYSE is closed, the
net asset value of the Fund's shares may be significantly affected on days when
investors will have no ability to redeem their shares in the Fund.
Distributions:
The Fund's policy is to declare and pay distributions of its dividends
and interest semi-annually. The Fund also intends to distribute net gains from
the sale of securities held for not more than one year ("net short-term capital
gains") and net gains from the sale of securities held for more than one year
("net long-term capital gains") at least annually.
-9-
<PAGE> 13
All dividends and/or distributions will be paid in shares of the Fund,
at net asset value, unless the shareholder elects to receive cash. There is no
purchase premium on reinvested dividends or distributions. Shareholders may make
this election by marking the appropriate box on the application or by writing to
the Trust.
Taxes:
The following is a general summary of the principal federal
income tax consequences to shareholders investing in the Fund. The only
shareholders of the Fund will be certain other funds of the Trust. The summary
below does not address tax consequences to shareholders of those other funds.
Shareholders of those other funds should refer to the prospectuses and
statements of additional information for those funds for a summary of the tax
consequences to such shareholders.
- The Fund will be treated as a separate taxable entity for
federal income tax purposes and intends to qualify each year
as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended.
- Fund distributions derived from interest, dividends and
certain other income, including in general short-term capital
gains, will be taxable as ordinary income whether paid in cash
or in shares. Properly designated Fund distributions derived
from net long-term capital gains will be taxable as such.
- Distributions by the Fund result in a reduction in the net
asset value of the Fund's shares. If a distribution reduces
the net asset value of a shareholder's shares below a
shareholder's cost basis in those shares, such distribution
may be taxable to the shareholder, even though, from an
investment standpoint, it may constitute a partial return of
capital. In particular, if a shareholder buys shares just
prior to a taxable distribution by the Fund, the shareholder
will pay the full price of the shares (including the value of
the pending distribution) and then receive a portion of the
price back as a taxable distribution.
- The Fund's investments in mortgage-backed and other
asset-backed securities, debt obligations issued or purchased
at a discount, assets "marked to the market" for federal
income tax purposes, and, potentially, so-called "indexed
securities" (including inflation indexed bonds) may increase
or accelerate the Fund's recognition of income, including the
recognition of taxable income in excess of the cash generated
by such investments. These investments may, therefore, affect
the timing or amount of the Fund's distributions and may cause
the Fund to liquidate other investments to satisfy the
distribution requirements that apply to entities taxed as
regulated investment companies.
- Any gain resulting from a shareholder's sale, exchange or
redemption of shares will generally also be subject to tax.
-10-
<PAGE> 14
DISTRIBUTION ARRANGEMENTS
The Fund does not charge any sales load or Rule 12b-1 fees. Currently,
the Fund offers only a single class of shares.
-11-
<PAGE> 15
FINANCIAL HIGHLIGHTS
(For a Class III share outstanding throughout the period shown)
The financial highlight table is intended to help you understand the
Fund's financial performance for the past five years (or, if shorter, the period
of the Fund's operations). Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, independent accountants, whose report,
along with the Fund's financial statements, is included in the Trust's Annual
Report, which is incorporated by reference in the Statement of Additional
Information and available upon request.
ALPHA LIBOR FUND
<TABLE>
<CAPTION>
Period from December 31,
1999
(commencement of
operations)
through February 29, 2000
-------------------------
<S> <C>
Net asset value, beginning of period ............................ $ 25.00
-----------
Income from investment operations:
Net investment income ...................................... 0.26
Net realized and unrealized gain ........................... 0.03
-----------
Total from investment operations ........................... 0.29
-----------
Less distributions to shareholders:
From net investment income ................................. --
From net realized gains .................................... --
-----------
Total distributions ........................................ --
Net asset value, end of period .................................. $ 25.29
===========
Total Return(1) ................................................. 1.16%(2)
Ratios/Supplemental Data:
Net assets, end of period (000's) .......................... $ 338,101
Net operating expenses to average daily net assets ......... 0.00%(3)
Interest expense to average daily net assets ............... 0.40%(3)
Total net expenses to average daily net assets ............. 0.40%(3), (4)
Net investment income to average daily net assets .......... 6.77%(3)
Portfolio turnover rate .................................... 4%
Fees and expenses voluntarily waived or borne by the Manager
consisted of the following per share amounts: .......... -- (5)
</TABLE>
(1) Total return would be lower had certain expenses not been waived during
the period shown.
(2) Not annualized.
(3) Annualized
(4) Interest expense incurred as a result of entering into reverse
repurchase agreements is included in the Fund's net expenses. Income
earned on investing proceeds from reverse repurchase agreements is
included interest income.
(5) Fees and expenses waived or borne by the Manager were less than $0.01
per share.
-12-
<PAGE> 16
GMO TRUST
ADDITIONAL INFORMATION
The Fund's annual and semi-annual reports to shareholders contain
additional information about the Fund's investments. The Fund's annual report
contains a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. The
Fund's annual and semi-annual reports, and the Fund's Statement of Additional
Information are available free of charge by writing to GMO, 40 Rowes Wharf,
Boston, Massachusetts 02110 or by calling collect (617) 346-7646. The Statement
contains more detailed information about the Fund and is incorporated by
reference into this Private Placement Memorandum.
Investors can review and copy the Private Placement Memorandum,
Statement and reports at the SEC's Public Reference Room in Washington, D.C.
Information regarding the operation of the Public Reference Room may be obtained
by calling the SEC at 1-202-942-8090. Reports and other information about the
Fund are available on the SEC's Internet site at http://www.sec.gov. Copies of
this information may be obtained, upon payment of a duplicating fee, by writing
the Public Reference Section of the SEC, Washington, D.C. 20549-0102.
SHAREHOLDER INQUIRIES
Shareholders may request additional
information from and direct inquiries to:
Shareholder Services at
Grantham, Mayo, Van Otterloo & Co. LLC,
40 Rowes Wharf, Boston, MA, 02110
1-617-346-7646 (CALL COLLECT)
DISTRIBUTOR
Funds Distributor, Inc.
60 State Street
Boston, Massachusetts 02109
INVESTMENT COMPANY ACT FILE NO. 811-4347
<PAGE> 17
GMO Alpha LIBOR Fund
STATEMENT OF ADDITIONAL INFORMATION
June 30, 2000
This Statement of Additional Information is not a prospectus. It relates to the
GMO Alpha LIBOR Fund Private Placement Memorandum dated June 30, 2000, and as
amended from time to time thereafter (the "Private Placement Memorandum"), and
should be read in conjunction therewith. The GMO Alpha LIBOR Fund (the "Fund")
is a series of GMO Trust (the "Trust"). Information from the Private Placement
Memorandum is incorporated by reference into this Statement of Additional
Information. The Private Placement Memorandum may be obtained free of charge
from GMO Trust, 40 Rowes Wharf, Boston, Massachusetts 02110, or by calling the
Trust collect at (617) 346-7500.
<PAGE> 18
INVESTMENT OBJECTIVES AND POLICIES
The principal strategies and risks of investing in the Fund are
described in the Private Placement Memorandum. Unless otherwise indicated in the
Private Placement Memorandum or this Statement of Additional Information, the
investment objective and policies of the Fund may be changed without shareholder
approval.
DESCRIPTIONS AND RISKS OF FUND INVESTMENTS
The following is a detailed description of the various investment
practices in which the Fund may engage and the risks associated with their use.
For additional information relating to the Fund's investments, including
information regarding the extent to which the Fund may engage in certain
practices, please refer to "Investment Guidelines" in this Statement.
PORTFOLIO TURNOVER
Portfolio turnover is not a limiting factor with respect to investment
decisions for the Fund. The historical portfolio turnover rate for the Fund is
shown under the heading "Financial Highlights" in the Private Placement
Memorandum.
In any particular year, market conditions may well result in greater
rates than are presently anticipated. High portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs, which
will be borne directly by the Fund, and may well involve realization of capital
gains that would be taxable when ultimately distributed to shareholders of the
other funds of the Trust investing in the Fund, unless such shareholders are
themselves exempt. See "Taxes" below.
NON-DIVERSIFIED PORTFOLIO
The Fund is a "non-diversified" fund under the 1940 Act. As a
non-diversified fund, the Fund is permitted to (but is not required to) invest a
higher percentage of its assets in the securities of fewer issuers. Such
concentration could increase the risk of loss to the Fund should there be a
decline in the market value of any one portfolio security. Investment in a
non-diversified fund may therefore entail greater risks than investment in a
diversified fund. The Fund must, however, meet certain diversification standards
to qualify as a "regulated investment company" under the Internal Revenue Code
of 1986.
DEBT AND OTHER FIXED INCOME SECURITIES GENERALLY
Debt and other fixed income securities include fixed income securities
of any maturity. Fixed income securities pay a specified rate of interest or
dividends, or a rate that is adjusted periodically be reference to some
specified index or market rate. Fixed income securities include securities
issued by federal, state, local and foreign governments and related agencies,
and by a wide range of private issuers.
-1-
<PAGE> 19
Fixed income securities are subject to market and credit risk. Market
risk relates to changes in a security's value as a result of changes in interest
rates generally. In general, the values of fixed income securities increase when
prevailing interest rates fall and decrease when interest rates rise. Credit
risk relates to the ability of the issuer to make payments of principal and
interest. Obligations of issuers are subject to the provisions of bankruptcy,
insolvency and other laws, such as the Federal Bankruptcy Reform Act of 1978,
affecting the rights and remedies of creditors. Fixed income securities
denominated in foreign currencies are also subject to the risk of a decline in
the value of the denominating currency.
Because interest rates vary, it is impossible to predict the Fund's
future income from investing in such securities. The net asset value of the
Fund's shares will vary as a result of changes in the value of the securities in
its portfolio and will be affected by the absence and/or success of hedging
strategies.
TEMPORARY HIGH QUALITY CASH ITEMS
The Fund may temporarily invest a portion of its assets in cash or cash
items pending other investments or in connection with the earmarking and
maintenance of such assets on the custodian's books and records. These cash
items must be of high quality and may include a number of money market
instruments such as securities issued by the United States government and
agencies thereof, bankers' acceptances, commercial paper, and bank certificates
of deposit. By investing only in high quality money market securities the Fund
will seek to minimize credit risk with respect to such investments.
