3Q 2011 US GMO Quarterly Update Nov 3

Third Quarter 2011

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Contents Global Market Review .................................................................. 6

Asset Allocation ............................................................................. 7

Performance Review and Outlook ............................................. 8

Strategy Performance Details..................................................... 18

Table of Benchmarks .................................................................. 67

2 GMO Quarterly Update

2011 Performance of GMO Strategies and Benchmarks

Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. A GIPS® compliant presentation is available at www.gmo.com.

Copyright © 2011 by GMO. All rights reserved. This document may not be reproduced, distributed or transmitted, in whole or in portion, by any means, without written permission from GMO.

Total Return Net of Fees Average Annual Total Return

GMO U.S. Equity Inception 3Q YTD YTD Value One Five Ten Since

Strategies/Benchmarks Date 2011 2011 Added Year Year Year Inception

U.S. Core 9/30/85 -9.25 -2.55 6.13 5.15 -0.81 2.34 10.40S&P 500 -13.87 -8.68 1.14 -1.18 2.82 9.83

Intrinsic Value 5/31/99 -11.82 -2.69 8.55 6.31 -2.84 2.73 2.68Russell 1000 Value -16.20 -11.24 -1.89 -3.53 3.36 2.03

Quality 2/29/04 -5.28 1.37 10.05 7.79 1.46 n/a 2.37S&P 500 -13.87 -8.68 1.14 -1.18 n/a 1.89

Growth 12/31/88 -7.16 0.22 7.42 8.22 1.45 2.41 9.08Russell 1000 Growth -13.14 -7.20 3.78 1.62 3.01 8.37

Small/Mid Cap Value 12/31/91 -19.87 -11.00 5.29 0.37 -2.75 5.78 9.78Russell 2500 Value + -21.10 -16.29 -4.70 -1.69 7.24 9.84

Small/Mid Cap Growth 12/31/96 -23.13 -8.18 5.11 6.96 -0.81 5.40 4.31Russell 2500 Growth -21.35 -13.29 0.59 1.91 6.32 4.88

Real Estate 5/31/96 -13.30 -3.83 1.88 3.21 -1.64 8.93 8.61MSCI U.S. REIT -14.53 -5.71 1.26 -2.56 9.13 9.46

Tax-Managed U.S. Equities 7/31/98 -8.19 -1.43 8.46 6.19 -0.86 2.23 2.59Russell 3000 + -15.28 -9.90 0.55 -0.99 2.92 1.95

GMO International Equity Inception 3Q YTD YTD Value One Five Ten Since


International Active EAFE 5/31/81 -18.94 -14.43 0.55 -9.80 -4.10 6.56 11.81MSCI EAFE -19.01 -14.98 -9.36 -3.46 5.03 8.61

Int'l. Active Foreign Small Companies 1/31/95 -20.05 -15.86 -0.37 -6.48 0.75 12.26 10.63S&P Developed ex-U.S. Small Cap -19.99 -15.50 -5.83 -1.10 10.18 6.14

International Intrinsic Value 3/31/87 -18.06 -12.37 2.15 -7.05 -3.85 7.15 7.60MSCI EAFE Value -19.03 -14.52 -9.99 -4.82 5.13 6.36MSCI EAFE -19.01 -14.98 -9.36 -3.46 5.03 4.45

International Growth 11/30/01 -16.96 -11.58 3.85 -4.20 -0.37 n/a 6.10MSCI EAFE Growth -18.98 -15.43 -8.79 -2.16 n/a 4.00MSCI EAFE -19.01 -14.98 -9.36 -3.46 n/a 4.46

International Core Equity 1/31/02 -18.12 -12.14 2.84 -5.62 -2.80 n/a 6.84MSCI EAFE -19.01 -14.98 -9.36 -3.46 n/a 5.07

Currency Hedged Int'l. Equity 6/30/95 -14.82 -13.60 2.15 -8.93 -4.14 3.79 6.33MSCI EAFE (Hedged) -15.74 -15.75 -10.92 -5.26 1.59 4.58

Japan Equity 12/31/05 -0.12 1.72 10.96 17.36 -1.04 n/a -0.87MSCI Japan IMI++ -5.48 -9.24 1.66 -4.19 n/a -3.46

Int'l. Small Companies 10/31/91 -20.37 -14.64 0.83 -3.19 -0.48 11.49 8.68MSCI EAFE Small Cap + -18.59 -15.47 -5.50 -0.58 10.46 5.92MSCI EAFE -19.01 -14.98 -9.36 -3.46 5.03 4.42

Tax-Managed Int'l. Equities 8/31/98 -18.00 -11.65 3.33 -5.30 -2.34 7.91 6.68MSCI EAFE -19.01 -14.98 -9.36 -3.46 5.03 3.30

GMO Quarterly Update 3



* Returns for one of the accounts in the composite are based on estimated market values for the period from and including October 2008 through February 2009. ** Returns for the composite are based on estimated market values for the period from and including October 2008 through February 2009.


GMO Emerging Equity Inception 3Q YTD YTD Value One Five Ten Since


Emerging Markets 12/31/93 -22.02 -19.56 2.48 -13.30 3.33 16.99 8.32S&P/IFCI Composite -22.58 -22.04 -15.86 5.40 17.50 5.66MSCI Emerging Markets -22.56 -21.88 -16.15 4.87 16.07 5.11

Emerging Countries 9/30/97 -22.60 -20.14 1.90 -13.69 2.86 16.42 8.99S&P/IFCI Composite -22.58 -22.04 -15.86 5.40 17.50 7.77MSCI Emerging Markets -22.56 -21.88 -16.15 4.87 16.07 6.54

Emerging Domestic Opportunities 3/31/11 -16.71 -13.05 10.40 n/a n/a n/a -13.05MSCI Emerging Markets -22.56 -23.45 n/a n/a n/a -23.45

GMO Global Equity Inception 3Q YTD YTD Value One Five Ten Since


Global Active Equity 8/31/00 -19.68 -15.05 -2.84 -8.21 -3.12 6.68 6.41MSCI World -16.61 -12.20 -4.35 -2.23 3.71 -0.19

Global Equity 7/31/96 -16.11 -10.53 1.68 -3.93 -2.71 5.09 5.95MSCI World -16.61 -12.20 -4.35 -2.23 3.71 4.29

GMO Fixed Income Inception 3Q YTD YTD Value One Five Ten Since


Core Plus Bond 4/30/97 4.26 8.22 1.57 7.71 4.33 5.31 6.13Barclays Capital U.S. Aggregate 3.82 6.65 5.26 6.53 5.66 6.44

Inflation Indexed Plus Bond 5/31/06 4.62 11.36 0.77 12.08 5.19 n/a 5.49Barclays Capital U.S. Treasury Inflation Notes 4.51 10.59 9.87 7.10 n/a 7.40

U.S. Treasury 3/31/09 0.01 0.10 0.03 0.14 n/a n/a 0.19Citigroup 3-Mo. T-Bill 0.01 0.07 0.11 n/a n/a 0.13

International Bond 12/31/93 0.74 6.29 0.13 6.14 6.41 8.19 7.53J.P. Morgan Non-U.S. Gov't. Bond 1.45 6.16 4.71 8.28 8.23 6.56

Currency Hedged Int'l. Bond 9/30/94 4.71 6.12 1.02 3.77 3.40 4.72 8.03J.P. Morgan Non-U.S. Gov't. 4.46 5.10 1.83 4.85 4.87 7.10 Bond (Hedged) (ex-Japan) +

Global Bond* 12/31/95 2.49 7.47 0.40 6.46 5.85 7.13 6.36J.P. Morgan Global Gov't. Bond 3.06 7.07 5.16 7.93 7.60 6.06

Emerging Country Debt* 4/30/94 -3.92 1.39 -1.79 2.37 7.02 14.00 16.08J.P. Morgan EMBI Global + -1.82 3.18 1.28 7.81 10.48 11.62

Emerging Country Local Debt Investment** 2/29/08 -10.76 -5.33 -1.27 -5.17 n/a n/a 1.93J.P. Morgan GBI-EM Diversified -10.29 -4.06 -4.59 n/a n/a 5.49

Asset Allocation Bond 3/31/09 0.80 4.36 4.29 4.03 n/a n/a 6.00Citigroup 3-Mo. T-Bill 0.01 0.07 0.11 n/a n/a 0.13





GMO Asset Allocation Inception 3Q YTD YTD Value One Five Ten Since


Global Balanced Asset Allocation 6/30/88 -6.59 -1.92 4.76 1.91 3.38 7.80 9.71Blended Benchmark -10.30 -6.67 -1.79 1.39 4.73 7.72

Real Return Global Balanced Asset Alloc. 6/30/04 -4.93 -0.67 5.68 2.55 3.54 n/a 5.90Blended Benchmark -9.75 -6.35 -1.52 0.71 n/a 3.34

Global Allocation Absolute Return 7/31/01 -1.63 1.36 -5.51 3.12 5.00 10.54 9.76CPI Plus 5% 2.42 6.87 9.11 7.39 7.57 7.56

Real Return Asset Allocation 12/31/09 1.56 2.71 -0.33 -0.73 n/a n/a -5.55CPI 1.18 3.04 3.93 n/a n/a 2.45

Global All Country Equity Allocation 12/31/93 -13.20 -7.55 5.85 -1.05 0.86 7.94 8.27Blended Benchmark -17.38 -13.40 -5.63 -1.69 4.39 5.98

Global Developed Equity Allocation 3/31/87 -12.97 -7.02 5.18 -0.48 -0.53 7.20 8.69Blended Benchmark -16.61 -12.19 -4.33 -2.22 3.67 6.27

International All Country Equity Alloc. 2/28/94 -19.34 -14.42 2.27 -8.19 -1.02 9.93 6.94Blended Benchmark -19.81 -16.70 -10.74 -1.77 7.46 4.81

International Developed Equity Allocation 11/30/91 -18.19 -12.49 2.48 -6.23 -2.42 8.28 7.54Blended Benchmark -19.01 -14.98 -9.36 -3.30 5.52 5.37

U.S. Equity Allocation 2/28/89 -7.51 -0.70 8.58 6.48 -0.09 3.73 9.68Blended Benchmark -14.60 -9.29 0.99 -0.99 3.19 8.68

Flexible Equities 12/31/08 -5.08 -4.93 7.28 5.07 n/a n/a -4.08MSCI World -16.61 -12.20 -4.35 n/a n/a 9.25

Special Situations 8/31/07 0.55 1.59 1.52 0.73 n/a n/a 7.28Citigroup 3-Mo. T-Bill 0.01 0.07 0.11 n/a n/a 0.86

Alpha Only 7/31/94 4.73 5.82 5.75 3.91 2.66 3.78 4.36Citigroup 3-Mo. T-Bill 0.01 0.07 0.11 1.62 1.92 3.29

Tax-Managed Global Balanced 12/31/02 -6.80 -2.57 2.96 0.70 2.67 n/a 7.32GMO Tax-Managed Global Balanced Index -9.53 -5.53 -1.51 1.45 n/a 5.81





GMO Absolute Return Inception 3Q YTD YTD Value One Five Ten Since


Aggressive Long/Short 9/30/00 -10.44 -8.83 -8.90 -7.10 -1.08 0.28 4.66Citigroup 3-Mo. T-Bill 0.01 0.07 0.11 1.62 1.92 2.20

Tactical Opportunities 9/30/04 32.83 35.30 35.23 21.66 -1.72 n/a -4.04Citigroup 3-Mo. T-Bill 0.01 0.07 0.11 1.62 n/a 2.14

Emerging Country Debt Long/Short 3/31/96 -1.25 -0.43 -0.71 0.82 4.80 8.89 11.02J.P. Morgan U.S. 3 Month Cash 0.08 0.28 0.36 2.65 2.60 3.78

Currency Hedge 7/31/03 -4.14 -1.44 -1.72 -0.40 -3.20 n/a 0.18J.P. Morgan U.S. 3 Month Cash 0.08 0.28 0.36 2.65 n/a 2.75

Fixed Income Hedge 8/31/05 11.92 12.98 12.70 15.34 -3.00 n/a -2.76J.P. Morgan U.S. 3 Month Cash 0.08 0.28 0.36 2.65 n/a 3.03

Emerging Currency Hedge 3/31/06 -8.38 -3.03 -3.31 -1.79 3.47 n/a 3.27J.P. Morgan U.S. 3 Month Cash 0.08 0.28 0.36 2.65 n/a 2.90

Mean Reversion 2/28/02 7.29 8.59 8.52 6.00 4.20 n/a 8.92Citigroup 3-Mo. T-Bill 0.01 0.07 0.11 1.62 n/a 1.90

Systematic Global Macro 3/31/02 2.93 2.65 2.58 4.70 8.73 n/a 7.92Citigroup 3-Mo. T-Bill 0.01 0.07 0.11 1.62 n/a 1.91

Completion 8/31/07 4.26 6.07 6.00 0.67 n/a n/a 12.77Citigroup 3-Mo. T-Bill 0.01 0.07 0.11 n/a n/a 0.86

Multi-Strategy 10/31/02 5.89 7.42 7.35 5.61 3.38 n/a 3.50Citigroup 3-Mo. T-Bill 0.01 0.07 0.11 1.62 n/a 1.92


Quality26.3%

InternationalIntrinsic Value

6.4%

InternationalGrowth

4.6%InternationalCore Equity

9.7%FlexibleEquities

3.8%

EmergingMarkets

10.8%

DomesticBond2.5%

StrategicFixed Income

12.2%

EmergingCountry Debt

0.5%

AssetAllocation Bond

1.3%

Cash/CashEquivalents

2.2%

SpecialSituations

4.3%Alpha Only15.7%

GMO Allocation

Global Market Review

Looking back over this past summer, it is hard to

escape the conclusion that policymakers and central

bankers on both sides of the Atlantic bear significant

responsibility for making a bad economic situation worse.

In the U.S., the debt ceiling spectacle managed to create

an economic crisis fashioned almost entirely from whole

cloth. Though hard to comprehend, decision making was

further paralyzed, even as the economic backdrop

continued to deteriorate. Although much of the initial

focus of the debt ceiling debate was centered on the

impact of the subsequent U.S. credit downgrade, the

longer-term negative impact on growth is likely the more

worrying. Indeed, the premature pivot toward fiscal

austerity in a vain attempt to deal with long-term

government debt is almost certain to further weaken an

economy still struggling to recover from the previous

recession. With deleveraging still in its early stages,

weaker economic growth will make further adjustments

harder and will worsen the longer-term fiscal outlook

along the way. The market’s verdict was swift as growth

concerns led to falling real rates and long-term bond

yields breached multi decade lows. Even a rearguard

action by the Federal Reserve to lengthen the maturity of

its bond portfolio was unable to turn the tide of negative

sentiment.

U.S. voters bemoaning the political gridlock in

Washington could perhaps garner some measure of

comfort by casting their gaze toward Europe. Whether it

was the European Central Bank (ECB), national

governments, or the various European super national

institutions, each studiously avoided tackling the

sovereign debt crisis head on. Despite an aggregate fiscal

position that is healthier than in the U.S., Japan, or the

U.K., the European Union appears unwilling to resolve

its internal imbalances. Markets took note of the policy

failure and began to anticipate the breakdown of the

European Financial Stability Facility (EFSF) even as

negotiations to expand its scope were being concluded.

Indeed, in the absence of a political commitment to

greater fiscal cooperation, the current bailout

mechanisms remain inadequate to deal with the liquidity

needs of a Spain or an Italy. Recognizing the implicit

funding pressure that the restructured EFSF placed on

the eurozone’s two largest economies, France and

Germany, markets responded by shunning French banks.

The ECB reacted in characteristic schizophrenic fashion

by agreeing to buy peripheral government debt on the

one hand, but raising interest rates for the second time

this year on the other. While politicians squabbled and

prevaricated, markets began to question the very future

of the European experiment. The ensuing heightened

uncertainty further undermined confidence, and risky

asset prices tumbled as the quarter came to a close.

The S&P 500 began to fall almost immediately but

kept the worst for last as price falls accelerated as the

quarter progressed. By the end of September, the broad

U.S. market capped a five-month losing streak that set

the index back 13.9% for the quarter. This was the worst

quarter for the S&P 500 since the fourth quarter of 2008.

Global Balanced Asset Allocation: One Example Recommendations as of September 30, 2011

Benchmark: 65% MSCI ACWI Index / 35% Barclays Capital Aggregate

U.S.Equities28.8%

InternationalEquities27.9%

EmergingEquities

8.3%

FixedIncome35.0%

Benchmark

Other+20.0%

FixedIncome-16.3%

EmergingEquities+2.5%

Int'l.Equities

-3.4%

U.S.Equities

-2.5%

-30%-20%-10% 0% 10% 20% 30%

GMO ActiveWeighting Decisions


There was little dispersion between value and growth,

with the Russell 1000 Value and Growth indices

returning -16.2% and -13.1%, respectively. This

contrasted dramatical ly with the relat ive

underperformance of smaller companies, which managed

to give back a good part of the gains they had made over

their larger cap brethren. The Russell 2000 lost almost

one-quarter of its value, falling an eye watering 21.9%.

As with the larger caps, there was little to distinguish

small cap value and growth indices, which lost -21.5%

and -22.2%, respectively

The performance of international developed market

equities was in line with the U.S. as the MSCI EAFE

index finished down 15.7% in local terms. A

strengthening dollar meant this same index expressed in

dollars fell 19.0%. The performance of EAFE somewhat

concealed the big performance gap between a relatively

unscathed Japanese market, which fell 6.4%, and a

moribund MSCI Europe, which fell 22.6%. Emerging

market equity performance remained firmly coupled to

the rest of the world as the S&P/IFCI Composite index

shed 22.6%.

Yields continued their downward march as a flight to

safety led bond markets higher. Despite a U.S.

downgrade and worries about debt monetization, U.S.

yields fell an incredible 123 basis points, with the

benchmark 10-year bond yield ending the quarter at

1.92%. Lower yields translated into a remarkable gain of

6.5% for the J.P. Morgan U.S. Government Bond index.

Returns were not as impressive internationally as the J.P.

Morgan non-U.S. Government Bond index gained a

modest 1.5% over the same period. Credit markets were

more sanguine; widening credit spreads translated into a

gain of 3.8% for the Barclays U.S. Aggregate index. The

recovery in the municipal bond market continued apace,

with the Barclays Municipal Bond index returning +3.1%.

Somewhat surprisingly, the J.P. Morgan EMBI Global fell

only 1.8%, perhaps acknowledging the relatively sound

fiscal positions of many emerging sovereign borrowers.

Asset Allocation Review

Global equity markets beat a hasty, hefty retreat this

quarter, with the broad index of global markets suffering

a decline of over 17%.

Throughout a good portion of 2011, the markets had

been able to hold the constant stream of sobering news at

bay. And while it would be convenient to isolate a single

incident that caused the dam to break – the historic

downgrading of U.S. Treasuries, for example – in reality,

it was more as if the persistent “put on a happy face”

practice finally gave way to a pretty dismal reality.

Evidence of a slowing China (one of the last remaining

areas of continued hope), the rapidly growing unease

surrounding sovereign debt in Europe, the existential

debates surrounding the euro, continued evidence of

weak housing and employment in the U.S., political

waffling and dysfunction in the U.S. and amongst

European union members, and the specter of a double-

dip without any Fed ammunition left … all of these had

been known and supposedly “discounted” for many

months. But not so. The quarter has to be characterized

as powerful rivers converging and finally overwhelming

the dam.

The rush to “quality” in the broad sense – a rotation

into quality stocks within the equity markets, and a

rotation into safe-haven U.S. Treasuries and safe-haven

currencies – was the overarching theme this quarter.

Quality stocks dramatically outperformed the larger

market, and 10-year Treasury yields breached 70-year

lows and have hovered steadfastly around abysmal 2%

levels. The usual “risky” asset suspects – emerging

equity, emerging currencies, and high yield bonds – all

took it on the chin this quarter. For investors lucky

enough to be sitting on piles of cash, valuations are

getting quite tantalizing. This is especially true in Europe

where so much bad news has caused “babies to be

thrown out with the bath water.” We believe it is time to

selectively put some of our cash to work.


Strategies

There is, of course, no reliable way to time the

bottom of markets. GMO understands this all too clearly.

Over time, however, our valuation compass has been a

reliable tool that has pointed to the price levels at which

we should begin to turn optimistic. With near 20%

declines in the global equity markets, we clearly are at that

point – not universally, mind you, as U.S. equity markets,

broadly, are still trading above their fair value. But, there

are now some undeniably attractive pockets hidden

within the rubble.

Our broad strategies are:

Maintain Quality Bias. Quality did its job this

quarter, from a relative standpoint. The broad

rotation into this sub-asset class meant that quality

stocks held up quite well during the global onslaught.

Still, from an absolute perspective, quality stocks still

got cheaper, and we like that just fine. Therefore, we

see no reason to yet move away from well-managed,

highly profitable, lowly levered companies when their

valuations are still quite attractive. In fact, far from it:

we happily maintain our quality bias.

Put money to work in EAFE. When conventional

wisdom turns so negative, especially in Europe, that’s

when GMO’s ears perk up. We are seeing a fair

number of companies and entire sectors of the market

that are trading at attractively low price/book ratios

and P/Es that we believe are oversold. And for those

strategies in which we had been holding a fair amount

of cash or cash-proxies, we have the money to go

shopping. We are adding incrementally in EAFE

space.

Maintain exposure to emerging markets. We

remain overweight emerging markets within global

equity mandates as they represent a sub-asset class

that we believe is priced to deliver very decent returns.

Our custom basket of Chinese hedges worked as well

as we had hoped during the market rout this quarter,

and we have closed out many of those positions. Still,

we recognize much uncertainty still exists in the broad

emerging markets, and we will stay put, if you will,

with our measured overweight.

Bonds are no bargain. There is no law that says a

stretched rubber band cannot stretch further. The

rally in bonds this quarter can be called many things,

but from a GMO perspective, expensive bonds just

entered the land of the ridiculous. The only way to

makes sense of accepting negative real yields for 10

years is…well, we cannot. We believe this latest rally

to be indicative of a classic panic.

Reduce cash holdings. This market is exactly the

reason that we were holding cash and cash “plus” in

our balanced portfolios. Pricing has came our way,

and now is the time to put the money to work. We

will keep some stores of dry powder, but valuations in

many pockets of the global equity markets just got

modestly cheap and it’s time to go bargain hunting.

Invest in conservative absolute return strategies,

where available. Ideally, absolute return strategies

are often a pure play on manager skill. Therefore, the

return streams should have little correlation to the

movements of the markets. Such investment

instruments can provide equity-like returns, while

helping to diversify other parts of one’s portfolio.

Performance Review and Outlook Global Quantitative Equities

U.S. Equity Market Review

U.S. stocks registered significant declines in the third

quarter, as a host of concerns for economies and markets

around the globe weighed heavily on investor appetite for

risky assets. A steady drumbeat of negative surprises and

reduced outlooks served as the soundtrack for a quarter

of declining equity prices and increased volatility.

Investors entered the quarter with a wary eye cast on

continued European sovereign debt woes, before a

tension-filled debate over raising the U.S. debt ceiling and

a subsequent downgrade of the nation’s credit by

Standard & Poor’s turned focus inward, toward the U.S.’s


U.S. Equities Relative Performance of Selected Groups versus the S&P 500

Year-to-Date September 30, 2011

Siz

e In

vest

men

t D

isci

plin

es

Sec

tors

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

12/10 3/11 6/11 9/11

Information Technology

-4.0

0.0

4.0

8.0

12.0

12/10 3/11 6/11 9/11

Energy

-20.0

-16.0

-12.0

-8.0

-4.0

0.0

4.0

12/10 3/11 6/11 9/11

Financials

-4.0

-2.0

0.0

2.0

4.0

6.0

12/10 3/11 6/11 9/11

Consumer Discretionary

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

12/10 3/11 6/11 9/11

Russell 2000

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

12/10 3/11 6/11 9/11

Largest 100

-3.0

-2.0

-1.0

0.0

1.0

12/10 3/11 6/11 9/11

Cheap on Price/Intrinsic Value

-4.0

-3.0

-2.0

-1.0

0.0

1.0

12/10 3/11 6/11 9/11

High Price Momentum


own fiscal imbalance. Compounding concern was the

U.S. economy’s sluggish recovery, with a slew of worse-

than-expected readings on indicators ranging from

employment to manufacturing heightened fears of a

double-dip recession. Efforts aimed at reigniting the

recovery, from President Obama’s stimulus package to a

new bond-buying campaign from the Federal Reserve,

failed to tamp down investor fear as the size and scope of

each program as compared to past efforts raised investor

concerns regarding the number of policy levers remaining

to help the economy back on track. The intersection of

the nation’s “balance sheet” woes (a high debt load) and

its “income statement” troubles (a sputtering economic

recovery) seemed more daunting to investors with the

passing of each month. The S&P 500’s monthly returns

during the quarter – from July’s 2.0% decline, to a 5.4%

August fall, to a 7.0% September plunge – reflected

investors’ escalating concern during the period.

The S&P 500 returned -13.9% for the quarter.

Investors’ distaste for risky assets was evident across a

broad range of measures. Small cap stocks fared

considerably worse than large caps during the period.

