GMO 2009 Q1 Update

GMOQuarterly Update

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ContentsGlobal Market Review....................................................................................6Asset Allocation...............................................................................................7Performance Review and Outlook...............................................................9Strategy Performance Details......................................................................18Table of Benchmarks ...................................................................................72

First Quarter 2009

2 GMO Quarterly Update

2009 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 ofmanagement fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assumethe reinvestment of dividends and other income. A GIPS® compliant presentation is available at www.gmo.com.Copyright © 2009 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 1Q YTD YTD Value One Five Ten Since

Strategies/Benchmarks Date 2009 2009 Added Year Year Year Inception

U.S. Core 9/30/85 -9.37 -9.37 1.64 -29.20 -4.63 -1.45 9.92S&P 500 -11.01 -11.01 -38.09 -4.76 -3.00 9.05Intrinsic Value 5/31/99 -12.41 -12.41 4.35 -35.73 -6.36 n/a -0.69Russell 1000 Value -16.77 -16.77 -42.42 -4.94 n/a -1.42U.S. Quality 2/29/04 -8.33 -8.33 2.69 -23.77 -2.85 n/a -3.05S&P 500 -11.01 -11.01 -38.09 -4.76 n/a -4.97Growth 12/31/88 -6.89 -6.89 -2.77 -26.81 -5.63 -3.71 8.06Russell 1000 Growth -4.12 -4.12 -34.28 -4.38 -5.26 7.11Small/Mid Cap Value 12/31/91 -15.46 -15.46 0.86 -34.55 -6.02 4.15 8.66Russell 2500 Value + -16.32 -16.32 -38.66 -4.79 4.72 8.37Small/Mid Cap Growth 12/31/96 -8.94 -8.94 -2.97 -38.90 -7.35 -0.91 1.01Russell 2500 Growth -5.97 -5.97 -38.14 -4.47 0.24 1.49Real Estate 5/31/96 -32.35 -32.35 0.37 -55.82 -8.04 3.51 3.59MSCI U.S. REIT -32.72 -32.72 -59.14 -9.09 3.53 4.35

GMO International Equity Inception 1Q YTD YTD Value One Five Ten Since


International Active EAFE 5/31/81 -15.18 -15.18 -1.24 -44.83 -1.45 3.41 11.79MSCI EAFE -13.94 -13.94 -46.51 -2.18 -0.84 8.09International Intrinsic Value 3/31/87 -15.38 -15.38 0.15 -44.81 -1.22 3.70 7.02MSCI EAFE Value -15.53 -15.53 -47.72 -2.49 0.59 5.48MSCI EAFE -13.94 -13.94 -46.51 -2.18 -0.84 3.37International Core Equity 1/31/02 -14.21 -14.21 -0.27 -44.98 -1.05 n/a 4.34MSCI EAFE -13.94 -13.94 -46.51 -2.18 n/a 1.96International Growth 11/30/01 -11.41 -11.41 1.01 -40.97 0.25 n/a 3.22MSCI EAFE Growth -12.43 -12.43 -45.36 -1.99 n/a 0.65MSCI EAFE -13.94 -13.94 -46.51 -2.18 n/a 1.25Currency Hedged Int'l. Equity 6/30/95 -10.04 -10.04 -0.43 -31.78 0.95 3.35 6.10MSCI EAFE Hedged -9.61 -9.61 -35.76 -0.90 -1.32 3.82Global Equity 7/31/96 -12.93 -12.93 -1.00 -41.56 -2.96 1.09 4.27MSCI World -11.92 -11.92 -42.58 -3.50 -2.24 2.13Global Growth 7/31/04 -9.44 -9.44 -1.45 -38.79 n/a n/a -1.48MSCI World Growth -7.99 -7.99 -40.61 n/a n/a -2.48MSCI World -11.92 -11.92 -42.58 n/a n/a -3.24Int'l. Active Foreign Small Companies 1/31/95 -11.96 -11.96 -1.31 -49.63 -0.11 8.15 8.21S&P Developed ex-U.S. Small Cap -10.65 -10.65 -49.75 -1.38 2.99 3.43Int'l. Small Companies 10/31/91 -14.20 -14.20 -4.65 -48.21 -0.91 6.40 6.90MSCI EAFE Small Cap + -9.55 -9.55 -48.46 -0.87 3.25 3.69MSCI EAFE -13.94 -13.94 -46.51 -2.18 -0.84 3.05Japan Equity 12/31/05 -20.41 -20.41 -4.04 -35.80 n/a n/a -13.62MSCI Japan IMI++ -16.37 -16.37 -34.83 n/a n/a -14.05Global Active Equity 8/31/00 -11.74 -11.74 0.19 -42.91 -0.51 n/a 4.56MSCI World -11.92 -11.92 -42.58 -3.50 n/a -4.45Emerging Markets 12/31/93 -1.35 -1.35 -2.59 -50.28 5.00 11.63 6.06S&P/IFC Investable Composite 1.24 1.24 -47.22 6.85 9.28 3.04Emerging Countries 9/30/97 -1.70 -1.70 -2.95 -50.85 3.95 11.80 6.29S&P/IFC Investable Composite 1.24 1.24 -47.22 6.85 9.28 4.70Flexible Equities 12/31/08 -23.60 -23.60 -11.67 n/a n/a n/a -23.60MSCI World -11.92 -11.92 n/a n/a n/a -11.92