U.S. GOVERNMENT SECURITIES AND FOREIGN GOVERNMENT SECURITIES
U.S. Government Securities include securities issued or guaranteed by
the U.S. government or its authorities, agencies or instrumentalities. Foreign
Government Securities include securities issued or guaranteed by foreign
governments (including political subdivisions) or their authorities, agencies or
instrumentalities or by supra-national agencies. U.S. Government Securities and
Foreign Government Securities have different kinds of government support. For
example, some U.S. Government Securities, such as U.S. Treasury bonds, are
supported by the full faith and credit of the United States, whereas certain
other U.S. Government Securities have different kinds of government support. For
example, some U.S. Government Securities, such as U.S. Treasury bonds, are
supported by the full faith and credit of the United States, whereas certain
other U.S. Government Securities issued or guaranteed by federal agencies or
government-sponsored enterprises are not supported by the full faith and credit
of the United States. Similarly, some Foreign Government Securities are
supported by the full faith and credit of a foreign national government or
political subdivision and some are not. In the case of certain countries,
Foreign Government Securities may involve varying degrees of credit risk as a
result of financial or political instability in such countries and the possible
inability of the Fund to enforce its rights against the foreign government
issuer.
-2-
<PAGE> 20
Supra-national agencies are agencies whose member nations make capital
contributions to support the agencies' activities, and include such entities as
the International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Coal and Steel Community and the
Inter-American Development Bank.
Like other fixed income securities, U.S. Government Securities and
Foreign Government Securities are subject to market risk and their market values
fluctuate as interest rates change. Thus, for example, the value of an
investment in the Fund which holds U.S. Government Securities or Foreign
Government Securities may fall during times of rising interest rates. Yields on
U.S. Government Securities and Foreign Government Securities tend to be lower
than those of corporate securities of comparable maturities.
In addition to investing directly in U.S. Government Securities and
Foreign Government Securities, the Fund may purchase certificates of accrual or
similar instruments evidencing undivided ownership interests in interest
payments or principal payments, or both, in U.S. Government Securities and
Foreign Government Securities. These certificates of accrual and similar
instruments may be more volatile than other government securities.
MORTGAGE-BACKED AND OTHER ASSET-BACKED SECURITIES
Mortgage-backed and other asset-backed securities may be issued by the
U.S. government, its agencies or instrumentalities, or by non-governmental
issuers. Interest and principal payments (including prepayments) on the
mortgages underlying mortgage-backed securities are passed through to the
holders of the mortgage-backed security. Prepayments occur when the mortgagor on
an individual mortgage prepays the remaining principal before the mortgage's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying mortgages, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgages
vary, there can be no certainty as to the predicted yield or average life of a
particular issue of pass-through certificates. Prepayments are important because
of their effect on the yield and price of the securities. During periods of
declining interest rates, such prepayments can be expected to accelerate and the
Fund would be required to reinvest the proceeds at the lower interest rates then
available. In addition, prepayments of mortgages which underlie securities
purchased at a premium could result in capital losses because the premium may
not have been fully amortized at the time the obligation was prepaid. As a
result of these principal prepayment features, the values of mortgage-backed
securities generally fall when interest rates rise, but their potential for
capital appreciation in periods of falling interest rates is limited because of
the prepayment feature. The mortgage-backed securities purchased by the Fund may
include adjustable rate securities, further discussed below.
Other "asset-backed securities" include securities backed by pools of
automobile loans, educational loans and credit card receivables. Mortgage-backed
and asset-backed securities of non-governmental issuers involve prepayment risks
similar to those of U.S. government guaranteed mortgage-backed securities and
also involve risk of loss of principal if the obligors of the underlying
obligations default in payment of the obligations.
-3-
<PAGE> 21
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"); STRIPS AND RESIDUALS. A CMO is a
security backed by a portfolio of mortgages or mortgage-backed securities held
under an indenture. The issuer's obligation to make interest and principal
payments is secured by the underlying portfolio of mortgages or mortgage-backed
securities. CMOs are issued in multiple classes or series which have different
maturities representing interests in some or all of the interest or principal on
the underlying collateral or a combination thereof. CMOs of different classes
are generally retired in sequence as the underlying mortgage loans in the
mortgage pool are repaid. In the event of sufficient early prepayments on such
mortgages, the class or series of CMO first to mature generally will be retired
prior to its stated maturity. Thus, the early retirement of a particular class
or series of CMO held by the Fund would have the same effect as the prepayment
of mortgages underlying a mortgage-backed pass-through security.
CMOs include securities ("Residuals") representing the interest in any
excess cash flow and/or the value of any collateral remaining on mortgages or
mortgage-backed securities from the payment of principal of and interest on all
other CMOs and the administrative expenses of the issuer. Residuals have value
only to the extent income from such underlying mortgages or mortgage-backed
securities exceeds the amounts necessary to satisfy the issuer's debt
obligations represented by all other outstanding CMOs.
CMOs also include certificates representing undivided interests in
payments of interest-only or principal-only ("IO/PO Strips") on the underlying
mortgages. IO/PO Strips and Residuals tend to be more volatile than other types
of securities. IO Strips and Residuals also involve the additional risk of loss
of a substantial portion of or the entire value of the investment if the
underlying securities are prepaid. In addition, if a CMO bears interest at an
adjustable rate, the cash flows on the related Residual will also be extremely
sensitive to the level of the index upon which the rate adjustments are based.
ADJUSTABLE RATE SECURITIES
Adjustable rate securities are securities that have interest rates that
are reset at periodic intervals, usually be reference to some interest rate
index or market interest rate. They may be U.S. Government Securities or
securities of other issuers. Some adjustable rate securities are backed by pools
of mortgage loans. Although the rate adjustment feature may act as a buffer to
reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because the interest
rate is reset only periodically, changes in the interest rates on adjustable
rate securities may lag changes in prevailing market interest rates. Also, some
adjustable rate securities (or, in the case of securities backed by mortgage
loans, the underlying mortgages) are subject to caps or floors that limit the
maximum change in interest rate during a specified period or over the life of
the security. Because of the resetting of interest rates, adjustable rate
securities are less likely than non-adjustable rate securities of comparable
quality and maturity to increase significantly in value when market interest
rates fall.
-4-
<PAGE> 22
LOWER RATED SECURITIES
The Fund may invest up to 5% of its assets in securities rated below
investment grade (that is, rated below BBB by Standard & Poor's Ratings Group
("Standard & Poor's") or below Baa by Moody's Investors Service, Inc.
("Moody's") at the time of purchase, including securities in the lowest rating
categories, and comparable unrated securities ("Lower Rated Securities"). The
Fund will not necessarily dispose of a security when its rating is reduced below
its rating at the time of purchase, although the Manager will monitor the
investment to determine whether continued investment in the security will assist
in meeting the Fund's investment objective.
Lower Rated Securities generally provide higher yields, but are subject
to greater credit and market risk, than higher quality fixed income securities.
Lower Rated Securities are considered predominantly speculative with respect to
the ability of the issuer to meet principal and interest payments. Achievement
of the Fund's investment objective through investments in Lower Rated Securities
may be more dependent on the Manager's own credit analysis than is the case with
higher quality bonds. The market for Lower Rated Securities may be more severely
affected than some other financial markets by economic recession or substantial
interest rate increases, by changing public perceptions of this market or by
legislation that limits the ability of certain categories of financial
institutions to invest in these securities. In addition, the secondary market
may be less liquid for Lower Rated Securities. This reduced liquidity at certain
times may affect the values of these securities and may make the valuation and
sale of these securities more difficult. Securities of below investment grade
quality are commonly referred to as "junk bonds." Securities in the lowest
rating categories may be in poor standing or in default. Securities in the
lowest investment grade category (BBB or Baa) have some speculative
characteristics. See "Credit Ratings," below, for more information concerning
commercial paper and corporate debt ratings.
ZERO COUPON SECURITIES
The Fund, when investing in "zero coupon" fixed income securities, is
required to accrue interest income on these securities at a fixed rate based on
the initial purchase price and the length to maturity, but these securities do
not pay interest in cash on a current basis. The Fund is required to distribute
the income on these securities to its shareholders as the income accrues, even
though the Fund is not receiving the income in cash on a current basis. Thus,
the Fund may have to sell other investments to obtain cash to make income
distributions. The market value of zero coupon securities is often more volatile
than that of non-zero coupon fixed income securities of comparable quality and
maturity. Zero coupon securities include IO and PO strips.
LOANS, LOAN PARTICIPATIONS AND ASSIGNMENTS
The Fund may invest in direct debt instruments which are interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates (loans and loan participations), to suppliers of goods or
services (trade claims or other receivables), or to other parties. Direct debt
instruments are subject to the Fund's policies regarding the quality of debt
securities.
-5-
<PAGE> 23
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally recognized
rating agency and yield could be adversely affected. Loans that are fully
secured offer the Fund more protections than an unsecured loan in the event of
non-payment of scheduled interest or principal. However, there is no assurance
that the liquidation of collateral from a secured loan would satisfy the
borrower's obligation, or that the collateral can be liquidated. Indebtedness of
borrowers whose creditworthiness is poor involves substantially greater risks,
and may be highly speculative. Borrowers that are in bankruptcy or restructuring
may never pay off their indebtedness, or may pay only a small fraction of the
amount owed. Direct indebtedness of emerging countries will also involve a risk
that the governmental entities responsible for the repayment of the debt may be
unable, or unwilling, to pay interest and repay principal when due.
When investing in a loan participation, the Fund will typically have
the right to receive payments only from the lender to the extent the lender
receives payments from the borrower, and not from the borrower itself. Likewise,
the Fund typically will be able to enforce its rights only through the lender,
and not directly against the borrower. As a result, the Fund will assume the
credit risk of both the borrower and the lender that is selling the
participation.
Investments in loans through direct assignment of a financial
institution's interest with respect to a loan may involve additional risks to
the Fund. For example, if a loan is foreclosed, the Fund could become part owner
of any collateral, and would bear the costs and liabilities associated with
owning and disposing of the collateral. In addition, it is conceivable that
under emerging legal theories of lender liability, the Fund could be held liable
as a co-lender. In the case of a loan participation, direct debt instruments may
also involve a risk of insolvency of the lending bank or other intermediary.
Direct debt instruments that are not in the form of securities may offer less
legal protection to the Fund in the event of fraud or misrepresentation. In the
absence of definitive regulatory guidance, the Fund may rely on the Manager's
research to attempt to avoid situations where fraud or misrepresentations could
adversely affect the Fund.
A loan is often administered by a bank or other financial institution
that acts as agent for all holders. The agent administers the terms of the loan,
as specified in the loan agreement. Unless, under the terms of the loan or other
indebtedness, the Fund has direct recourse against the borrower, it may have to
rely on the agent to apply appropriate credit remedies against a borrower.