The small/mid cap Russell 2500 index returned -21.2%

for the quarter, slightly better than the small cap Russell

2000 index’s -21.9% return. Within the S&P 500, sectors

perceived as less exposed to economic troubles fared the

best, with Utilities and Consumer Staples delivering the

strongest relative performance. Sectors perceived as

riskier fared the worst, with Materials and Financials

leading the underperformers. The split in returns to risky

areas of the market could also be seen in the returns to a

number of investment factors during the period. High

quality and low volatility stocks posted strong relative

returns, while their low quality and high volatility

counterparts lagged the market by similar margins.

Momentum metrics also underperformed during the

quarter, hurt by their exposure to the economically-

exposed areas of the market that had performed well

recently, particularly companies with exposure to falling

commodity prices. Bottom-up valuation metrics

delivered mixed relative returns, with those incorporating

company quality into their valuation faring the best.

International Equity Markets Review

International developed markets were not immune

from the fear in the equity arena concerning European

governments’ debt levels and whether the banks, the

currencies, or the countries themselves would survive

intact. Additionally, the U.S. Federal Reserve’s view of

the economy with “significant downside risks to the

economic outlook” bode poorly for not just U.S. stocks.

In this environment, all international developed

markets had negative returns. Japan (down 6.4% in U.S.

dollar terms) was the best performing market. New

Zealand, the United Kingdom, Switzerland, and

-15.7%-17.6%

-13.9%

-10.7%

-19.0%

-22.6%-19.7%

-6.4%

-22.6%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

International Equity MarketsThird Quarter 2011 Performance

In Local Terms

In Dollars

EAFE Europe

S&P/IFCI Composite (Emerging)

MSCI

Pacificex-Japan

Japan

-13.9%-15.3%

-16.2%

-13.1%

-21.1% -21.4%

-14.5%

-25%

-20%

-15%

-10%

-5%

0%

U.S. Equity MarketsThird Quarter 2011 Performance

Russell 2500S&P 500

Dow Jones

U.S. TSMGrowth

MSCIU.S.REIT

ValueGrowthRussell 1000

Value


Singapore followed. Greece was the weakest (down

46.6%). Austria, Italy, Germany, and France were also

very weak.

By sector, Consumer Staples had the strongest return

(down 8.7% in U.S. dollar terms). Health Care,

Telecommunication Services, Information Technology,

and Utilities also outperformed. Materials had the

weakest return (down 27.9%). Other poor performers

included Financials, Industrials, Energy, and Consumer

Discretionary.

Most currencies declined on average relative to the

U.S. dollar in the quarter. The euro and Swiss franc fell

about 7.5%, the British pound about 3%, and the

Australian dollar about 9% against the U.S. dollar. The

yen was strongest and the only gainer, up almost 5%.

In the quarter, high quality stocks outperformed. On

GMO’s measure blending high and stable profitability

with low leverage, the highest quartile of the EAFE

markets outperformed by about 3%. Defensive

industries (on GMO’s definition) outperformed by an

even wider margin. Low price volatility stocks also did

well. Growth matched Value for the quarter, as defined

by MSCI indices. Smaller cap stocks lagged behind larger

caps.

Outlook

Market volatility’s third-quarter reemergence

highlights the need for strong investment discipline and

process. While short-term market movements driven by

economic uncertainty make for exciting daily newspaper

headlines, it’s important to remember that long-run

investment returns have three sources: dividends,

fundamental growth, and changes in price multiple.

While market movements along the greed and fear

spectrum make for interesting talk show fodder, an

investment process focused on valuing each source of

market returns helps separate facts from noise. Our

investment process emphasizes analysis over emotion.

Whether the market is in the grips of fear, greed, or

somewhere in between, our process will focus on finding

the most undervalued opportunities offered up by market

conditions.

Emerging Market Equities

Review

Emerging markets suffered further losses in

September, making this quarter their worst since late

2008. Investor sentiment has been hit hard by the debt

dynamics in Europe and the worsening global growth

prospects. The quarter saw country performances as

diverse as a fall of 4.7% in Peru and a 44.4% plunge in

Hungary. Among sectors, the spread was tighter, with

Telecommunication Services losing 10.0% and Industrials

dropping 29.2%.

China’s stocks fell on signs that growth is slowing as

overseas demand falters and the government maintains

its focus on curbing inflation. An index of Chinese

manufacturing shrank for a third month as measures of

new orders and export demand declined. Policymakers

reiterated their determination to stabilize prices even as

inflation eased to 6.2% in August from a three-year high

in July. The reserve-requirement ratio has been hiked

nine times and interest rates raised five times in the last

year. In the last round, authorities specifically targeted

reserve requirements held against customers’ margin

deposits.

Hungary, the worst performing emerging market for

the quarter, was hammered by fears of contagion from

the euro zone’s debt crisis. Investors worried that

growth in the emerging European economies would slow

and that lenders would pull back. Another source of

weakness is that 60% of Hungarian household mortgages

are denominated in foreign currencies. When the

Hungarian forint comes under pressure, it renews

concern over the health of the financial sector. Investor

sentiment was not helped by a government

announcement that Hungary was “far” from the full

implementation of its three-year spending-cut plan that

had been designed to put the budget on a sustainable

path.


A happy combination of solid growth, dormant

inflation, and low interest rates is boosting domestic

spending in Indonesia. The central bank forecasts the

economy to grow as much as 6.8% this year, the fastest

pace since 2004, while inflation in August came in at

4.8% relative to a year earlier. This has helped convince

the central bank to leave rates unchanged for a seventh

month.

The continuing spike in risk aversion has impacted

Russian stocks negatively as the country is perceived to

be one of the riskier emerging markets. The drop in

commodity prices dealt another blow given the country’s

dependence on oil and metal exports. Adding to the bad

news was a report that the economy grew below

estimates, expanding 3.4% from a year earlier in the

April-June period, compared with 4.1% in the first

quarter. In other news, Prime Minister Putin ended years

of speculation by declaring his intention to run for the

presidency. President Medvedev supported Putin and

said he may take over as prime minister. This would

swap their roles almost four years after Putin, president at

that time, picked Medvedev as his successor upon

completing the maximum two consecutive terms allowed

by the constitution. The announcement brought clarity

for investors but also dispelled the hope that Medvedev,

regarded the more investor-friendly of the duo, would

take over the top spot.

Thailand’s stock market jumped after the elections

handed a decisive mandate to Yingluck Shinawatra’s

Pheu Thai party, easing concerns of political stalemate.

Her party’s promises of higher wages, lower taxes, and

greater spending were instrumental in the victory.

However, they also convinced the central bank to raise

interest rates as “the prospective increases in the

minimum wage and fiscal spending amid continued

economic growth will likely add to inflation pressure.”

Thailand’s consumer prices climbed 4.1% in June from a

year earlier.

The global flight to safety manifested itself in

emerging markets by the relative outperformance of the

Telecommunication Services sector.

Outlook

There is a clear contrast between the balance sheets of

emerging economies (healthy in most instances) and

developed countries (worrisome leverage in many cases).

The implication of this has been a post-crisis recovery

with cyclical overtones in emerging markets but structural

ones in the developed world. Emerging economies have

hence made a lot more progress than developed in

regaining their pre-crisis growth trends. It is therefore all

the more surprising to see the waves of popular

discontent in developed markets find a strong echo in

emerging markets.

The current Indian government was elected with a

strong mandate and has been fortunate to be confronted

by a weak and disunited opposition. Its biggest challenge

thus far has been dealing with the mass demonstrations

held by supporters of Anna Hazare, a veteran anti-

corruption campaigner who went on a hunger strike.

The protests were the result of a backlash from several

massive corruption scandals, ranging from last year’s

Commonwealth games in Delhi to the distribution of 2G

mobile telecom spectrum licenses.

In China, the city of Dalian was home to one of the

largest demonstrations since the Tiananmen Square

protests. As a result, in August authorities in this boom

town were forced to shut down a chemical factory that

had been damaged in a storm. This was another example

of a new willingness by China’s middle class to confront

the government over environmental abuses. The

government is aware enough to at least be paying lip

service to these concerns. It declared illegal land seizures,

food safety, house price increases, and corruption as the

top public concerns.

Parallels exist in other countries such as Brazil and

Chile. Dilma Rousseff, the newly elected Brazilian

president, had good timing: an economy growing at a

7.5% annual pace and unemployment, at 5.3%, the lowest

since at least 2001. But, this has not precluded her

government from facing a series of revolving doors in the

first few months in office. Rousseff has lost her chief

of staff, minister of transport, and the deputy minister of


agriculture, all of whom have been subject to allegations

of misconduct. And this corruption, more than any

global macroeconomic event, has been her main

challenge since taking office.

These outlooks have documented well the rise in

purchasing power of the emerging consumer. While our

focus has largely been on the implications for the stock

market, there is clearly a political aspect as well. The

jump in the middle class ranks has led to a greater

disillusionment with old-style patronage politics. Middle

classes typically give more weight to free speech and fair

elections than do the poor, who are more concerned

about escaping poverty.

These events are clearly positive in the long run as

they will help ensure emerging markets unleash their full

potential. However, in the short run, it is a negative as

the entrenched ways clash with the new, with the result

being less clarity. In several countries, especially in India,

the chaos is causing a near policy paralysis, which in turn

is causing a sharp slowdown in growth.

Fixed Income

Review

The U.S. dollar and government bonds from highly-

rated countries did very well this quarter, in some cases

approaching the flight-to-quality returns witnessed during

Q4 2008 after Lehman’s collapse. The dollar’s rise was

more pronounced relative to emerging currencies, which

fell 11.7% using the basket associated with the J.P.

Morgan GBI-EMD local debt index. For the GBI ex-

U.S. associated with advanced economies, the foreign

currency decline was only 1.6%.

Government bond markets rallied across the board

during the quarter: in local currency J.P. Morgan Global

Bond Index terms, gains were the highest in the U.K.

(+8.8%) and lowest in Japan (+1.2%). Setting the stage

early in the quarter for a bond market rally was the weak

July U.S. jobs report. Later, speculation that the Bank of

England would expand its monetary stimulus to boost a

flagging recovery prompted the fall in gilt yields. Despite

having suffered their first-ever rating downgrade in

August, U.S. Treasuries had their best quarterly return

since Q4 2008, rising by 6.5%. In other bond markets,

the eurozone (+8.0%), Sweden (+7.4%), Canada

(+6.1%), Australia (+5.8%), and Switzerland (+4.7%)

also reported total return gains.

Source: J.P. Morgan, Barclays Capital

6.5%3.8%

-1.8%

3.0% 1.4%-1.6%

-11.7%

-15%

-10%

-5%

0%

5%

10%

U.S. Gov't.Bonds

(JPM GBI)

USD Bonds(BarclaysU.S. Agg)

USDEmerging

Bonds(EMBIG)

Non-U.S.Bonds:

Developed(JPM GBI)

Non-U.S.Bonds:

Emerging(JPM GBI-

EM)

Total Returns Third Quarter 2011

CurrencyBonds

1.2%

4.7%

5.8% 6.1%6.5%

7.4%8.0%

8.8%

Advanced Country GovernmentBond Returns (Local Currency)

Third Quarter 2011

Source: J.P. Morgan Global Government Bond Index


In terms of yield levels, interest rates fell in most

markets for a second consecutive quarter. Among

advanced countries, U.S., Swedish, and Canadian yields

fell the most, and Japanese the least, the declines ranging

from 10-120 basis points for 10-year yields. Among

emerging countries, there were declines of 120 basis

points or more in four markets, although here we take 5-

year yields. Only in Russia and Hungary did rates rise.

Interestingly, in emerging countries, bond yields rose

even though interest-rate swap yields declined, resulting

in a small rise in the bond index (GBI-EMD) yield.

The U.S. dollar rose against all advanced and

emerging country currencies during the quarter except for

the Japanese yen and the Chinese renminbi. Given the

difficulties in the eurozone, the most pronounced gains

were relative to those in the euro’s orbit and those with

big commodity export exposures. In the first group were

Poland (-16.6%), Hungary (-16.3%), Romania (-10.1%),

Czech Republic (-8.9%), and, of course, the euro (-7.5%).

Commodities witnessed heavy declines, with the energy

complex down 10% to 15%, industrial metals down 10%

to 20%, and softs down 6% to 38%, although gold ended

up 8%. Commodity-sensitive currencies with double-

digit declines included Brazilian real (-17.0%), South

African rand (-15.7%), Mexican peso (-15.5%), and

Russian ruble (-13.4%). Liquidity deteriorated, with bid-

ask spreads widening on all currency pairs and volumes

declining.

Somewhat ironically, the only emerging currency to

rise in spot terms was Chinese renminbi, +1.2% (exactly

the same as last quarter). As September closed, U.S.

Senator Schumer was bringing the long-awaited

“Currency Exchange Rate Oversight Reform Act of

2011,” more regularly referred to as the “anti-China bill,”

to the senate floor. Although CNY has been a top

performer this year (second only to the yen), Schumer

still has it in his sights. Interestingly, the non-deliverable

forward market is going the other way: from pricing

appreciation for the currency over the next few years, the

forwards now price a depreciation.

In G10, most of the quarter’s currency movements

were concentrated in September, although the yen briefly

took a 3% dive in August when the Bank of Japan

intervened. Then, as September opened, the Swiss

National Bank stunned the market by setting a floor in

EURCHF at 1.2, a level 17% higher than the August

lows. Presumably they were preparing themselves to

counteract the inflow of funds fleeing the eurozone,

whose authorities made a vague pledge on July 21 to “do

everything possible to keep Greece in the eurozone” and

then promptly disappeared for July/August holidays.

Once September arrived, however, and the impossible

conditions for Greece’s compliance became clear, the

stampede from euros began. EURCHF was mostly

unchanged, but both fell about 7.5% dollar relative.

Source: J.P. Morgan

-1.2 -1.0 -1.0 -0.9 -0.9 -0.9 -0.8 -0.7 -0.6 -0.5-0.1

-2.4

-1.2 -1.2 -1.2-0.8 -0.7 -0.6 -0.5 -0.5 -0.5 -0.5 -0.5 -0.4 -0.4 -0.3 -0.1

0.20.7

1.1

Third Quarter 2011 Change in Local Currency Interest Rates(10Y Yields for Advanced Countries, 5Y Yields for Emerging Countries)


Commodity currencies also suffered, with Australian

dollar and Norwegian krone down 9.2% and 8.6%,

respectively.

In policy actions, the ECB and Sweden each raised

policy interest rates by 25 basis points during the quarter,

to 1.5% and 2%, respectively. The Swiss cut rates by 25

basis points before embarking on their FX intervention.

In the U.S., the Fed, already in ZIRP, announced plans to

buy longer-maturity bonds with the aim of “twisting” the

yield curve flatter. Having renewed the central bank

swap lines last quarter, they came in handy a few times

this quarter, with the Fed providing liquidity in USD to

the ECB and the SNB.

In credit markets, emerging debt spreads (EMBIG

series) widened by 177 basis points to 465 basis points

during the period. The eurozone continued to dominate

headlines, as economic slowdown made fiscal adjustment

even more challenging to achieve, and banks were hit by

the extension of sovereign risk beyond the PIGS.

French banks looked the weakest due to their exposure

to eurozone governments and other banks. French

(AAA) sovereign credit default swaps (CDS) widened by

over 100 basis points to 187 basis points during the

period on the assumption that the state would have to

assist in recapitalizing them. This spread was just 7 basis

points wider than that of Panama (BBB‑). Spain (AA)

and Italy (A) also widened precipitously past nearly all

emerging sovereigns, raising concerns that the European

bail-out fund would not be large enough to contain the

crisis. An imminent Greek default is priced into CDS

and bonds, as the government has not been able to

qualify for another disbursement from the IMF/EU/

ECB Troika, and the voluntary private-sector

restructuring initiative has not gained much traction.

Liquidity in the emerging cash bond market dried up

during the quarter, and the average bid-offer spread

widened by 52 basis points to 119 basis points by quarter

end. New issuance fell 63% from Q3 of 2010 to $32

billion, its lowest level since Q1 of 2009. Emerging

currencies lost 8.9% against the dollar, after rising by

5.2% in the first half of the year

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10

Index Bid-Offer Spread

EMBIG Bid-Offer

ELMI+ Bid-Offer

Source: J.P. Morgan

Source: J.P. Morgan

-9.2 -8.6 -8.1 -7.5 -7.4 -7.4 -7.3

-3.0-1.6

4.8

-17.0-16.6-16.3-15.7-15.5-13.4-12.7

-11.7-10.4-10.1-9.5 -9.4 -8.9 -8.7 -8.4

-5.8 -5.7 -5.4

-2.5 -2.3 -1.5 -0.9 -0.8

0.0 0.01.2

Third Quarter 2011 Currency Spot Returns


The biggest index gainers were Chile (+5.1%), Peru

(+4.4%), Lebanon (+2.7%), and Mexico (+2.3%).

Spreads widened on all countries in the index, but less so

for these four. Chile and Mexico are both investment-

grade credits with solid fundamentals, and they benefited

from the flight to quality. Peruvian President-elect

Humala surprised the market with more investor-friendly

economic policies than expected. Lebanon does not

have a high credit rating or good policies, but most of its

bonds are held by local banks or expatriate Lebanese who

do not sell when the market falls.

The worst performers of the quarter were Argentina

(-20.1%), Belarus (-17.5%), Ukraine (-11.1%), and Iraq (-

10.7%). They are all weak credits that suffered

disproportionately in the market downturn. Argentina is

shut out from private external markets because it is still in

default on obligations to both the private and public

sectors. Belarus is experiencing a severe balance-of-

payments crisis, but has not been willing to submit to the

remedies required to qualify for support from the IMF.

Ukraine’s situation is similar to that of Belarus, but not as

extreme. Both are trying to raise money abroad without

falling into the clutches of the Russians. Iraq’s

idiosyncratic risks are less tolerated when the market

shuns risk in general.

In asset-backed markets, spreads widened modestly.

The big news of the quarter was the downgrade of the

U.S. Government to double-A by Standard & Poor’s.

This had an impact on the student loan market because

the government is the primary guarantor of securitized

student loans. According to J.P. Morgan, student loan

spreads rose from 40 basis points to 50 basis points

during the quarter, credit card spreads were flat at 16

basis points, and auto spreads rose from 32 basis points

to 38 basis points. The ABX subprime indices again

declined sharply. For the quarter, the 2006-1 triple-A

Index, the best performing collateral of the ABX

vintages, was down 1% in price, but the three other

vintages declined 12% to 14%.

Strategies

Fixed income strategies were mixed during the

quarter: developed markets interest-rate selection

performed very well, while currency positioning (both

developed and emerging), emerging debt exposure, and

asset-backed holdings suffered.

In developed markets interest-rate strategies, yield

curve trades were largely responsible for gains, thanks to

the flattening in the Japanese yield curve. Cross-market

strategy gains followed, as overweight duration positions

in the U.S., eurozone, Canada, Switzerland, and Australia

performed well thanks to the bond market rally. Tactical

Duration Overlay positions also added value during the

quarter, as the strategy maintained a slightly overweight

duration in the front end of the U.S. curve through mid-

quarter.

Source: J.P. Morgan

-20.1

-17.5

-11.1-10.7

-10.6-8.3-7.2-6.7-6.6-6.4-5.8-5.7-5.6-5.3-5.1-4.8-4.5-4.2-4.1-3.8-3.7-3.1-2.9-2.6-2.5-2.3-1.8-1.6-1.6-1.5-1.3-1.3

0.1 0.8 1.1 1.1 1.3 1.3 1.4 1.7 2.3 2.74.4 5.1

Third Quarter 2011 J.P. Morgan EMBIG Returns by Country


The U.S. dollar’s rapid September rebound hurt our

long FX positions in both developed and emerging

currencies. Overweights in Australia, Norway, and New

Zealand detracted on the developed side, while

overweight positions in Brazil, Hungary, South Africa,

Poland, Turkey, Mexico, and Russia were notable

detractors in emerging FX.

In external emerging debt strategies, country selection

and security selection were detractors. While emerging

local debt strategies benefited from instrument selection

and country selection, currency selection detracted.

Finally, the asset-backed securities reported negative

excess returns for the quarter.

Outlook

Dating the start of Europe’s troubles at May 2010

(although we could make a case for earlier), this is the

sixth quarter in which we highlight the uncertainties that

propagate as a result of a failure of European leaders to

take decisive steps to deal with their issues. Unlike an

emerging country crisis, which tends to play out on a

more compressed time scale, the Europeans are slowly

moving along Kubler-Ross’s five stages of grief: they’re

mostly past denial; clearly in the midst of anger; and

engaging in a protracted bargaining period. What’s left is

depression and acceptance, which may begin with the

forthcoming Greek write-down (which may or may not

be “officially” declared a “default;” see “denial”). The

good news is: Greece’s default is hardly a surprise, and

the current bargaining efforts are aimed squarely at

limiting the contagion and fallout from it, whether related

to other challenged sovereigns or their banks.

The sharp rise in emerging sovereign spreads and the

decline in emerging currencies have opened up

opportunities in both. We have been adding selectively

despite the poor liquidity conditions mentioned earlier.

G10 portfolios remain overweight the U.S. dollar,

although no longer U.S. dollar bonds, instead favoring

Swiss, German, and Japanese bonds, particularly relative

to Australian, U.S. and Swedish bonds.

In external debt, we continue to favor certain high-

spread countries where we believe fundamentals justify

narrower spreads. In local debt, we continue to rotate to

currencies that have underperformed and therefore

represent better value, particularly where yields have risen

as well. 0

500

1,000

1,500

2,000

2,500

12/06 12/07 12/08 12/09 12/10

Index Yield Spread to Germany in7-10 Year Gov't. Bonds (bps)

Lehman Collapse

Portugal

Greece

NetherlandsFranceBelgium

ItalySpain

Source: J.P. Morgan

Disclaimer: The views expressed herein are through the period ending September 30, 2011, and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security, is not intended to be investment advice and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities.


As of September 30, 2011

GMO © 2011

GIPS ® compliant presentation is available at www.gmo.com.

GMO U.S. Core Strategy Inception: 9/30/85; Benchmark: S&P 500 Index

Performance1

The U.S. Core Strategy returned -9.3% for the third quarter of 2011, leading the -13.9% return of the S&P 500. Sector selection added to relative returns for the quarter. The strategy saw positive returns relative to the benchmark attributable to its

overweight positions in Health Care and Consumer Staples and an underweight in Financials. Underweight positions in Utilities and Consumer Discretionary detracted from returns versus the benchmark.

Stock selection also added to relative returns. Selections in Consumer Discretionary, Energy, and Consumer Staples added to returns

versus the benchmark. Individual stocks adding to relative returns in the third quarter included overweight positions in Wal-Mart Stores, Microsoft, and Google. Stock selections detracting from returns versus the benchmark included overweight positions in Hewlett-Packard and Walgreen and an underweight position in Apple.

Top Ten Holdings2,5

Risk Profile Since 9/30/854 Sector Weights5

Characteristics5

Quarterly Strategy Attribution

1 Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income.

2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The S&P 500 Index is an independently maintained and widely published index comprised of U.S. large capitalization stocks. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolio’s sensitivity to the market; R2 is a measure of how well a portfolio tracks the market;

Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross. 5 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy.

The performance information above is supplemental to the GIPS® compliant presentation that was made available on GMO’s website in April of 2011.

Total Return Net of Fees (%) Average Annual Total Return (%)

3Q YTD One Five Ten Since2011 2011 Year Year Year Inception

Strategy -9.25 -2.55 5.15 -0.81 2.34 10.40Benchmark 3 -13.87 -8.68 1.14 -1.18 2.82 9.83

Annual Total Return Net of Fees (%)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy -7.87 -19.73 26.64 9.85 3.66 9.74 1.64 -30.17 21.40 8.95

Benchmark -11.88 -22.10 28.69 10.88 4.91 15.80 5.49 -37.00 26.46 15.06

Microsoft Corp. 5.1%Pfizer Inc. 4.5%Wal-Mart Stores Inc. 4.4%Oracle Corp. 4.0%Int'l. Business Machines 3.6%Google Inc. (Cl A) 3.5%Procter & Gamble Co. 2.9%Merck & Co Inc 2.8%Johnson & Johnson 2.8%Coca-Cola Co. 2.7% Total 36.3%

Underweight/OverweightSector Against Benchmark Strategy Benchmark

Consumer Discretionary 6.9 % 10.6 %Consumer Staples 21.1 11.7Energy 8.2 11.6Financials 1.9 13.6Health Care 26.6 12.1Industrials 3.7 10.3Information Technology 27.9 19.4Materials 0.8 3.4Telecom. Services 3.0 3.3Utilities 0.0 4.0-4.0

-0.3

-2.6

8.5

-6.6

14.5-11.7

-3.4

9.4

-3.7

-20 -10 0 10 20

GICS Sectors

Strategy Benchmark

Alpha 1.52 0.00

Beta 0.92 1.00R2 0.95 1.00

Sharpe Ratio 0.45 0.36

Strategy Benchmark

Price/Earnings - Hist 1 Yr Wtd Med 14.9 x 14.0 x

Price/Book - Hist 1 Yr Wtd Avg 2.5 x 1.8 x

Dividend Yield - Hist 1 Yr Wtd Avg 2.4 % 2.4 %

Return on Equity - Hist 1 Yr Med 19.7 % 16.8 %

Market Cap - Weighted Median $Bil $90.6 $45.2



GMO © 2011


GMO Intrinsic Value Strategy Inception: 5/31/99; Benchmark: Russell 1000 Value Index

Performance1

The Intrinsic Value Strategy returned -11.8% for the third quarter of 2011, leading the -16.2% return of the Russell 1000 Value index. Sector selection added to relative returns for the quarter. The strategy’s overweight positions in Health Care and Consumer Staples

and an underweight in Financials added to relative returns. An overweight position in Energy and an underweight in Utilities detracted from returns versus the benchmark.

