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 February 17, 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 is being considered for purchase or sale
within 15 days of the date of the request by any Fund or Account. Requests
to sell a Security short will be
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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 BEING CONSIDERED FOR PURCHASE OR SALE. Any Security
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 Properties). 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 INSTRUMENTS2, 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 employ-
ing 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 with-
out 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 Properties.
"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.
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