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CODE OF ETHICS
GMO TRUST
GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC
DANCING ELEPHANT, LTD.
GMO AUSTRALIA LTD.
GMO AUSTRALIA LLC
GMO RENEWABLE RESOURCES LLC
GMO WOOLLEY LTD.
Dated June 1, 2000
I. INTRODUCTION
A. Fiduciary Duty. This Code of Ethics is based on the principle that
trustees, officers, employees, and certain other related persons of the
above-listed mutual funds and fund managers have a fiduciary duty to place the
interests of the Funds and Accounts ahead of their own. The Code applies to all
Access Persons(1) and focuses principally on pre-clearance and reporting of
personal transactions in securities. Access Persons must avoid activities,
interests and relationships that might interfere with making decisions in the
best interests of any of the GMO Funds and Accounts.
As fiduciaries, Access Persons must at all times:
1. Place the interests of the GMO Funds and Accounts first.
Access Persons must scrupulously avoid serving their own personal
interests ahead of the interests of the GMO Funds and Accounts in any
decision relating to their personal investments. An Access Person may
not induce or cause a Fund to take action, or not to take action, for
personal benefit, rather than for the benefit of the Fund. Nor may any
Access Persons otherwise exploit the client relationship for personal
gain.
2. Conduct all personal Securities Transactions consistent
with this Code including both the pre-clearance and reporting
requirements. Doubtful situations should be resolved in favor of the
GMO Funds and Accounts. Technical compliance with the Code's procedures
will not automatically insulate from scrutiny any trades that indicate
an abuse of fiduciary duties.
3. Avoid taking inappropriate advantage of their positions.
Access Persons must not only seek to achieve technical compliance with
the Code but should strive to abide by its spirit and the principles
articulated herein.
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(1) Capitalized words are defined in Appendix 1.
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B. Appendices to the Code. The appendices to this Code are attached to
and are a part of the Code. The appendices include the following:
1. Definitions (capitalized terms in the Code are defined in
Appendix 1),
2. Master Personal Trading Policies and Procedures and the
appendices thereto (Appendix 2),
3. Quick Reference Guide to Pre-Clearance and Quarterly Reporting
(Appendix A to Appendix 2),
4. Quarterly Transaction Report (Appendix B to Appendix 2),
5. Contact Persons including the Compliance Officer and the
Conflicts of Interest Committee, if different than as
initially designated herein (Appendix C to Appendix 2),
6. Personal Trading Relationship and Holdings Disclosure Form
(Appendix D to Appendix 2),
7. Trade Authorization Request for Access Persons (Appendix E to
Appendix 2),
8. Acknowledgment of Receipt of Code of Ethics (Appendix F to
Appendix 2),
9. Annual Certification of Compliance With The Code of Ethics
(Appendix G to Appendix 2), and
10. Form Letter to Broker, Dealer or Bank (Appendix H to Appendix
2).
II. PERSONAL SECURITIES TRANSACTIONS
A. Pre-Clearance Requirements for Access Persons.
1. General Requirement. All Securities Transactions by Access
Persons (other than any trustee of GMO Trust who is not an
"interested person" (as defined in the Investment Company
Act of 1940 ("1940 Act")) of a GMO Fund) of the types set
forth in Section 2 of the Procedures are subject to the
pre-clearance procedures set forth in Section 6 of the
Procedures.
2. General Policy. In general, requests to buy or sell a
security will be denied if the Security (a) was purchased or
sold within 3 calendar days prior to the date of the request
or (b) is being considered for purchase or sale within 15
days after the date of the request by any Fund or Account.
Requests to sell a Security short
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will be denied for the same reasons and also if the security
is owned by any GMO Active Portfolio.
3. Procedures. The procedures for requesting pre-clearance of a
Securities Transaction are set forth in Section 6 of the Procedures
and in Appendix A thereto. The Compliance Officer (or a designee) will
keep appropriate records of all pre-clearance requests.