Direct indebtedness purchased by the Fund may include letters of
credit, revolving credit facilities, or other standby financing commitments
obligating the Fund to pay additional cash on demand. These commitments may have
the effect of requiring the Fund to increase its investment in a borrower at a
time when it would not otherwise have done so. The Fund's custodian will earmark
and maintain appropriate liquid assets to cover the Fund's potential obligations
under standby financing commitments.
-6-
<PAGE> 24
CERTAIN RISKS OF FOREIGN INVESTMENTS
GENERAL. Investment in foreign issuers or securities principally traded
overseas may involve certain special risks due to foreign economic, political
and legal developments, including favorable or unfavorable changes in currency
exchange rates, exchange control regulations (including currency blockage),
expropriation or nationalization of assets, imposition of withholding taxes on
dividend or interest payments, and possible difficulty in obtaining and
enforcing judgments against foreign entities. Furthermore, issuers of foreign
securities are subject to different, often less comprehensive, accounting,
reporting and disclosure requirements than domestic issuers. The securities of
some foreign governments and companies and foreign securities markets are less
liquid and at times more volatile than comparable U.S. securities and securities
markets. Foreign brokerage commissions and other fees are also generally higher
than in the United States. The laws of some foreign countries may limit the
Fund's ability to invest in securities of certain issuers located in these
foreign countries. There are also special tax considerations which apply to
securities of foreign issuers and securities principally traded overseas.
Investors should also be aware that under certain circumstances, markets which
are perceived to have similar characteristics to troubled markets may be
adversely affected whether or not similarities actually exist.
EMERGING MARKETS. The risks described above apply to an even greater
extent to investments in emerging markets. The securities markets of emerging
countries are generally smaller, less developed, less liquid, and more volatile
than the securities markets of U.S. and developed foreign markets. Disclosure
and regulatory standards in many respects are less stringent than in the U.S.
and developed foreign markets. There also may be a lower level of monitoring and
regulation of securities markets in emerging market countries and the activities
of investors in such markets, and enforcement of existing regulations has been
extremely limited. Many emerging countries have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have very
negative effects on the economies and securities markets of certain emerging
countries. Economies in emerging markets generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be affected
adversely by trade barriers, exchange controls, managed adjustments in relative
currency values, and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been and may continue
to be adversely affected by economic conditions in the countries in which they
trade. The economies of countries with emerging markets may also be
predominantly based on only a few industries or dependent on revenues from
particular commodities. In addition, custodial services and other costs relating
to investment in foreign markets may be more expensive in emerging markets than
in many developed foreign markets, which could reduce the Fund's income from
such securities. Finally, because publicly traded debt instruments of emerging
markets represent a relatively recent innovation in the world debt markets,
there is little historical data or related market experience concerning the
attributes of such instruments under all economic, market and political
conditions.
In many cases, governments of emerging countries continue to exercise
significant control over their economies, and government actions relative to the
economy, as well as
-7-
<PAGE> 25
economic developments generally, may affect the capacity of issuers of emerging
country debt instruments to make payments on their debt obligations, regardless
of their financial condition. In addition, there is a heightened possibility of
expropriation or confiscatory taxation, imposition of withholding taxes on
interest payments, or other similar developments that could affect investments
in those countries. There can be no assurance that adverse political changes
will not cause the Fund to suffer a loss of any or all of its investments in
such countries, or, in the case of fixed-income securities, interest thereon.
SECURITIES LENDING
The Fund may make secured loans of portfolio securities amounting to
100% of the Fund's total assets. The risks in lending portfolio securities, as
with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. However, such loans will be made only to broker-dealers that are
believed by the Manager to be of relatively high credit standing. Securities
loans are made to broker-dealers pursuant to agreements requiring that loans be
continuously secured by collateral in cash or U.S. Government Securities at
least equal at all times to the market value of the securities lent. The
borrower pays to the Fund an amount equal to any dividends or interest the Fund
would have received had the securities not been lent. If the loan is
collateralized by cash, the Fund typically invests the cash collateral for its
own account in interest-bearing, short-term securities and pays a fee to the
borrower. Although voting rights or rights to consent with respect to the loaned
securities pass to the borrower, the Fund retains the right to call the loans at
any time on reasonable notice, and it will do so in order that the securities
may be voted by the Fund if the holders of such securities are asked to vote
upon or consent to matters materially affecting the investment. The Fund may
also call such loans in order to sell the securities involved. The Manager has
retained lending agents on behalf of the Fund that are compensated based on a
percentage of the Fund's return on the securities lending activity. The Fund
also pays various fees in connection with such loans including shipping fees and
reasonable custodian fees approved by the Trustees of the Trust or persons
acting pursuant to direction of the Board.
DEPOSITORY RECEIPTS
The Fund may invest in American Depositary Receipts (ADRs), Global
Depository Receipts (GDRs) and European Depository Receipts (EDRs)
(collectively, "Depository Receipts") if issues of such Depository Receipts are
available that are consistent with the Fund's investment objective. Depository
Receipts generally evidence an ownership interest in a corresponding foreign
security on deposit with a financial institution. Transactions in Depository
Receipts usually do not settle in the same currency in which the underlying
securities are denominated or traded. Generally, ADRs, in registered form, are
designed for use in the U.S. securities markets and EDRs, in bearer form, are
designed for use in European securities markets. GDRs may be traded in any
public or private securities markets and may represent securities held by
institutions located anywhere in the world.
FUTURES AND OPTIONS
-8-
<PAGE> 26
The Fund may use futures and options for hedging purposes, or as a way
to efficiently adjust the exposure of the Fund to various securities, markets
and currencies without the Fund having to actually sell current assets and
purchase different ones. Such transactions may involve options, futures and
related options on futures contracts, and those instruments may relate to
particular equity and fixed income securities, equity and fixed income indexes,
and foreign currencies. The Fund may also enter into a combination of long and
short positions (including spreads and straddles) for a variety of investment
strategies, including protecting against changes in certain yield relationships.
The use of futures contracts and options on futures contracts involves
risk. Thus, while the Fund may benefit from the use of futures and options on
futures, unanticipated changes in interest rates, securities prices, or currency
exchange rates may result in poorer overall performance for the Fund than if it
had not entered into any futures contracts or options transactions. Losses
incurred in transactions in futures and options on futures and the costs of
these transactions will affect the Fund's performance.
The Fund may enter into options, futures contracts and buy and sell
options thereon for hedging purposes. For example, if the Fund wants to hedge
certain of its fixed income securities against a decline in value resulting from
a general increase in market rates of interest, it might sell futures contracts
with respect to fixed income securities or indexes of fixed income securities.
If the hedge is effective, then should the anticipated change in market rates
cause a decline in the value of the Fund's fixed income security, the value of
the futures contract should increase. The Fund may also use futures contracts in
anticipatory hedge transactions by taking a long position in a futures contract
with respect to an index or foreign currency that the Fund intends to purchase
(or whose value is expected to correlate closely with the security or currency
to be purchased) pending receipt of cash from other transactions (including the
proceeds from this offering) to be used for the actual purchase. Then if the
cost of the security or foreign currency to be purchased by the Fund increases
and if the anticipatory hedge is effective, that increased cost should be
offset, at least in part, by the value of the futures contract. Options on
futures contracts may be used for hedging as well. For example, if the value of
a fixed-income security in the Fund's portfolio is expected to decline as a
result of an increase in rates, the Fund might purchase put options or write
call options on futures contracts rather than selling futures contracts.
Similarly, for anticipatory hedging, the Fund may purchase call options or write
put options as a substitute for the purchase of futures contracts.
The Fund may enter into swaps and contracts for differences for hedging
purposes. When using swaps for hedging, the Fund may enter into an interest
rate, currency or equity swap, as the case may be, on either an asset-based or
liability-based basis, depending on whether it is hedging its assets or its
liabilities.
The Fund may buy or sell foreign currencies, deal in forward foreign
currency contracts, currency futures contracts and related options and options
on currencies. Currency risk management may include taking active currency
positions relative to both the securities portfolio of the Fund and the Fund's
performance benchmark.
-9-
<PAGE> 27
Forward foreign currency contracts are contract between two parties to
purchase and sell a specific quantity of a particular currency at a specified
price, with delivery and settlement to take place on a specified price, with
delivery and settlement to take place on a specified future date. Currency
futures contracts are contracts to buy or sell a standard quantity of a
particular currency at a specified future date and price. Options on currency
futures contracts give their owner the right, but not the obligation, to buy (in
the case of a call option) or sell (in the case of a put option) a specified
currency futures contract at a fixed price during a specified period. Options on
currencies give their owner the right, but not the obligation, to buy (in the
case of a call option) or sell (in the case of a put option) a specified
quantity of a particular currency at a fixed price during a specified period.
The Fund may enter into forward contracts for hedging under three
circumstances. First, when the Fund enters into a contract for the purchase or
sale of security denominated in a foreign currency, it may desire to "lock in"
the U.S. dollar price of the security. By entering into a forward contract for
the purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying security transaction, the Fund will be able
to protect itself against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the subject foreign currency during
the period between the date on which the security is purchased or sold and the
date on which payment is made or received.
Second, when the Manager of the Fund believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or the
Fund's portfolio securities denominated in such foreign currency. Maintaining a
match between the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures.
Third, the Fund may engage in currency "cross hedging" when, in the
opinion of the Manager, the historical relationship among foreign currencies
suggests that the Fund may achieve the same protection for a foreign security at
reduced cost through the use of a forward foreign currency contract relating to
a currency other than the U.S. dollar or the foreign currency in which the
security is denominated. By engaging in cross hedging transaction, the Fund
assume the risk of imperfect correlation between the subject currencies. These
practices may present risks different from or in addition to the risks
associated with investments in foreign currencies.
The Fund is not required to enter into hedging transactions with regard
to its foreign currency-denominated securities and will not do so unless deemed
appropriate by the Manager. By entering into the above hedging transactions, the
Fund may be required to forego the benefits of advantageous changes in the
exchange rates.