Stock selection also added to relative returns. Selections in Information Technology, Energy, and Financials added to returns versus

the benchmark while picks in Health Care, Consumer Staples, and Industrials detracted. Individual names adding to relative returns included overweight positions in Apple, Google, and Coca-Cola. Stock selections detracting from relative returns included underweight positions in Procter & Gamble, Intel, and Bristol-Myers Squibb.

Top Ten Holdings2,5


Characteristics5



2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The Russell 1000 Value Index is an independently maintained and widely published index comprised of the stocks included in the Russell 1000 Index with lower price-to-

book ratios and lower forecasted growth values. Russell Investments is the source and owner of the Russell index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is GMO’s presentation of the data. FCR is not responsible for the formatting or configuration of this material or for any inaccuracy in GMO’s presentation thereof.

4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolio’s sensitivity to the market; R2 is a measure of how well a portfolio tracks the market; Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross.

5 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS® compliant presentation that was made available on GMO’s website in April of 2011.

GICS Sectors



Strategy -11.82 -2.69 6.31 -2.84 2.73 2.68Benchmark 3 -16.20 -11.24 -1.89 -3.53 3.36 2.03


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy 3.84 -15.63 30.42 12.12 5.57 13.61 -3.73 -34.51 19.42 11.86

Benchmark -5.59 -15.52 30.03 16.49 7.05 22.24 -0.17 -36.85 19.69 15.51

Pfizer Inc. 4.7%Chevron Corp. 4.5%UnitedHealth Group Inc. 3.9%ConocoPhillips 3.9%Exxon Mobil Corp. 3.4%Oracle Corp. 3.2%Apple Inc. 3.1%Microsoft Corp. 3.0%AT&T Inc. 2.9%Wal-Mart Stores Inc. 2.7% Total 35.3%



-0.2

-2.0

9.8

-4.614.9

-13.8

4.8

4.3

-5.7

-20 -10 0 10 20

Strategy Benchmark

Alpha 1.15 0.00

Beta 0.92 1.00R2 0.94 1.00

Sharpe Ratio 0.04 -0.03

Strategy Benchmark








GMO © 2011


GMO Quality Strategy Inception: 2/29/04; Benchmark: S&P 500 Index

Performance1

The Quality Strategy fell 5.3% in the third quarter while developed market indices pushed even lower, with the S&P 500 down 13.9% and MSCI World down 16.6%.

Quality stocks trumped both low quality and the market. The unraveling of the risk trade that began late in the first quarter continued through September. While quality stocks generated negative returns, their performance was better than both low quality and the market.

Defensive sectors did relatively well as investors looked for safety. Quality’s heavy weight in Consumer Staples and Health Care did well compared to Financials and Materials, where the strategy has a zero weight.

Large cap stocks beat small cap stocks both within quality and the larger universe. The recent strong relative performance of mega cap quality has not significantly changed its favorable valuation. These companies remain at a historical discount based on normalized earnings. Much of the recent price movement has been offset by a favorable shift in fundamentals.

Given recent market moves, we believe that patient investors will be compensated for owning quality companies, while taking less absolute risk than the market. Our conviction remains high that the Quality Strategy will continue to provide attractive risk-adjusted returns into the foreseeable future.

Top Ten Holdings2,4

Risk Profile Since 2/29/045

Sector Weights4

Characteristics4



2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The S&P 500 Index is an independently maintained and widely published index comprised of U.S. large capitalization stocks. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy.

The performance information above is supplemental to the GIPS® compliant presentation that was made available on GMO’s website in April of 2011. 5 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolio’s sensitivity to the market; R2 is a measure of how well a portfolio tracks the market;

Sharpe Ratio is the return over the risk free rate per unit of risk. Risk profile data is gross.



-2.4-3.4

11.7

-9.714.9

-13.6

-2.9

16.4

-6.9

-20 -10 0 10 20 GICS Sectors

Regional Weights4



Strategy -5.28 1.37 7.79 1.46 n/a 2.37Benchmark 3 -13.87 -8.68 1.14 -1.18 n/a 1.89


2004 2005 2006 2007 2008 2009 2010

Strategy 3.54 -0.79 12.69 6.04 -24.08 19.89 5.48

Benchmark 7.39 4.91 15.80 5.49 -37.00 26.46 15.06

Johnson & Johnson 6.0%Microsoft Corp. 5.9%Cisco Systems Inc. 5.5%Oracle Corp. 5.1%Philip Morris Int'l. Inc. 4.7%Coca-Cola Co. 4.6%Apple Inc. 3.9%Pfizer Inc. 3.8%Google Inc. (Cl A) 3.7%Wal-Mart Stores Inc. 3.3% Total 46.5%

Strategy Benchmark






Debt/Equity - Wtd Med 0.5 x 0.8 x

Strategy Benchmark

Alpha 0.90 0.00

Beta 0.71 1.00R2 0.85 1.00


U.S. Equities82.0%

Int'l. Equities13.9%

Cash4.1%



GMO © 2011


GMO Growth Strategy Inception: 12/31/88; Benchmark: Russell 1000 Growth Index

Performance1

The Growth Strategy returned -7.2% in the third quarter of 2011, leading the -13.1% return of its benchmark, the Russell 1000 Growth index.

Sector selection added to relative returns. Underweight positions in Materials and Industrials and an overweight in Consumer Staples

were among the sector positions adding to relative returns during the period. Stock selection also added to relative returns for the quarter. Selections in Information Technology, Energy, and Consumer

Discretionary were among those adding to relative returns. Individual stocks adding to returns included overweight positions in Apple, McDonald’s, and Dollar General. Selections detracting from relative returns included overweight positions in Netflix, Hewlett-Packard, and 3M.

Top Ten Holdings2,5


Characteristics5



2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The Russell 1000 Growth Index is an independently maintained and widely published index comprised of the stocks included in the Russell 1000 Index with higher price-

to-book ratios and higher forecasted growth values. Russell Investments is the source and owner of the Russell index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is GMO’s presentation of the data. FCR is not responsible for the formatting or configuration of this material or for any inaccuracy in GMO’s presentation thereof.



GICS Sectors



Strategy -7.16 0.22 8.22 1.45 2.41 9.08Benchmark 3 -13.14 -7.20 3.78 1.62 3.01 8.37


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy -21.51 -22.94 28.27 4.66 3.93 2.44 5.99 -30.42 24.64 12.02

Benchmark -20.42 -27.88 29.75 6.30 5.26 9.07 11.81 -38.44 37.21 16.71

Apple Inc. 8.0%Microsoft Corp. 4.1%Int'l. Business Machines 3.9%Exxon Mobil Corp. 3.9%Coca-Cola Co. 3.4%Oracle Corp. 3.3%QUALCOMM Inc. 3.0%Google Inc. (Cl A) 3.0%Wal-Mart Stores Inc. 2.6%Philip Morris Int'l. Inc. 2.5% Total 37.7%



0.2

-3.8

3.3

-6.7-2.1

-3.5

-4.4

16.9

0.3

-20 -10 0 10 20

Strategy Benchmark

Alpha 1.58 0.00

Beta 0.93 1.00R2 0.94 1.00


Strategy Benchmark


Earnings/Share - F'cast LT Med Growth 13.3 x 13.9 x






GMO © 2011


GMO Small/Mid Cap Value Strategy Inception: 12/31/91; Benchmark: Russell 2500 Value + Index

Performance1

The Small/Mid Cap Value Strategy returned -19.9% in the third quarter of 2011, leading its benchmark, the Russell 2500 Value index, which returned -21.1%.

Sector selection detracted from returns relative to the benchmark. An underweight position in Industrials and an overweight in

Consumer Staples added to relative returns while an overweight in Health Care and underweight positions in Utilities and Financials detracted.

Stock selection added to relative returns for the quarter. Selections in Consumer Discretionary, Health Care, and Information

Technology added to returns versus the benchmark while picks in Utilities detracted. Individual stocks adding to relative returns included overweight positions in Kinetic Concepts, Herbalife, and PetSmart. Individual names detracting from relative returns included overweight positions in Amerigroup, HollyFrontier, and Eastman Chemical.

Top Ten Holdings2,5


Characteristics5



2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The Russell 2500 Value + Index is an internally maintained benchmark computed by GMO, comprised of (i) the Russell 2500 Index from 12/31/1991 to 12/31/1996 and

(ii) the Russell 2500 Value Index thereafter. Russell Investments is the source and owner of the Russell index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is GMO’s presentation of the data. FCR is not responsible for the formatting or configuration of this material or for any inaccuracy in GMO’s presentation thereof.



GICS Sectors



Strategy -19.87 -11.00 0.37 -2.75 5.78 9.78Benchmark 3 -21.10 -16.29 -4.70 -1.69 7.24 9.84


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy 9.75 -11.48 45.26 20.80 7.95 10.86 -12.37 -26.97 13.64 25.88

Benchmark 9.73 -9.87 44.93 21.58 7.74 20.18 -7.27 -31.99 27.68 24.82

HollyFrontier Corp. 1.6%Kinetic Concepts Inc. 1.4%Herbalife Ltd. 1.4%Abercrombie & Fitch Co. 1.3%Coventry Health Care Inc. 1.3%PETsMART Inc. 1.2%Cooper Cos. 1.1%Alliance Data Systems Corp. 1.1%Ralcorp Holdings Inc. 1.1%Church & Dwight Co. 1.0% Total 12.5%



-0.5

-0.6

4.4

-2.414.5

-23.5

0.5

7.1

11.0

-40 -20 0 20 40

Strategy Benchmark

Alpha 0.84 0.00

Beta 0.94 1.00R2 0.94 1.00


Strategy Benchmark








GMO © 2011


GMO Small/Mid Cap Growth Strategy Inception: 12/31/96; Benchmark: Russell 2500 Growth Index

Performance1

The Small/Mid Cap Growth Strategy returned -23.1% in the third quarter of 2011, trailing the -21.4% return of its benchmark, the Russell 2500 Growth index.

Sector selection had little impact on returns relative to the benchmark. Underweight positions in Telecommunication Services and

Materials and an overweight in Consumer Discretionary added to relative returns while an underweight position in Health Care and an overweight in Information Technology detracted.

Stock selection detracted from relative returns for the quarter. Selections in Health Care, Financials, and Energy added to returns

versus the benchmark while picks in Information Technology, Industrials, and Materials detracted. Individual stocks adding to relative returns included overweight positions in Jazz Pharmaceuticals, Tractor Supply Company, and Erie Indemnity. Individual names detracting from relative returns included overweight positions in Atmel Corp., Fossil, and WABCO Holdings.

Top Ten Holdings2,5


Characteristics5



2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The Russell 2500 Growth Index is an independently maintained and widely published index comprised of the stocks included in the Russell 2500 Index with higher price-

to-book ratios and higher forecasted growth values. Russell Investments is the source and owner of the Russell index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is GMO’s presentation of the data. FCR is not responsible for the formatting or configuration of this material or for any inaccuracy in GMO’s presentation thereof.



GICS Sectors



Strategy -23.13 -8.18 6.96 -0.81 5.40 4.31Benchmark 3 -21.35 -13.29 0.59 1.91 6.32 4.88


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy -13.03 -17.62 44.10 13.12 9.56 6.69 1.81 -41.40 22.79 33.05

Benchmark -10.83 -29.09 46.32 14.59 8.17 12.26 9.69 -41.50 41.66 28.86

Fossil Inc. 3.2%HollyFrontier Corp. 2.8%Weight Watchers Int'l. Inc. 2.7%Herbalife Ltd. 2.5%Tractor Supply Co. 2.5%TIBCO Software Inc. 2.0%Alliance Data Systems Corp. 1.8%Tempur-Pedic Int'l. Inc. 1.8%Polypore International Inc. 1.8%Erie Indemnity Co. 1.6% Total 22.7%



-0.8

-1.8

-1.1

-0.4-1.0

-1.7

1.4

1.6

4.4

-6 -3 0 3 6

Strategy Benchmark

Alpha 0.10 0.00

Beta 0.90 1.00R2 0.95 1.00


Strategy Benchmark


Earnings/Share - F'cast LT Med Growth 17.1 x 15.8 x






GMO © 2011


GMO Real Estate Strategy Inception: 5/31/96; Benchmark: MSCI U.S. REIT Index

Performance1

The Real Estate Strategy returned -13.3% for the third quarter of 2011, outperforming the -14.5% return of the MSCI U.S. REIT index.

Sector selection had a positive impact on returns relative to the MSCI U.S. REIT index. An underweight position in the Industrial

GICS Sub-Industry was the leading sub-industry position adding to returns versus the benchmark. Stock selection also added to returns relative to the MSCI U.S. REIT index. Selections in the GICS Specialized and Retail sub-

industries added to relative returns while picks in Residential and Diversified detracted. In terms of individual names, an overweight in Simon Property Group and underweight positions in ProLogis and General Growth Properties added to relative returns. An overweight in Vornado Realty Trust and underweight positions in American Campus Communities and Realty Income Corp. detracted from relative returns.

Top Ten Holdings2,5


Characteristics5



2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The MSCI U.S. REIT Index is an independently maintained and widely published index comprised of equity securities issued by REITs. MSCI data may not be

reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolio’s sensitivity to the market; R2 is a measure of how well a portfolio tracks the market;



GICS Sub-Industries





2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy 9.53 1.86 34.03 30.64 11.27 35.39 -17.15 -33.17 24.54 27.40

Benchmark 12.83 3.64 36.74 31.49 12.13 35.92 -16.82 -37.97 28.61 28.48

Simon Property Group Inc. 13.1%Public Storage 7.0%Equity Residential 5.7%Boston Properties Inc. 5.5%Vornado Realty Trust 5.2%HCP Inc. 4.8%AvalonBay Communities Inc. 4.4%Ventas Inc. 4.3%ProLogis Inc. 2.8%Health Care REIT Inc. 2.8% Total 55.6%


Diversified 7.0 % 7.1 %

Industrial 4.0 5.1

Mortgage 0.0 0.0

Office 15.8 16.2

Residential 18.9 18.5

Retail 26.8 26.2

Specialized 27.5 26.90.6

0.6

0.4

-0.4

0.0

-1.1

-0.1

-2 -1 0 1 2

Strategy Benchmark

Alpha -0.01 0.00

Beta 0.97 1.00R2 0.99 1.00


Strategy Benchmark

Dividend Yield - Hist 1 Yr Wtd Avg 4.0 % 4.1 %Market Cap - Weighted Median $Bil $10.7 $7.6Price/Earnings - Excl Neg Earnings Hist 1 Yr Wtd Avg

37.0 x 38.1 x

Price/Cash Flow - Hist 1 Yr Wtd Med 17.2 x 16.8 xReturn on Assets - 5 Yr Avg 2.7 % 2.4 %



GMO © 2011


GMO Tax-Managed U.S. Equities Strategy Inception: 7/31/98; Benchmark: Russell 3000 + Index

Performance1

The Tax-Managed U.S. Equities Strategy declined 8.2% for the third quarter of 2011, while the Russell 3000 index declined 15.3% and the S&P 500 declined 13.9%. Global equity markets continued to decline, as waves of uncertainty continued to mount. Across U.S. equity markets, all sectors finished below where they started, with Consumer Staples “only” declining 4.5% and Materials stocks declining more than 25%. The more defensive sectors generally fared better across the board. Larger capitalization stocks fared better than their small capitalization counterparts, with the Russell 1000 declining 14.7% versus the Russell 2000 decline of 21.9%.

As in the second quarter, the positive relative performance is attributed to the portfolio’s explicit allocation to high quality as well as positive returns from both sector allocation and stock selection. Overweight exposure to Consumer Staples and Health Care stocks, and underweight exposure to Financial Services and Energy stocks all contributed positively. Selection was also strong within Information Technology, Health Care, and Consumer Discretionary stocks, reflecting the high quality bias.

Looking at some of the portfolio’s largest active positions, overweight exposure to Google, Wal-Mart, Coca-Cola and Procter and Gamble all contributed positively to relative performance. An underweight to Apple, which outperformed over the period, detracted from returns.

Top Ten Holdings2,6


Characteristics6



2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 Market conditions, tax legislation and government regulations may limit the Strategy’s ability to utilize tax efficient strategies. After-tax returns are calculated using the

historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold investment through a tax-deferred arrangement.

4 The Russell 3000 + Index is an internally maintained benchmark computed by GMO, comprised of (i) the S&P 500 Index through 10/15/2007 and (ii) the Russell 3000 Index thereafter. Russell Investments is the source and owner of the Russell index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is GMO’s presentation of the data. FCR is not responsible for the formatting or configuration of this material or for any inaccuracy in GMO’s presentation thereof.



GICS Sectors



Before-TaxStrategy 3 -8.19 -1.43 6.19 -0.86 2.23 2.59Benchmark 4 -15.28 -9.90 0.55 -0.99 2.92 1.95

After-TaxStrategy -8.32 -1.72 5.74 -1.19 1.91 2.15Benchmark -15.35 -10.09 0.27 -1.29 2.63 1.60


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy -9.77 -19.69 25.18 9.17 4.54 10.04 2.61 -30.78 19.73 8.81

Benchmark -11.88 -22.10 28.69 10.88 4.91 15.80 5.21 -37.31 28.34 16.93

Microsoft Corp. 4.8%Pfizer Inc. 4.5%Wal-Mart Stores Inc. 4.3%Int'l. Business Machines 4.2%Oracle Corp. 4.1%Google Inc. (Cl A) 4.1%Procter & Gamble Co. 4.0%Johnson & Johnson 3.9%Coca-Cola Co. 3.7%Merck & Co Inc 3.1% Total 40.7%



-1.4

-3.1

8.7

-6.516.8

-13.5

-6.9

14.7

-4.7

-20 -10 0 10 20

Strategy Benchmark

Alpha 1.00 0.00

Beta 0.82 1.00R2 0.89 1.00


Strategy Benchmark








GMO © 2011


GMO International Active EAFE Strategy Inception: 5/31/81; Benchmark: MSCI EAFE Index

Performance1

The International Active EAFE Strategy narrowly outperformed the MSCI EAFE index in the third quarter; the strategy fell 18.9% and the benchmark lost 19.0%. The strategy beat its benchmark by 0.5 percentage points for the first three quarters of 2011, returning -14.4%.

Country selection was 0.8% ahead of the benchmark. An overweight position in Japan, the best performing market in the index, added to returns. The portfolio is overweight eurozone countries due to stock positions. While we continue to find the companies attractive, we are concerned with the currency and think that the euro looks expensive. We continue to hedge the overweight, giving the portfolio roughly the same euro exposure as the index. The hedge had a positive impact over the quarter. On the negative side, an overweight position in Italy subtracted from performance as investors continued to worry about the situation in Europe.

Stock selection lagged the benchmark by 0.8% in the third quarter. Holdings in Japan and the emerging markets hurt returns. Stock selection outperformed in the United Kingdom.

Top Ten Holdings2,5




2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The MSCI EAFE (Europe, Australasia, and Far East) Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published

index comprised of international large and mid capitalization stocks. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.



Sector Weights5

GICS Sectors

Regional Weights5

Characteristics5



Strategy -18.94 -14.43 -9.80 -4.10 6.56 11.81Benchmark 3 -19.01 -14.98 -9.36 -3.46 5.03 8.61


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy -10.11 -6.11 41.37 22.33 13.52 27.52 10.58 -41.24 25.53 5.01

Benchmark -21.44 -15.94 38.59 20.25 13.54 26.34 11.17 -43.38 31.78 7.75

Royal Dutch Shell PLC 3.8%Novartis AG 2.1%Vodafone Group PLC 2.1%ENI S.p.A. 2.1%British American Tobacco 1.9%BP PLC 1.9%HSBC Holdings PLC 1.8%Total S.A. 1.6%Honda Motor Co. Ltd. 1.6%NTT DoCoMo Inc. 1.5% Total 20.4%

Strategy Benchmark

Alpha 4.70 0.00

Beta 0.81 1.00R2 0.83 1.00


Strategy Benchmark


Price/Cash Flow - Hist 1 Yr Wtd Med 5.9 x 7.7 x



Underweight/OverweightRegion Against Benchmark (%)

Europe ex-UK

United Kingdom

Japan

Southeast Asia

Australia/New Zealand

Emerging

Cash 2.1

7.7

-6.0

-1.9

4.0

0.1

-6.1

-10 -5 0 5 10



2.6-3.3

1.80.4

-2.2-6.0

6.5-1.1

2.3

-10 -5 0 5 10



GMO © 2011


GMO Int’l. Active Foreign Small Companies Strategy Inception: 1/31/95; Benchmark: S&P Developed ex-U.S. Small Cap Index

Performance1

The International Active Foreign Small Companies Strategy narrowly underperformed the S&P Developed ex-U.S. Small Cap index in the third quarter, falling 20.1% while the benchmark lost 20.0%. The strategy underperformed its benchmark by 0.4 percentage points for the first three quarters of 2011.

Country selection was 2.7% ahead of the benchmark. An overweight position in Japan, the best performing market in the index, added

1.1% to returns. Underweight positions in France and Germany added another 0.5% and 0.2%, respectively, to returns. However, an overweight position in Italy subtracted 0.3% from performance as investors continued to worry about the situation in Europe.

Stock selection lagged the benchmark by 2.8% in the third quarter. Our holdings in Japan, Germany, Switzerland, Italy, and the

emerging markets hurt returns. On the positive side, stock selection in the United Kingdom outperformed.

Top Ten Holdings2,5




2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The S&P Developed ex-U.S. Small Cap Index is an independently maintained and widely published index comprised of the small capitalization stock component of the

S&P Broad Market Index (BMI). The BMI includes listed shares of companies from developed and emerging countries with a total available market capitalization (float) of at least the local equivalent of $100 million USD. The S&P Developed ex-U. S. Small Cap Index represents the bottom 15% of available market capitalization (float) of the BMI in each country.



Sector Weights5 Regional Weights5

Characteristics5

GICS Sectors



Strategy -20.05 -15.86 -6.48 0.75 12.26 10.63Benchmark 3 -19.99 -15.50 -5.83 -1.10 10.18 6.14


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy 3.66 2.61 50.75 29.30 18.91 36.24 8.00 -45.91 47.63 24.76

Benchmark -15.70 -7.29 53.73 28.73 22.10 29.42 7.32 -47.67 45.07 21.96

COSMOS Pharmaceutical 1.8%Nihon Kohden Corp. 1.7%Companhia Hering S/A 1.4%Fuji Oil Co. Ltd. 1.2%Nabtesco Corp. 1.1%Hitachi Transport System 1.1%NHK Spring Co. Ltd. 1.1%Air Water Inc. 1.0%Takata Corp. 1.0%Sodexho Alliance S.A. 1.0% Total 12.4%

Strategy Benchmark

Alpha 5.64 0.00

Beta 0.93 1.00R2 0.94 1.00


Strategy Benchmark






Europe ex-UK

United Kingdom

Japan

Southeast Asia

Canada


Emerging

Cash 3.3

7.1

-3.1

-7.0

-1.4

5.4

2.1

-6.4

-10 -5 0 5 10



1.0-5.5

-0.51.01.9

-7.2-0.1

3.47.1

-10 -5 0 5 10



GMO © 2011


GMO International Intrinsic Value Strategy Inception: 3/31/87; Benchmark: MSCI EAFE Value Index and MSCI EAFE Index

Performance1 Top Ten Holdings2,5




2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The MSCI EAFE (Europe, Australasia, and Far East) Value Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely

published index comprised of international large and mid capitalization stocks that have a value style. Large and mid capitalization stocks encompass approximately 85% of each market’s free float-adjusted market capitalization. Style is determined using a multi-factor approach based on historical and forward-looking characteristics. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.




Characteristics5

The International Intrinsic Value Strategy returned -18.1% during the third quarter of 2011, compared to the broad market MSCI EAFE index and the MSCI EAFE Value index, which each returned -19.0%.

Stock selection, sector exposures, and currency allocation all contributed to the outperformance relative to EAFE. Country allocation detracted. Stock selection was best within France, Japan, and the United Kingdom (especially among our high quality holdings). By sector, stock selection was strong in Health

Care, but weak in Energy and Utilities. Sector exposures (as a result of stock selection) added value from our overweights to Health Care and Telecommunication Services, which both outperformed the

market, and our underweights to Financials and Materials, which underperformed. Our underweight to the strong Consumer Staples sector hurt somewhat. Our currency positioning also worked well, due mainly to our underweight positions in the overvalued Australian dollar and Swiss franc. Both currencies declined

significantly in the quarter. In country allocation, our overweight to undervalued Italy and underweight to Switzerland both hurt relative performance. Italy’s market was weaker than most while

Switzerland outperformed slightly. Despite differences between MSCI EAFE and MSCI EAFE Value, the performance of the indices was similar for the quarter. GMO’s stock selection disciplines generally had solid results in the quarter as quality and value worked well. Stocks selected by intrinsic value outperformed very strongly

(the quality component did best although valuation also helped) and those ranked highly by quality-adjusted value also did better than EAFE. Stocks chosen for their strong momentum characteristics underperformed.