4. No Explanation Required for Refusals. In some cases, the
Compliance Officer (or a designee) may refuse to authorize a
Securities Transaction for a reason that is confidential. The
Compliance Officer is not required to give an explanation for refusing
to authorize any Securities Transaction.
B. Prohibited Transactions.
1. Prohibited Securities Transactions. The following Securities
Transactions are prohibited and will not be authorized, except to the
extent designated below. These prohibitions shall not apply to any
trustee of GMO Trust who is not an "interested person" (as defined in
the 1940 Act) of a GMO Fund.
a. Initial Public Offerings. Any purchase of Securities in
an initial public offering other than a new offering of a
registered open-end investment company or any initial offering
which an Access Person can demonstrate in the pre-clearance
process is available and accessible to the general investing
public through on-line or other means.
b. Private Placements. Any purchase of Securities in an
offering exempt from registration under the Securities Act of
1933, as amended, is generally prohibited but may be reviewed by
the Conflicts of Interest Committee upon request.
c. Options on Securities. Options on any securities owned by
an active trading area of the firm or an area in which an
employee directly works.
d. Securities Purchased or Sold or Being Considered for
Purchase or Sale. Any Security purchased or sold or being
considered for purchase or sale by a Fund or an Account. For this
purpose, a security is being considered for purchase or sale when
a recommendation to purchase or sell the Security has been
communicated or, with respect to the person making the
recommendation, when such person seriously considers making the
recommendation.
e. Short-Term Trading. Any purchase or sale of the same or
equivalent Securities within 60 calendar days generally is
prohibited but will be reviewed by the Compliance Officer on a
case-by-case basis, and may be approved in situations in which
there is no potential for abuse and the equities strongly support
an
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exemption. Securities exempt from pre-clearance and reporting are
not subject to this prohibition.
f. Short Selling of Securities. Short selling securities
that are held in Active Portfolios (including International
Active, Domestic Active, Emerging Markets and Global Equities).
Access Persons also are prohibited from short selling Securities
held in an account within his or her own area, even if
quantitatively managed. The Compliance Department will determine
whether an Active Portfolio holds a Security and whether a
Security is held by an Access Person's "area."
2. Improper Securities Transactions. The following Securities
Transactions may violate the federal securities laws or other legal or
regulatory provisions or are otherwise deemed to be improper and are
prohibited and will not be authorized under any circumstances:
a. Inside Information. Any transaction in a Security while
in possession of material nonpublic information regarding the
Security or the issuer of the Security;
b. Market Manipulation. Transactions intended to raise,
lower, or maintain the price of any Security or to create a false
appearance of active trading;
c. Others. Any other transactions deemed by the Compliance
Officer (or a designee) to involve a conflict of interest,
possible diversions of corporate opportunities, or an appearance
of impropriety.
C. Exemptions.
1. The following Securities Transactions and other
transactions are exempt (as indicated below) from either the
pre-clearance requirements set forth in Section II.A. or the reporting
requirements set forth in Section II.D, or both. Note that de minimus
purchases and sales of large market cap stocks (see (i) below), are
exempt from pre-clearance, but are subject to quarterly reporting.
(Also, see Appendix 2.):
a. Securities Transactions Exempt from Both Pre-clearance
and Reporting.
- Mutual Funds. Securities issued by any registered
open-end investment companies (including, but not
limited to, the GMO Funds).
- U.S. Government Securities. Securities issued by the
Government of the United States;
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- Money Market Instruments. Money market instruments or
their equivalents, including bankers' acceptances, bank
certificates of deposit, commercial paper and high
quality short-term debt instruments(2), including
repurchase agreements;
- Currencies and Forward Contracts Thereon. Currencies of
foreign governments and forward contracts thereon;
- Certain Corporate Actions. Any acquisition of
Securities through stock dividends, dividend
reinvestments, stock splits, reverse stock splits,
mergers, consolidations, spin-offs, or other similar
corporate reorganizations or distributions generally
applicable to all holders of the same class of
Securities and
- Rights. Any acquisition of Securities through the
exercise of rights issued by an issuer to all holders
of a class of its Securities, to the extent the rights
were acquired in the issue.
b. Securities Transactions Exempt from Pre-clearance but
Subject to Reporting Requirements.