-10-
<PAGE> 28
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with banks and
broker-dealers by which the Fund acquires a security (usually an obligation of
the Government where the transaction is initiated or in whose currency the
agreement is denominated) for a relatively short period (usually not more than a
week) for cash and obtains a simultaneous commitment from the seller to
repurchase the security at an agreed-on price and date. The resale price is in
excess of the acquisition price and reflects an agreed-upon market rate
unrelated to the coupon rate on the purchased security. Such transactions afford
an opportunity for the Fund to earn a return on temporarily available cash at no
market risk, although there is a risk that the seller may default in its
obligation to pay the agreed-upon sum on the redelivery date. Such a default may
subject the relevant Fund to expenses, delays and risks of loss including: (a)
possible declines in the value of the underlying security during the period
while the Fund seeks to enforce its rights thereto, (b) possible reduced levels
of income and lack of access to income during this period and (c) inability to
enforce rights and the expenses involved in attempted enforcement.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS
The Fund may enter into reverse repurchase agreements and dollar roll
agreements with banks and brokers to enhance return. Reverse repurchase
agreements involve sales by the Fund of portfolio assets concurrently with an
agreement by the Fund to repurchase the same assets at a later date at a fixed
price. During the reverse repurchase agreement period, the Fund continues to
receive principal and interest payments on these securities and also has the
opportunity to earn a return on the collateral furnished by the counterparty to
secure its obligation to redeliver the securities.
Dollar rolls are transactions in which the Fund sells securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
The Fund, when making such investments, will earmark and maintain on
its custodian's books and records cash, U.S. Government Securities or other
liquid obligations equal in value to its obligations in respect of reverse
repurchase agreements and dollar rolls. Reverse repurchase agreements and dollar
rolls involve the risk that the market value of the securities retained by the
Fund may decline below the price of the securities the Fund has sold but is
obligated to repurchase under the agreement. In the event the buyer of
securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds of the agreement
may be restricted pending a determination by the other party or its trustee or
receiver whether to enforce the Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are not considered borrowings by
the Fund for purposes of the Fund's fundamental investment restriction with
respect to borrowings.
-11-
<PAGE> 29
ILLIQUID SECURITIES
The Fund may purchase "illiquid securities," i.e., securities which may
not be sold or disposed of in the ordinary course of business within seven days
at approximately the value at which the Fund has valued the investment, which
include securities whose disposition is restricted by securities laws, so long
as no more than 15% of net assets would be invested in such illiquid securities.
The Fund currently intends to invest in accordance with the SEC staff view that
repurchase agreements maturing in more than seven days are illiquid securities.
It is possible that certain over-the-counter options and securities serving as
cover for over-the-counter options may be deemed, under certain circumstances,
to be illiquid securities. While the Trust does not agree with this view, it
will operate in accordance with any relevant formal guidelines adopted by the
SEC.
-12-
<PAGE> 30
INVESTMENT RESTRICTIONS
Fundamental Restrictions:
The following are Fundamental Investment Restrictions, which may not be
changed without shareholder approval:
1. The Fund may not borrow money except under the following
circumstances: (i) the Fund may borrow money from banks so
long as after such a transaction, the total assets (including
the amount borrowed) less liabilities other than debt
obligations, represent at least 300% of outstanding debt
obligations; (ii) the Fund may also borrow amounts equal to an
additional 5% of its total assets without regard to the
forgoing limitation for temporary purposes, such as for the
clearance and settlement of portfolio transactions and to meet
shareholder redemption requests; and (iii) the Fund may enter
into transactions that are technically borrowings under the
Investment Company Act of 1940 (the "1940 Act") because they
involve the sale of a security coupled with an agreement to
repurchase that security (e.g., reverse repurchase agreements,
dollar rolls and other similar investment techniques) without
regard to the asset coverage restriction described in (i)
above, so long as and to the extent that the Fund's custodian
earmarks and maintains cash and/or liquid securities equal in
value to its obligations in respect of these transactions.
2. The Fund may not purchase securities on margin except such
short-term credits as may be necessary for the clearance of
purchases and sales of securities. (For this purpose, the
deposit or payment of initial or variation margin in
connection with futures contracts or related options
transactions is not considered the purchase of a security on
margin.)
3. The Fund may not make short sales of securities or maintain a
short position for the Fund's account unless at all times when
a short position is open the Fund owns an equal amount of such
securities or owns securities which, without payment of any
further consideration, are convertible into or exchangeable
for securities of the same issue as, and equal in amount to,
the securities sold short.
4. The Fund may not underwrite securities issued by other persons
except to the extent that, in connection with the disposition
of its portfolio investments, it may be deemed to be an
underwriter under federal securities laws.
5. The Fund may not purchase or sell real estate, although it may
purchase securities of issuers which deal in real estate,
including securities of real estate investment trusts, and may
purchase securities which are secured by interests in real
estate.
6. The Fund may not make loans, except by purchase of debt
obligations or by entering into repurchase agreements or
through the lending of the fund's portfolio
-13-
<PAGE> 31
securities. Loans of portfolio securities may be made with
respect to up to 100% of the Fund's total assets.
7. The Fund may not concentrate more than 25% of the value of its
total assets in any one industry.
8. The Fund may not purchase or sell commodities or commodity
contracts, except that the Fund may purchase and sell
financial futures contracts and options hereon.
9. The Fund may not 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 commitment
agreements and standby commitment agreements fall within the
functional meaning of the term "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 earmarking
and maintaining certain assets on the books and records of the
Fund's custodian. Similarly, so long as such earmarked assets
are maintained, the issue of compliance with Section 18 will
not be raised with respect to any of the following: any swap
contract or contract for differences; any pledge or
encumbrance of assets permitted by Non-Fundamental Restriction
(4) below; any borrowing permitted by Fundamental Restriction
(1) above; any collateral arrangements with respect to initial
and variational margin; and the purchase or sale of options,
forward contracts, futures contracts or options on futures
contracts.
Non-Fundamental Restrictions:
The following are Non-Fundamental Investment Restrictions, which may be
changed without shareholder approval:
1. The Fund may not buy or sell oil, gas or other mineral leases,
rights or royalty contracts.
2. The Fund may not make an investment for the purpose of gaining
control of a company's management.
3. The Fund may not invest more than 15% of net assets in
illiquid securities. The securities currently thought to be
included as "illiquid securities" are restricted securities
under the Federal securities laws (including illiquid
securities traded under Rule 144A), repurchase agreements and
securities that are not readily marketable. To the extent the
Trustees determine that restricted securities traded under
Section 4(2) or Rule 144A under the Securities Act of 1933 are
in fact
-14-
<PAGE> 32
liquid, they will not be included in the 15% limit on
investment in illiquid securities.
4. The Fund may not pledge, hypothecate, mortgage or otherwise
encumber its assets in excess of 33 1/3% of the fund's total
assets (taken at cost). (For the purposes of this restriction,
collateral arrangements with respect to swap agreements, the
writing of options, stock index, interest rate, currency or
other futures, options on futures contracts and collateral
arrangements with respect to initial and variation margin are
not deemed to be a pledge or other encumbrance of assets. The
deposit of securities or cash or cash equivalents in escrow in
connection with the writing of covered call or put options,
respectively is not deemed to be a pledge or encumbrance.)
Except as indicated above in Fundamental Restriction (1), all
percentage limitations on investments set forth herein and in the Prospectus
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.
The phrase "shareholder approval," as used in the Private Placement
Memorandum and in this Statement of Additional Information, and the phrase "vote
of a majority of the outstanding voting securities," as used herein with respect
to the Fund, means the affirmative vote of the lesser of (1) more than 50% of
the outstanding shares of that Fund, or (2) 67% or more of the shares of the
Fund present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy. Except for policies that are
explicitly described as fundamental in the Prospectus or this Statement of
Additional Information, the investment policies of the Fund (including all
policies, restrictions and limitations set forth in the "Investment Guidelines")
may be changed by the Trust's Trustees without the approval of shareholders.
MANAGEMENT OF THE TRUST
The Fund is a series of GMO Trust (the "Trust"), an open-end management
investment company. Subject to the provisions of the GMO Trust Agreement and
Declaration of Trust, the business of the Trust shall be managed by the
Trustees, and they shall have all powers necessary or convenient to carry out
that responsibility including the power to engage in securities transactions of
all kinds on behalf of the trust. Without limiting the foregoing, the Trustees
may: adopt By-Laws not inconsistent with the Declaration of Trust providing for
the regulation and management of the affairs of the Trust and may amend and
repeal them to the extent that such By-Laws do not reserve that right to the
Shareholders; fill vacancies in or remove from their number (including any
vacancies created by an increase in the number of Trustees); remove from their
number with or without cause; elect and remove such officers and appoint and
terminate such agents as they consider appropriate; appoint from their own
number and terminate one or more committees consisting of two or more Trustees
which may exercise the powers and authority of the Trustees to the extent that
the Trustees determine; employ one or more custodians of the assets of the Trust
and authorize such custodians to employ subcustodians and to deposit all or any
part of such assets in a system or
-15-
<PAGE> 33
systems for the central handling of securities or with a Federal Reserve Bank,
retain a transfer agent or a shareholder servicing agent, or both, provide for
the distribution of Shares by the Trust, through one or more principal
underwriters or otherwise, set record dates for the determination of
Shareholders with respect to various matters, and in general delegate such
authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to any
such custodian or underwriter.
The Trustees and officers of the trust and their principal occupations
during the past five years are as follows:
R. JEREMY GRANTHAM* (D.O.B. 10/6/38). President-Quantitative and
Chairman of the Trustees of the Trust. Member, Grantham, Mayo, Van
Otterloo & Co. LLC.
JAY O. LIGHT (D.O.B. 10/3/41). Trustee of the Trust. Professor of
Business Administration, Harvard University; Senior Associate Dean,
Harvard University (1988-1992).
EYK DEL MOL VAN OTTERLOO (D.O.B. 2/27/37). President-International of
the Trust. Member, Grantham, Mayo, Van Otterloo & Co. LLC.
RICHARD MAYO (D.O.B. 6/18/42). President-U.S. Active of the Trust.
Member, Grantham, Mayo, Van Otterloo & Co. LLC.
SUSAN RANDALL HARBERT (D.O.B. 4/25/57). Chief Financial Officer and
Treasurer of the Trust. Member, Grantham, Mayo, Van Otterloo & Co. LLC.
WILLIAM R. ROYER, ESQ. (D.O.B. 7/20/65). Vice President of the Trust.
General Counsel, Grantham, Mayo, Van Otterloo & Co. LLC.
ROBERT V. BROKAW, JR. (D.O.B. 10/7/43). Secretary of the Trust. Member,
Grantham, Mayo, Van Otterloo & Co. LLC. Research Analyst, GMO Renewable
Resources LLC (July 1999-present).
SCOTT ESTON (D.O.B. 1/20/56). Vice President of the Trust. Chief
Financial Officer and Member, Grantham, Mayo, Van Otterloo & Co. LLC
(September 1997 - present). Senior Partner, Coopers & Lybrand (1987 -
1997).