Individual stock positions that added significant value included overweights in pharmaceuticals GlaxoSmithKline (UK), Takeda Pharmaceutical (Japan), and AstraZeneca (UK). Stock positions that detracted significantly included overweights in utility Enel (Italy), financial ING (Netherlands), and oil company Encana (Canada).

Underweight/OverweightSector Against M SCI EAFE Value Strategy Benchmark


-0.20.30.41.9

5.6-16.1

3.32.22.6

-20 -10 0 10 20 GICS Sectors



Strategy -18.06 -12.37 -7.05 -3.85 7.15 7.60MSCI EAFE Value 3 -19.03 -14.52 -9.99 -4.82 5.13 6.36

MSCI EAFE 3 -19.01 -14.98 -9.36 -3.46 5.03 4.45


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy -12.10 -0.59 43.53 25.23 13.98 25.78 10.21 -40.31 21.41 7.53MSCI EAFE Value -18.52 -15.91 45.30 24.33 13.80 30.38 5.96 -44.09 34.23 3.25

MSCI EAFE -21.44 -15.94 38.59 20.25 13.54 26.34 11.17 -43.38 31.78 7.75

Sanofi-Aventis S.A. 4.5%Total S.A. 3.8%AstraZeneca PLC 3.5%Royal Dutch Shell PLC 3.2%GlaxoSmithKline PLC 2.9%ENI S.p.A. 2.2%Enel S.p.A. 1.9%E.ON AG 1.9%Novartis AG 1.9%Takeda Pharmaceutical Co. 1.8% Total 27.6%

StrategyM SCI

EAFE ValueM SCIEAFE

Alpha 2.42 0.00 0.00

Beta 0.82 1.00 1.00R2 0.86 1.00 1.00

Sharpe Ratio 0.27 0.13 0.02

StrategyM SCI

EAFE ValueM SCIEAFE

Price/Earnings - Hist 1 Yr Wtd Med 9.7 x 9.9 x 12.2 xPrice/Cash Flow - Hist 1 Yr Wtd Med 5.2 x 5.0 x 7.7 xPrice/Book - Hist 1 Yr Wtd Avg 1.1 x 1.0 x 1.2 xReturn on Equity - Hist 1 Yr Med 12.5 % 10.7 % 11.2 %Market Cap - Weighted Median $Bil $22.2 $26.9 $22.4Dividend Yield - Hist 1 Yr Wtd Avg 5.0 % 5.3 % 4.1 %

Underweight/OverweightRegion Against M SCI EAFE Value (%)

Europe ex-UK

United Kingdom

Japan

Southeast Asia

Canada


Cash 2.0

-5.9

2.1

-1.0

2.8

0.0

0.0

-10 -5 0 5 10



GMO © 2011


GMO International Growth Strategy Inception: 11/30/01; Benchmark: MSCI EAFE Growth Index and MSCI EAFE Index





2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The MSCI EAFE (Europe, Australasia, and Far East) Growth Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely

published index comprised of international large and mid capitalization stocks that have a growth style. Large and mid capitalization stocks encompass approximately 85% of each market’s free float-adjusted market capitalization. Style is determined using a multi-factor approach based on historical and forward-looking characteristics. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.



Sector Weights5

GICS Sectors

Regional Weights5

Characteristics5

The International Growth Strategy returned -17.0% during the third quarter of 2011, compared to the MSCI EAFE Growth benchmark and the broad market MSCI EAFE index, which each returned -19.0%.

Stock selection, sector exposures, and currency allocation all contributed to the outperformance relative to EAFE Growth. Country allocation detracted. Stock selection was best within Switzerland, the United Kingdom, and Japan (especially among our high quality holdings). By sector, stock selection was strong in Health

Care and Telecommunication Services, but weak in Industrials. Sector exposures (as a result of stock selection) added value from our overweight to Health Care, which outperformed, and underweight to Materials, which

underperformed. Our underweight to the strong Consumer Staples sector hurt somewhat. Our currency positioning also worked well, due mainly to our underweight positions in the overvalued Australian dollar and Swiss franc. Both currencies declined

significantly in the quarter. In country allocation, our overweight to Germany, which underperformed, hurt relative performance. GMO’s stock selection disciplines generally had solid results in the quarter as quality and value worked well. Stocks selected for their high quality (high, stable

profitability and low debt) had the best returns by far. Stocks selected by intrinsic value outperformed while those stocks chosen for their strong momentum characteristics underperformed.

Individual stock positions that added significant value included overweights in pharmaceuticals GlaxoSmithKline (UK) and Roche (Switzerland) and an underweight position in mining company BHP Billiton (Australia). Stock positions that detracted significantly included overweights in chemical company BASF (Germany) and financial BNP Paribas (France) and an underweight in Imperial Tobacco (UK).



Strategy -16.96 -11.58 -4.20 -0.37 n/a 6.10MSCI EAFE Growth 3 -18.98 -15.43 -8.79 -2.16 n/a 4.00

MSCI EAFE 3 -19.01 -14.98 -9.36 -3.46 n/a 4.46


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy 2.20 -10.52 30.40 20.03 13.16 24.56 14.35 -38.29 24.81 13.94MSCI EAFE Growth 0.58 -16.02 31.99 16.12 13.28 22.33 16.45 -42.70 29.36 12.25

MSCI EAFE 0.59 -15.94 38.59 20.25 13.54 26.34 11.17 -43.38 31.78 7.75

Roche Holding AG 4.3%GlaxoSmithKline PLC 3.3%Nestle S.A. 3.0%British American Tobacco 2.9%Novartis AG 1.9%BASF SE 1.6%BHP Billiton Ltd. 1.5%SAP AG 1.5%Novo Nordisk A/S 1.4%Canon Inc. 1.3% Total 22.7%

StrategyM SCI

EAFE GrowthM SCIEAFE

Alpha 2.98 0.00 0.00

Beta 0.92 1.00 1.00R2 0.97 1.00 1.00


StrategyM SCI

EAFE GrowthM SCIEAFE

Price/Earnings - Hist 1 Yr Wtd Med 14.7 x 14.8 x 12.2 xEarnings/Share - F'cast LT Med Growth Rate 9.3 x 11.0 x 8.7 xPrice/Book - Hist 1 Yr Wtd Avg 1.9 x 1.7 x 1.2 xReturn on Equity - Hist 1 Yr Med 16.0 % 14.1 % 11.2 %Market Cap - Weighted Median $Bil $20.3 $20.3 $22.4Dividend Yield - Hist 1 Yr Wtd Avg 3.4 % 2.9 % 4.1 %

Underweight/OverweightRegion Against M SCI EAFE Growth (%)

Europe ex-UK

United Kingdom

Japan

Southeast Asia

Canada


Cash 0.2

-6.2

3.5

1.6

-1.3

3.1

-0.9

-10 -5 0 5 10

Underweight/OverweightSector Against M SCI EAFE Growth Strategy Benchmark

Consumer Discretionary 13.6 % 13.2 %Consumer Staples 15.5 19.7Energy 4.9 4.7Financials 7.7 12.0Health Care 18.2 8.2Industrials 14.7 17.5Information Technology 8.1 7.1Materials 10.4 13.9Telecom. Services 4.2 1.6Utilities 2.7 2.00.7

2.6-3.5

1.0-2.8

10.0-4.3

0.2-4.2

0.4

-20 -10 0 10 20



GMO © 2011


GMO International Core Equity Strategy Inception: 1/31/02; Benchmark: MSCI EAFE Index





2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The MSCI EAFE (Europe, Australasia, and Far East) Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published

index comprised of international large and mid capitalization stocks. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.



Sector Weights5

GICS Sectors

Regional Weights5

Characteristics5

The International Core Equity Strategy returned -18.1% during the third quarter of 2011, compared to the MSCI EAFE index, which returned -19.0%.

Stock selection, sector exposures, and currency allocation all contributed to the outperformance relative to EAFE. Country allocation detracted.

Stock selection was best within France and Japan (especially among our high quality holdings). By sector, stock selection was strong in Health Care and Telecommunication Services, but weak in Energy and Utilities.

Sector exposures (as a result of stock selection) added value from our overweights to Health Care and Telecommunication Services, which both outperformed the market, and our underweights to Financials and Materials, which underperformed. Our underweight to the strong Consumer Staples sector hurt somewhat.

Our currency positioning also worked well, due mainly to our underweight positions in the overvalued Australian dollar and Swiss franc. Both currencies declined significantly in the quarter.

In country allocation, our overweight to undervalued Italy and underweight to Switzerland both hurt relative performance. Italy’s market was weaker than most while Switzerland outperformed slightly. Our overweight position to Canada and underweight to Australia also detracted.

GMO’s stock selection disciplines generally had solid results in the quarter as quality and value worked well. Stocks selected by intrinsic value outperformed very strongly (the quality component did best although valuation also helped) and those ranked highly by quality-adjusted value also did better than EAFE. Stocks chosen for their strong momentum characteristics underperformed.

Individual stock positions that added significant value included overweights in pharmaceuticals GlaxoSmithKline (UK), Takeda Pharmaceutical (Japan), and AstraZeneca (UK). Stock positions that detracted significantly included overweights in utility Enel (Italy), chemical company BASF (Germany), and oil company Encana (Canada).



Strategy -18.12 -12.14 -5.62 -2.80 n/a 6.84Benchmark 3 -19.01 -14.98 -9.36 -3.46 n/a 5.07


2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy -2.43 37.67 23.28 15.58 25.56 12.13 -41.34 23.73 10.33

Benchmark -11.22 38.59 20.25 13.54 26.34 11.17 -43.38 31.78 7.75

Sanofi-Aventis S.A. 3.9%GlaxoSmithKline PLC 3.4%AstraZeneca PLC 3.2%Total S.A. 3.1%Royal Dutch Shell PLC 3.0%ENI S.p.A. 2.0%Novartis AG 2.0%Takeda Pharmaceutical Co. 1.8%Vodafone Group PLC 1.7%E.ON AG 1.6% Total 25.7%

Strategy Benchmark

Alpha 2.46 0.00

Beta 0.95 1.00R2 0.98 1.00


Strategy Benchmark

Price/Earnings - Hist 1 Yr Wtd Med 10.4 x 12.2 xEarnings/Share - F'cast LT Med Growth Rate 7.3 x 8.7 xPrice/Book - Hist 1 Yr Wtd Avg 1.2 x 1.2 xReturn on Equity - Hist 1 Yr Med 11.8 % 11.2 %Market Cap - Weighted Median $Bil $21.3 $22.4Dividend Yield - Hist 1 Yr Wtd Avg 4.7 % 4.1 %


Europe ex-UK

United Kingdom

Japan

Southeast Asia

Canada


Cash 1.5

-4.4

1.4

-0.8

2.3

-0.1

0.0

-6 -3 0 3 6



4.2-2.6

-0.1-2.0

7.8-9.8

4.9-5.4

1.4

-10 -5 0 5 10



GMO © 2011


GMO Currency Hedged International Equity Strategy Inception: 6/30/95; Benchmark: MSCI EAFE (Hedged) Index

Performance1

The Currency Hedged International Equity Strategy returned -14.8% during the third quarter of 2011. This was ahead of the MSCI EAFE (Hedged) index, which returned -15.7%.

On average, most currencies declined relative to the U.S. dollar in the quarter. The euro and Swiss franc fell about 7.5%, the British pound about 3%, and the Australian dollar over 9% against the U.S. dollar. The

yen was strongest and the only gainer, up almost 5%. The unhedged EAFE index returned -19.0%. The Currency Hedged International Equity Strategy has historically been invested in the International Intrinsic Value and International

Growth Strategies in roughly a 50/50 mix. Near the end of the quarter, the strategy was more tilted toward Value, which currently looks more attractive. The mix now stands at about 60/40 in favor of Value over Growth.

Performance of the Currency Hedged International Equity Strategy relative to the MSCI EAFE (Hedged) index was helped by the outperformance of both the International Growth Strategy and the International Intrinsic Value Strategy relative to their respective style benchmarks.

Top Ten Holdings2,5




2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The MSCI EAFE (Europe, Australasia, and Far East) Index (Hedged) (net of withholding tax) is an independently maintained and widely published index comprised of

international large and mid capitalization stocks currency hedged into U.S. dollars. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.



Sector Weights5



1.7

-1.80.2

-1.07.8

-9.52.5

-1.81.2

-10 -5 0 5 10GICS Sectors

Regional Weights5

Characteristics5





2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy -5.31 -14.26 20.96 14.77 27.32 19.31 5.88 -34.09 16.11 7.72

Benchmark -15.87 -27.37 19.17 12.01 29.67 19.19 5.32 -39.77 25.67 5.60

Sanofi-Aventis S.A. 3.1%GlaxoSmithKline PLC 3.0%AstraZeneca PLC 2.3%Total S.A. 2.2%Royal Dutch Shell PLC 2.1%Roche Holding AG 1.9%Novartis AG 1.9%Nestle S.A. 1.7%British American Tobacco 1.6%Takeda Pharmaceutical Co. 1.4% Total 21.2%

Strategy Benchmark

Alpha 2.73 0.00

Beta 0.82 1.00R2 0.88 1.00


Strategy Benchmark



Return on Equity - Hist 1 Yr Wtd Med 12.5 % 11.2 %




Europe ex-UK

United Kingdom

Japan

Southeast Asia

Canada


Cash 8.8

-6.3

2.5

-0.2

-0.6

-1.0

-3.3

-10 -5 0 5 10



GMO © 2011


GMO Japan Equity Strategy Inception: 12/31/05; Benchmark: MSCI Japan IMI ++ Index

Performance1

The Japan Equity Strategy returned -0.1% during the third quarter of 2011. This was ahead of its benchmark, the MSCI Japan IMI index, which returned -5.5%.

Within the portfolio, stock selection was the primary reason for the outperformance. Performance was particularly good within Consumer Discretionary, Industrials, and Telecommunication Services, but also relatively

strong in Information Technology, Financials, and Health Care. Individual stock positions that added value included an overweight position in real estate developer Daito Trust Construction and

underweight positions in Toyota Motor Corp. and Honda Motor Corp. Stock positions that detracted significantly included underweights in Japan Tobacco and East Japan Railway, and an overweight in shipping company Kawasaki Kisen Kaisha.

Sector exposures also added some value, due mainly to our underweight to Information Technology, which performed poorly in the quarter.

Top Ten Holdings2,5




2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The MSCI Japan IMI (Investable Market Index Series) ++ Index is an internally maintained benchmark computed by GMO, comprised of (i) the MSCI Japan (MSCI

Standard Index Series, net of withholding tax) from 12/31/2005 to 6/30/2008 and (ii) the MSCI Japan IMI (MSCI Standard Index Series, net of withholding tax) thereafter. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.



Sector Weights5

Characteristics5



8.5-2.0

-8.0-2.5

-1.13.4

2.01.4

-0.5




Strategy -0.12 1.72 17.36 -1.04 n/a -0.87Benchmark 3 -5.48 -9.24 1.66 -4.19 n/a -3.46


2006 2007 2008 2009 2010

Strategy 6.39 -2.39 -24.83 -1.78 21.95

Benchmark 6.24 -4.23 -28.16 6.12 16.02

Mizuho Financial Group 5.2%KDDI Corp. 4.5%Nippon T & T Corp. 4.3%NTT DoCoMo Inc. 3.5%Sumitomo Mitsui Financial 3.4%Daito Trust Construction 2.1%Yamada Denki Co. Ltd. 2.0%Resona Holdings Inc. 1.9%Takeda Pharmaceutical Co. 1.6%Sumitomo Corp. 1.3% Total 29.8%

Strategy Benchmark

Alpha 3.66 0.00

Beta 1.08 1.00R2 0.93 1.00

Sharpe Ratio -0.12 -0.33

Strategy Benchmark

% Negative Earnings 6.3 % 5.1 %Price/Earnings - Excl Neg Earn Hist 1 Yr Wtd Med 9.7 x 14.7 xPrice/Earnings - Hist 1 Yr Wtd Med 10.1 x 15.1 xPrice/Book - Hist 1 Yr Wtd Avg 0.8 x 0.9 xReturn on Equity - Hist 1 Yr Med 8.0 % 6.4 %Market Cap - Weighted Median $Bil $2.8 $8.9Dividend Yield - Hist 1 Yr Wtd Avg 2.8 % 2.4 %



GMO © 2011


GMO International Small Companies Strategy Inception: 10/31/91; Benchmarks: MSCI EAFE Small Cap + Index and MSCI EAFE Index





2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The MSCI EAFE (Europe, Australasia, and Far East) Small Cap + Index is an internally maintained benchmark computed by GMO, comprised of (i) the S&P Developed

ex-U.S. Small Cap Index through 5/30/2008 and (ii) the MSCI EAFE Small Cap Index (MSCI Standard Index Series, net of withholding tax) thereafter. MSCI data may not be reproduced or used for any other purpose. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.



Sector Weights5 Underweight/Overweight

Sector Against M SCI EAFE Small Cap Strategy Benchmark


-0.11.5

-2.2-2.3

-0.8-3.6

-1.1-0.8

9.2


Regional Weights5

Characteristics5

The International Small Companies Strategy returned -20.4% during the third quarter of 2011, compared to the MSCI EAFE Small Cap index, which returned -18.6%. Stock selection was the main reason for the underperformance relative to the benchmark. Country allocation, currency allocation, and sector exposures all had small

positive impacts. Stock selection was especially weak within Japan, France, the United Kingdom, and Canada. By sector, our holdings in Materials, Consumer Discretionary, Industrials,

and Financials underperformed. GMO’s stock selection disciplines had weak results in the quarter as momentum underperformed. Stocks selected for their strong momentum characteristics had returns

that were worse than the index. Stocks chosen by momentum-adjusted value or by quality-adjusted value had returns that were more index-like. In country allocation, our overweight to Japan, which outperformed, and underweight to Hong Kong, which trailed, helped relative performance. Our exposure to

emerging markets was a slight drag on performance. Our currency positioning worked well, due mainly to our underweight positions in the overvalued Australian dollar and Swiss franc. Both currencies declined

significantly in the quarter. Sector exposures (as a result of stock selection) added value from our underweight to Energy stocks which lagged. Individual stock holdings that were significant positive contributors to relative performance included health care equipment company Nihon Kohden Corp (Japan), food

products company Tate & Lyle (UK), and specialty retailer DCM Holdings (Japan). Holdings that detracted significantly included chemical company Arkema (France), auto parts company Leoni (Germany), and Aareal Bank (Germany).



Strategy -20.37 -14.64 -3.19 -0.48 11.49 8.68MSCI EAFE SC + 3 -18.59 -15.47 -5.50 -0.58 10.46 5.92

MSCI EAFE 3 -19.01 -14.98 -9.36 -3.46 5.03 4.42


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy -6.70 -1.25 67.44 27.02 24.33 27.78 8.06 -43.77 36.42 21.12MSCI EAFE SC + -15.70 -7.29 53.73 28.73 22.10 29.42 7.32 -46.97 46.78 22.04

MSCI EAFE -21.44 -15.94 38.59 20.25 13.54 26.34 11.17 -43.38 31.78 7.75

Arkema 1.3%Tate & Lyle PLC 1.2%Gigas Ks Denki Corp. 1.2%DCC PLC 1.0%William Hill PLC 1.0%Inchcape PLC 0.9%Drax Group PLC 0.9%Norddeutsche Affinerie AG 0.8%Macquarie Office Trust 0.8%Calsonic Kansei Corp. 0.8% Total 9.9%

M SCI EAFE M SCIStrategy Small Cap + EAFE

Alpha 3.62 0.00 0.00

Beta 0.98 1.00 1.00R2 0.91 1.00 1.00


M SCI EAFE M SCIStrategy Small Cap EAFE

Price/Earnings - Hist 1 Yr Wtd Med 10.0 x 13.9 x 12.2 xPrice/Cash Flow - Hist 1 Yr Wtd Med 5.6 x 8.2 x 7.7 xPrice/Book - Hist 1 Yr Wtd Avg 0.9 x 1.1 x 1.2 xReturn on Equity - Hist 1 Yr Med 10.8 % 8.8 % 11.2 %Market Cap - Weighted Median $Bil $0.9 $0.9 $22.4Dividend Yield - Hist 1 Yr Wtd Avg 3.6 % 3.1 % 4.1 %

Underweight/OverweightRegion Against M SCI EAFE Small Cap (%)

Europe ex-UK

United Kingdom

Japan

Southeast Asia

Canada


Emerging

Cash 1.1

4.5

-8.4

1.1

-1.4

2.9

0.3

-0.2

-10 -5 0 5 10



GMO © 2011


GMO Tax-Managed International Equities Strategy Inception: 8/31/98; Benchmark: MSCI EAFE Index (After Tax)

Performance1

The Tax-Managed International Equities Strategy declined 18.0% for the third quarter of 2011, while the MSCI EAFE index declined 19.0%. Global equity markets continued to decline, as waves of uncertainty continued to mount. International developed equity markets experienced a broad-based decline, both in USD and local currency terms, as Greece’s troubled path and global economic uncertainty pulled returns down across the board. Of the major countries within the index, Japan stands out by “only” declining 6.4%. Sectors clearly mattered during the quarter, as the more defensive sectors lived up to expectations, and slid downward more slowly than their more cyclical counterparts.

Within the portfolio, the modest relative outperformance reflected the offsetting performance of the quality-flavored Intrinsic Value strategy, which outperformed the market, and the Materials-laden Momentum strategy, which underperformed the market. Country selection was a moderate detractor for the period, due primarily to an overweight of Italian stocks. Sector selection, however, was a positive contributor for the quarter, led by overweight exposure to Health Care stocks, which outperformed, and underweight exposure to Financial Services, which, along with Materials, led the market downwards.

Looking at some of the portfolio’s largest active positions, overweight exposure to Health Care giants GlaxoSmithKline, AstraZeneca, and Takeda Pharmaceutical all contributed positively to returns. Overweight exposure to Enel, the Italian utility, detracted from returns.

Top Ten Holdings2,6


Underweight/OverweightSector Against Benchmark Strategy BenchmarkConsumer Discretionary 11.8 % 10.2 %Consumer Staples 6.1 11.4Energy 13.6 8.2Financials 11.2 22.1Health Care 17.0 9.7Industrials 11.0 12.3Information Technology 4.6 5.0Materials 7.5 10.0Telecom. Services 9.5 6.2Utilities 7.5 4.92.6

3.3-2.5

-0.4-1.3

7.3-10.9

5.4-5.3

1.6

-20 -10 0 10 20 GICS Sectors



Characteristics6


2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 Market conditions, tax legislation and government regulations may limit the Strategy’s ability to utilize tax efficient strategies. After-tax returns are calculated using the

historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold investment through a tax-deferred arrangement.

4 The Strategy’ benchmark is the MSCI EAFE Index (after tax), computed by the Manager by adjusting the return of the MSCI EAFE Index by its tax cost. The Manager estimates the MSCI EAFE Index’s after-tax return by applying the maximum historical applicable individual federal tax rate to the MSCI EAFE Index’s dividend yield and to its estimated short-term and long-term realized capital gains (losses) (arising from changes in the constituents of the MSCI EAFE Index). The MSCI EAFE (Europe, Australasia, and Far East) Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of international large and mid capitalization stocks. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.





Before-TaxStrategy 3 -18.00 -11.65 -5.30 -2.34 7.91 6.68Benchmark 4 -19.01 -14.98 -9.36 -3.46 5.03 3.30

After-TaxStrategy -18.16 -11.82 -5.65 -3.03 7.23 6.08Benchmark -19.16 -15.77 -10.30 -4.29 4.35 2.57


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy -8.71 -2.33 41.05 24.36 16.55 25.90 13.75 -40.71 23.71 9.38Benchmark -21.44 -15.94 38.59 20.25 13.54 26.34 11.17 -43.38 31.78 7.75

Sanofi-Aventis S.A. 4.0%AstraZeneca PLC 3.3%Total S.A. 3.2%Royal Dutch Shell PLC 3.0%GlaxoSmithKline PLC 2.8%ENI S.p.A. 2.0%Novartis AG 2.0%Enel S.p.A. 1.8%E.ON AG 1.7%Takeda Pharmaceutical Co. 1.7% Total 25.5%

Strategy Benchmark

Alpha 4.17 0.00

Beta 0.90 1.00R2 0.92 1.00


Strategy Benchmark

Price/Earnings - Hist 1 Yr Wtd Med 10.3 x 12.2 xPrice/Cash Flow - Hist 1 Yr Wtd Med 5.2 x 7.7 xPrice/Book - Hist 1 Yr Wtd Avg 1.2 x 1.2 xDividend Yield - Hist 1 Yr Wtd Avg 4.6 % 4.1 %Return on Equity - Hist 1 Yr Med 12.0 % 11.2 %Market Cap - Weighted Median $Bil $20.3 $22.4


Europe ex-UK

United Kingdom

Japan

Southeast Asia

Canada


Cash 2.7

-4.7

2.6

-1.0

2.3

-0.6

-1.3

-6 -3 0 3 6



GMO © 2011


GMO Emerging Markets Strategy Inception: 12/31/93; Benchmark: S&P/IFCI Composite Index

Performance1

The Emerging Markets Strategy fell 22.0% in the third quarter, marginally outperforming the -22.6% return of the S&P/IFCI Composite Index by 0.6%. Overall, country/sector selection added 0.9% while stock selection lost 0.3%.