GMO Quarterly Update 3

2009 Performance of GMO Strategies and BenchmarksTotal Return Net of Fees Average Annual Total Return

GMO Tax-Managed Equity Inception 1Q YTD YTD Value One Five Ten SinceStrategies/Benchmarks Date 2009 2009 Added Year Year Year Inception

Tax-Managed U.S. Equities 7/31/98 -9.18 -9.18 1.63 -29.65 -4.44 -1.20 -0.09Russell 3000 + -10.80 -10.80 -38.20 -4.86 -3.05 -1.51Tax-Managed Int'l. Equities 8/31/98 -13.60 -13.60 0.33 -43.70 -0.05 4.01 5.05MSCI EAFE -13.94 -13.94 -46.51 -2.18 -0.84 0.82

GMO Domestic Fixed Inception 1Q YTD YTD Value One Five Ten Since

Income Strategies/Benchmarks Date 2009 2009 Added Year Year Year Inception

Domestic Bond 8/31/94 1.25 1.25 2.24 -7.67 1.02 4.44 5.48Barclays Capital U.S. Government -0.99 -0.99 6.95 5.24 6.21 6.79Core Plus Bond 4/30/97 1.34 1.34 1.23 -16.98 -1.55 3.53 4.09Barclays Capital U.S. Aggregate 0.12 0.12 3.13 4.13 5.70 6.19Inflation Indexed Plus Bond 5/31/06 5.72 5.72 0.21 -22.94 n/a n/a -5.60Barclays Capital U.S. Treasury Inflation Notes 5.51 5.51 -2.04 n/a n/a 5.99Strategic Fixed Income 5/31/06 2.95 2.95 2.37 -17.71 n/a n/a -6.24JPMorgan U.S. 3 Month Cash + 0.58 0.58 3.35 n/a n/a 4.94

GMO International Fixed Inception 1Q YTD YTD Value One Five Ten Since

Income Strategies/Benchmarks Date 2009 2009 Added Year Year Year Inception

International Bond 12/31/93 -4.47 -4.47 1.31 -24.92 -0.98 3.62 5.75JPMorgan Non-U.S. Gov't. Bond -5.78 -5.78 -5.44 4.55 5.49 6.11Currency Hedged Int'l. Bond 9/30/94 2.89 2.89 2.35 -11.87 -0.41 3.36 7.13JPMorgan Non-U.S. Gov't. 0.54 0.54 7.47 5.09 5.30 7.56 Bond Index (hedged) (ex-Japan) +Global Bond* 12/31/95 -2.54 -2.54 2.21 -22.67 -1.33 3.33 4.28JPMorgan Global Gov't. Bond -4.75 -4.75 -2.62 4.80 5.86 5.65Emerging Country Debt* 4/30/94 3.02 3.02 -0.36 -28.43 2.20 13.00 14.38JPMorgan EMBI Global + 3.38 3.38 -8.49 5.18 10.15 10.98Emerging Country Local Debt Investment** 2/29/08 1.13 1.13 6.04 -31.14 n/a n/a -29.28JPMorgan GBI-EM Diversified -4.92 -4.92 -12.62 n/a n/a -11.20

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

* 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 Asset Allocation Inception 1Q YTD YTD Value One Five Ten Since