ANNE STETSON (D.O.B. 8/7/62) Vice President of the Trust. Associate
General Counsel, Grantham, Mayo, Van Otterloo & Co. LLC (May
1998-present). Legal Counsel, Fidelity Investments (January 1995-April
1998).
ELAINE M. HARTNETT, ESQ. (D.O.B. 2/18/45). Vice President and Clerk of
the Trust. Associate General Counsel, Grantham, Mayo, Van Otterloo &
Co. LLC (June 1999-Present). Associate/Junior Partner, Hale and Dorr
LLP, Boston, Massachusetts (1991-1999).
-16-
<PAGE> 34
BRENT ARVIDSON (D.O.B. 6/26/69). Assistant Treasurer of the Trust.
Senior Fund Administrator, Grantham, Mayo, Van Otterloo & Co. LLC
(September 1997 - present). Senior Financial Reporting Analyst, John
Hancock Funds (August 1996 - September 1997). Account Supervisor/Senior
Account Specialist, Investors Bank and Company (June 1993 - August
1996).
*Trustee is deemed to be an "interested person" of the Trust and Grantham, Mayo,
Van Otterloo & Co. LLC ("GMO" or the "Manager"), 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 6, 2000, the
Trustees and officers of the Trust as a group owned less than 1% of the
outstanding shares of the 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.
Other than as set forth in the table below, no Trustee or officer of
the Trust receives any direct compensation from the Trust or any series thereof.
<TABLE>
<CAPTION>
NAME OF PERSON, TOTAL ANNUAL COMPENSATION
POSITION FROM THE TRUST
<S> <C>
Harvey R. Margolis, Trustee(1) $80,000
Jay O. Light, Trustee $80,000
</TABLE>
Messrs. Grantham, Mayo, Van Otterloo, Brokaw and Eston, and Ms.
Harbert, as members of the Manager, will benefit from the management fees paid
by the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
Management Contracts
As disclosed in the Private Placement Memorandum under the heading
"Management of the Trust," under the Management Contract ("Management Contract")
between the Trust and 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. 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
--------
(1) Mr. Margolis served as a Trustee until his death in June 2000.
-17-
<PAGE> 35
the Trust who are affiliated with the Manager. As indicated under "Portfolio
Transactions--Brokerage and Research Services," the Trust's portfolio
transactions may be placed with broker-dealers who furnish the Manager, at no
cost, certain research, statistical and quotation services of value to the
Manager in advising the Trust or its other clients.
The Manager has contractually agreed to reimburse the Fund with respect
to certain Fund expenses to the extent that the Fund's total annual operating
expenses (excluding brokerage commissions and other investment-related costs,
hedging transaction fees, extraordinary, non-recurring and certain other unusual
expenses (including taxes), securities lending fees and expenses and transfer
taxes), would otherwise exceed a specified percentage of the Fund's daily net
assets.
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 willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
The Management Contract was approved by the Trustees of the Trust
(including a majority of the Trustees who were not "interested persons" of the
Manager) and by the 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)
the vote, cast in person at a meeting called for that purpose, of a majority 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 to the
Trust.
Since the commencement of its operations, the Fund paid the following
amount as a Management Fee to the Manager pursuant to the Management Contract:
<TABLE>
<CAPTION>
Commencement of Operations Gross Reduction Net
----- --------- ---
<S> <C> <C> <C>
(12/31/99) through 2/29/00 $0 $0 $0
</TABLE>
Each of the Trust and the Manager has adopted a Code of Ethics pursuant
to the requirement of the 1940 Act. Under the Code of Ethics, personnel are only
permitted to engage in personal securities transactions in accordance with
certain conditions relating to such persons' position, the identity of the
security, the timing of the transaction and similar factors. Transactions in
securities that may be held by the Fund are permitted, subject to compliance
with applicable provisions of the Code. Personal securities transactions must be
reported quarterly and broker confirmations of such transactions must be
provided for review.
-18-
<PAGE> 36
Custodial Arrangements. Investors Bank & Trust Company ("IBT"), 200
Clarendon Street, Boston, Massachusetts 02116, serves as the Trust's custodian
on behalf of the Fund. As such, IBT 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, IBT
receives and delivers the Fund's cash and securities in connection with Fund
transactions and collects all dividends and other distributions made with
respect to Fund portfolio securities. IBT 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.
Independent Accountants. The Trust's independent accountants are
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110.
PricewaterhouseCoopers LLP conducts annual audits of the Trust's financial
statements, assists in the preparation of the Fund'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.
Distributor. Funds Distributor, Inc. ("FDI"), 60 State Street, Boston,
Massachusetts 02109, serves as the Trust's distributor on behalf of the Fund.
GMO has undertaken to reimburse the Trust for any fees that the Trust is
obligated to pay FDI.
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 indirectly sell 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 being preferred
over any other account.
Transactions involving the issuance of Fund shares for securities or
assets other than cash will be limited to a bona fide reorganization or
statutory merger and to other acquisitions of portfolio securities that meet all
of the following conditions: (a) such securities meet the investment objectives
and policies of the Fund; (b) such securities are acquired for investment and
not for resale; (c) such securities are liquid securities which are not
restricted as to transfer either by law or liquidity of market; and (d) such
securities have a value which is readily ascertainable as evidenced by a listing
on the American Stock Exchange, the New York Stock Exchange, NASDAQ or a
recognized foreign exchange.
-19-
<PAGE> 37
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 subjective
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 Funds.
As permitted by Section 28(e) of the Securities Exchange Act of 1934
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 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.
Since the Fund's commencement of operations (12/31/99), the Trust paid,
on behalf of the Fund, the following amount in brokerage commissions:
<TABLE>
<S> <C>
Commencement of Operations
(12/31/99) through 2/29/00 .................... $16,491
</TABLE>
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund will be determined on each
day the New York Stock Exchange (the "Exchange") is open for regular business as
of the close of regular trading on the Exchange, generally 4:00 p.m. New York
City time. However, futures contracts on U.S. government and other fixed-income
securities and index options held by the Funds are priced as of their close of
trading at 4:15 p.m. Events affecting the values of foreign securities may occur
-20-
<PAGE> 38
between the earlier closings of foreign exchanges and securities markets and the
closing of the New York Stock Exchange which will not be reflected in the
computation of the Fund's net asset value. Please refer to "Determination of Net
Asset Value" in the Private Placement Memorandum for additional information.
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 February 28/29.
Pursuant to the Declaration of Trust, the Trustees have currently
authorized the issuance of an unlimited number of full and fractional shares of
forty series. One for the Fund, and one for each of the following: U.S. Core
Fund; Tobacco-Free Core Fund; Value Fund; Growth Fund; U.S. Sector Fund; Small
Companies Value Fund; Small Cap Growth Fund; Fundamental Value Fund; REIT Fund;
International Core Fund; Currency Hedged International Core Fund; Foreign Fund;
International Small Companies Fund; Japan Fund; Emerging Markets Fund; Evolving
Countries Fund; Domestic Bond Fund; U.S. Bond/Global Alpha A Fund; U.S.
Bond/Global Alpha B Fund; International Bond Fund; Currency Hedged International
Bond Fund; Global Bond Fund; Emerging Country Debt Fund; Short-Term Income Fund;
Global Hedged Equity Fund; Inflation Indexed Bond Fund; International Equity
Allocation Fund; World Equity Allocation Fund; Global (U.S.+) Equity Allocation
Fund; Global Balanced Allocation Fund; International Core Plus Allocation Fund;
Emerging Country Debt Share Fund; Pelican Fund; Asia Fund; Tax-Managed U.S.
Equities Fund; Tax-Managed International Equities Fund; Tax-Managed Small
Companies Fund; Intrinsic Value Fund; and Foreign Small Companies Fund.
Interests in each portfolio (Fund) 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
Fund. The shares of such series do not have any preemptive rights. Upon
liquidation of a Fund, shareholders of the corresponding series are entitled to
share pro rata in the net assets of the Fund available for distribution to
shareholders. The Declaration of Trust also permits the Trustees to charge
shareholders directly for custodial and transfer agency 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 or classes
of shares with such dividend preferences and other rights as the Trustees may
designate. This power is intended to allow the Trustees to provide for an
equitable allocation of the impact of any future regulatory requirements which
might affect various classes of shareholders differently. The Trustees have
currently authorized the establishment and designation of up to eight classes of
shares for each series of the Trust (except for the Pelican Fund): Class I
Shares, Class II Shares, Class III Shares, Class IV Shares, Class V Shares,
Class VI Shares, Class VII Shares and Class VIII Shares.
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 (i.e., a
-21-
<PAGE> 39
new fund). 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.
On June 1, 2000, GMO Global Bond Fund and GMO U.S. Bond/Global Alpha B
Fund held greater than 25% of the outstanding shares of a series of the Trust.
As a result, such shareholders may be deemed to "control" their
respective series as such term is defined in the 1940 Act.
Shareholders could, under certain circumstances, be held personally
liable for the obligations of the Trust. However, the risk of a shareholder
incurring financial loss on account of that liability is considered remote since
it may arise only in very limited circumstances.
VOTING RIGHTS
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 Investment
Company Act of 1940, 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 Funds, then only shareholders of such
affected Funds 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. Shareholders of
a particular class of shares do not have separate class voting rights except
with respect to matters that affect only that class of shares and as otherwise
required by law.
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
-22-
<PAGE> 40
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 to 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.
-23-
<PAGE> 41
BENEFICIAL OWNERS OF 5% OR MORE OF THE FUND'S SHARES
The following chart sets forth the names, addresses and percentage
ownership of those shareholders owning beneficially 5% or more of the
outstanding Class III Shares of the Fund as of June 1, 2000:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
NAME ADDRESS % OWNERSHIP
--------------------------------------------------------------------------------
<S> <C> <C>
GMO Global Bond Fund Attn: Rick Okerman 42.26
c/o GMO
40 Rowes Wharf
Boston, MA 02110
--------------------------------------------------------------------------------
GMO U.S. Bond/Global Alpha B Fund Attn: Rick Okerman 39.94
c/o GMO
40 Rowes Wharf
Boston, MA 02110
--------------------------------------------------------------------------------
GMO Short-Term Income Fund Attn: Rick Okerman 8.25
c/o GMO
40 Rowes Wharf
Boston, MA 02110
--------------------------------------------------------------------------------
</TABLE>
DISTRIBUTIONS
The Private Placement Memorandum describes the distribution policies of
the Fund under the heading "Distributions". It is the policy of the Fund in all
cases to pay its shareholders, as dividends, substantially all net investment
income and to distribute annually all net realized capital gains, if any, after
offsetting any capital loss carryovers. For distribution and federal income tax
purposes, a portion of the premiums from certain expired call or put options
written by the Fund, net gains from certain closing purchase and sale
transactions with respect to such options and a portion of net gains from other
options and futures transactions are treated as short-term capital gain (i.e.,
gain from the sale of securities held for 12 months or less). It is the policy
of the Fund to make distributions at least annually, sufficient to avoid the
imposition of a nondeductible 4% excise tax on certain undistributed amounts of
taxable investment income and capital gains.