Emerging markets suffered further their worst quarter since late 2008. Investor sentiment has been hit hard by the debt dynamics in Europe and the worsening global growth prospects. The quarter saw country performances as diverse as a fall of 4.7% in Peru and a 44.4% plunge in Hungary. Among sectors, the spread was tighter, with Telecommunication Services losing 10.0% and Industrials dropping 29.2%.

China’s stocks fell on signs that growth is slowing as overseas demand falters and the government maintains its focus on curbing inflation. An index of Chinese manufacturing shrank for a third month. Policymakers reiterated their determination to stabilize prices even as inflation eased to 6.2% in August from a three-year high in July. Our underweight in Chinese Financials contributed to performance.

Hungary was hammered by fears of contagion from the eurozone’s debt crisis. Investor sentiment was further hurt by a government announcement that Hungary was “far” from the full implementation of its three-year spending-cut plan that had been designed to put the budget on a sustainable path. Our overweight in Hungarian Financials, driven by this group’s low valuations, detracted from performance.

A happy combination of solid growth, dormant inflation, and low interest rates is boosting domestic spending in Indonesia. The central bank forecasts the economy to grow as much as 6.8% this year, the fastest pace since 2004, while inflation in August came in at 4.8% relative to a year earlier. The central bank left rates unchanged for a seventh month. Our overweight in Indonesian Consumer Discretionary added to performance.

The continuing spike in risk aversion impacted Russian stocks negatively as the country is perceived to be one of the riskier emerging markets. The drop in commodity prices dealt another blow given the country’s huge oil and metal exports. Prime Minister Putin declared his intention to run for the presidency. President Medvedev supported Putin and said he may take over as prime minister. The announcement brought clarity for investors but also dispelled the hope that Medvedev, regarded the more investor-friendly of the duo, would take over the top spot. Our overweight in Russian Energy, a reflection of its cheapness and positive momentum, hurt performance.

Thailand’s stock market jumped after the elections handed a decisive mandate to Yingluck Shinawatra’s Pheu Thai party, easing concerns of political stalemate. Her party’s promises of higher wages, lower taxes, and greater spending were instrumental in the victory. However, they also convinced the central bank to raise interest rates. Our overweight in Thai Financials boosted performance.

The global flight to safety manifested itself in emerging markets by the relative outperformance of the Telecommunication Services sector. Our overweight in this sector across countries such as China, Korea, and Taiwan boosted performance.

Stock selection detracted from performance in Chinese Technology but contributed positively in Chinese Energy.

Top Ten Holdings2,5




2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The S&P/IFCI Composite Index is an independently maintained and widely published index comprised of emerging markets stocks. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolio’s sensitivity to the market; R2 is a measure of how well a portfolio tracks the market;



Sector Weights5



8.30.3

-2.1-4.6

-0.9-3.2

7.4-4.4

-1.4

-10 -5 0 5 10 GICS Sectors

Regional Weights5

Characteristics5



Strategy -22.02 -19.56 -13.30 3.33 16.99 8.32Benchmark 3 -22.58 -22.04 -15.86 5.40 17.50 5.66


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy 9.81 0.78 70.21 26.54 40.15 29.51 37.22 -55.74 71.89 20.20

Benchmark 1.76 -3.93 57.15 28.11 35.19 35.11 40.28 -53.74 81.03 20.64

Vale S.A. (ADS) 4.3%OAO Gazprom ADR 4.1%Petroleo Brasileiro S/A Ord 3.5%Samsung Electronics Co. 3.3%China Mobile Ltd. (ADS) 3.2%Lukoil Oil Company ADR 2.1%Astra International 1.8%Banco do Brasil S.A. 1.5%China Petrol. & Chemical H 1.3%Rosneft OJSC GDR 1.3% Total 26.4%

Strategy Benchmark

Alpha 3.94 0.00

Beta 0.99 1.00R2 0.93 1.00


Strategy Benchmark




Return on Equity - Hist 1 Yr Avg 16.0 % 14.6 %




East Asia

Europe

Latin/South America

Mideast/Africa

South Asia

Cash 1.5

-0.7

-3.3

-2.4

10.3

-5.4

-20 -10 0 10 20



GMO © 2011


GMO Emerging Countries Strategy Inception: 9/30/97; Benchmark: S&P/IFCI Composite Index

Performance1

The Emerging Countries Strategy fell 22.6% in the third quarter, which was even with the -22.6% return of the S&P/IFCI Composite Index. Overall, country/sector selection added 0.2% while stock selection lost 0.2%.

Emerging markets suffered further their worst quarter since late 2008. Investor sentiment has been hit hard by the debt dynamics in Europe and the worsening global growth prospects. The quarter saw country performances as diverse as a fall of 4.7% in Peru and a 44.4% plunge in Hungary. Among sectors, the spread was tighter, with Telecommunication Services losing 10.0% and Industrials dropping 29.2%.

China’s stocks fell on signs that growth is slowing as overseas demand falters and the government maintains its focus on curbing inflation. An index of Chinese manufacturing shrank for a third month. Policymakers reiterated their determination to stabilize prices even as inflation eased to 6.2% in August from a three-year high in July. Our underweight in Chinese Financials contributed to performance.

Hungary was hammered by fears of contagion from the eurozone’s debt crisis. Investor sentiment was further hurt by a government announcement that Hungary was “far” from the full implementation of its three-year spending-cut plan that had been designed to put the budget on a sustainable path. Our overweight in Hungarian Financials, driven by this group’s low valuations, detracted from performance.

A happy combination of solid growth, dormant inflation, and low interest rates is boosting domestic spending in Indonesia. The central bank forecasts the economy to grow as much as 6.8% this year, the fastest pace since 2004, while inflation in August came in at 4.8% relative to a year earlier. The central bank left rates unchanged for a seventh month. Our overweight in Indonesian Consumer Discretionary added to performance.

The continuing spike in risk aversion impacted Russian stocks negatively as the country is perceived to be one of the riskier emerging markets. The drop in commodity prices dealt another blow given the country’s huge oil and metal exports. Prime Minister Putin declared his intention to run for the presidency. President Medvedev supported Putin and said he may take over as prime minister. The announcement brought clarity for investors but also dispelled the hope that Medvedev, regarded the more investor-friendly of the duo, would take over the top spot. Our overweight in Russian Energy, a reflection of its cheapness and positive momentum, hurt performance.

Thailand’s stock market jumped after the elections handed a decisive mandate to Yingluck Shinawatra’s Pheu Thai party, easing concerns of political stalemate. Her party’s promises of higher wages, lower taxes, and greater spending were instrumental in the victory. However, they also convinced the central bank to raise interest rates. Our overweight in Thai Financials boosted performance.

The global flight to safety manifested itself in emerging markets by the relative outperformance of the Telecommunication Services sector. Our overweight in this sector across countries such as China, Korea, and Taiwan boosted performance.

Stock selection detracted from performance in Korean Industrials and Russian Energy but contributed positively in Chinese Energy.

Top Ten Holdings2,5




2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The S&P/IFCI Composite Index is an independently maintained and widely published index comprised of emerging markets stocks. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolio’s sensitivity to the market; R2 is a measure of how well a portfolio tracks the market;



Sector Weights5



8.71.7

-2.2-4.8

-1.0-2.2

8.1-4.9

-3.5


Regional Weights5

Characteristics5



Strategy -22.60 -20.14 -13.69 2.86 16.42 8.99Benchmark 3 -22.58 -22.04 -15.86 5.40 17.50 7.77


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy 6.03 -0.03 68.27 24.89 37.54 28.95 37.44 -55.81 69.96 19.89

Benchmark 1.76 -3.93 57.15 28.11 35.19 35.11 40.28 -53.74 81.03 20.64

Vale S.A. (ADS) 4.5%OAO Gazprom ADR 4.1%Petroleo Brasileiro S/A Ord 3.6%Samsung Electronics Co. 3.2%China Mobile Ltd. (ADS) 3.1%Astra International 2.3%Lukoil Oil Company ADR 2.2%Banco do Brasil S.A. 1.8%Surgutneftegaz Prf 1.6%KGHM Polska Miedz S.A. 1.5% Total 27.9%

Strategy Benchmark

Alpha 2.38 0.00

Beta 1.04 1.00R2 0.93 1.00


Strategy Benchmark




Return on Equity - Hist 1 Yr Avg 15.3 % 14.6 %




East Asia

Europe

Latin/South America

Mideast/Africa

South Asia

Cash 1.4

-1.4

-2.5

-2.0

10.9

-6.5

-20 -10 0 10 20



GMO © 2011


GMO Global Active Equity Strategy Inception: 8/31/00; Benchmark: MSCI World Index

Performance1

The Global Active Equity Strategy underperformed the MSCI World index by 3.1 percentage points in the third quarter, falling 19.7% while the benchmark lost 16.6%. The strategy lagged its benchmark by 2.8 percentage points for the first three quarters of 2011, returning -15.0%.

Country selection was positive in the quarter. An underweight position in Australia added to returns. The portfolio is overweight eurozone countries due to stock positions. While we continue to find the companies attractive, we are concerned with the currency and think that the euro looks expensive. We continue to hedge the overweight, giving the portfolio roughly the same euro exposure as the index. The hedge had a positive impact over the quarter. On the negative side, overweight positions in Germany and Italy subtracted from returns as investors continued to worry about the situation in Europe. An underweight position in the United States also hurt performance.

Sector selection was positive. An underweight position in the financial sector helped returns as concerns about European sovereign debt and talk of a second recession led to a sell-off in financial names. This was somewhat offset by an underweight position in Information Technology, which subtracted from performance.

Stock selection lagged the benchmark in the quarter. Positions in the United States, Germany, Japan, the Netherlands, and the emerging markets all underperformed. On the positive side, holdings in Canada and the United Kingdom beat the benchmark.

Top Ten Holdings2,5




2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The MSCI World Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of global developed

markets. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.



Sector Weights5



2.01.4

-3.80.50.1

-6.81.51.6

5.0


Regional Weights5

Characteristics5



Strategy -19.68 -15.05 -8.21 -3.12 6.68 6.41Benchmark 3 -16.61 -12.20 -4.35 -2.23 3.71 -0.19


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy -4.87 -10.00 43.07 22.00 17.66 25.69 8.64 -40.89 28.16 10.08

Benchmark -16.82 -19.89 33.11 14.72 9.49 20.07 9.04 -40.71 29.99 11.76

Pfizer Inc. 2.4%Vodafone Group PLC 2.3%WellPoint Inc. 2.2%British American Tobacco 2.1%Comcast Corp. (Cl A) 2.0%Microsoft Corp. 1.9%Target Corp. 1.9%J.M. Smucker Co. 1.9%Royal Dutch Shell PLC 1.8%QUALCOMM Inc. 1.8% Total 20.3%

Strategy Benchmark

Alpha 7.27 0.00

Beta 0.94 1.00R2 0.84 1.00


Strategy Benchmark






United States

Europe ex-UK

United Kingdom

Japan

Southeast Asia

Canada


Emerging

Cash 4.1

8.0

-3.8

-3.5

-0.1

0.5

2.7

3.5

-11.2

-20 -10 0 10 20



GMO © 2011


GMO Global Equity Strategy Inception: 7/31/96; Benchmark: MSCI World Index





2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The MSCI World Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of global developed

markets. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.



Sector Weights5



0.6-2.1

0.70.0

7.1-6.0

2.7-0.7

-1.4


Regional Weights5

Characteristics5

The third quarter was the worst for stock markets since the first phase of the financial crisis in 2008/9. Global equities lost investors 16.6% in U.S. dollar terms as measured by the MSCI World index. The Global Equity Strategy beat the broader markets by 0.5% for the quarter, bringing the year to date relative performance to +1.7%.

Eurozone equities were at the center of the market collapse, underperforming the global average by almost 12 percentage points. Weakness across Europe was broadly based. Bailout recipient (and candidate for more) Greece performed worst. Bailout providers were not spared, with French and German equity markets falling by similar amounts to Italian equities. The big markets of the U.S., Japan, and the U.K. were the only places to hide (and then only in relative terms – all developed markets delivered negative absolute returns). The strategy’s market selection detracted from returns; despite the good reasons to worry about Europe, or more precisely, because of the low valuations they have produced, the strategy remains overweight in eurozone equities.

The strategy’s top-down allocation to high quality U.S. blue-chips made the most significant contribution to relative performance. In times of uncertainty, conservative companies simply look more alluring to the average market participant. From our perspective, the high quality companies look slightly less attractive, having outperformed decently since April, but still trade comfortably toward the bottom of their historic valuation range. Should the financial crisis intensify, this allocation will look even more alluring and will outperform but the main logic of the position is not one of trouble ahead, rather that high quality U.S. blue-chips still trade at undemanding prices.

The strategy’s value holdings also outperformed this quarter. A good part of this outperformance was the result of the trade-off that we make between company quality and company valuation. By contrast, simple “benchmark” value underperformed globally. Our value stocks outperformed modestly even in Europe, illustrating the potential benefits of low expectations: when sentiment deteriorates across the board, the stocks priced with the rosiest optimism have the most to lose.

The strategy received a bloody nose from its momentum investments as markets began to take the prospect of a global slowdown more seriously. In particular, the shares of European exporters with exposure to Asia (e.g., the automakers) suffered as this cycle’s Chinese incarnation of “good times will last forever” thinking was shaken by frailties in the Chinese banking sector. Our momentum focus has shifted toward less exposed companies in recent trades.

Finally, the currency positioning of the strategy contributed to returns this quarter. We favor the markets of countries with competitively priced currencies. The effective exchange rates of the U.S. dollar and sterling have flirted with 30-year lows this year while the Swiss franc and the Australian dollar have made 30-year highs. The strategy is invested accordingly; the Swiss National Bank’s moves to weaken the franc, alongside China’s inadvertent moves to weaken the Australian dollar, were therefore welcome contributors to relative returns.





2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy -9.39 -10.70 36.36 17.95 11.08 21.19 6.16 -38.71 24.61 10.40

Benchmark -16.82 -19.89 33.11 14.72 9.49 20.07 9.04 -40.71 29.99 11.76

Johnson & Johnson 4.5%Coca-Cola Co. 2.8%Google Inc. (Cl A) 2.3%Royal Dutch Shell PLC 2.0%Wal-Mart Stores Inc. 2.0%Merck & Co Inc 1.9%PepsiCo Inc. 1.7%Exxon Mobil Corp. 1.7%Apple Inc. 1.5%QUALCOMM Inc. 1.5% Total 21.9%

Strategy Benchmark

Alpha 2.34 0.00

Beta 0.91 1.00R2 0.95 1.00


Strategy Benchmark

Price/Earnings - Hist 1 Yr Wtd Med 11.8 x 13.3 xPrice/Cash Flow - Hist 1 Yr Wtd Med 8.1 x 8.9 xPrice/Book - Hist 1 Yr Wtd Avg 1.5 x 1.5 xReturn on Equity - Hist 1 Yr Wtd Med 17.0 % 14.2 %Market Cap - Weighted Median $Bil $35.6 $29.2Dividend Yield - Hist 1 Yr Wtd Avg 3.8 % 3.2 %


North America

Europe ex-UK

United Kingdom

Japan

Pacific ex-Japan

Cash 1.8

-3.8

1.3

0.5

1.6

-1.4

-6 -3 0 3 6



GMO © 2011


GMO Core Plus Bond Strategy Inception: 4/30/97; Benchmark: Barclays Capital U.S. Aggregate Index

Performance1

The Core Plus Bond Strategy returned +4.3% in the third quarter, outperforming the return of its benchmark, the Barclays Capital U.S. Aggregate index, by 0.4%. The Barclays Capital U.S. Aggregate index posted a third consecutive quarter of total return gains, returning +3.8%. Falling U.S. Treasury yields were responsible for index gains, as widening sector spreads weighed on performance.

Ten-year U.S. Treasury yields fell by 123 basis points to 1.9%, and 2-year yields fell by 19 basis points to 0.2%. Despite having suffered their first-ever rating downgrade in August, U.S. Treasuries had their best quarterly return since Q4 2008, rising by 6.5%. The Federal Reserve vowed to keep short-term rates near zero through 2013 and added a “twist” to policy designed to flatten the yield curve by buying longer-dated bonds as part of its quantitative easing policy.

The overall option-adjusted spread of the Barclays Capital U.S. Aggregate index widened by 36 basis points, with sector spreads widening by as much as 108 basis points (CMBS), and by as little as 10 basis points (U.S. Agencies). CMBS spreads widened the most during the quarter, consistent with general weakening in the broader markets.

Developed markets interest-rate positioning was responsible for third quarter gains. While unable to fully offset gains, exposures to GMO Short Duration Collateral Fund (SDCF) and GMO World Opportunity Overlay Fund (WOOF) contributed negatively for a second consecutive quarter, followed by negative contributions from developed markets currency selection and exposure to emerging country debt via the GMO Emerging Country Debt Fund.




2 The Barclays Capital U.S. Aggregate Index is an independently maintained and widely published index comprised of U.S. fixed rate debt issues having a maturity of at least one year and rated investment grade or higher.



5 Please note portfolio yield includes the yield on the portfolio’s cash assets, for example, via the Short Duration Collateral Fund. 6 Regional weights are duration adjusted.

Currency Weights4 Regional Weights4,6

Characteristics4,5



Strategy 4.26 8.22 7.71 4.33 5.31 6.13Benchmark 2 3.82 6.65 5.26 6.53 5.66 6.44


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy 8.51 6.55 10.96 6.59 3.95 5.76 -1.01 -18.00 20.90 13.24

Benchmark 8.44 10.26 4.10 4.34 2.43 4.33 6.97 5.24 5.93 6.54

Strategy Benchmark

Alpha -0.28 0.00

Beta 1.08 1.00R2 0.48 1.00


Modified Duration 5.0Average Coupon 3.2 %Average Maturity 6.0 Yrs.Average Yield 5.1 %Emerging Cntry Debt Exp. 3 %

Underweight/OverweightAgainst Benchmark (%)

Europe

North America

Pacific

Emerging 3.5

-1.6

-1.6

-13.2

-20 -10 0 10 20


Europe

North America

Pacific 6.0

2.2

-8.2

-10 -5 0 5 10



GMO © 2011


GMO Inflation Indexed Plus Bond Strategy Inception: 5/31/06; Benchmark: Barclays Capital U.S. Treasury Inflation Notes Index

Performance1

The Inflation Indexed Plus Bond Strategy returned +4.6% in the third quarter, outperforming the Barclays Capital U.S. Treasury Inflation Notes index by 0.1%. The index reported a third consecutive quarter of total return gains, reporting +4.5% for the third quarter of 2011. The real yield curve flattened during the quarter, as real 2-year yields rose by 51 basis points, real 10-year yields fell by 53 basis points; longer-dated real yields (> 20 years) fell by 136 basis points.

Issue selection and developed markets interest-rate positioning were responsible for third quarter gains. While unable to fully offset

gains, exposures to GMO Short Duration Collateral Fund (SDCF) and GMO World Opportunity Overlay Fund (WOOF) contributed negatively for a second consecutive quarter, followed by negative contributions from exposure to emerging country debt via the GMO Emerging Country Debt Fund and developed markets currency selection.




2 The Barclays Capital U.S. Treasury Inflation Notes Index is an independently maintained and widely published index comprised of Inflation-Protection Securities issued by the U.S. Treasury (TIPS).





Characteristics4,5



Strategy 4.62 11.36 12.08 5.19 n/a 5.49Benchmark 2 4.51 10.59 9.87 7.10 n/a 7.40


2006 2007 2008 2009 2010

Strategy 3.58 3.06 -24.75 30.30 14.11

Benchmark 2.51 11.64 -2.35 11.41 6.31

Strategy Benchmark

Alpha -1.84 0.00

Beta 1.05 1.00R2 0.59 1.00


Modified Real Rate Duration 7.8Average Coupon 0.9 %Average Maturity 8.1 Yrs.Average Yield 5.1 %Emerging Cntry Debt Exp. 3 %


Europe

North America

Pacific

Emerging 3.5

-2.0

-2.8

-13.1

-20 -10 0 10 20


Europe

North America

Pacific 6.2

1.9

-8.1

-10 -5 0 5 10



GMO © 2011


GMO International Bond Strategy Inception: 12/31/93; Benchmark: J.P. Morgan Non-U.S. Government Bond Index

Performance1

The International Bond Strategy returned +0.7% in the third quarter, underperforming the J.P. Morgan Non-U.S. Government Bond index return of +1.5% by 0.7%. The yield of the J.P. Morgan non-U.S. Government Bond index fell by 36 bps during the month, with falling yields across all benchmark countries contributing to index gains.

Government bond markets rallied across the board during the quarter: in local currency J.P. Morgan Global Bond index terms, gains were the highest in the U.K. (+8.8%) and lowest in Japan (+1.2%). Setting the stage early in the quarter for a bond market rally was the weak July U.S. jobs report. Later, speculation that the Bank of England would expand its monetary stimulus to boost a flagging recovery prompted the fall in gilt yields. Despite having suffered their first-ever rating downgrade in August, U.S. Treasuries had their best quarterly return since Q4 2008, rising by 6.5%. In other bond markets, the eurozone (+8.0%), Sweden (+7.4%), Canada (+6.1%), Australia (+5.8%), and Switzerland (+4.7%) also reported total return gains.

Global yield curves (measured by the difference between 10-year and 2-year swap rates) flattened across the board during the quarter, with curves in the U.S. and the U.K. flattening the most.

In currencies, most of the quarter’s movements were concentrated in September, although the yen briefly took a 3% dive in August when the Bank of Japan intervened. Then, as September opened, the Swiss National Bank stunned the market by setting a floor in EURCHF at 1.2, a level 17% higher than the August lows. Presumably they were preparing themselves to counteract the inflow of funds fleeing the eurozone, whose authorities made a vague pledge on July 21 to “do everything possible to keep Greece in the eurozone” and then promptly disappeared for July/August holidays. Once September arrived, however, and the impossible conditions for Greece’s compliance became clear, the stampede from euros began. EURCHF was mostly unchanged, but both fell about 7.5% dollar relative. Commodity currencies also suffered, with Australian dollar and Norwegian krone down 9.2% and 8.6%, respectively.

In policy actions, the ECB and Sweden each raised policy interest rates by 25 bps during the quarter, to 1.5% and 2%, respectively. The Swiss cut rates by 25 bps before embarking on their fx intervention. In the U.S., the Fed, already in ZIRP, announced plans to buy longer-maturity bonds with the aim of “twisting” the yield curve flatter. Having renewed the central bank swap lines last quarter, they came in handy a few times this quarter, with the Fed providing liquidity in USD to the ECB and the SNB.

Exposures to GMO Short Duration Collateral Fund (SDCF) and GMO World Opportunity Overlay Fund (WOOF) contributed negatively for a second consecutive quarter, driving Q3 losses. Negative contributions also came from developed markets currency selection and exposure to emerging country debt via the GMO Emerging Country Debt Fund. Developed markets interest-rate positioning contributed positively to the strategy, however.




2 The J.P. Morgan Non-U.S. Government Bond Index is an independently maintained and widely published index comprised of non-U.S. government bonds with maturities of one year or more..





Characteristics4,5





2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy -2.55 17.15 26.95 14.88 -8.08 9.33 3.66 -13.95 20.59 15.18

Benchmark -3.60 22.10 18.63 12.04 -9.24 6.84 11.30 11.39 3.94 6.78

Strategy Benchmark

Alpha 1.47 0.00

Beta 0.95 1.00R2 0.76 1.00


Modified Duration 7.2

Average Coupon 2.5 %

Average Maturity 7.9 Yrs.

Yield to Maturity 5.7 %

Emerging Cntry Debt Exp. 3 %


Europe

North America

Pacific

Emerging 3.5

-2.3

-2.4

-13.4

-20 -10 0 10 20


Europe

North America

Pacific 0.9

7.6

-8.5

-10 -5 0 5 10



GMO © 2011


GMO Currency Hedged International Bond Strategy Inception: 9/30/94; Benchmark: J.P. Morgan Non-U.S. Government Bond Index (Hedged) (ex-Japan) +

Performance1

The Currency Hedged International Bond Strategy returned +4.7% in the third quarter, outperforming the J.P. Morgan Non-U.S. Government Bond ex-Japan Hedged index total return of +4.5% by 0.2%. The yield of the J.P. Morgan non-U.S. Government ex-Japan Hedged Bond index fell by 57 basis points during the quarter.