Global Balanced Asset Allocation 6/30/88 -3.99 -3.99 2.92 -20.29 1.73 6.39 9.27Blended Benchmark -6.91 -6.91 -28.98 -1.03 1.02 7.00Real Return Global Balanced Asset Alloc. 6/30/04 -3.94 -3.94 3.10 -13.20 n/a n/a 4.55Blended Benchmark -7.04 -7.04 -26.86 n/a n/a -0.64Global Allocation Absolute Return 7/31/01 -1.83 -1.83 -3.64 -6.97 6.69 n/a 10.45CPI Plus 5% 1.81 1.81 4.71 7.71 n/a 7.51International All Country Equity Alloc. 2/28/94 -13.06 -13.06 -1.86 -43.99 1.03 6.02 5.67Blended Benchmark -11.20 -11.20 -46.48 -0.72 1.35 3.03International Developed Equity Allocation 11/30/91 -15.59 -15.59 -1.59 -43.51 -0.09 4.71 6.70Blended Benchmark -14.00 -14.00 -46.51 -1.84 -0.45 4.09Global All Country Equity Allocation 12/31/93 -10.22 -10.22 0.48 -32.80 0.47 5.62 7.26Blended Benchmark -10.70 -10.70 -42.72 -3.28 -1.37 4.32Global Developed Equity Allocation 3/31/87 -11.83 -11.83 0.10 -35.46 -0.46 4.58 8.10Blended Benchmark -11.92 -11.92 -42.57 -3.66 -2.15 5.22U.S. Equity Allocation 2/28/89 -8.95 -8.95 1.97 -27.03 -3.84 0.84 9.06Blended Benchmark -10.92 -10.92 -38.16 -4.66 -2.56 7.59Tax-Managed Global Balanced 12/31/02 -3.57 -3.57 1.80 -14.81 3.27 n/a 6.74Tax-Managed Global Balanced Index -5.36 -5.36 -26.19 -0.68 n/a 3.02Alpha Only 7/31/94 -0.65 -0.65 -0.69 9.83 5.61 8.06 5.55Citigroup 3 Month T-Bill 0.05 0.05 1.13 3.06 3.19 3.84



GMO Absolute Return Inception 1Q YTD YTD Value One Five Ten Since


Multi-Strategy 10/31/02 0.34 0.34 0.30 5.37 4.66 n/a 5.00Citigroup 3 Month T-Bill 0.05 0.05 1.13 3.06 n/a 2.62Mean Reversion 2/28/02 0.50 0.50 0.46 11.89 11.05 n/a 14.77Citigroup 3 Month T-Bill 0.05 0.05 1.13 3.06 n/a 2.54Completion 8/31/07 1.76 1.76 1.71 11.64 n/a n/a 27.51Citigroup 3 Month T-Bill 0.05 0.05 1.13 n/a n/a 2.03Market Neutral 7/31/00 -7.72 -7.72 -7.77 -4.55 -0.99 n/a 1.51Citigroup 3 Month T-Bill 0.05 0.05 1.13 3.06 n/a 2.88Aggressive Long/Short 9/30/00 -5.01 -5.01 -5.05 5.29 0.61 n/a 7.12Citigroup 3 Month T-Bill 0.05 0.05 1.13 3.06 n/a 2.82Tactical Opportunities 9/30/04 -3.62 -3.62 -3.67 26.28 n/a n/a 4.58Citigroup 3 Month T-Bill 0.05 0.05 1.13 n/a n/a 3.28Pan-European Long/Short Equity 5/31/03 -3.36 -3.36 -3.68 10.09 5.77 n/a 5.513 Month LIBOR 0.33 0.33 2.70 3.83 n/a 3.45Emerging Country Debt Long/Short 3/31/96 3.40 3.40 2.82 -20.19 1.57 13.31 9.74JPMorgan U.S. 3 Month Cash 0.58 0.58 3.35 4.03 3.97 4.40Global Tactical 3/31/02 3.05 3.05 2.47 -4.38 5.00 n/a 7.21JPMorgan U.S. 3 Month Cash 0.58 0.58 3.35 4.03 n/a 3.33Currency Hedge 7/31/03 3.61 3.61 3.04 -31.99 -5.73 n/a -3.03JPMorgan U.S. 3 Month Cash 0.58 0.58 3.35 4.03 n/a 3.69Fixed Income Hedge 8/31/05 7.37 7.37 6.80 -26.41 n/a n/a -13.55JPMorgan U.S. 3 Month Cash 0.58 0.58 3.35 n/a n/a 4.73Emerging Currency Hedge 3/31/06 2.22 2.22 1.64 -21.92 n/a n/a -5.45JPMorgan U.S. 3 Month Cash 0.58 0.58 3.35 n/a n/a 4.83Short Term Market Opportunities 9/30/05 2.50 2.50 2.46 12.61 n/a n/a 15.58Citigroup 3 Month T-Bill 0.05 0.05 1.13 n/a n/a 3.49Alternative Asset Opportunity 4/30/05 -0.13 -0.13 2.71 -29.84 n/a n/a -2.69Alternative Asset Opportunity Index -2.85 -2.85 -23.45 n/a n/a 0.38Special Situations 8/31/07 1.06 1.06 1.01 17.53 n/a n/a 15.26Citigroup 3 Month T-Bill 0.05 0.05 1.13 n/a n/a 2.03Tax-Managed Absolute Return 3/31/01 -2.81 -2.81 -2.85 5.67 1.32 n/a 1.49Citigroup 3 Month T-Bill 0.05 0.05 1.13 3.06 n/a 2.62




Benchmark

FixedIncome35.0%

EmergingEquities

7.0%

InternationalEquities

28.9%

U.S.Equities

29.1%

Global Balanced Asset Allocation: One ExampleRecommendations as of March 31, 2009Benchmark: 65% MSCI AC World Index /

35% Barclays Capital Aggregate

Note: Asset Allocation ranges are ±20% for U.S. andinternational equities and ±15% for fixed income.