- Discretionary Accounts. Transactions through any
discretionary accounts (i) that have been approved by
the Compliance Department in advance and (ii) for which
the Access Person has arranged for quarterly
certification from the third party manager stating that
the individual (Access Person or Immediate Family
Member) has not influenced the discretionary manager's
decisions during the period in question;
- De Minimus Purchases and Sales of Large Cap Stocks.
Purchases or sales of less than $5,000 of common stock
of issuers whose market capitalization is greater than
$5 billion, which may be utilized once per security
during a pre-clearance period; and
- Miscellaneous. Any transaction in the following: (1)
limited partnerships and other pooled vehicles
sponsored by a GMO Entity, (2) open-end investment
vehicles not market traded and (3) other Securities as
may from time to time be designated in writing by the
Conflicts of Interest Committee on the ground that the
risk of abuse is minimal or non-existent.
2. Application to Commodities, Futures and Options.
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(2) High quality short-term debt instrument means any instrument that has a
maturity at issuance of less than 366 days and that is rated in one of the two
highest rating categories by a Nationally Recognized Statistical Rating
Organization.
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a. The purchase or sale of commodities, futures on
commodities and related options, futures on currencies,
non-exchange-traded options on currencies, and
non-exchange-traded options on currency futures are not
subject to the pre-clearance requirements set forth in
Section II.A. or the reporting requirements set forth in
Section II.D.
b. The purchase and sale of exchange-traded options on
currencies, exchange-traded options on currency futures; and
the purchase of futures on securities comprising part of a
broad-based, publicly traded market based index of stocks
and related options are not subject to the pre-clearance
requirements set forth in Section II.A., but are subject to
the reporting requirements set forth in Section II.D.
c. The purchase of other options relating to Securities
are subject to all of the provisions of this Code.
d. The exercise of options, the purchase or sale of
which is subject to the pre-clearance or reporting
provisions of this Code, is not subject to the pre-clearance
requirements set forth in Section II.A., but is subject to
the reporting requirements set forth in Section II.D.
e. The writing of covered call options on Securities or
Securities indices is permitted.
D. Reporting Requirements
1. Initial and Annual Disclosure of Personal Holdings. No
later than 10 days after initial designation as an Access Person and
thereafter on an annual basis (and based on information current as of a
date not more than 30 days before the report is submitted), each Access
Person must report to the Compliance Department all of the information
set forth in Section 1 of the Procedures.
2. Quarterly Reporting Requirements. Each Access Person must
file a quarterly report with the Compliance Department within 10
calendar days of quarter-end with respect to all Securities
Transactions of the types listed in Section 2 of the Procedures
occurring during that past quarter. The procedures to be followed in
making quarterly reports are set forth in Section 7 of the Procedures.
3. Brokerage Statements. Each Access Person must disclose to
the Compliance Department all of his or her brokerage accounts and
relationships and must require such brokers to forward to the
Compliance Department copies of confirmations of account transactions.
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4. Exemption for Certain Trustees. The reporting requirements
in the three preceding paragraphs shall not apply to any trustee of GMO
Trust who is not an "interested person" (as defined in the 1940 Act) of
a GMO Fund.
5. Review of Reports. The Compliance Officer shall review and
maintain each Access Person's reports filed pursuant to Sections 2.D.1
and .2 of this Code and brokerage statements filed pursuant to Section
2.D.3 of this Code.