Government bond markets rallied across the board during the quarter: in local currency J.P. Morgan Global Bond Index terms, gains were the highest in the U.K. (+8.8%) and lowest in Japan (+1.2%). Setting the stage early in the quarter for a bond market rally was the weak July U.S. jobs report. Later, speculation that the Bank of England would expand its monetary stimulus to boost a flagging recovery prompted the fall in gilt yields. Despite having suffered their first-ever rating downgrade in August, U.S. Treasuries had their best quarterly return since Q4 2008, rising by 6.5%. In other bond markets, the eurozone (+8.0%), Sweden (+7.4%), Canada (+6.1%), Australia (+5.8%), and Switzerland (+4.7%) also reported total return gains.




Developed markets interest-rate positioning was responsible for third quarter gains. While unable to fully offset gains, exposures to GMO Short Duration Collateral Fund (SDCF) and GMO World Opportunity Overlay Fund (WOOF) contributed negatively for a second consecutive quarter, followed by negative contributions from exposure to emerging country debt via the GMO Emerging Country Debt Fund and developed markets currency selection.




2 The J.P. Morgan Non-U.S. Government Bond Index (Hedged) (ex-Japan) + is an internally maintained benchmark computed by GMO, comprised of (i) the J.P. Morgan Non-U.S. Government Bond Index (Hedged) prior to 12/31/2003 and (ii) the J.P. Morgan Non-U.S. Government Bond Index (Hedged) (ex-Japan) thereafter.





Characteristics4,5





2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy 6.35 3.01 8.77 8.91 7.25 2.45 -4.00 -13.56 18.81 11.70

Benchmark 6.03 7.01 1.99 6.73 6.54 1.79 3.42 9.22 2.90 3.71

Strategy Benchmark

Alpha 1.63 0.00

Beta 0.93 1.00R2 0.32 1.00





Average Yield 6.2 %



Europe

North America

Pacific

Emerging 3.2

-0.7

-2.0

-13.2

-20 -10 0 10 20


Europe

North America

Pacific 6.0

2.4

-8.3

-10 -5 0 5 10



GMO © 2011


Performance1

GMO Global Bond Strategy Inception: 12/31/95; Benchmark: J.P. Morgan Global Government Bond Index

The Global Bond Strategy returned +2.5% during the third quarter, underperforming the J.P. Morgan Global Government Bond index return of +3.1% by 0.6%. The yield of the J.P. Morgan Global Government Bond index fell by 51 bps during the month, with falling yields across all benchmark countries contributing to index gains.

Government bond markets rallied across the board during the quarter: in local currency J.P. Morgan Global Bond index terms, gains were the highest in the U.K. (+8.8%) and lowest in Japan (+1.2%). Setting the stage early in the quarter for a bond market rally was the weak July U.S. jobs report. Later, speculation that the Bank of England would expand its monetary stimulus to boost a flagging recovery prompted the fall in gilt yields. Despite having suffered their first-ever rating downgrade in August, U.S. Treasuries had their best quarterly return since Q4 2008, rising by 6.5%. In other bond markets, the eurozone (+8.0%), Sweden (+7.4%), Canada (+6.1%), Australia (+5.8%), and Switzerland (+4.7%) also reported total return gains.




Exposures to GMO Short Duration Collateral Fund (SDCF) and GMO World Opportunity Overlay Fund (WOOF) contributed negatively for a second consecutive quarter, driving Q3 losses. Negative contributions also came from developed markets currency selection and exposure to emerging country debt via the GMO Emerging Country Debt Fund. Developed markets interest-rate positioning contributed positively to the strategy, however.



1 Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. Returns for one of the accounts in the composite are based on estimated market values for the period from and including October 2008 through February 2009.

2 The J.P. Morgan Global Government Bond Index is an independently maintained and widely published index comprised of government bonds of developed countries with maturities of one year or more.





Characteristics4,5





2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy -0.62 13.74 21.99 12.12 -5.84 7.94 2.58 -14.93 20.30 14.14

Benchmark -0.80 19.38 14.51 10.10 -6.53 5.94 10.81 12.00 1.91 6.42

Strategy Benchmark

Alpha 0.90 0.00

Beta 0.94 1.00R2 0.67 1.00





Average Yield 5.3 %



Europe

North America

Pacific

Emerging 3.5

-1.9

-2.5

-13.3

-20 -10 0 10 20


Europe

North America

Pacific 1.0

8.0

-8.9

-10 -5 0 5 10



GMO © 2011


GMO Emerging Country Debt Strategy Inception: 4/30/94; Benchmark: J.P. Morgan EMBI Global + Index

Performance1

The Emerging Country Debt Strategy returned -3.9% in the third quarter, behind the J.P. Morgan Emerging Market Bond Index Global return of -1.8% by 2.1%. The index spread widened by 177 basis points to 465 basis points during the period, while the yield on the 10-year U.S. Treasury bond fell 123 basis points to 1.9%.

The eurozone continued to dominate headlines, as the widespread economic slowdown made fiscal adjustment even more challenging to achieve and banks were hit by the extension of sovereign risk beyond the PIGS. French banks looked the weakest due to their exposure to eurozone governments and other banks. French (AAA) sovereign CDS widened by over 100 basis points to 187 basis points during the period on the assumption that the state would have to assist in recapitalizing them. This spread was just 7 basis points wider than Panama (BBB-). Spain (AA) and Italy (A) also widened precipitously past nearly all emerging sovereigns, raising concerns that the European bail-out fund would not be large enough to contain the crisis. An imminent Greek default is priced into CDS and bonds, as the government has not been able to qualify for another disbursement from the IMF/EU/ECB Troika, and the voluntary private-sector restructuring initiative has not gained much traction. Liquidity in the emerging cash bond market dried up and the average bid-offer spread widened 52 basis points to 119 basis points at the end of the quarter. New issuance fell 63% from Q3 of 2010 to $32 billion, its lowest level since Q1 of 2009. Emerging currencies lost 8.9% against the dollar, after rising by 5.2% in the first half of the year

The biggest index gainers were Chile (+5.1%), Peru (+4.4%), Lebanon (+2.7%), and Mexico (+2.3%). Spreads widened on all countries in the index, but less so for these four. Chile and Mexico are both investment-grade credits with solid fundamentals, and they benefited from the flight to quality. Peruvian President-elect Humala surprised the market with more investor-friendly economic policies than expected. Lebanon does not have a high credit rating or good policies, but most of its bonds are held by local banks or expatriate Lebanese who do not sell when the market falls.

The worst performers of the quarter were Argentina (-20.1%), Belarus (-17.5%), Ukraine (-11.1%), and Iraq (-10.7%). They are all weak credits that suffered disproportionately in the market downturn. Argentina is shut out from private external markets because it is still in default on obligations to both the private and public sectors. Belarus is experiencing a severe balance-of-payments crisis, but has not been willing to submit to the remedies required to qualify for support from the IMF. Ukraine’s situation is similar to that of Belarus, but not as extreme. Both are trying to raise money abroad without falling into the clutches of the Russians. Iraq’s idiosyncratic risks are less tolerated when the market shuns risk in general.

Market selection accounted for 240 basis points of negative alpha. The overweight in Argentina caused most of that, subtracting 186 basis points, and the Iraq and Ivory Coast overweights cost 19 and 13 more, respectively. The underweight in Russia helped performance, adding back 13 basis points of alpha.

Security selection, including allocations outside the index, was positive by 39 basis points. Holdings in Mexico and Philippines underperformed the index, while in Iraq and Argentina they outperformed. The outside-index allocation to Congo was a positive contributor. Negative returns from asset-backed securities (7% of the portfolio) cost 9 basis points.



1 Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. Returns for one of the accounts in the composite are based on estimated market values for the period from and including October 2008 through February 2009.

2 The J.P. Morgan EMBI Global (Emerging Markets Bond) Index + is an internally maintained benchmark computed by GMO, comprised of (i) the J.P. Morgan Emerging Markets Bond Index (EMBI) through 8/31/1995, (ii) the J.P. Morgan EMBI+ through 12/31/1999, and (iii) the J.P. Morgan EMBIG thereafter.



Regional Weights4

Characteristics4

* Central Eastern Europe, Middle East, and Africa



Strategy -3.92 1.39 2.37 7.02 14.00 16.08Benchmark 2 -1.82 3.18 1.28 7.81 10.48 11.62


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy 14.23 19.44 36.40 18.76 15.64 14.39 7.49 -33.46 47.92 24.24

Benchmark 1.36 13.11 25.66 11.73 10.73 9.88 6.28 -10.91 28.18 12.04

Strategy Benchmark

Alpha 3.46 0.00

Beta 1.20 1.00R2 0.89 1.00


Yield to Maturity 5.8 %Sovereign Spread 379 Bps.Portfolio Maturity 18.7 Yrs.Modified Duration 7.6Average Credit Rating BB


Asia

CEEMEA*

Latin America

United States

Developed 4.3

3.2

0.9

-8.1

-0.4

-10 -5 0 5 10



GMO © 2011


GMO Emerging Country Local Debt Investment Strategy Inception: 2/29/08; Benchmark: J.P. Morgan GBI-EM Diversified Index

Performance1

The GMO Emerging Country Local Debt Investment Strategy returned -10.8% in the third quarter, underperforming the J.P. Morgan GBI-EM Diversified (GBI-EMD) by 0.5%. As in the second quarter, instrument selection and country selection were positive, while currency selection and the collateral pool detracted.

The GBI-EM Diversified fell by 10.3% in the third quarter, its worst quarterly fall since the inception of the benchmark in 2002. Spot currencies returned -11.7%, and local currency bonds returned +1.4%. Such results noticeably trailed those of their developed markets counterparts (as measured by the J.P. Morgan GBI ex-U.S. index). The comparable figures in developed markets were +3.0% for bonds and -1.6% for fx.

With the U.S. dollar’s rapid September rebound, all emerging currencies except the Chinese renminbi fell relative to the dollar. The most pronounced losses were among those in the euro’s orbit and those with big commodity export exposures. In the first group were Poland (-16.6%), Hungary (-16.3%), Romania (-10.1%), Czech Republic (-8.9%), and, of course, the euro (-7.5%). Commodities witnessed heavy declines, with the energy complex down 10% to 15%, industrial metals down 10% to 20%, and softs down 6% to 38%, although gold ended up 8%. Commodity-sensitive currencies with double-digit declines included Brazilian real (-17.0%), South African rand (-15.7%), Mexican peso (-15.5%), and Russian ruble (-13.4%).

The quarter saw a dramatic reversal of fortunes for a number of currencies whose authorities had been trying to stem the tide of inflows as late as August. Japan intervened to weaken the yen in August. Then, as September opened, the Swiss National Bank stunned the market by setting a floor in EURCHF at 1.2, a level 17% higher than the August lows. Presumably they were preparing themselves to counteract the inflow of funds fleeing the eurozone, whose authorities made a vague pledge on July 21 to “do everything possible to keep Greece in the eurozone” and then promptly disappeared for July/August holidays. Once September arrived, however, and the impossible conditions for Greece’s compliance became clear, the stampede from euros began.

The spillover into emerging currencies has so far been via the channels mentioned above: exposure to the eurozone economy and/or commodities prices, the latter sinking in response to lower global growth expectations. Liquidity deteriorated, with bid-ask spreads widening on all currency pairs, and volumes declining.

Somewhat ironically, the only emerging currency to rise in spot terms this month was Chinese renminbi, +1.2% (exactly the same as last quarter). As September closed, U.S. Senator Schumer was bringing the long-awaited “Currency Exchange Rate Oversight Reform Act of 2011,” more regularly referred to as the “anti-China bill,” to the senate floor. Although CNY has been a top performer this year (second only to the yen), Schumer still has it in his sights. Interestingly, the non-deliverable forward market is going the other way: from pricing appreciation for the currency over the next few years, the forwards now price a depreciation.

Local currency bonds fared much better than the currencies, although early-quarter gains were more than halved in September as the bonds started to sell off as well. What had been a 3.6% quarter-to-date gain for the bonds measured in local currency at the end of August was only a 1.4% gain by quarter end. Of the ratings actions in emerging, nearly all were upgrades to ratings or outlooks: Czech Republic, Brazil, Peru, Romania Israel, and Turkey. Fitch did warn about China’s local debt in the context of tightening policies there, however.

In performance attribution, currency positioning detracted, with overweights in Brazilian real, Hungarian forint, Turkish lira, and South African rand the main detractors, while underweights in Czech crown, Taiwan dollar, Singapore dollar, and Canadian dollar partially offset. The collateral pool detracted. Country selection was positive, particularly the overweight in Chile and the underweight in Russia. Finally, instrument selection was positive.


1 Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. Returns for the composite are based on estimated market values for the period from and including October 2008 through February 2009.

2 The J.P. Morgan GBI-EM (Government Bond Index-Emerging Markets) Diversified Index is an independently maintained and widely published index of global local emerging markets consisting of regularly traded, liquid fixed-rate, domestic currency government bonds.



5 Regional weights are duration adjusted.


Characteristics4





Strategy -10.76 -5.33 -5.17 n/a n/a 1.93Benchmark 2 -10.29 -4.06 -4.59 n/a n/a 5.49


2008 2009 2010

Strategy -32.06 42.51 16.81

Benchmark -7.52 20.44 13.32

Strategy Benchmark

Alpha -2.34 0.00

Beta 1.01 1.00R2 0.71 1.00


Yield to Maturity 7.6 %



Asia

CEEMEA*

Latin America 3.4

-9.0

-0.9

-10 -5 0 5 10


Asia

CEEMEA*

Latin America 0.2

2.8

-7.8

-10 -5 0 5 10



GMO © 2011


GMO Asset Allocation Bond Strategy Inception: 3/31/09; Benchmark: Citigroup 3-Month T-Bill Index

Performance1




2 The Citigroup 3-Month Treasury Bill Index is an independently maintained and widely published index comprised of short-term U.S. Treasury bills. 3 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolio’s sensitivity to the market; R2 is a measure of how well a portfolio tracks the market;


The performance information above is supplemental to the GIPS® compliant presentation that was made available on GMO’s website in April of 2011. 5 Please note portfolio yield includes the yield on the portfolio’s cash assets, for example, via the Short Duration Collateral Fund.

Characteristics4,5

The Asset Allocation Bond Strategy returned +0.8% during the third quarter, outperforming the Citigroup 3-Month Treasury Bill index return by 0.8%. U.S. 3-month Treasury bill rates fell by 4 basis points to end the quarter at 0.02%.



Strategy 0.80 4.36 4.03 n/a n/a 6.00Benchmark 2 0.01 0.07 0.11 n/a n/a 0.13


2009 2010

Strategy 6.44 4.14

Benchmark 0.12 0.13

Strategy Benchmark

Alpha 6.21 0.00

Beta 0.00 1.00R2 0.00 1.00





Average Yield 0.3 %

GMO Quarterly Update


GMO © 2011


GMO Global Balanced Asset Allocation Strategy Inception: 6/30/88; Benchmark: Blended Benchmark


2 The GMO blended Global Balanced Asset Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of S&P 500, MSCI ACWI (MSCI Standard Index Series, net of withholding tax) and Barclays Capital Aggregate or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.



Performance1

The Global Balanced Asset Allocation Strategy finished the quarter down 6.6%, outperforming its benchmark by 3.7%. Global equity markets beat a hasty, hefty retreat this quarter, with the broad index of global markets suffering a decline of over 17%. The defensive posture of the portfolio meant that it

was well-positioned for this market downturn. First, the roughly 5% underweight to stocks mitigated some of the loss. More importantly, however, the long-standing tilt toward quality stocks, as represented by a large allocation to the Quality Strategy as well as the quality bias embedded in the international equity strategies, also served the portfolio well. The avoidance of small cap was particularly helpful as the “risk off” trade fell into high gear this quarter – small cap stocks around the globe were hammered. On the downside, our continued overweight to emerging equity acted as a modest headwind to performance this quarter, as emerging suffered the largest declines, with the broad benchmarks posting losses greater than 20%. The overweight to bonds and cash was the right call this quarter, as global yields fell dramatically. It is important to note that the portfolio had largely avoided long duration in the U.S. given our views that Treasuries were simply too expensive. But we did embed duration as a deflation hedge through a long position in New Zealand and Australian bonds. This exposure benefited the portfolio tremendously, as New Zealand and Australian yields fell precipitously, in line with the global phenomenon, but starting from a much higher level. Strategic Fixed Income, the strategy in which we embedded this position, was the best-performer in the Global Balanced Asset Allocation Strategy this quarter.

Implementation finished the quarter as a strong contributor. The spotlight clearly belonged to the Quality Strategy. Its outperformance of over 850 basis points buffered the overall portfolio from a steeper loss. The three international strategies – International Intrinsic Value, International Growth, and International Core Equity – all outperformed their respective benchmarks. Alpha Only and Strategic Fixed Income, both relatively large holdings, also beat their respective cash benchmarks.

Throughout a good portion of 2011, the markets had been able to hold the constant stream of sobering news at bay. And while it would be convenient to isolate a single incident that caused the dam to break – the historic downgrading of U.S. Treasuries, for example – in reality, it was more as if the persistent “put on a happy face” practice finally gave way to a pretty dismal reality. Evidence of a slowing China (one of the last remaining areas of continued hope), the rapidly growing unease surrounding sovereign debt in Europe, the existential debates surrounding the euro, continued evidence of weak housing and employment in the U.S., political waffling and dysfunction in the U.S. and amongst European union members, and the specter of a double-dip without any Fed ammunition left … all of these had been known and supposedly “discounted” for many months. But not so. The quarter has to be characterized as powerful rivers converging and finally overwhelming the dam.

This breach, while painful in the short term, provides more attractive valuations on a number of fronts, and the strategy’s large store of “dry powder” means that we are well-positioned to put money to work in now-cheaper assets.



Strategy Composition3

Strategy Weights Relative to Benchmark3

Benchmark Composition (65% MSCI ACWI / 35% Barclays U.S. Aggregate)



Strategy -6.59 -1.92 1.91 3.38 7.80 9.71Benchmark 2 -10.30 -6.67 -1.79 1.39 4.73 7.72


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy 3.88 0.84 28.47 13.55 9.06 12.30 7.94 -20.83 24.15 7.93

Benchmark -6.03 -9.70 21.99 10.23 5.99 13.41 9.26 -27.72 24.14 11.05

Strategy Benchmark

Alpha 3.28 0.00

Beta 0.79 1.00R2 0.86 1.00


U.S. Equities28.8%


EmergingEquities8.3%

Fixed Income35.0%

47

Quality26.3%


6.4%

InternationalGrowth4.6%

InternationalCore Equity

9.7%FlexibleEquities

3.8%

EmergingMarkets10.8%

DomesticBond2.5%


12.2%


0.5%

AssetAllocation Bond

1.3%

Alpha Only15.7%

SpecialSituations

4.3%

Cash & CashEquiv alents

2.2%

-2.5% -3.4%

+2.5%

-16.3%

+20.0%

-30%-20%-10%

0%10%20%30%

U.S. Equities Int'l. Equities EmergingEquities

Fixed Income Other



GMO © 2011


GMO Real Return Global Balanced Asset Allocation Strategy Inception: 6/30/04; Benchmark: Blended Benchmark


2 The GMO blended Real Return Global Balanced Asset Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI World (MSCI Standard Index Series, net of withholding tax), Barclays Capital Aggregate, and Citigroup 3-Month T-Bill or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.



Performance1

The Real Return Global Balanced Asset Allocation Strategy returned -4.9% for the quarter, outperforming its benchmark by 4.8%. Global equity markets beat a hasty, hefty retreat this quarter, with the broad index of global markets suffering a decline of over 17%. The defensive posture of the

portfolio meant that it was well-positioned for this market downturn. First, the roughly 5% underweight to stocks mitigated some of the loss. More importantly, however, the long-standing tilt toward quality stocks, as represented by a large allocation to the Quality Strategy as well as the quality bias embedded in the international equity strategies, also served the portfolio well. The avoidance of small cap was particularly helpful as the “risk off” trade fell into high gear this quarter – small cap stocks around the globe were hammered. On the downside, the out-of-benchmark allocation to emerging equity acted as a modest headwind to performance this quarter, as emerging suffered the largest declines, with the broad benchmarks posting losses greater than 20%. The allocation decisions in bonds and cash also helped the strategy this quarter, as global yields fell dramatically. It is important to note that the portfolio had largely avoided long duration in the U.S., given our views that Treasuries were simply too expensive. But we did gain duration exposure as a deflation hedge through a long position in New Zealand and Australian bonds. This exposure benefited the portfolio tremendously, as New Zealand and Australian yields fell precipitously, in line with the global phenomenon, but starting from a much higher level. Strategic Fixed Income, the strategy in which we embedded this position, was the best-performer in the Real Return Global Balanced Asset Allocation Strategy this quarter.

Implementation finished the quarter as a strong contributor. The spotlight clearly belonged to two strategies – the Quality Strategy, which added 850 basis points over its benchmark, and Multi-Strategy, which delivered almost 600 basis points of excess return over cash. The international strategies – International Intrinsic Value and International Growth – both outperformed their respective benchmarks.

The defensive position heading into the quarter gave way, of course, to more attractive pricing on many fronts. The strategy has maintained a fair amount of “dry powder” and will likely be putting it to work, especially in international stocks.





Benchmark Composition

(60% MSCI World / 20% Citigroup 3-Mo. T-Bill / 20% BC U.S. Agg.)



Strategy -4.93 -0.67 2.55 3.54 n/a 5.90Benchmark 2 -9.75 -6.35 -1.52 0.71 n/a 3.34


2004 2005 2006 2007 2008 2009 2010

Strategy 10.11 8.09 13.26 7.63 -11.36 13.02 5.00

Benchmark 7.45 5.80 13.69 7.87 -25.03 19.16 8.82

Strategy Benchmark

Alpha 4.09 0.00

Beta 0.60 1.00R2 0.77 1.00


U.S. Equities30.5%


Fixed Income20.0%

Absolute Return20.0%

U.S. Core2.1%

Quality26.2%


13.3%


FlexibleEquities

4.1%

EmergingMarkets

2.8%


7.9%


0.5%

DomesticBond0.8%


1.0%

Alpha Only0.8%

SpecialSituations

4.1%

Multi-Strategy27.0%

-2.2%

+0.2%

-9.8%

+11.9%

-20%

-10%

0%

10%

20%

U.S. Equities Int'l. Equities Fixed Income Absolute Return



GMO © 2011


GMO Global Allocation Absolute Return Strategy Inception: 7/31/01; Benchmark: CPI Plus 5% Index


2 The CPI (Consumer Price Index) Plus 5% Index is an internally maintained (monthly) benchmark based on the CPI Index for All Urban Consumers US All Items which is published monthly by the U.S. government as an indicator of changes in price levels (or inflation) paid by urban consumers for a representative basket of goods and services. The CPI Plus 5% Index is calculated by adding 5% annualized to the return of the CPI Index.


4 Std. Deviation is a measure of the volatility of a portfolio’s return. Sharpe Ratio is the return over the risk free rate per unit of risk. Drawdown is the largest negative cumulative portfolio return from peak to trough. Risk profile data is gross.

Performance1

The Global Allocation Absolute Return Strategy returned -1.6% in the quarter. Despite the large decline in global equity markets this quarter, our roughly 40% exposure to equity was aided by strong performance

from the underlying strategies. The Quality Strategy – our largest equity holding – posted only modest losses. Strategic Fixed Income’s exposure to long-duration Australian and New Zealand bonds helped it post positive returns. The absolute return strategies, Alpha Only and Multi-Strategy, also delivered strong positive returns of over 4% and 6%, respectively.



Absolute Strategy Weights3 Strategy Composition3



Strategy -1.63 1.36 3.12 5.00 10.54 9.76Benchmark 2 2.42 6.87 9.11 7.39 7.57 7.56


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy 0.16 8.80 34.20 15.29 13.54 11.01 9.99 -6.61 13.41 2.72

Benchmark 1.94 7.60 6.90 8.51 8.61 7.70 9.31 5.16 7.99 6.30

Strategy

Std. Deviation 7.05

Sharpe Ratio 1.26Drawdown

(10/31/07-2/28/09)-10.33

Quality21.0%

Currency HedgedInt'l. Equity

9.9%

FlexibleEquities

5.6%

EmergingMarkets

7.8%StrategicFixed Income

11.1%


1.6%


0.8%

Alternativ eAsset Opportunity

0.6%

Alpha Only17.8%

Special Situations

4.0%

Multi-Strategy20.0%

+21.0% +23.3%+13.5%

+42.4%

0%

20%

40%

60%

U.S. Equities Int'l. Equities Fixed Income Absolute Return



GMO © 2011


Performance1

GMO Real Return Asset Allocation Strategy Inception: 12/31/09; Benchmark: CPI Index


2 The CPI (Consumer Price Index) for All Urban Consumers US All Items is published monthly by the U.S. government as an indicator of changes in price levels (or inflation) paid by urban consumers for a representative basket of goods and services.



The Real Return Asset Allocation Strategy returned +1.6% in the third quarter, outperforming its target by 0.4%. Against a backdrop of world equity markets and risk assets more generally selling off, the strategy’s return was positive this quarter.

Solid performance by the Quality vs. Junk (and small cap) position added the vast majority of excess returns. Positive contributions also came from a basket of short Chinese equity positions, a position in long duration Australia and New Zealand bonds, and solid performance by the holding in Multi-Strategy. Headwinds this quarter were primarily equity and equity-related in that the long exposure to emerging was hurt by the dramatic sell-off in emerging equity. In addition, the dividend swaps were hurt by continued volatility surrounding Europe in general and European banks in particular.