GMO Active

Weighting Decisions

U.S.Equities+2.8%

Int'l.Equities

-6.8%

EmergingEquities+0.4%

FixedIncome+3.6%

-10% -5% 0% 5% 10%

GMO Allocation

U.S. Quality30.5%

InternationalIntrinsic Value

4.9%

InternationalGrowth

5.1%

InternationalCore Equity

10.0%FlexibleEquities

2.1%

EmergingMarkets

7.4%

DomesticBond8.2%

StrategicFixed Income

10.8%

InflationIndexed Plus

1.1%

EmergingCountry Debt

0.3%

AssetAllocation Bond

0.8%

Alpha Only9.1%

SpecialSituations

3.3%

Cash &Equivalents

4.8%U.S. Core

1.5%

Global Market Review

As the U.S. recession entered its fifth quarter,economic fragility was evident in almost every major sectorexcept the federal government. The drop in virtually allasset prices over the previous six months continued toaccelerate the unrelenting process of balance sheetdeleveraging. The effort to repair balance sheets has nowspread to almost every corner of the economy: consumersare pulling back on consumption, especially on durablegoods like cars, to build savings; businesses are scramblingto preserve cash by cancelling planned investments andlaying off workers; and financial institutions are shrinkingtheir assets to bolster capital and improve their chances ofsurviving.

Against a backdrop of deteriorating fundamentals,policy makers across the globe redoubled their efforts tostem the damage. In the U.S., the initial stab at a bankrescue plan, unveiled in February, was welcomed by themarket with the steepest drop since the new administration

had taken office with the S&P ending down nearly 5%.Anxious central bankers fearing the specter of deflationbegan to reach for alternative monetary policies as zeroshort-term interest rates were not being reflected in lowerbusiness and consumer borrowing costs. The first centralbank to announce a policy of quantitative easing was theBank of England (BoE) on March 5 as it pledged to go ona £75 billion bond buying shopping spree. Following hoton the BoE’s heels, the Swiss National Bank announcedthat it would start buying foreign currencies to stem theSwiss franc’s appreciation. Not to be outdone, the FederalReserve announced the most ambitious plan to date,committing to buy up to $1.25 trillion of agency mortgage-backed securities and $300 billion of longer-term Treasurysecurities. Finally, as the quarter came to a close, the U.S.Treasury unveiled the newest incarnation of a financialstabilization policy suggesting that government guaranteescoupled with leverage might entice private buyers for thebanks’ toxic assets. Despite falling close to a 12-year lowon March 9, the market could not resist the expectedonslaught from dual global fiscal and monetary stimulusbehemoths. By the end of March, both financial andcyclical stocks had rebounded along with the broadermarket. The Federal Reserve Chairman was heard talkingabout the green shoots of recovery and it seemed for amoment that, after a long winter of discontent, spring hadarrived.

Despite a 19% rally from its lows, the S&P still finishedthe quarter down 11.0%. Within the style ranges, however,the difference between value and growth was remarkable.We have been maintaining that this recession is differentand that value stocks would disappoint as fundamentalsdeteriorated faster than prices fell. The market noticed,and large cap value fell 16.8% versus just a 4.1% drop forlarge cap growth. Small cap stocks continued the previousquarter’s pattern of underperforming large caps, falling15%.

Outside the U.S., foreign developed market equitiesperformed modestly better than the S&P but providedlittle comfort as the EAFE Index dropped 10.1% in localcurrency terms. The strengthening dollar, however, meantthat the same index fell 13.9% in U.S. dollar terms. As withthe U.S., the style ranges performed similarly but the spreadwas more muted as value fell 15.5% and growth fell 12.4%.Emerging markets, having fallen further in the previousquarter, held up reasonably well given the ongoingdevastation elsewhere. The MSCI Emerging MarketsIndex managed a positive return of 0.9%.

GMO Quarterly Update 7from fair value are the animal spirits that drive cycles offear and greed. It is little wonder that they are harder tounderstand, let alone predict. An additional complication,in an already murky picture, is the sheer size of theoncoming fiscal stimulus. One can argue about the long-term effects of government spending, but in the short run,the government’s money is as green as everyone else’s andhuge outlays will not go unnoticed.

Nevertheless, based on our 7-year forecasts, equityassets continued to cooperate and deliver ever moreattractive valuations. As prices fell, expected returnsincreased, even taking into account the deterioratingoutlook for earnings and profits. Despite a sickening dropin prices through February, we girded our loins andprepared to add to our equity exposure. The market fell sofast that by the time we were ready to make our trade, wehad almost reached our second trigger level. In spite ofthis, by early March our balanced accounts were almostback to a neutral exposure relative to benchmarks, giventhe market turn during the month.