6. Availability of Reports. All information supplied pursuant
to this Code will generally be maintained in a secure and confidential
manner, but may be made available (without notice to Access Person) for
inspection to the directors, trustees or equivalent persons of each GMO
Entity employing the Access Person, the Board of Trustees of each GMO
Fund, the Conflicts of Interest Committee, the Compliance Department,
the Compliance Officer, the Access Person's department manager (or
designee), any party to which any investigation is referred by any of
the foregoing, the SEC, any state securities commission, and any
attorney or agent of the foregoing or of the GMO Funds.
III. FIDUCIARY DUTIES
A. Confidentiality. Access Persons are prohibited from revealing
information relating to the investment intentions, activities or portfolios of
the Funds and Accounts, except to persons whose responsibilities require
knowledge of such information.
B. Gifts. The following provisions on gifts apply to all Access
Persons.
1. Accepting Gifts. On occasion, because of their affiliation
with the Funds or Accounts, Access Persons may be offered, or may
receive without notice, gifts from clients, brokers, vendors, or other
persons not affiliated with any GMO Entity. Acceptance of extraordinary
or extravagant gifts is not permissible. Any such gifts must be
declined or returned in order to protect the reputation and integrity
of the GMO Funds and the GMO Entities. Gifts of a nominal value (i.e.,
gifts whose reasonable value is no more than $100 a year), and
customary business meals, entertainment (e.g., sporting events), and
promotional items (e.g., pens, mugs, T-shirts) may be accepted.
If an Access Person receives any gift that might be prohibited
under this Code, the Access Person must inform the Compliance
Department.
2. Solicitation of Gifts. Access Persons may not solicit gifts
or gratuities.
C. Service as a Director. Pursuant to the provisions of Section 2.D.1
of this Code, Access Persons must report any service as a director of a
publicly-held company (other than the GMO Entities, their affiliates, and the
Funds). The Compliance Department shall review at the outset and from
time-to-time the appropriateness of such service in light of the objectives of
this Code. The Compliance Department may in certain cases determine that such
service is inconsistent
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with these objectives; and it may in others require that the affected Access
Person be isolated, through a "Chinese Wall" or other procedures, from those
making investment decisions related to the issuer on whose board the person
sits.
IV. COMPLIANCE WITH THIS CODE OF ETHICS
A. Conflicts of Interest Committee
1. Membership, Voting and Quorum. The Conflicts of Interest
Committee shall initially consist of Scott Eston, Forrest Berkley and
Bill Royer. The Conflicts of Interest Committee shall vote by majority
vote with two members serving as a quorum. Vacancies may be filled and,
in the case of extended absences or periods of unavailability,
alternates may be selected, by a majority vote of the remaining members
of the Committee.
2. Investigating Violations of the Code. The Compliance
Department is responsible for investigating any suspected violation of
the Code and shall report the results of each investigation to the
Conflicts of Interest Committee. The Conflicts of Interest Committee is
responsible for reviewing the results of any investigation of any
reported or suspected violation of the Code. Any violation of the Code
will be reported to the Boards of Trustees of the GMO Funds no less
frequently than each quarterly meeting.
3. Annual Reports. The Conflicts of Interest Committee will
review the Code at least once a year, in light of legal and business
developments and experience in implementing the Code, and will provide
a written report to the Board of Trustees of each GMO Fund:
a. Summarizing existing procedures concerning
personal investing and any changes in the procedures made
during the past year;
b. Identifying material issues under this Code since
the last report to the Board of Trustees of the GMO Funds,
including, but not limited to, any material violations of the
Code or sanctions imposed in response to material violations
or pattern of non-material violation or sanctions;
c. Identifying any recommended changes in existing
restrictions or procedures based on its experience under the
Code, evolving industry practices, or developments in
applicable laws or regulations; and
d. Certifying to the Boards of Trustees of the GMO
Funds that the applicable GMO Entities have adopted procedures
reasonably necessary to prevent Access Persons from violating
the Code.