Equities4 Inflation / Deflation Themes4

Inflation

Deflation

Currencies4 Absolute Return4

Risk Profile Since 12/31/093 Total Return Net of Fees (%) Average Annual Total Return (%)


Strategy 1.56 2.71 -0.73 n/a n/a -5.55Benchmark 2 1.18 3.04 3.93 n/a n/a 2.45


2010

Strategy -11.89

Benchmark 1.25

Strategy

Std. Deviation 7.55Sharpe Ratio -0.58

Drawdown(12/31/09-6/30/10)

-12.35

Exposure (%)

Multi-StrategyABS/CreditCredit Opportunities 3

820

-30 -15 0 15 30

Exposure (%)

QualityEmerging EquitiesJapanese EquitiesInternational EquitiesS&P 500China ShortJunkS&P MidcapRussell 2000 -11

-6-3-3

1457

21

-40 -20 0 20 40

Exposure (%)

Dividend SwapsJapanese InflationSwiss 10 Yr. BondsUK 50 Yr. IL GILTSJapanese Gov't. BondsNew Zealand 10 Yr. BondsAustralian 10 Yr. Bonds 12

7-14

-3-2

210

-20 -10 0 10 20

Exposure (%)

U.S. DollarSingapore DollarSouth Korean WonSwiss FrancNew Zealand DollarAustralian Dollar -4

-2-2

22

4

-6 -3 0 3 6



GMO © 2011


GMO Global All Country Equity Allocation Strategy Inception: 12/31/93; Benchmark: Blended Benchmark


2 The GMO blended Global All Country Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI ACWI (All Country World Index) (MSCI standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.



Performance1

The Global All Country Equity Allocation Strategy returned -13.2% for the quarter, outperforming its benchmark by 4.2%. Global equity markets beat a hasty, hefty retreat this quarter, with the broad index of global markets suffering a decline of over 17%.

The defensive posture of the portfolio meant that it was well-positioned for this market downturn. The long-standing tilt toward quality stocks, as represented by both a large allocation to the Quality Strategy, as well as the quality bias embedded in the international equity strategies, also served the portfolio well. The avoidance of small cap was particularly helpful as the “risk off” trade fell into high gear this quarter – small cap stocks around the globe were hammered. On the downside, the overweight to emerging equity acted as a modest headwind to performance this quarter, as emerging suffered the largest declines, with the broad benchmarks posting losses greater than 20%.

From an implementation perspective, the Quality Strategy outperformed its benchmark by over 850 basis points and was responsible for the lion’s share of this quarter’s alpha.






(MSCI ACWI)



Strategy -13.20 -7.55 -1.05 0.86 7.94 8.27Benchmark 2 -17.38 -13.40 -5.63 -1.69 4.39 5.98


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy -0.27 -5.69 38.75 17.62 12.51 18.87 11.12 -31.41 24.19 10.12

Benchmark -13.50 -19.11 33.76 14.86 9.95 20.34 10.38 -41.82 34.45 12.94

Strategy Benchmark

Alpha 3.49 0.00

Beta 0.82 1.00R2 0.91 1.00


U.S. Equities44.4%

DevelopedInt'l. Equities

42.9%

Emerging Markets12.8%

U.S. Core5.2%

Quality39.5%


8.3%


InternationalCore Equity

18.9%

FlexibleEquities

3.8%


Alpha Only1.2%

+0.3%

-3.7%

+2.1%+1.2%

-4%

-2%

0%

2%

4%

U.S. Equities Developed Int'l.Equities

EmergingEquities

Absolute Return



GMO © 2011


GMO Global Developed Equity Allocation Strategy Inception: 3/31/87; Benchmark: Blended Benchmark


2 The GMO blended Global Developed Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI World (MSCI Standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.



Performance1

The Global Developed Equity Allocation Strategy returned -13.0% for the quarter, outperforming its MSCI World benchmark by 3.6%.

Global equity markets beat a hasty, hefty retreat this quarter, with the broad index of global markets suffering a decline of 17%. The defensive posture of the portfolio meant that it was well-positioned for this market downturn. The long-standing tilt toward quality stocks, as represented by a large allocation to the Quality Strategy as well as the quality bias embedded in the international equity strategies, also served the portfolio well. The avoidance of small cap was particularly helpful as the “risk off” trade fell into high gear this quarter – small cap stocks around the globe were hammered. On the downside, the out-of-benchmark allocation to emerging equity acted as a modest headwind to performance this quarter, as emerging suffered the largest declines, with the broad benchmarks posting losses greater than 20%.

From an implementation perspective, the Quality Strategy outperformed its benchmark by over 850 basis points and was responsible for the lion’s share of this quarter’s alpha.






(MSCI World Index)





2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy -2.54 -4.23 38.64 17.36 12.26 20.22 9.69 -33.19 20.55 9.25

Benchmark -16.17 -19.42 32.32 13.64 9.42 20.05 9.02 -40.70 29.97 11.77

Strategy Benchmark

Alpha 3.45 0.00

Beta 0.84 1.00R2 0.88 1.00


U.S. Equities50.9%


U.S. Core8.5%

Quality42.2%


22.8%


FlexibleEquities

4.2%

EmergingMarkets

2.6%

-0.2%

+0.1%

-1%

0%

1%

U.S. Equities International Equities



GMO © 2011


GMO International All Country Equity Allocation Strategy Inception: 2/28/94; Benchmark: Blended Benchmark


2 The GMO blended International All Country Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI ACWI (All Country World) ex-U.S. Index (MSCI Standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.



Performance1

The International All Country Equity Allocation Strategy returned -19.3% for the quarter, outperforming its benchmark by 0.5%. Implementation added the vast majority of the excess return.

The roughly 3% overweight to emerging markets acted as a headwind to performance this quarter, as emerging markets were some of

the worst performers. On the positive side, the decision to hold Flexible Equities, which has a large Japanese equity exposure, helped as Japan equities did not lose as much value.

From an implementation standpoint, strong performance by the International Growth Strategy created a net positive alpha for the

overall strategy.






(MSCI ACWI ex-U.S. Index)





2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy -4.81 -1.69 48.86 24.06 19.03 25.91 17.39 -40.96 27.77 12.74

Benchmark -16.47 -12.66 42.77 21.11 16.71 26.94 16.08 -45.26 40.16 10.82

Strategy Benchmark

Alpha 3.08 0.00

Beta 0.92 1.00R2 0.94 1.00


DevelopedInt'l.

77.0%

Emerging Markets23.0%


36.7%


FlexibleEquities

3.3%


-1.9%

+1.9%

-4%

-2%

0%

2%

4%

Developed Int'l. Equities Emerging Equities



GMO © 2011


GMO International Developed Equity Allocation Strategy Inception: 11/30/91; Benchmark: Blended Benchmark


2 The GMO blended International Developed Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI EAFE (MSCI Standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.



Performance1

The International Developed Equity Allocation Strategy returned -18.2% for the quarter, outperforming its benchmark by 0.8%. Essentially all of the outperformance came from implementation.

The roughly 3% overweight to emerging markets acted as a headwind to performance this quarter, as emerging markets were some of

the worst performers. On the positive side, the decision to hold Flexible Equities, which has a large Japanese equity exposure, helped as Japan equities did not lose as much value.

From an implementation standpoint, strong performance by the International Growth Strategy created a net positive alpha for the

overall strategy.



Strategy Composition3 Benchmark Composition

(MSCI EAFE Index)





2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy -10.80 -0.93 46.65 24.89 15.56 25.50 12.69 -38.39 19.84 10.58

Benchmark -21.64 -14.83 40.04 21.17 14.41 26.62 11.58 -43.33 32.16 7.93

Strategy Benchmark

Alpha 3.16 0.00

Beta 0.87 1.00R2 0.89 1.00



46.7%


FlexibleEquities

6.1%

EmergingMarkets

2.8%



GMO © 2011


GMO U.S. Equity Allocation Strategy Inception: 2/28/89; Benchmark: Blended Benchmark


2 The GMO blended U.S. Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of S&P 500, Russell 3000 or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. Russell Investments is the source and owner of the Russell index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is GMO’s presentation of the data. FCR is not responsible for the formatting or configuration of this material or for any inaccuracy in GMO’s presentation thereof.



Performance1

The U.S. Equity Allocation Strategy finished the quarter with a return of -7.5%, outperforming its benchmark by 7.1%. Virtually all of the outperformance came from implementation.

The key driver of alpha was the outperformance of the Quality Strategy, which beat its benchmark by over 850 basis points. Our

underweight to small and mid cap stocks also contributed positively.






(Russell 3000 Index)





2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy -3.17 -15.61 29.99 10.74 3.68 9.93 2.25 -27.87 20.54 7.43

Benchmark -11.62 -21.76 29.69 11.45 5.53 15.71 5.39 -37.15 27.46 16.26

Strategy Benchmark

Alpha 2.29 0.00

Beta 0.84 1.00R2 0.92 1.00


Large Cap82.5%

Small Value8.7%

Small Grow th8.7%

U.S. Core47.9%

Quality50.0%

Small/MidCap Value

1.0%

Small/MidCap Growth

1.1%

+15.4%

-7.7% -7.6%-20%

-10%

0%

10%

20%

Large Cap Small Value Small Growth



GMO © 2011


GMO Alpha Only Strategy Inception: 7/31/94; Benchmark: Citigroup 3-Month T-Bill Index


2 The Citigroup 3-Month Treasury Bill Index is an independently maintained and widely published index comprised of short-term U.S. Treasury bills. 3 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy.

The performance information above is supplemental to the GIPS® compliant presentation that was made available on GMO’s website in April of 2011. 4 Std. Deviation is a measure of the volatility of a portfolio’s return. Sharpe Ratio is the return over the risk free rate per unit of risk. Drawdown is the largest negative

cumulative portfolio return from peak to trough. Risk profile data is gross.

Performance1

The Alpha Only Strategy was up 4.7% for the quarter, outperforming its cash benchmark. Positive alpha from the Quality Strategy was the key driver this quarter.


Long Exposure3 Short Exposure3






2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy 15.10 11.63 2.71 2.64 4.95 3.34 7.74 12.16 -7.93 -3.99

Benchmark 4.09 1.70 1.07 1.24 3.00 4.76 4.74 1.80 0.16 0.13

Strategy

Std. Deviation 4.52

Sharpe Ratio 0.42

Drawdown(2/28/09-2/28/11)

-13.09

Position Exposure %

Quality

Int'l. Intrinsic Value

Int'l. Growth

U.S. Core

Cash Equivalents

Emerging Markets 1.8

10.9

13.7

19.7

20.8

26.6

0 10 20 30

Position Exposure %

S&P Midcap

Russell 2000

S&P 500

EAFE Baskets / Forwards -40.1

-24.3

-13.4

-1.5

-60 -40 -20 0



GMO © 2011


GMO Tax-Managed Global Balanced Strategy Inception: 12/31/02; Benchmark: GMO Tax-Managed Global Balanced Index


2 The GMO Tax-Managed Global Balanced Index is an internally computed benchmark comprised of (i) 60% MSCI ACWI (All Country World Index) (MSCI standard Index Series, net of withholding tax) and (ii) 40% Barclays Capital Muni 7 Year (6-8) Index. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.



Performance1

The Tax-Managed Global Balanced Strategy declined 6.8% for the third quarter of 2011, while the blended benchmark declined 9.5%. Global equity markets experienced a broad-based decline, both in USD and local currency terms, as Greece’s troubled path and global economic uncertainty pulled returns down across the board. Japan was somewhat insulated from the decline, dropping 6.4% for the quarter. U.S. equity markets fared slightly better than the remainder of global equity markets, with the S&P 500 declining 13.9%. Both MSCI EAFE ex-Japan and MSCI Emerging Markets fell over 22%. Municipal bonds fared better, advancing 3.1% for the quarter.

Within the portfolio, asset allocation was a moderately positive factor. While the overweight to high quality stocks within U.S. equities added value, an overweight of international equities and underweight of municipal bonds detracted from relative returns. The allocation to alternative assets contributed positively, as did the allocation to Japanese equities. Within implementation, the portfolio benefited from positive selection by global equity stock selection strategies, despite poor results from stocks selected for their strong momentum characteristics. Selection strategies that incorporated high quality into their evaluation posted strong results. Implementation within emerging equities was a moderately negative factor for the quarter, but was offset by gains from the portfolio’s alternative asset portfolios.






(GMO Tax-Managed Global Balanced Index)



Strategy -6.80 -2.57 0.70 2.67 n/a 7.32Benchmark 2 -9.53 -5.53 -1.51 1.45 n/a 5.81


2003 2004 2005 2006 2007 2008 2009 2010

Strategy 23.15 12.73 9.91 12.08 7.16 -14.95 14.29 6.88

Benchmark 21.82 10.02 5.91 12.95 7.12 -25.89 23.90 9.99

Strategy Benchmark

Alpha 3.78 0.00

Beta 0.71 1.00R2 0.87 1.00


U.S. Equities26.6%

InternationalEquities25.7%Emerging Markets

7.7%

Fixed Income40.0%

U.S. Equities20.3%


FlexibleEquities

3.2%

EmergingEquities

9.6%

MunicipalBonds33.8%

Multi-Strategy10.1%

-6.3%

+0.5% +1.9%

-6.2%

+10.1%

-20%-10%

0%10%20%

U.S. Equities Int'l. Equities EmergingMarkets

Fixed Income AbsoluteReturn



GMO © 2011


GMO Aggressive Long/Short Strategy Inception: 9/30/00; Benchmark: Citigroup 3-Month T-Bill Index


2 The Citigroup 3-Month Treasury Bill Index is an independently maintained and widely published index comprised of short-term U.S. Treasury bills. 3 Std. Deviation is a measure of the volatility of a portfolio’s return. Sharpe Ratio is the return over the risk free rate per unit of risk. Drawdown is the largest negative

cumulative portfolio return from peak to trough. Risk profile data is gross. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy.

The performance information above is supplemental to the GIPS® compliant presentation that was made available on GMO’s website in April of 2011. Exposure information is not normalized and shown as a percent of total net assets.

Performance1

The growing fears of a global slowdown, the European sovereign crisis, and a hard landing in China drove risk assets down in the third quarter, with the S&P 500 posting its sixth worst quarter in the last 40 years (-13.9%). The general turmoil in the markets also introduced a sustained heightened level of volatility as the CBOE VIX index (which started the quarter at 16) ended just shy of 40. As we would expect, our strategies were negatively impacted over this period of time, with the aggregate strategy down 10.4% for the quarter.

The biggest negative impact for the quarter (-6.5%) came from our equity strategies, which seek to buy undervalued securities. We used the market volatility during the quarter to rotate into more attractive positions, but our holdings collectively underperformed the S&P 500, producing returns more in line with the Russell 2000 index (down 21.9% for the quarter). Some of our large cap, higher quality holdings held up well, but they were swamped by the disappointment in some of our smaller and more volatile names. While we prefer large cap stocks when viewed from a top down perspective, we continue to think there is select value outside of the large cap space and maintain a mix of holdings across the capitalization range.

Our volatility strategies also suffered in this market (-3.3% impact), but most of the pain came in August, with the steady drop over several consecutive days early in the month accounting for a significant portion of the negative contribution. In fact, despite the fact that markets were significantly down again in September, our volatility strategies were flat as option premia were high enough to compensate for the negative price movement.

Our merger arbitrage strategy was the one (faint) bright spot for the quarter. While the market collapse in August caused spreads to widen quickly, merger arbitrage turned out to be a relative safe haven and by the end of the quarter turned positive for us (+0.1% impact). While the gains were modest, spreads remain at very attractive levels and we continue to find new opportunities.



Current Profiles4 Sector Exposure4



Strategy -10.44 -8.83 -7.10 -1.08 0.28 4.66Benchmark 2 0.01 0.07 0.11 1.62 1.92 2.20


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy 17.15 25.92 -5.61 1.07 3.56 -1.90 -5.37 14.26 -7.47 3.51

Benchmark 4.09 1.70 1.07 1.24 3.00 4.76 4.74 1.80 0.16 0.13

Strategy

Std. Deviation 13.07

Sharpe Ratio 0.37

Drawdown(9/30/01-11/30/01)

-15.48

Long Short

% Long/Short 72 % 9 %

P/E - Excl Neg Earnings Hist 1 Yr Wtd Med 13.4 x 14.9 x

% Negative Earnings 11.8 % 0.3 %

GICS Sectors

Sector Net Weight (%)

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

Industrials

Information Technology

Materials

Telecom. Services

Utilities 0.1

1.4

1.0

16.4

5.1

13.3

4.5

4.1

7.2

9.7

-20 -10 0 10 20



GMO © 2011


GMO Tactical Opportunities Strategy Inception: 9/30/04; Benchmark: Citigroup 3-Month T-Bill Index




The performance information above is supplemental to the GIPS® compliant presentation that was made available on GMO’s website in April of 2011. Exposure information is not normalized and shown as a percent of total net assets.

Performance1

The Tactical Opportunities Strategy generated gains of 32.8% in the third quarter of 2011. The negative absolute returns generated on the high quality long portfolio were more than offset by the strong returns of the low quality short portfolio.

The flight to quality that started in the second quarter continued into the third. Investors favored defensive sectors like Health Care

and Consumer Staples over cyclical sectors like Industrials and Materials. Concern in the Financials sector both domestically and abroad drove these stocks lower. The short position in Financials contributed

more than one-third of the strategy’s total return. Large cap stocks beat small cap stocks both within quality and the larger universe. The recent strong relative performance of mega cap

quality companies, held in the long portfolio, compared to lower quality non-mega cap companies, held in the short portfolio, has not significantly changed the valuation gap. The recent price moves have been mostly offset by a shift in fundamentals in favor of quality. While the valuation gap has slightly compressed, mega cap quality remains historically cheap relative to non-mega low quality.

The strategy’s average net exposure for the quarter was neutral.



Current Profiles4 Sector Exposure4

Regional Weights4


2004 2005 2006 2007 2008 2009 2010

Strategy -7.57 -13.24 -1.65 17.87 36.52 -41.61 -25.25

Benchmark 0.44 3.00 4.76 4.74 1.80 0.16 0.13

Strategy


Sharpe Ratio -0.24

Drawdown(11/30/08-3/31/11)

-60.51

Long Short

P/E - Ex Neg Earn Hist 1 Yr Wtd Med 14.9 x 12.1 x% Negative Earnings 0.0 % 39.4 %Price/Book - Hist 1 Yr Wtd Avg 2.8 x 1.2 xDividend Yield - Hist 1 Yr Wtd Avg 2.6 % 2.0 %Return on Equity - Hist 1 Yr Med 20.9 % 5.6 %Market Cap - Weighted Median $Bil $135.7 $4.2Debt/Equity – Wtd Med 0.5 x 1.4 x% Long/Short 136 % 138 %

GICS Sectors



Strategy 32.83 35.30 21.66 -1.72 n/a -4.04Benchmark 2 0.01 0.07 0.11 1.62 n/a 2.14

Sector Net Weight Long Short

Consumer Discretionary 4.3 % 16.1 %Consumer Staples 36.0 1.4Energy 11.2 12.0Financials 0.0 48.8Health Care 34.2 11.3Industrials 0.8 16.4Information Technology 40.5 15.9Materials 0.0 9.5Telecom. Services 1.1 4.7Utilities 0.0 1.7Unassigned 7.3 0.07.3

-1.7

-3.6

-9.5

24.6

-15.622.9

-48.8

-0.8

34.6

-11.8

-60 -30 0 30 60Region Net Weight

United States

Non-United States 2.8

-5.0

-10 -5 0 5 10



GMO © 2011


GMO Emerging Country Debt Long/Short Strategy Inception: 3/31/96; Benchmark: J.P. Morgan U.S. 3 Month Cash Index


2 The J.P. Morgan U.S. 3 Month Cash Index is an independently maintained and widely published index comprised of three month U.S. dollar Euro-deposits. The duration of the Index is generally 90 days.



Performance1

The Emerging Country Debt Long/Short Strategy fell 1.3% in the third quarter of 2011, underperforming its benchmark, the J.P. Morgan U.S. 3 Month Cash index, by 1.3%. The strategy invests mostly in countries in the J.P. Morgan Emerging Bond Market index (EMBIG), which returned -1.8% for the quarter.

The portfolio has a beta of 0.5 to the credit spread risk of the J.P. Morgan EMBIG. Its interest rate duration is low, so the dramatic

123-basis-point fall in U.S. interest rates didn’t help the strategy. Due to its positive spread duration, the big widening in spreads for the asset class, from 289 to 465 basis points, hurt performance.

The strategy targets absolute return by taking long and short positions in the same countries. Large holdings in Argentina and

Venezuela contributed to the negative returns, as the spreads in those countries rose higher as their bond prices fell.



Characteristics4 Regional Weights4


EMBIG Beta 0.5


Spread Duration 3.4 Yrs.



Strategy -1.25 -0.43 0.82 4.80 8.89 11.02Benchmark 2 0.08 0.28 0.36 2.65 2.60 3.78


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy 17.37 18.09 13.13 11.46 8.13 12.23 5.51 -26.52 37.20 14.37

Benchmark 4.94 2.01 1.31 1.48 3.37 5.25 5.70 4.12 1.45 0.45

Strategy


Sharpe Ratio -0.24

Drawdown(11/30/08-3/31/11)

-60.51


Asia

CEEMEA*

Latin America

United States

Developed -3.8

9.3

-2.5

8.2

1.7

-10 -5 0 5 10



GMO © 2011


GMO Currency Hedge Strategy Inception: 7/31/03; Benchmark: J.P. Morgan U.S. 3 Month Cash Index





Performance1

In the third quarter of 2011, the Currency Hedge Strategy returned -4.1%, compared to its benchmark, the J.P. Morgan U.S. 3 Month Cash index, which gained 0.1%.

Most of the quarter’s currency movements were concentrated in September, although the yen briefly took a 3% dive in August when the Bank of Japan intervened. Then, as September opened, the Swiss National Bank stunned the market by setting a floor in EURCHF at 1.2, a level 17% higher than the August lows. Presumably they were preparing themselves to counteract the inflow of funds fleeing the eurozone, whose authorities made a vague pledge on July 21 to “do everything possible to keep Greece in the eurozone” and then promptly disappeared for July/August holidays. Once September arrived, however, and the impossible conditions for Greece’s compliance became clear, the stampede from euros began. EURCHF was mostly unchanged, but both fell about 7.5% dollar relative.

Commodity currencies also suffered, with Australian dollar and Norwegian krone down 9.2% and 8.6%, respectively. Commodities witnessed heavy declines, with the energy complex down 10% to 15%, industrial metals down 10% to 20%, and softs down 6% to 38%, although gold ended with a rise of 8%.

In policy actions, the ECB and Sweden each raised policy interest rates by 25 basis points during the quarter, to 1.5% and 2%, respectively. The Swiss cut rates by 25 basis points before embarking on their fx intervention. In the U.S., the Fed, already in ZIRP, announced plans to buy longer-maturity bonds with the aim of “twisting” the yield curve flatter. Having renewed the central bank swap lines last quarter, they came in handy a few times this quarter, with the Fed providing liquidity in USD to the ECB and the SNB.

In performance attribution, the cross-market strategy was unsuccessful, although opportunistic positions were helpful. In the cross-market strategy, negative contributions came from the longs in Australian dollar, Norwegian krone, and New Zealand dollar, partially offset by shorts in Canadian dollar and the euro.



Performance Attribution4 Currency Weights4



Strategy -4.14 -1.44 -0.40 -3.20 n/a 0.18Benchmark 2 0.08 0.28 0.36 2.65 n/a 2.75


2003 2004 2005 2006 2007 2008 2009 2010

Strategy 5.70 2.93 8.94 13.60 -15.57 -28.70 23.08 3.17

Benchmark 0.50 1.48 3.37 5.25 5.70 4.12 1.45 0.45

Strategy


Sharpe Ratio 0.01

Drawdown(6/30/07-12/31/08)

-41.19

Net Contribution (%)

Europe

North America

Asia Pacific

Cash Mgmt/Fees/Other -0.6

-6.1

2.5

0.0

-10 -5 0 5 10

Net Weight

Europe

North America

Asia Pacific 63.1

23.5

-86.6

-120 -80 -40 0 40 80 120



GMO © 2011






Performance1

The GMO Fixed Income Hedge Strategy posted its best quarterly performance in its six-year history, returning +11.9% in the third quarter, outperforming its benchmark, the J.P. Morgan U.S. 3 Month Cash index, by 11.8%. The yield curve strategy drove gains for the quarter, followed by gains provided by cross-market strategies and tactical duration positions.

Government bond markets rallied across the board during the quarter: in local currency J.P. Morgan Global Bond Index terms, gains were the highest in the U.K. (+8.8%) and lowest in Japan (+1.2%). Setting the stage early in the quarter for a bond market rally was the weak July U.S. jobs report. Later, speculation that the Bank of England would expand its monetary stimulus to boost a flagging recovery prompted the fall in gilt yields. Despite having suffered their first ever rating downgrade in August, U.S. Treasuries had their best quarterly return since Q4 2008, rising 6.5%. The Federal Reserve vowed to keep short-term rates near zero through 2013 and added a “twist” to policy designed to flatten the yield curve by buying longer-dated bonds as part of QE. In other bond markets, the eurozone (+8.0%), Sweden (+7.4%), Canada (+6.1%), Australia (+5.8%), and Switzerland (+4.7%) also reported total return gains.