One positive development from increased governmentintervention was the improvement in most of our fixedincome portfolios. The majority of our fixed incomestrategies gain their exposures synthetically withderivatives, and invest the remaining cash in our internallymanaged collateral pools. These collateral pools benefitedfrom the assortment of policies rolled out by central banksto improve lending conditions and stabilize credit markets.In particular, some investors returned to the asset-backedbond market, and this was reflected in slowly improvingliquidity and pricing. We are reassured by the market’sreaction and expect ongoing improvement. Elsewhereimplementation was challenging. Despite some brightspots in our U.S. portfolios, internationally some strategiesstruggled to beat their benchmarks. Nevertheless, after theperformance registered in previous quarters, it is notsurprising to witness a pattern of short-term reversal.

Strategies

Having increased our exposure to equities last quarter,we kept to our game plan and gingerly shifted our stancetoward favoring riskier asset classes. For the most part thiswas reflected by reducing the exposure to our Alpha OnlyStrategy and shifting the freed-up capital back towardequities. Our concern about the broader economic picture,however, prevented us from deploying toward morespeculative areas of the market, and we did not stray far

In fixed income markets, the extreme levels of fearseen at the tail end of 2008 began to slowly unwind.Having started the year at a yield of 2.25%, the 10-yearTreasury ended the quarter at just over 2.68%. Althoughthe yield had been as high as 3% at the end of February,the announcement of credit easing by the Fed was widelyinterpreted by the market to signify quantitative easing anddrove yields off their peaks. Higher sovereign yields ledthe JPMorgan U.S. Government Bond Index to give upsome of last quarter’s gains, finishing down 1.4%.

Some semblance of normalcy returned to creditmarkets after the severe dislocations witnessed last year,triggered by the failure of Lehman Brothers. Given theamount of government stimulus that was funneled eitherdirectly of indirectly at credit markets, though, it wouldhave been inconceivable to not expect a slightimprovement. Despite better functioning markets, pricesdid not improve significantly and the Barclays Capital U.S.Aggregate returned a mere 12 basis points in three months.Internationally, increasing government bond yields led to aloss of 4.75% on the JPMorgan Global Government BondIndex.

Asset AllocationReview

In the wake of the Bear Stearns collapse a year ago, wecould still rely on three near certainties to drive ourportfolio allocations: U.S. house prices and profit marginswould continue to decline, and risk premiums globallywould widen. As those assumptions have played out, ourcertainties have faded and navigating the investment watershas become a great deal more treacherous. Part of thedifficulty is a result of the increasing moral hazardgenerated by the various attempts to reflate the globaleconomy. Valuations for large swaths of the market nolonger depend on earnings, profits, and growth, but on thesize, type, and intention of government action.Investments in financial firms in particular remainparticularly exposed to the whims and vagaries ofWashington. A further complication is that valuationsbecome less powerful when asset classes are close to fairvalue. Although by definition asset classes spend as muchtime above the mean as below, they rarely spend much timefairly valued. The historical record certainly suggests thatafter a large bubble, assets tend to overshoot. But whereascheap assets are driven back to fair value by the forces ofcompetitive capitalism, the forces that compel assets away


from U.S. high quality stocks. We believe that this latestmove will probably represent the apex of our high qualityexposure. While we do not expect to be reducing ourcurrent weight in the near future, it is probable thatour next moves into equities will target differentopportunities This last move combined with thesubsequent market rally shifted our overall equity exposureto just shy of being neutral. Our next moves will likelybegin to shift our portfolios to an overweight in thecoming quarters. We continue to favor the FlexibleEquities Strategy, which has been targeting Japanesecompanies that get a substantial majority of their earningswithin Japan. Essentially, domestic companies (and thehigher quality half of domestics in particular) are bothcheap compared to junky exporters and are at an all-timelow in terms of relative profitability. In other words, as theexporters get hammered in the global slow-down and theirprofitability relative to domestics reverts to the long-termmean, we can expect domestics to outperform. In fixedincome markets, sovereign yields are likely to be pressuredby rapidly increasing supply and do not offer any longer-term value. Where we have more latitude, we still prefer toown broadly diversified absolute return portfolios, buteven here we are beginning to dip our toes back intoequities.

Our broad strategies are:

Emphasize more defensive fixed income and highquality U.S. equities. Having rallied into the teeth ofthe crisis as the only liquid safe haven asset, sovereignbonds now look dangerously over valued. Unlessdeflation is deep, prolonged, and persistent,government bond investors are likely to be verydisappointed in the medium term. In addition, it is verypossible that the size of new issuance will likely furtherundermine current pricing.