TAXES
DISTRIBUTIONS
It is the policy of the Fund in all cases to pay its shareholders, as
dividends, substantially all net investment income and to distribute annually
all net realized capital gains, if any, after offsetting any capital loss
carryovers. The Fund's investments in mortgage-backed and other asset-backed
securities and in zero-coupon bonds may result in taxable income in excess of
cash received by the Fund. This may require the Fund to sell investments
(including when it is not advantageous to do so) in order to generate sufficient
cash to make distributions. It is the policy
-24-
<PAGE> 42
of the Fund to make distributions at least annually, sufficient to avoid the
imposition of a nondeductible 4% excise tax on certain undistributed amounts of
taxable investment income and capital gains.
TAX STATUS AND TAXATION OF THE FUND
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). In order to qualify for the special tax treatment accorded regulated
investment companies and their shareholders, the Fund must, among other things:
(a) derive at least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans, and gains from the sale of stock,
securities and foreign currencies, or other income (including but not
limited to gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities, or
currencies;
(b) distribute with respect to each taxable year at least 90% of the sum of its
taxable net investment income, its net tax-exempt income, and the excess,
if any, of net short-term capital gains over net long-term capital losses
for such year; and
(c) diversify its holdings so that at the end of each fiscal quarter, (i) at
least 50% of the market value of the Fund"s assets is represented by cash
and 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% of the value of the Fund"s total net
assets and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% 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 qualifies as a regulated investment company that is
accorded special tax treatment, the Fund will not be subject to federal income
tax on income paid to its shareholders in the form of dividends (including
capital gain dividends).
If the Fund fails to distribute in a calendar year substantially all of
its ordinary income for such year and substantially all of its capital gain net
income for the one-year period ending October 31 (or later if the Fund is
permitted so to elect and so elects), plus any retained amount from the prior
year, the Fund will be subject to a 4% excise tax on the undistributed amounts.
A dividend paid to shareholders by the Fund in January of a year generally will
be deemed to have been paid by the Fund on December 31 of the preceding year if
the dividend was declared and payable to shareholders of record on a date in
October, November or December of that preceding year. The Fund intends generally
to make distributions sufficient to avoid imposition of the 4% excise tax.
-25-
<PAGE> 43
TAXATION OF FUND DISTRIBUTIONS AND SALES OF FUND SHARES
The only shareholders of the Fund will be other funds of the Trust. The
following summary does not discuss the tax consequences to the shareholders of
those other funds of distributions by the funds or of the sale of shares of the
funds. Shareholders of the funds should consult the prospectuses and statements
of additional income of those funds for a discussion of the tax consequences to
them.
Fund distributions derived from interest, dividends and certain other
income, including in general short-term capital gains, will result in taxable
ordinary income to the shareholders of the Fund, whether received in cash or
reinvested in shares. Properly designated Fund distributions derived from net
long-term capital gains (i.e., net gains derived from the sale of securities
held for more than 12 months) will generally result in taxable long-term capital
gain income to the shareholders of the Fund, regardless of whether the
distributions are received in cash or reinvested in shares and regardless of how
long a shareholder has held the shares in the Fund.
Dividends and distributions on the Fund"s shares are generally subject
to federal income tax as described herein to the extent they do not exceed the
Fund"s realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder"s investment.
Such distributions are likely to occur in respect of shares purchased at a time
when the Fund"s net asset value reflects gains that are either unrealized, or
realized but not distributed.
The sale, exchange or redemption of Fund shares may give rise to a gain
or loss. In general, any gain or loss realized upon a taxable disposition of
shares will be treated as long-term capital gains if the shares have been held
for more than 12 months and as short-term capital gains if the shares have been
held for not more than 12 months. However, depending on a shareholder's
percentage ownership in the Fund, a redemption of Fund shares could cause the
shareholder to be treated as not receiving capital gain income on such
redemption but instead as receiving a dividend taxable as ordinary income in an
amount equal to the full amount of the distribution.
Any loss realized upon a taxable disposition of shares held for six
months or less will be treated as long-term capital loss to the extent of any
long-term capital gain distributions received by a shareholder with respect to
those shares. All or a portion of any loss realized upon a taxable disposition
of Fund shares will be disallowed if other shares of the Fund are purchased
within 30 days before or after the disposition. In such a case, the basis of the
newly purchased shares will be adjusted to reflect the disallowed loss.
If the Fund makes a distribution to its shareholders in excess of its
current and accumulated "earnings and profits" in any taxable year, the excess
distribution will be treated as a return of capital to the extent of each
shareholder's tax basis in its shares, and thereafter as capital gain. A return
of capital is not taxable, but it reduces the shareholder's tax basis in its
shares, thus reducing any loss or increasing any gain on a subsequent taxable
disposition of the shares.
-26-
<PAGE> 44
TAX IMPLICATIONS OF CERTAIN INVESTMENTS
Certain of the Fund's investments, including investments in
mortgage-backed and other asset-backed securities, assets "marked to the market"
for federal income tax purposes, debt obligations issued or purchased at a
discount and potentially so-called "index securities" (including inflation
indexed bonds), may create taxable income in excess of the cash they generate.
In such cases, the Fund may be required to sell assets (including when it is not
advantageous to do so) to generate the cash necessary to distribute as dividends
to its shareholders all of its income and gains and therefore to eliminate any
tax liability at the Fund level.
The Fund's transactions in options, futures contracts, hedging
transactions, forward contracts, and straddles may accelerate income, defer
losses, cause adjustments in the holding periods of the Fund's securities and
convert long-term capital gains into short-term capital gains and short-term
capital losses into long-term capital losses. These transactions may affect the
amount, timing and character of distributions to shareholders.
LOSS OF REGULATED INVESTMENT COMPANY STATUS
The Fund may experience particular difficulty qualifying as a regulated
investment company in the case of highly unusual market movements, in the case
of high redemption levels and/or during the first year of its operations. If the
Fund does not qualify for taxation as a regulated investment company for any
taxable year, the Fund's income will be taxed at the Fund level at regular
corporate rates, and all distributions from earnings and profits, including
distributions of net long-term capital gains, will be taxable to shareholders as
ordinary income. In addition, in order to requalify for taxation as a regulated
investment company that is accorded special tax treatment, the Fund may be
required to recognize unrealized gains, pay substantial taxes and interest on
such gains, and make certain substantial distributions.
PERFORMANCE INFORMATION
The 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 Fund will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund or class over periods of one, three, five,
and ten years (or for such shorter or longer periods 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 $10,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $10,000 payment made at the beginning of the period). Except as
then noted, all total return figures will 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
-27-
<PAGE> 45
return information for that period that is unannualized. Any such information
would be accompanied by standardized total return information.
The Fund may also from time to time advertise net return and gross
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. Monthly and quarterly performance data
does not reflect payment of any applicable purchase premiums or redemption fees.
All quotations of monthly and quarterly returns would be accompanied by
standardized total return information. Information relating to the 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. or Morningstar, Inc., widely
recognized independent services that monitor mutual fund performance, or the
three-month London Inter Bank Offer Rate ("LIBOR").
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.
Quotations of the Fund's gross return do not reflect any reduction for
any Fund fees or expenses unless otherwise noted; if the gross return data
reflected the estimated fees and expenses of the Fund, the returns would be
lower than those shown. Quotations of gross return for the Fund for a particular
month or quarter will be calculated in accordance with the following formula:
Gross Return =
Net Return + (Total Annual Operating Expense Ratio) (# of days in relevant
period/365)
-28-
<PAGE> 46
INVESTMENT GUIDELINES
GMO ALPHA LIBOR FUND
Any numerical or percentage limitation set forth in this document will be
applied only at the time of initial investment in a security or other
investment. The Fund does not undertake to adjust its portfolio in the case
where market movements, cash flows or other factors cause any of such
limitations to be exceeded. Except as otherwise indicated, numerical and
percentage limitations are expressed as a percentage of the Fund's total assets.
PERMITTED INVESTMENTS
At least 65% of the Fund's total assets will be invested in or exposed
to (2) "bonds" of U.S. issuers. "Bonds" mean any fixed income obligations with
an original maturity of two years or more, as well as "synthetic" bonds created
by combining a futures contract or option on a fixed income security with cash,
a cash equivalent investment or another fixed income security.
securities issued by federal, state, local and
foreign governments (traded in U.S. and abroad)
convertible bonds
fixed income securities of private issuers
depository receipts: ADRs, GDRs, EDRs
foreign issues traded in the U.S. and abroad
investment companies (open & closed end)
preferred stock
illiquid securities
144A securities
restricted securities
repurchase agreements
reverse repurchase agreements
sovereign debt of emerging countries
securities purchased and sold on a when-issued or
delayed delivery
indexed securities
firm commitments (with banks or broker-dealers)
interest rate/bond futures and related options
exchange-traded and OTC options on securities and
indexes (including writing covered options)
interest rate swap contracts
total return swap contracts
credit default swap contracts
contracts for differences
interest rate caps, floors and collars
asset-backed securities including mortgage-backed,
CMOs, strips and residuals
loan participations (and other direct debt)
adjustable rate securities
zero coupon securities
dollar roll transactions
warrants
PROHIBITED INVESTMENTS AND PRACTICES
The Fund will not engage in the following practices except as indicated:
-------------
(2) The words "exposed to" as used in these guidelines mean that, for
purposes of the relevant requirement or restriction, the total of the Fund's
exposure to the relevant market or security through direct investments and
through derivative instruments will be considered.
-29-
<PAGE> 47
PURCHASING SECURITIES ON MARGIN - Except for short-term credits
necessary for clearance of
transactions.
BORROWING MONEY - Except that the Fund may
temporarily borrow up to 20% of
its net assets from banks for
the payment of redemptions or
settlement of securities
transactions, but not as a
leveraged investment strategy.