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4. Review of Denied Trades. The process and standards for
Conflicts of Interest Committee review of denied trades is set forth in
Section 3 of the Procedures and Appendix A thereto.
B. Remedies
1. Sanctions. If the Conflicts of Interest Committee
determines that an Access Person has committed a violation of the Code,
the Conflicts of Interest Committee may impose sanctions and take other
actions as it deems appropriate, including a letter of caution or
warning, suspension of personal trading rights, suspension of
employment (with or without compensation), fine, civil referral to the
SEC, criminal referral, and termination of the employment of the
violator for cause. The Conflicts of Interest Committee also may
require the Access Person to reverse the trade(s) in question and
forfeit any profit or absorb any loss derived therefrom. In such cases,
the amount of profit shall be calculated by the Conflicts of Interest
Committee and shall be forwarded to a charitable organization selected
by the Conflicts of Interest Committee. No member of the Conflicts of
Interest Committee may review his or her own transaction.
2. Review. Whenever the Conflicts of Interest Committee
determines that an Access Person has committed a violation of this Code
that merits remedial action, it will report no less frequently than
quarterly to the Boards of Trustees of the applicable GMO Funds,
information relating to the investigation of the violation, including
any sanctions imposed. The Boards of Trustees of the GMO Funds may
modify such sanctions as they deem appropriate. Such Boards shall have
access to all information considered by the Conflicts of Interest
Committee in relation to the case. The Conflicts of Interest Committee
may determine whether or not to delay the imposition of any sanctions
pending review by the applicable Board of Trustees.
3. Review of Pre-Clearance Decisions. Upon written request by
any Access Person, the Conflicts of Interest Committee may review, and,
if applicable, reverse any request for pre-clearance denied by the
Compliance Department (or a designee).
C. Exceptions to the Code. Although exceptions to the Code will rarely,
if ever, be granted, the Compliance Department may grant exceptions to the
requirements of the Code on a case by case basis if the Compliance Department
finds that the proposed conduct involves negligible opportunity for abuse. All
such exceptions must be in writing and must be reported by the Compliance
Department as soon as practicable to the Conflicts of Interest Committee and to
the Boards of Trustees of the GMO Funds at their next regularly scheduled
meeting after the exception is granted.
D. Compliance Certification. At least once a year, all Access Persons
will be required to certify that they have read, understand and complied with
the Code and the Procedures.
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E. Inquiries Regarding the Code. The Compliance Department will answer
any questions about this Code, the Procedures or any other compliance-related
matters.
V. BOARDS OF TRUSTEES APPROVALS
A. Approval of Code. The Boards of Trustees of the GMO Funds, including
a majority of the Trustees who are not "interested persons" under the 1940 Act,
must approve the Code based upon a determination that it contains the provisions
reasonably necessary to prevent Access Persons from engaging in conduct
prohibited by Rule 17j-1 under the 1940 Act.
B. Amendments to Code. The Boards of Trustees of the GMO Funds,
including a majority of the Trustees who are not "interested persons" under the
1940 Act, must approve any material amendment to the Code or the Procedures
within six months of such change.
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APPENDIX 1
DEFINITIONS
"Access Person" means:
(1) every trustee, officer, or member of Grantham, Mayo, Van
Otterloo & Co. LLC, Dancing Elephant, Ltd., GMO Australia
Ltd., GMO Renewable Resources LLC, GMO Woolley Ltd., or any of
the GMO Funds;
(2) every employee or on-site consultant of a GMO Entity (or a
company in a control relationship with any of the foregoing)
who, in connection with his or her regular functions, makes,
participates in, or obtains information regarding the purchase
or sale of a Security by a Fund or an Account, or whose
functions relate to the making of any recommendations with
respect to such purchases or sales;
(3) every natural person in a control relationship with a GMO
Entity or a GMO Fund who obtains information concerning
recommendations made to a Fund or an Account with regard to
the purchase or sale of a Security, prior to its dissemination
or prior to the execution of all resulting trades;
(4) such other persons as the Legal and Compliance Department
shall designate. Initially, the Compliance Department has
designated all employees and on-site consultants of GMO
Entities and all members of Grantham, Mayo, Van Otterloo & Co.