Adopt a bias toward high quality stocks. Valuestocks are no longer a “value” and remain expensiverelative to growth stocks and the market. High qualitystocks trade at a slight premium to the market whenhistorically they have traded at a much wider 18%premium to the market. While the profit margins offinancial stocks have evaporated, the profit margins forother sectors are now poised to get much weaker.Quality has outperformed so far this year as financial

companies have borne the brunt of the current turmoil.We believe quality will fare significantly better in theevent of a worsening economic outlook.

Prefer real yields in inflation protected bonds. Realyields are no longer as attractive after the flight toquality and liquidity episode of last quarter.Nevertheless, inflation protected securities are to bepreferred to their nominal cousins. Although short-term inflationary pressure is muted, the likelihood ofincreasing inflation in the future has been facilitated bysubstantial monetary easing and quantitative easingpolicies.

Continue reducing underweight to equities.Valuations are beginning to look attractive in someequity markets. In particular, international developedand emerging equities are once again offering appealingexpected returns. These higher expected returns,however, are due entirely to falling prices and certainlynot due to improving fundamentals. As a result, ourenthusiasm remains somewhat tempered by anuncertain outlook for profitability. Despite thesereservations, we believe it is prudent to start reallocatingto these sectors while reducing our overall equityunderweight.

Overweight more conservative fixed income andcash/cash “plus” in balanced portfolios. It isdifficult owning fixed income at the current lowyields, but we believe it is much less volatile thanequities. Consequently, we have overweightedcash/cash “plus” strategies in our balanced portfoliosand even owned some cash/cash “plus” strategies insome of our global accounts where permitted. We donot own cash “plus” strategies lightly, and it is the firsttime in almost 20 years of managing asset allocationportfolios that we have allocated a significant portion tocash. However, as we begin shifting back towardequities, we will reduce cash “plus” strategiescommensurately.

Where possible, invest in conservative absolutereturn strategies, which can provide equity-likereturns while improving diversification through lowcorrelations with equity markets. Try to ensure thatalternative strategies are providing true diversificationwith low correlation to traditional asset classes.


Performance Review and OutlookU.S. Equities

Review

The U.S. market fell significantly in the first twomonths of the quarter, and even a significant bear marketrally in March wasn’t enough to put the S&P 500 in positivereturn territory for the quarter. Daily news flow during theperiod chronicled continued woes in the financial sectorand their spillover into the broader economy. In January,Bank of America requested an additional $20 billion infederal aid to offset larger-than-expected losses from itstakeover of Merrill Lynch, prompting a round ofspeculation that nationalizations in the banking sector wereincreasingly likely. The inauguration of President Obamabrought considerable movement on the economic front,with the announcement of a massive economic stimulusand a budget. The market continued to flounder throughFebruary, breaking through intra-decade lows to touchlevels not seen since the late 1990s. And while the majorindexes rallied late in the quarter following statements fromseveral bank CEOs that they had been profitable (thebanks, not the CEOs) in January and February andTreasury Secretary Geithner’s announcement of a trillion-dollar plan to buy toxic assets, it wasn’t enough to keep theS&P 500 from recording its sixth straight losing quarter.

The S&P 500 declined 11.0% for the quarter in full.Market volatility remained high, with rallies and reversalscontinuing to be the norm. The S&P 500 saw eight single-day returns of greater than 3% and nine single-day declinesof more than -3%, meaning that, with 61 days in the

quarter, at least one day each week, on average, had asingle-day return of greater than +/- 3%. Among thebroad market indexes, large cap stocks delivered the bestperformance during the period, followed by mid cap, andthen small cap. Growth stocks handily outperformed valuestocks, with the latter’s heavy weighting in Financialsdragging significantly on performance. Within the S&P500, Information Technology and Materials produced thebest sector returns, with Financials and Industrials faringthe worst.

Market Outlook

Market commentators continue to rush to claim thateach bear market rally means the market has finallybottomed. But the underlying economic and financialfundamentals continue to be uncertain and market activityremains wildly volatile, making any such claims little morethan hopeful guesses. Government stimuli and somepositive news from the Financial sector provided the legsto the market’s March rally. First quarter earningsannouncement are likely to provide the next signpost forwhether the late-quarter rally signals more to come or willprove another head fake en route to a new low.