UNDERWRITING SECURITIES - Except to the extent that the
Fund is deemed an underwriter
for securities law purposes in
connection with disposition of
portfolio investments.
MAKING LOANS - Except that purchasing debt
obligations, repurchase
agreements and engaging in
securities lending will not be
considered making loans for this
purpose. The Fund may loan
securities valued at up to
one-third of its total assets.
PLEDGING, HYPOTHECATING OR MORTGAGING
FUND ASSETS - Except that collateral
arrangements with respect to
swap agreements, the writing of
options, index, interest rate,
currency or futures contracts,
options on futures contracts and
collateral arrangements with
respect to initial and variation
margin are not deemed to be a
pledge or other encumbrance of
assets. The deposit of
securities or cash or cash
equivalents in escrow in
connection with the writing of
covered call or put options,
respectively, is also not deemed
to be a pledge or encumbrance.
INVESTMENT IN BANKRUPT CORPORATE SECURITIES
SELLING UNCOVERED PUT OR CALL OPTIONS ON SECURITIES OR INDEXES
INVESTING IN REAL ESTATE
INVESTING IN NON-FINANCIAL COMMODITY CONTRACTS
PARTICIPATING IN DIRECTED BROKERAGE AGREEMENTS
MAKING INVESTMENTS FOR THE PURPOSE OF GAINING CONTROL OF A COMPANY'S MANAGEMENT
MAKING SHORT SALES OF SECURITIES
RESTRICTIONS AND LIMITATIONS
OPTIONS ON SECURITIES - No more than 10% of the Fund's
net assets will be invested in
time on options on particular
securities (as opposed to
options on indexes).
OTHER FUNDS OF THE TRUST - The Fund will not own other
Funds of GMO Trust.
ILLIQUID SECURITIES - No more than 15% of the Fund's
net assets will be invested in
illiquid securities.
INVESTMENT IN LOWER RATED SECURITIES - The average rating of bonds
invested in directly by the
portfolio will not be less than
A+/A1 with non-rated securities
excluded from the calculation of
the average. The Fund will
invest less than 5% of its
assets in
-30-
<PAGE> 48
securities rated BBB-/Baaa3 or
less (or equivalent, as
determined by the Manager).
CONCENTRATION - The Fund will not invest more
than 25% of its total assets in
a single industry.
DERIVATIVE INSTRUMENTS (OTHER THAN FOREIGN CURRENCY TRANSACTIONS)
TYPES OF DERIVATIVES - Options, futures contracts and
related options on bonds or
baskets or indexes of
securities.
- Options on bonds and other
securities.
- Swap contracts, including
interest rate swaps, total
return swaps, credit default
swaps and contracts for
differences.
- Structured notes.
USES OF DERIVATIVES
HEDGING - Traditional Hedging: Bond
futures, related options, Bond
options and swap contracts used
to hedge against a market or
credit risk already generally
present in the Fund.
- Anticipatory Heading: If the
Fund receives or anticipates
significant cash purchase
transactions, the fund may
hedge market risk (risk of being
invested in the market) by
purchasing long futures
contracts or entering into long
swap contracts to obtain market
exposure until such time as
direct investments can be made
efficiently. Conversely, if the
Fund receives or anticipates a
significant demand for cash
redemptions, the Fund may sell
futures contracts or enter into
short swap contracts while the
Fund disposes of securities in
an orderly fashion.
INVESTMENT - The Fund may use derivative
instruments (particularly long
futures contracts, related
options and longswap contracts)
in place of investing directly
in securities.
RISK MANAGEMENT - The Fund may use options,
futures, related options and
swap contracts to adjust the
weight of the fund to a level
the Manager believes is the
optimal exposure to individual
countries and issuers.
Sometimes, such transactions are
used as a precursor to actual
sales and purchases.
LIMITATIONS ON THE USE OF
DERIVATIVES - Counterparties used for OTC
derivatives must have a
long-term debt rating of A or
higher when the derivative is
entered into. Occasionally,
short-term derivatives will be
entered into with counterparties
that have only high short-term
debt ratings.
-31-
<PAGE> 49
FOREIGN CURRENCY TRANSACTIONS
TYPES OF FOREIGN CURRENCY
TRANSACTIONS - Forward foreign currency
contracts.
USES OF FOREIGN CURRENCY
TRANSACTIONS
HEDGING - Traditional Hedging: The Fund
may effect foreign currency
transactions - generally short
forward or futures contracts -
to hedge the risk of foreign
currencies represented by its
securities investments back
into the U.S. dollar. The Fund
is not required to hedge any of
the currency risk obtained by
investing in securities
denominated in foreign
currencies.
- Anticipatory Hedging: When the
Fund enters into a contract for
the purchase or anticipates the
need to purchase a security
denominated in a foreign
currency, it may "lock in" the
U.S. dollar price of the
security by buying the foreign
currency or through currency
forwards or futures.
- Proxy Hedging: The Fund may
hedge the exposure of a given
foreign currency by using an
instrument relating to a
different currency, which the
Manager believes is highly
correlated to the currency being
hedged.
INVESTMENT - The Fund may enter into currency
forwards or futures contracts in
conjunction with entering into a
futures contract on a foreign
index in order to create
synthetic foreign currency
dominated securities.
RISK MANAGEMENT - Subject to the limitations
described below, the Fund may
use foreign currency
transactions for risk
management, which will permit
the Fund to have foreign
currency exposure that is
significantly different that the
currency exposure represented by
its portfolio investments. This
may include long and short
exposure to particular
currencies beyond the amount of
the Fund's investment in
securities denominated in that
currency.
-32-
<PAGE> 50
COMMERCIAL PAPER AND CORPORATE DEBT RATINGS
COMMERCIAL PAPER RATINGS
Commercial paper ratings of Standard & Poor's are current assessments
of the likelihood of timely payment of debts having original maturities of no
more than 365 days. Commercial paper rated A-1 by Standard & Poor's indicates
that the degree of safety regarding timely payment is either overwhelming or
very strong. Those issues determined to possess overwhelming safety
characteristics are denoted A-1+. Commercial paper rated A-2 by Standard &
Poor's indicates that capacity for timely payment on issues is strong. However,
the relative degree of safety is not as high as for issues designated A-1.
Commercial paper rated A-3 indicates capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics of Prime-1 rated issuers,
but to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variations. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained. Issuers rated Prime-3 have an acceptable capacity for
repayment of short-term promissory obligations. The effect of industry
characteristics and market composition may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and the requirement of relatively high financial leverage. Adequate
alternative liquidity is maintained.
CORPORATE DEBT RATINGS
STANDARD & POOR'S. A Standard & Poor's corporate debt rating is a
current assessment of the creditworthiness of an obligor with respect to a
specific obligation. The following is a summary of the ratings used by Standard
& Poor's for corporate debt;
AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA -- Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
-33-
<PAGE> 51
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC -- Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C -- The rating C is reserved for income bonds on which no interest is being
paid.
D -- Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): the ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S. The following is a summary of the ratings used by Moody's
Investor Services, Inc. for corporate debt:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large, or by an exceptionally
stable, margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be
-34-
<PAGE> 52
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have speculative
characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often, the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Should no rating be assigned by Moody's, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are
not rated as a matter of policy.
3. There is lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1 and B1.
FINANCIAL STATEMENTS
The audited financial statements for the Alpha LIBOR Fund for the
fiscal year ended February 29, 2000 included in the Trust's Annual Reports filed
with the Securities and Exchange Commission pursuant to Section 30(d) of the
1940 Act, and the rules promulgated
-35-
<PAGE> 53
thereunder, are hereby incorporated in this Statement of Additional Information
by reference.
GMO TRUST
SPECIMEN PRICE MAKE-UP SHEET
Following is a computation of the total offering price per share for
the Alpha LIBOR Fund based upon its net asset value and shares of beneficial
interest outstanding at the close of business on February, 29, 2000:
<TABLE>
<S> <C>
Net Assets at Value (Equivalent to $25.29 per share based
on 13,367,318 shares of beneficial interest) .................. $338,100,967
Offering Price ($25.29 x 100/99.95)* .......................... $ 25.30
</TABLE>
---------------
*Represents maximum offering price charged on certain cash purchases. See
"Shareholder Information - Purchase of Fund Shares" in the Private Placement
Memorandum.
-36-
<PAGE> 54
GMO TRUST
PART C. OTHER INFORMATION
Item 23. Exhibits
(a). Amended and Restated Agreement and Declaration of Trust.(1)
(b). Amended and Restated By-laws of the Trust.(1)
(c). Please refer to Article 5 of the Trust's Amended and Restated
Declaration of Trust, which is hereby incorporated by reference.
(d). 1. Form of Management Contracts between the Trust, on behalf of each
of its GMO U.S. Core Fund (formerly "GMO Core Fund"), GMO
Tobacco-Free Core Fund, GMO Value Fund (formerly "GMO Value
Allocation Fund"), GMO Fundamental Value Fund, GMO Growth Fund
(formerly "GMO Growth Allocation Fund"), GMO Small Cap Value Fund
(formerly "GMO Core II Secondaries Fund"), GMO Small Cap Growth
Fund, GMO REIT 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 Asia Fund, GMO Global Hedged Equity
Fund, GMO Domestic Bond Fund, GMO U.S. Bond/Global Alpha A Fund
(formerly "GMO Global Fund"), GMO U.S. Bond/Global Alpha B Fund, GMO
International Bond Fund, GMO Currency Hedged International Bond Fund
(formerly "GMO SAF Core Fund"), GMO Global Bond Fund, GMO Emerging
Country Debt Fund, GMO Short-Term Income Fund, GMO Inflation Indexed
Bond Fund, GMO Intrinsic Value Fund; GMO Tax-Managed Small Companies
Fund (formerly "GMO U.S. Small Cap Fund"); GMO International Equity
Allocation Fund, GMO World Equity Allocation Fund, GMO Global
(U.S.+) Equity Allocation Fund, GMO Global Balanced Allocation Fund,
GMO U.S. Sector Fund (formerly "GMO U.S. Sector Allocation Fund"),
GMO International Core Plus Allocation Fund, Pelican Fund, GMO
Tax-Managed U.S. Equities Fund and GMO Tax-Managed International
Equities Fund, and Grantham, Mayo, Van Otterloo & Co. ("GMO");(1)
2. Form of Consulting Agreements between GMO, on behalf of each of
its GMO Emerging Markets Fund, GMO Evolving Countries Fund and GMO
Asia Fund, and Dancing Elephant, Ltd.;(1)
----------
1 = Previously filed with the Securities and Exchange Commission and
incorporated herein by reference.