In central bank news, the ECB and Riksbank each raised rates by 25 basis points to 1.5% and 2.0%, respectively, while the Swiss National Bank cut its interest rate target by 25 basis points to zero.

The main yield curve strategy led gains during the quarter, as the Japanese yield curve flattened. Cross-market strategy gains followed, as long duration positions, in the U.S., eurozone, Canada, Switzerland, and Australia, performed well thanks to the bond market rally. Short positions in the U.K., Sweden, and Japan only partly offset gains.

Tactical Duration Overlay positions added value during the quarter, as the strategy maintained a slightly long duration in the front end of the U.S. curve through mid-quarter. As short-end rates approached 0%, the strategy removed the overweight and now has no position.



Performance Attribution4 Country Weights4

GMO Fixed Income Hedge Strategy Inception: 8/31/05; Benchmark: J.P. Morgan U.S. 3 Month Cash Index

Strategy Net Contribution (%)

Cross-Market

Tactical Duration Overlay

Yield Curve

Volatility

Opportunistic

Cash Mgmt./ABS/Fees/Other 0.1

0.1

0.0

5.6

2.5

3.6

-6 -3 0 3 6



Strategy 11.92 12.98 15.34 -3.00 n/a -2.76Benchmark 2 0.08 0.28 0.36 2.65 n/a 3.03


2005 2006 2007 2008 2009 2010

Strategy 1.45 -4.61 -23.39 -25.45 21.63 11.03

Benchmark 1.32 5.25 5.70 4.12 1.45 0.45

Strategy


Sharpe Ratio -0.26

Drawdown(5/31/06-1/31/09)

-48.54

Net Weight (%)

Europe

North America

Asia Pacific 4.0

7.9

-94.0

-100 -50 0 50 100



GMO © 2011


GMO Emerging Currency Hedge Strategy Inception: 3/31/06; Benchmark: J.P. Morgan U.S. 3 Month Cash Index





Performance1

In the third quarter of 2011, the Emerging Currency Hedge Strategy returned -8.4%, its worst quarterly performance since Lehman Brothers collapsed in 2008. The strategy’s benchmark, the J.P. Morgan U.S. 3 Month Cash index, gained 0.1%. Negative relative performance resulted nearly entirely from currency positioning.

With the U.S. dollar’s rapid September rebound, all emerging currencies except the Chinese renminbi fell relative to the dollar. The

most pronounced losses were among those in the euro’s orbit and those with big commodity export exposures. In the first group were Poland (-16.6%), Hungary (-16.3%), Romania (-10.1%), Czech Republic (-8.9%), and of course the euro (-7.5%). Commodities witnessed heavy declines, with the energy complex down 10% to 15%, industrial metals down 10% to 20%, and softs down 6% to 38%, although gold ended with a rise of 8%. Commodity sensitive currencies with double-digit declines included Brazilian real (-17.0%), South African rand (-15.7%), Mexican peso (-15.5%), and Russian ruble (-13.4%).

The quarter saw a dramatic reversal of fortunes for a number of currencies whose authorities had been trying to stem the tide of

inflows as late as August. Japan intervened to weaken the yen in August. Then, as September opened, the Swiss National Bank stunned the market by setting a floor in EURCHF at 1.2, a level 17% higher than the August lows. Presumably they were preparing themselves to counteract the inflow of funds fleeing the eurozone, whose authorities made a vague pledge on July 21 to “do everything possible to keep Greece in the eurozone” and then promptly disappeared for July/August holidays. Once September arrived, however, and the impossible conditions for Greece’s compliance became clear, the stampede from euros began.

How this spilled over into emerging currencies has so far been via the channels mentioned above: exposure to the eurozone economy

and/or commodities prices, the latter sinking in response to lower global growth expectations. Liquidity deteriorated, with bid-ask spreads widening on all currency pairs, and volumes declining.

Somewhat ironically, the only emerging currency to rise in spot terms this month was Chinese renminbi, +1.2% (exactly the same as

last quarter). As September closed, U.S. Senator Schumer was bringing the long-awaited “Currency Exchange Rate Oversight Reform Act of 2011,” more regularly referred to as the “anti-China bill,” to the senate floor. Although CNY has been a top performer this year (second only to the yen), Schumer still has it in his sights. Interestingly, the non-deliverable forward market is going the other way: from pricing appreciation for the currency over the next few years, the forwards now price a depreciation.

Currency positioning was mostly negative this quarter. Longs everywhere detracted, and shorts added, given the dollar’s uniform

direction. The China short was a push, with carry offsetting spot. Out-of-model shorts in Czech crown, Singapore dollar, and Canadian dollar were the main positive contributors.





Strategy -8.38 -3.03 -1.79 3.47 n/a 3.27Benchmark 2 0.08 0.28 0.36 2.65 n/a 2.90


2006 2007 2008 2009 2010

Strategy 5.13 9.72 -28.32 35.51 9.88

Benchmark 4.07 5.70 4.12 1.45 0.45

Strategy


Sharpe Ratio 0.22

Drawdown(7/31/08-12/31/08)

-31.61



GMO © 2011


GMO Mean Reversion Strategy Inception: 2/28/02; Benchmark: Citigroup 3-Month T-Bill Index





Performance1

The third quarter of 2011 was a strong one for the Mean Reversion Strategy, which had a return of +7.3%. It was a very bad quarter for equities, with the S&P 500 down 13.9%, MSCI EAFE dropping 19.0%, and MSCI Emerging tumbling 22.6%. Quality had a very good quarter in relative terms, falling only 5.3%, while the Russell 2000 underperformed substantially, falling 22%. Junk did even worse, falling around 29%. As a result, our quality trades were a big plus in the quarter, adding around 7%. The other significant winners within equities in the quarter were our China related shorts. These fell about 35% in the quarter, significantly outpacing the fall in emerging and the S&P 500. While the position only averaged around 7% of NAV in the quarter, it added about 1.5% viewed against the S&P 500 and 1% against emerging. Japan was also a plus, falling around 6%, which enabled our position to add about 70 basis points. The big losers in the quarter were the dividend swaps, which cost 70 basis points as they fell over 20% in the quarter, and our emerging long position, which cost around 90 basis points as it underperformed the S&P 500 significantly.

The non-equity positions were mixed. The biggest winners were our CDS positions, which added 90 basis points across European financials and China related positions. Other pluses were currencies, which added 60 basis points as the Australian and New Zealand dollar fell in the quarter and the Swiss franc undid a chunk of its extraordinary strength in the first part of the quarter. Our bond positions apart from the IL Gilts were a slight positive, adding 15 basis points, as strong performance from Australian and New Zealand bonds outweighed strength in Japan and Switzerland and falling CPI breakevens in Japan.

The notable losers were our volatility positions, where our volatility puts lost much of the value they had accreted, costing us 60 basis points. The biggest loser was the IL Gilts position, which cost 1.3% as rates fell significantly all across the IL curve. The Credit Opportunities Strategy fell 1.7% due to very substantial spread widening. This directly cost the strategy 5 basis points given our 3% holding. As of quarter end, we are increasing that allocation to 5% given the more attractive valuations.

The quarter saw a number of changes to the portfolio. The weight in the China shorts rose to 9% and then fell back down to about 4% as we put on positions and then closed them out as stocks fell to our targets. We continued rebalancing the quality/junk trades more in favor of quality and less junk and small, given the better risk/reward trade-off to that side of the trade. We decreased the IL Gilt position as our view of the risk/reward trade-off in this position deteriorated as investors showed their willingness to buy medium-term IL bonds with negative real yields.

We also took off a portion of our European financial CDS, reduced our Swiss franc short by half, and increased the size of our U.S. housing long position. The portfolio is currently maintaining an ex-ante beta of around zero.



Fixed Income Exposure4 Equity Exposure4

Currency Exposure4 Other4





2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy 9.93 35.76 11.42 6.97 5.63 18.63 18.43 -13.43 -8.61

Benchmark 1.41 1.07 1.24 3.00 4.76 4.74 1.80 0.16 0.13

Strategy


Sharpe Ratio 0.95

Drawdown(2/28/09-12/31/10)

-24.87

Position Absolute %Korean WonSingapore DollarsChina Renminbi (Yuan)Swiss FrancNew Zealand DollarAustralian Dollars -6.5

-3.7-2.9

-1.34.7

7.8

-10 -5 0 5 10

Position Absolute %Aussie 10 Yr. BondsOpportunistic DebtAussie LinkersKiwi 10 Yr. BondsSwiss BondsChina Sovereign / Banks50 Yr. GILTSEuro Insurance CDSJPY IR Swap -47.6

-16.1-14.4

-8.6-3.3

4.85.66.18.7

-60 -30 0 30 60

Position Absolute %QualityJapanese EquitiesEmerging EquitiesEuro Div. SwapsU.S. HousingOpportunistic Long EquitiesAustralian BanksOpportunistic Short EquitiesChinese EquitiesJunkRussell 2000/S&P MidcapS&P 500 -30.6

-19.3-12.6

-3.1-2.2-1.3

3.83.83.99.19.5

66.7

-80 -40 0 40 80

Position Absolute %

JPY Inflation SwapS&P VolatilityCurrency Volatility -2.0

-1.034.7

-40 -20 0 20 40



GMO © 2011


GMO Systematic Global Macro Strategy Inception: 3/31/02; Benchmark: Citigroup 3-Month T-Bill Index





Performance1

The Systematic Global Macro Strategy added 2.9% during the September quarter. Global equity markets fell for three consecutive months and the S&P 500 index closed the quarter 13.9% lower. While the euro debt crisis dominated the financial press headlines, concerns about the health of the U.S. economy and a downgrade of the U.S. government’s credit rating ensured poor investor sentiment. Over this period, our long position in U.S. bonds contributed positive returns, as did our equity market selection and commodity selection strategies.

The strategy added 2.1% in July with equity, currency, and bond market positions adding value. Equity market positions added 1.6% due mostly to a large short position in Australia, which underperformed the MSCI World index (in local currency), falling 4.9% versus -2.7%. In currencies, a long position in Japanese yen added value as it appreciated by almost 5.0% over the U.S. dollar.

The July gains were offset in August as the strategy returned -2.3% as equity market selection let us down. Our largest short position in Australia was the main offender, losing 2.6% as the Australian market (down 2.0%) outperformed most other equity markets by a decent margin. During August, the strategy established a long position in the Italian equity market. The Italian market was very cheap according to our valuation models, but poor sentiment had restricted the portfolio from holding a long position. When our momentum model signalled that the Italian market was oversold, the strategy established a 10% long position. Another meaningful change in portfolio strategy was the introduction of a long position in the VIX index. Our positive outlook for VIX futures was mostly due to a positive roll yield, while its negative correlation to equity markets also contributed to its 5% portfolio weighting.

The ability of the strategy to adjust positions in response to changing market conditions during August helped performance in September. We added 3.2% during this month as global equity markets continued their fall. The strategy switched to a net short equity markets allocation in early September, while new long positions in the Italian equity market and the VIX index also added value. Commodity market selection helped performance too, with a long position in cattle and a short position in silver adding value.



Bond Market Selection4

Currency Selection4

Commodity Markets4

Equity Market Selection4





2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy 19.75 3.79 1.33 4.63 8.39 15.06 -3.88 15.28 10.37

Benchmark 1.26 1.07 1.24 3.00 4.76 4.74 1.80 0.16 0.13

Strategy


Sharpe Ratio 0.83

Drawdown(6/30/08-9/30/08)

-15.44

Commodity Net Weight (%)CattleSugarCottonSoybeansHogsWheatNatural GasSilverNet Commodities 6.0

-5.0-5.0-5.0

3.03.0

5.05.05.0

-10 -5 0 5 10

Country Net Weight (%)ItalyUnited KingdomUnited StatesNetherlandsSingaporeVolatility IndexTaiwanKoreaJapanSwedenCanadaAustraliaNet Equity Markets -17.0

-30.0-18.0

-10.0-9.0-7.0-4.0

1.01.0

8.012.015.0

24.0

-60 -30 0 30 60

Country Net Weight (%)

United StatesAsset BackedNet Bond Markets 28.0

6.022.0

-40 -20 0 20 40

Currency Net Weight (%)Japanese YenNew Zealand DollarAustralian DollarCanadian DollarUnited StatesNet Cash -17.0

-44.0-2.0

6.010.0

30.0

-80 -40 0 40 80



GMO © 2011


GMO Multi-Strategy Inception: 10/31/02; Benchmark: Citigroup 3-Month T-Bill Index





Performance1

The Multi-Strategy portfolio returned +5.9% for the quarter, outperforming its cash benchmark. Five of the nine strategies posted positive performance, with Tactical Opportunities, Mean Reversion, and Fixed Income Hedge doing

particularly well. Tactical Opportunities (+32.8%) and Mean Reversion (+7.3%) were propelled by the flight to quality in the equity markets.

The largest headwind came from Aggressive Long/Short, which posted double-digit losses. The general turmoil in the markets

introduced a sustained heightened level of volatility as the CBOE VIX index (which started the quarter at 16) ended just shy of 40. As we would expect, our strategies within this portfolio were negatively impacted over this period of time, with the aggregate strategy down 10.4% for the quarter.








2002 2003 2004 2005 2006 2007 2008 2009 2010

Strategy 0.82 5.07 4.53 2.30 4.11 4.43 10.67 -5.51 -1.78

Benchmark 0.25 1.07 1.24 3.00 4.76 4.74 1.80 0.16 0.13

Strategy

Std. Deviation 5.58

Sharpe Ratio 0.60

Drawdown(2/28/09-9/30/09)

-11.02

Mean Rev ersion16.5%

Completion16.3%

Aggressiv eLong/Short

11.6%

TacticalOpportunities

12.8%

Emerging CountryDebt L.P.

11.1%

SystematicGlobal Macro

14.8%

Currency Hedge2.7%

FixedIncome Hedge

10.8%

EmergingCurrency Hedge

3.5%


Full Name Description

3 Month LIBOR The 3 Month LIBOR represents the London Inter-Bank Offered Rate for a 3 month deposit in U.S. dollars during a given month.

Barclays Capital U.S. Aggregate Index

The Barclays Capital U.S. Aggregate Index is an independently maintained and widely published index comprised of U.S. fixed rate debt issues having a maturity of at least one year and rated investment grade or higher.

Barclays Capital U.S. Treasury Inflation Notes Index

The Barclays Capital U.S. Treasury Inflation Notes Index is an independently maintained and widely published index comprised of Inflation-Protection Securities issued by the U.S. Treasury (TIPS).

Citigroup 3-Month T-Bill Index The Citigroup 3-Month Treasury Bill Index is an independently maintained and widely published index comprised of short-term U.S. Treasury bills.

Citigroup 3-Month T-Bill ++ Index

The Citigroup 3-Month Treasury Bill ++ Index is an internally maintained benchmarked computed by GMO, comprised of 3 Month LIBOR from 5/31/2003 to 8/31/2009, and Citigroup 3-Month Treasury Bill Index thereafter.

CPI Index The CPI (Consumer Price Index) for All Urban Consumers US All Items is published monthly by the U.S. government as an indicator of changes in price levels (or inflation) paid by urban consumers for a representative basket of goods and services.

CPI Plus 5% Index The CPI (Consumer Price Index) Plus 5% Index is an internally maintained (monthly) benchmark based on the CPI Index for All Urban Consumers US All Items which is published monthly by the U.S. government as an indicator of changes in price levels (or inflation) paid by urban consumers for a representative basket of goods and services. The CPI Plus 5% Index is calculated by adding 5% annualized to the return of the CPI Index.

GMO Blended Global All Country Equity Allocation Index

The blended Global All Country Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI ACWI (All Country World Index) (MSCI standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.

GMO Blended Global Balanced Asset Allocation Index

The blended Global Balanced Asset Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of S&P 500, MSCI ACWI (MSCI Standard Index Series, net of withholding tax) and Barclays Capital Aggregate or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.

GMO Blended Global Developed Equity Allocation Index

The blended Global Developed Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI World (MSCI Standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.

GMO Blended International All Country Equity Allocation Index

The blended International All Country Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI ACWI (All Country World) ex-U.S. Index (MSCI Standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.

GMO Blended International Developed Equity Allocation Index

The blended International Developed Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI EAFE (MSCI Standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.

GMO Blended Real Return Global Balanced Asset Allocation Index

The blended Real Return Global Balanced Asset Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI World (MSCI Standard Index Series, net of withholding tax), Barclays Capital Aggregate, and Citigroup 3-Month T-Bill or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.

GMO Tax-Managed Global Balanced Index

The Tax-Managed Global Balanced Index is an internally computed benchmark comprised of (i) 60% MSCI ACWI (All Country World Index) (MSCI standard Index Series, net of withholding tax) and (ii) 40% Barclays Capital Muni 7 Year (6-8) Index. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.

GMO Blended U.S. Equity Allocation Index

The blended U.S. Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of S&P 500, Russell 3000 or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. Russell Investments is the source and owner of the Russell index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is GMO’s presentation of the data. FCR is not responsible for the formatting or configuration of this material or for any inaccuracy in GMO’s presentation thereof.

Benchmarks and Indices GMO measures each strategy’s performance against a specific benchmark or index (each, a “Benchmark”), although no strategy is managed as an “index strategy” or “index-plus” strategy. Actual composition of a strategy’s portfolio may differ to varying degrees from that of its Benchmark. Indices are not managed and do not pay fees and expenses. One cannot invest directly in an index. In some cases, a strategy’s Benchmark differs from the broad based index against which performance is shown in the strategy’s prospectus. GMO may change a strategy’s benchmark from time to time.



J.P. Morgan EMBI Global Index

The J.P. Morgan EMBI Global (Emerging Markets Bond) Index is an independently maintained and widely published index comprised of debt securities of countries, including Brady bonds, sovereign debt, local debt, and Eurodollar debt, all of which are U.S. dollar denominated.

J.P. Morgan EMBI Global + Index

The J.P. Morgan EMBI Global (Emerging Markets Bond) Index + is an internally maintained benchmark computed by GMO, comprised of (i) the J.P. Morgan Emerging Markets Bond Index (EMBI) through 8/31/1995, (ii) the J.P. Morgan EMBI+ through 12/31/1999, and (iii) the J.P. Morgan EMBIG thereafter.

J.P. Morgan Global Government Bond Index

The J.P. Morgan Global Government Bond Index is an independently maintained and widely published index comprised of government bonds of developed countries with maturities of one year or more.

J.P. Morgan GBI-EM Diversified Index

The J.P. Morgan GBI-EM (Government Bond Index-Emerging Markets) Diversified Index is an independently maintained and widely published index of global local emerging markets consisting of regularly traded, liquid fixed-rate, domestic currency government bonds.

J.P. Morgan Non-U.S. Government Bond Index

The J.P. Morgan Non-U.S. Government Bond Index is an independently maintained and widely published index comprised of non-U.S. government bonds with maturities of one year or more.

J.P. Morgan Non-U.S. Government Bond Index (hedged) (ex-Japan) +

The J.P. Morgan Non-U.S. Government Bond Index (Hedged) (ex-Japan) + is an internally maintained benchmark computed by GMO, comprised of (i) the J.P. Morgan Non-U.S. Government Bond Index (Hedged) prior to 12/31/2003 and (ii) the J.P. Morgan Non-U.S. Government Bond Index (Hedged) (ex-Japan) thereafter.

J.P. Morgan U.S. 3 Month Cash Index

The J.P. Morgan U.S. 3 Month Cash Index is an independently maintained and widely published index comprised of three month U.S. dollar Euro-deposits. The duration of the Index is generally 90 days.

J.P. Morgan U.S. 3 Month Cash + Index

The J.P. Morgan U.S. 3 Month Cash + Index is an internally maintained benchmark computed by GMO, comprised of (i) the Barclays Capital U.S. Treasury 1-3 Year Index from 5/31/2006 to 9/29/2006 and (ii.) the J.P. Morgan U.S. 3 Month Cash Index thereafter.

MSCI EAFE Growth Index The MSCI EAFE (Europe, Australasia, and Far East) Growth Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of international large and mid capitalization stocks that have a growth style. Large and mid capitalization stocks encompass approximately 85% of each market’s free float-adjusted market capitalization. Style is determined using a multi-factor approach based on historical and forward-looking characteristics. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.

MSCI EAFE Index The MSCI EAFE (Europe, Australasia, and Far East) Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of international large and mid capitalization stocks. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.

MSCI EAFE (Hedged) Index The MSCI EAFE (Europe, Australasia, and Far East) Index (Hedged) (net of withholding tax) is an independently maintained and widely published index comprised of international large and mid capitalization stocks currency hedged into U.S. dollars. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.

MSCI EAFE Small Cap + Index

The MSCI EAFE (Europe, Australasia, and Far East) Small Cap + Index is an internally maintained benchmark computed by GMO, comprised of (i) the S&P Developed ex-U.S. Small Cap Index through 5/30/2008 and (ii) the MSCI EAFE Small Cap Index (MSCI Standard Index Series, net of withholding tax) thereafter. MSCI data may not be reproduced or used for any other purpose. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.

MSCI EAFE Value Index The MSCI EAFE (Europe, Australasia, and Far East) Value Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of international large and mid capitalization stocks that have a value style. Large and mid capitalization stocks encompass approximately 85% of each market’s free float-adjusted market capitalization. Style is determined using a multi-factor approach based on historical and forward-looking characteristics. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.

MSCI Japan IMI ++ Index The MSCI Japan IMI (Investable Market Index Series) ++ Index is an internally maintained benchmark computed by GMO, comprised of (i) the MSCI Japan (MSCI Standard Index Series, net of withholding tax) from 12/31/2005 to 6/30/2008 and (ii) the MSCI Japan IMI (MSCI Standard Index Series, net of withholding tax) thereafter. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.

MSCI U.S. REIT Index The MSCI U.S. REIT Index is an independently maintained and widely published index comprised of equity securities issued by REITs. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.

MSCI World Growth Index The MSCI World Growth Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of global developed markets large and mid capitalization stocks that have a growth style. Large and mid capitalization stocks encompass approximately 85% of each market’s free float-adjusted market capitalization. Style is determined using a multi-factor approach based on historical and forward-looking characteristics. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.

MSCI World Index The MSCI World Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of global developed markets. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.

Russell 1000 Growth Index The Russell 1000 Growth Index is an independently maintained and widely published index comprised of the stocks included in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values. Russell Investments is the source and owner of the Russell index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is GMO’s presentation of the data. FCR is not responsible for the formatting or configuration of this material or for any inaccuracy in GMO’s presentation thereof.

Russell 1000 Value Index The Russell 1000 Value Index is an independently maintained and widely published index comprised of the stocks included in the Russell 1000 Index with lower price-to-book ratios and lower forecasted growth values. Russell Investments is the source and owner of the Russell index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is GMO’s presentation of the data. FCR is not responsible for the formatting or configuration of this material or for any inaccuracy in GMO’s presentation thereof.

MSCI Emerging Markets Index The MSCI Emerging Markets Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of global emerging markets large and mid capitalization stocks. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.



Russell 2500 Growth Index The Russell 2500 Growth Index is an independently maintained and widely published index comprised of the stocks included in the Russell 2500 Index with higher price-to-book ratios and higher forecasted growth values. Russell Investments is the source and owner of the Russell index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is GMO’s presentation of the data. FCR is not responsible for the formatting or configuration of this material or for any inaccuracy in GMO’s presentation thereof.

Russell 2500 Value + Index The Russell 2500 Value + Index is an internally maintained benchmark computed by GMO, comprised of (i) the Russell 2500 Index from 12/31/1991 to 12/31/1996 and (ii) the Russell 2500 Value Index thereafter. Russell Investments is the source and owner of the Russell index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is GMO’s presentation of the data. FCR is not responsible for the formatting or configuration of this material or for any inaccuracy in GMO’s presentation thereof.

Russell 3000 + Index The Russell 3000 + Index is an internally maintained benchmark computed by GMO, comprised of (i) the S&P 500 Index through 10/15/2007 and (ii) the Russell 3000 Index thereafter. Russell Investments is the source and owner of the Russell index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is GMO’s presentation of the data. FCR is not responsible for the formatting or configuration of this material or for any inaccuracy in GMO’s presentation thereof.

S&P 500 Index The S&P 500 Index is an independently maintained and widely published index comprised of U.S. large capitalization stocks.

S&P Developed ex-U.S. Small Cap Index

The S&P Developed ex-U.S. Small Cap Index is an independently maintained and widely published index comprised of the small capitalization stock component of the S&P Broad Market Index (BMI). The BMI includes listed shares of companies from developed and emerging countries with a total available market capitalization (float) of at least the local equivalent of $100 million USD. The S&P Developed ex-U. S. Small Cap Index represents the bottom 15% of available market capitalization (float) of the BMI in each country.

S&P/IFCI Composite Index The S&P/IFCI Composite Index is an independently maintained and widely published index comprised of emerging markets stocks.

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3Q 2011 US GMO Quarterly Update Nov 3