International Equities

Market Review

The global tsunami that hit equity markets may havestarted in the U.S., but its effects continue to be felt asharshly around the globe. The MSCI EAFE Index fell13.9% in the first quarter of 2009. By any normal standardthat would be a very disappointing return. But while there

International Equity MarketsFirst Quarter 2009 Performance

-10.1% -11.5%

-1.4%

-9.2%

-2.2%

1.2%

-13.9% -14.6%-16.6%

-30%

-20%

-10%

0%

10%

In Local TermsIn Dollars

EAFE EuropeS&P/IFC

Investable (Emerging)

MSCIPacific

ex-JapanJapan

U.S. Equity MarketsFirst Quarter 2009 Performance

-11.0% -10.1%

-16.8%

-4.1%

-16.3%

-6.0%

-32.7%

-40%

-30%

-20%

-10%

0%

Russell 2500S&P 500

Wilshire 5000 Growth

MSCIU.S.REIT

ValueGrowthRussell 1000Value


Largest 100

-1.0

0.0

1.0

2.0

3.0

12/08 1/09 2/09 3/09

Cheap on Price/Intrinsic Value

-3.0

-2.0

-1.0

0.0

1.0

2.0

12/08 1/09 2/09 3/09

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

Year-to-Date March 31, 2009

Size

Russell 2500

-3.0

-2.0

-1.0

0.0

1.0

2.0

12/08 1/09 2/09 3/09

High Price Momentum

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

12/08 1/09 2/09 3/09Inve

stm

ent D

isci

plin

es

Consumer Discretionary

-4.0

-2.0

0.0

2.0

4.0

12/08 1/09 2/09 3/09

Financials

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

12/08 1/09 2/09 3/09

Information Technology

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

12/08 1/09 2/09 3/09

Sect

ors

MSCI U.S. REIT Index

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

12/08 1/09 2/09 3/09

GMO Quarterly Update 11European markets also underperformed, led down by

the Financial sector. The MSCI Europe Index fell 14.6%.Insurance stocks were badly hurt by fears of assetdeterioration, and some of the larger banks that hadoutperformed their peers last year such as HSBC andSantander fell sharply. The Swiss franc weakened oncentral back intervention and underperformed the euro,which also fell against the dollar (along with the Swedishkrona), while the pound remained close to flat.

Value continued to lag as an investing style, with theMSCI EAFE Value Index returning -15.5% versus -12.4%for MSCI EAFE Growth. High quality stocks measuredon GMO’s definition incorporating high and stableprofitability and low debt outperformed. Given generallyattractive levels of valuation, safety became important, andavoiding companies expected to cut their dividends or issueadditional equity was important. Companies that are cheaprelative to cash flow or earnings, and hence seem lessdistressed, were modest outperformers.

Outlook

We are experiencing the most severe synchronizedglobal downturn in several generations. Whilegovernments have been quick to react, there are limits towhat policy can do beyond blunting some of the edge of amassive consumer deleveraging cycle in the U.S. andelsewhere. Of course, times of trouble can often beprofitable times to invest when they are reflected indepressed prices. And the valuation levels of equitiessuggest that forward return prospects are indeed muchimproved. This analysis is best tempered with a realizationthat financial results are slow to reflect the new economicreality, and that many superficially cheap stocks may faststart to look expensive as their financial positiondeteriorates. In that light, the Japanese market looksattractive, since it seems unlikely that the next 10 years willbe fundamentally worse than the last 10, whereas in theU.S. or Europe that seems quite possible, if not probable.

Emerging Market Equities

Review

Emerging markets had a relatively flat first quarter in2009, with the S&P/IFCI Composite Index up 1.2%. Thishowever, masked, a drop through early March of about20% followed by a sharp rebound during the remainder ofthe quarter. While some doubt the sustainability of the

have only been ten worse calendar quarters since 1970, twoof those ten were the third and fourth quarters of 2008.And since the market has rallied savagely off its March 12bottom, the current sentiment has picked up notably fromthe lows of the last six months, and there is some sensethat the patient’s condition has stabilized.

This turn in sentiment has been exhibited in a partialrotation of leadership. Financial stocks were poorperformers, but in contrast to 2008, defensive industriesand lower volatility stocks also underperformed for thequarter. Utilities performed as badly as financials acrossEAFE, and Telecommunications Services, Health Care,and Consumer Staples all underperformed. Resourceoriented stocks performed best, while more cyclicalindustries like autos, retail, and semiconductors also at leastoutperformed for the quarter. Smaller capitalization stocksdid relatively well, with the MSCI EAFE Small Cap Indexreturning -9.6%. Emerging market indexes ended upslightly positive for the quarter.

Norway was the only developed market to postpositive U.S. dollar returns for the first quarter. Thecountry benefited from a stabilization of oil prices, whichclimbed back above $50/barrel, and from appreciation inthe krone, which is now viewed as one of the shrinkingnumber of the world’s safer currencies. The sense thatChina’s slump might be less bad than originally fearedgenerally helped commodities and commodity relatedequities as well as Asian markets. Hong Kong was thesecond best performing EAFE market, followed byAustralia, New Zealand, and Canada. The Energy andMaterials sectors were the two best performers of the tenmajor sectors, though both suffered declines in dollarterms.