<PAGE> 55
3. Form of Management Contract between the Trust, on behalf of its GMO
Alpha LIBOR Fund, and GMO.(1)
(e). None.
(f). None.
(g). 1. Custodian Agreement (the "IBT Custodian Agreement") among the
Trust, on behalf of its GMO U.S. Core Fund (formerly "GMO Core
Fund"), GMO Currency Hedged International Bond Fund (formerly "GMO
SAF Core Fund"), GMO Value Fund (formerly "GMO Value Allocation
Fund"), GMO Growth Fund (formerly "GMO Growth Allocation Fund"), and
GMO Short-Term Income Fund, GMO and Investors Bank & Trust Company
("IBT");(1)
2. Custodian Agreement (the "BBH Custodian Agreement") among the
Trust, on behalf of its GMO International Core Fund and GMO Japan
Fund, GMO and Brown Brothers Harriman & Co. ("BBH");(1)
3. Custodian Agreement (the "SSB Custodian Agreement") among the
Trust, on behalf of its Pelican Fund, GMO and State Street Bank and
Trust Company ("SSB");(1)
4. Forms of Letter Agreements with respect to the IBT Custodian
Agreement among the Trust, on behalf of its GMO U.S. Bond/Global
Alpha B Fund, GMO Tobacco-Free Core Fund, GMO Fundamental Value
Fund, GMO U.S. Sector Fund (formerly "GMO U.S. Sector Allocation
Fund"), GMO International Bond Fund, GMO Small Cap Value Fund
(formerly "GMO Core II Secondaries Fund"), GMO Emerging Country Debt
Fund, GMO Domestic Bond Fund, GMO REIT
----------
1 = Previously filed with the Securities and Exchange Commission and
incorporated herein by reference.
-2-
<PAGE> 56
Fund, GMO Global Bond Fund, GMO International Equity Allocation
Fund, GMO Global (U.S.+) Equity Allocation Fund, GMO World Equity
Allocation Fund, GMO Global Balanced Allocation Fund, GMO
International Core Plus Allocation Fund, GMO Emerging Country Debt
Share Fund, GMO Small Cap Growth Fund, GMO U.S. Bond/Global Alpha A
Fund (formerly "GMO Global Fund"), GMO Tax-Managed U.S. Equities
Fund, GMO Inflation Indexed Bond Fund, GMO Intrinsic Value Fund and
GMO Tax-Managed U.S. Small Cap Fund, GMO and IBT;(1)
5. Forms of Letter Agreements with respect to the BBH Custodian
Agreement among the Trust, on behalf of its GMO Emerging Markets
Fund, GMO Currency Hedged International Core Fund, GMO Evolving
Countries Fund, GMO Global Hedged Equity Fund, GMO International
Small Companies Fund, GMO Foreign Fund, GMO Asia Fund, GMO
Tax-Managed International Equities Fund and GMO and BBH;(1)
6. Form of Letter Agreement with respect to the IBT Custodian
Agreement among the Trust, on behalf of its GMO Alpha LIBOR Fund,
GMO and IBT.(1)
(h). 1. Transfer Agency Agreement among the Trust, on behalf of its GMO
U.S. Core Fund (formerly "GMO Core Fund"), GMO Currency Hedged
International Bond Fund, GMO Growth Fund (formerly "GMO Growth
Allocation Fund"), GMO Value Fund (formerly "GMO Growth Allocation
Fund"), GMO Short-Term Income Fund, GMO International Core Fund and
GMO Japan Fund, GMO and IBT;(1)
2. Forms of Letter Agreements to the Transfer Agency Agreement among
the Trust, on behalf of each of its GMO Tobacco-Free Core Fund, GMO
Fundamental Value Fund, GMO Small Cap Value Fund (formerly "GMO Core
II Secondaries Fund"), GMO Small Cap Growth Fund, GMO REIT Fund, GMO
Currency Hedged International Core Fund, GMO Foreign Fund, GMO
International Small Companies Fund, GMO Emerging Markets Fund, GMO
Evolving Countries Fund, GMO Asia Fund, GMO Global Hedged Equity
Fund, GMO Domestic Bond Fund, GMO U.S. Bond/Global Alpha A Fund
(formerly "GMO Global Fund"), GMO U.S. Bond/Global Alpha B Fund, GMO
International Bond Fund, GMO Global Bond Fund, GMO Emerging Country
Debt Fund, GMO Inflation Indexed Bond Fund, GMO Emerging Country
Debt Share Fund, Pelican Fund, GMO International Equity Allocation
Fund, GMO World Equity Allocation Fund, GMO Global (U.S.+) Equity
Allocation Fund, GMO Global Balanced Allocation Fund, GMO U.S.
Sector Fund (formerly "GMO U.S. Sector Allocation Fund"), GMO
International Core Plus Allocation Fund, GMO Tax-Managed U.S.
Equities Fund, GMO Tax-Managed International
----------
1 = Previously filed with the Securities and Exchange Commission and
incorporated herein by reference.
-3-
<PAGE> 57
Equities Fund, GMO Intrinsic Value Fund and GMO Tax-Managed U.S.
Small Cap Fund, GMO and IBT.(1)
3. Form of Letter Agreement to the Transfer Agency Agreement among
the Trust, on behalf of its GMO Alpha LIBOR Fund, GMO and IBT.(1)
4. Form of Notification of Obligation to Reimburse Certain Fund
Expenses by Grantham, Mayo, Van Otterloo & Co. LLC to the Trust.(1)
5. Form of Amended and Restated Servicing Agreement between the
Trust, on behalf of certain Funds, and Grantham, Mayo, Van Otterloo
& Co. LLC.(1)
(i). Opinion and Consent of Ropes & Gray.(1)
(j). Consent of PricewaterhouseCoopers LLP.(1)
(k). Financial Statements - Not applicable.
(l). None.
(m). None.
(n). Financial Data Schedules -- Not Applicable.
(o). Form of Rule 18f-3 Multiclass Plan.(1)
(p). Code of Ethics adopted by GMO Trust, Grantham, Mayo, Van Otterloo &
Co. LLC, Dancing Elephant, Ltd., GMO Australia Ltd., GMO Australia
LLC, GMO Renewable Resources LLC, GMO Woolley Ltd.(1)
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
Item 25. INDEMNIFICATION
See Item 27 of Pre-Effective Amendment No. 1 which is hereby
incorporated by reference.
----------
1 = Previously filed with the Securities and Exchange Commission and
incorporated herein by reference.
-4-
<PAGE> 58
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See Item 28 of Pre-Effective Amendment No. 1 which is hereby
incorporated by reference.
Item 27. PRINCIPAL UNDERWRITERS
Not Applicable.
-5-
<PAGE> 59
Item 28. LOCATION OF ACCOUNTS AND RECORDS
See Item 30 of Pre-Effective Amendment No. 1 which is hereby incorporated
by reference.
-6-
<PAGE> 60
Item 29. MANAGEMENT SERVICES
Not Applicable.
Item 30. UNDERTAKINGS
None.
-7-
<PAGE> 61
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940 (the
"1940 Act"), the Registrant, GMO Trust, has duly caused this Post-Effective
Amendment No. 64 under the 1940 Act to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and The
Commonwealth of Massachusetts, on the 26th day of July, 2000.
GMO Trust
By: /s/ R. JEREMY GRANTHAM*
------------------------------------
R. Jeremy Grantham
Title: President - Quantitative;
Principal Executive Officer; Trustee
Pursuant to the requirements of the 1940 Act, this Post-Effective
Amendment No. 64 to the Trust's Registration Statement under the 1940 Act has
been signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
R. JEREMY GRANTHAM* President - Quantitative; Principal July 26, 2000
-------------------
R. Jeremy Grantham Executive Officer; Trustee
SUSAN RANDALL HARBERT* Chief Financial Officer and Treasurer; July 26, 2000
---------------------- Principal Financial and Accounting
Susan Randall Harbert Officer
JAY O. LIGHT* Trustee July 26, 2000
-------------
Jay O. Light
</TABLE>
*By: /s/ WILLIAM R. ROYER
--------------------------
William R. Royer
Attorney-in-Fact
-8-
<PAGE> 62
POWER OF ATTORNEY
We, the undersigned officers and trustees of GMO Trust, a Massachusetts
business trust, hereby severally constitute and appoint William R. Royer our
true and lawful attorney, with full power to him to sign for us, and in our
names and in the capacities indicated below, any and all amendments to the
Registration Statement filed with the Securities and Exchange Commission for the
purpose of registering shares of beneficial interest of GMO Trust, hereby
ratifying and confirming our signatures as they may be signed by our said
attorneys on said Registration Statement.
Witness our hands and common seal on the date set forth below.
(Seal)
Signature Title Date
--------- ----- ----
/s/ R. Jeremy Grantham President-Domestic; March 12, 1996
-------------------------- Principal Executive
R. Jeremy Grantham Officer; Trustee
/s/ Eyk H.A. Van Otterloo President-International March 12, 1996
--------------------------
Eyk H.A. Van Otterloo
/s/ Kingsley Durant Treasurer; Principal March 12, 1996
----------------------------- Financial and
Kingsley Durant Accounting Officer
-9-
<PAGE> 63
POWER OF ATTORNEY
I, the undersigned trustee of GMO Trust, a Massachusetts business trust,
hereby constitute and appoint William R. Royer my true and lawful attorney, with
full power to him to sign for me, and in my names and in the capacity indicated
below, any and all amendments to the Registration Statement filed with the
Securities and Exchange Commission for the purpose of registering shares of
beneficial interest of GMO Trust, hereby ratifying and confirming my signature
as it may be signed by my said attorney on said Registration Statement.
Witness my hand and common seal on the date set forth below.
(Seal)
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jay O. Light Trustee May 23, 1996
--------------------
Jay O. Light
</TABLE>
-10-
<PAGE> 64
POWER OF ATTORNEY
I, the undersigned officer of GMO Trust, a Massachusetts business trust,
hereby constitute and appoint William R. Royer my true and lawful attorney, with
full power to him to sign for me, and in my name and in the capacity indicated
below, any and all amendments to the Registration Statement filed with the
Securities and Exchange Commission for the purpose of registering shares of
beneficial interest of GMO Trust, hereby ratifying and confirming my signature
as it may be signed by my said attorney on said Registration Statement.
Witness my hand and common seal on the date set forth below.
(Seal)
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Susan Randall Harbert Treasurer; Principal April 29, 1999
------------------------- Financial and Accounting
Susan Randall Harbert Officer
</TABLE>
-11-