LLC as Access Persons.
Any uncertainty as to whether an individual is an Access person should be
brought to the attention of the Compliance Department, which will make the
determination in all cases.
"Beneficial Interest" means the opportunity, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, to
profit, or share in any profit derived from, a transaction in the subject
Securities. An Access Person is deemed to have a Beneficial Interest in
Securities owned by members of his or her Immediate Family. Common examples of
Beneficial Interest include joint accounts, spousal accounts, UTMA accounts,
partnerships, trusts and controlling interests in corporations. Any uncertainty
as to whether an Access Person has a Beneficial Interest in a Security should be
brought to the attention of the Legal and Compliance Department. Such questions
will be resolved in accordance with, and this definition shall be subject to,
the definition of "beneficial owner" found in Rules 16a-1(a)(2) and (5)
promulgated under the Securities Exchange Act of 1934.
"Code" means this Code of Ethics, as amended.
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"Compliance Department" means the Legal and Compliance Department of
Grantham, Mayo, Van Otterloo & Co. LLC. Communications received under this Code
to be directed to the Compliance Department in the first instance should be
directed to the Compliance Officer.
"Compliance Officer" means the Compliance Officer of Grantham, Mayo,
Van Otterloo & Co. LLC, Julie Perniola.
"GMO Active Portfolio" means any Fund or Account that is managed by
application of traditional (rather than quantitative) investment techniques,
which includes International Active, Domestic Active, Emerging Markets and
Global Equities.
"GMO Account" and "Account" mean any investments managed for a U.S.
based client by a GMO entity, including private investment accounts, ERISA pools
and unregistered pooled investment vehicles.
"GMO Entity" means Grantham, Mayo, Van Otterloo & Co. LLC, Dancing
Elephant, Ltd., GMO Australia Ltd., GMO Australia LLC, GMO Renewable Resources
LLC, or GMO Woolley Ltd.
"Equivalent Security" means any Security issued by the same entity as
the issuer of a subject Security, including options, rights, stock appreciation
rights, warrants, preferred stock, restricted stock, phantom stock, bonds, and
other obligations of that company or security otherwise convertible into that
security.
"GMO Fund" and "Fund" mean an investment company registered under the
1940 Act (or a portfolio or series thereof, as the case may be), including GMO
Trust, for which any of the GMO Entities serves as an adviser or sub-adviser.
"Immediate Family" of an Access Person means any of an Access Person's
spouse and minor children who reside in the same household. Immediate Family
includes adoptive relationships and any other relationship (whether or not
recognized by law) which the Compliance Department determines could lead to the
possible conflicts of interest or appearances of impropriety which this Code is
intended to prevent. The Compliance Department may from time-to-time circulate
such expanded definitions of this term as it deems appropriate.
"Procedures" means the Master Personal Trading Policies and Procedures
of Grantham, Mayo, Van Otterloo & Co. LLC, from time-to-time in effect and
attached hereto as Appendix 2.
"SEC" means the Securities and Exchange Commission.
"Security" shall have the meaning set forth in Section 2(a)(36) of the
1940 Act, except that it shall not include securities issued by the Government
of the United States, bankers' acceptances, bank certificates of deposit,
commercial paper, high quality short-term debt instruments, including repurchase
agreements, and shares of registered open-end investment companies, or such
other securities as may be excepted under the provisions of Rule 17j-1.
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"Securities Transaction" means a purchase or sale of Securities in
which an Access Person or a member of his or her Immediate Family has or
acquires a Beneficial Interest. A donation of securities to a charity is
considered a Securities Transaction.
REVISED: February 17, 2000
June 1, 2000
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