Japan’s fragile export driven economy continued tosuffer. The current account swung into deficit for the firsttime in 13 years. The GDP declined at an annualized rateof 12.1% in the fourth quarter with a similar resultexpected for the first quarter. The severity of thiseconomic collapse helped cost the yen its status as a safehaven currency that it had enjoyed through 2008. The yendeclined 8% against the dollar, making it the worstperforming developed currency. The MSCI Japan Indexfell 16.6% in dollar terms, although this underperformancerelative to EAFE was somewhat muted by a recovery insome more cyclical export driven industry sectors likeautos and semiconductors that benefit from a pullback inthe currency.


rally, there is general agreement that the bounce startedfrom an oversold position. Global investors were starvedfor good news, and the progressively more muscularinterventions in the U.S. and Europe provided the catalystfor the rebound.

Brazil posted negative GDP growth in the last quarterof 2008. A total of 655,000 jobs were lost in Decemberalone, leading to a 10% drop in 2008 job creation relativeto 2007. The weakness is concentrated so far in theexternal sector, while related domestic sectors seem to bein better shape. Monetary policy has been proactive.Brazil’s central bank lowered its benchmark interest rate bythe most in five years, to 11.25%. It also bought the loanportfolios of small and medium banks and stands ready toloan up to $20 billion of reserves to companies needingto roll over their external debt. Brazil’s stock market wasone of the best performers this quarter. We are overweightBrazil.

China’s leadership is acting aggressively to stimulatethe economy as evidence of a rapid slowdown isaccumulating. The GDP growth in the last quarter clockedin at 6.9% vs. 9.0% in the prior quarter, and at 10.4% forthe first half of 2008. While any country in the Westwould be thrilled with a 6.9% GDP growth (and probablywith any number not preceded by a negative sign), in Chinasuch a reduction in growth translates to more than 20million jobs lost. Among the recent measures announcedby the government was a $124 billion health care plan,which aims to provide health care coverage for at least 90%of the population by 2011. A better social safety netshould coax the Chinese to save a bit less and spend a bitmore. Unlike the situation in the West where capitalinjections into the banking system have not translated intoincreased lending, credit growth has picked up in China –testimony to a functioning banking sector. Ourunderweight in China was a small detractor fromperformance this quarter.

Thailand unveiled dismal figures, showing that theeconomy shrank by a seasonally adjusted 6.1% inthe fourth quarter, as economists warned that the situationwould probably worsen before it improved. The FinanceMinister said that the economy may shrink 3% in 2009, itsfirst annual contraction since 1998. The Thai central bankslashed interest rates more than expected, to 1.5%, to staveoff the effects of the global slowdown. Finally, tourismhas been badly affected by the global economy and the

domestic political instability over the prior year. Ouroverweight in Thailand detracted from performance.

Eastern and Central Europe had 6 of the 10 worst-performing currencies worldwide in the past six months,destabilizing banks as the higher cost of repaying foreigncurrency debt raised the risk of defaults. In Poland, 70%of mortgages are in currencies other than the zloty, and inHungary non-forint home loans account for about 63%,contributing to the debt crisis that forced the Hungariangovernment to get a €27 billion international bailout.Western banks – especially those in Austria, Italy, andSweden – have a high exposure to Central and EasternEurope, and their retrenching has potentially disastrousconsequences for those countries. Investors received somegood news toward the end of the quarter when theEuropean Union joined international aid efforts with apledge to double emergency loans to 11 countries outsideof the euro zone, 8 of which are in Eastern Europe. Thecommitment calmed concern after the EU vetoed aproposal from Hungary for a $180 billion bailout foreastern Europe in early March, sending stock markets inthe region to their lowest in 5½ years. Our overweight inHungary detracted from performance.

Elections for the central government were announcedin India in March. There is no clear leader in the opinionpolls among the three coalitions contesting the election.The lack of clarity on the ultimate winner and the resultingimplications for the structure and speed of future marketreforms has depressed investor sentiment. Also weighingon the market has been the increased protectionism in theU.S. and Europe as it impacts prospects for Indianoutsourcers. Our underweight in India contributed toperformance.

In addition to the above markets, other key driverswere contributions from an underweight in Mexico anddetractions from an overweight in Turkey. Stock selectiondetracted from performance in South Africa, Brazil, andChina.

Outlook

The first quarter of 2009 delivered wide differentials inperformance across emerging markets. Eastern Europeancountries such as Hungary and Poland dropped around30% this quarter while markets such as Brazil rose 12%.The financial crisis in 2008 punished markets fairly evenly,

GMO Quarterly Update 13but that clustering of performance is unlikely to persist inthe next few years, in our opinion.

The ability of countries to sustain their economiesindependent of a supportive global framework is based onfactors such as sound fiscal health, monetary policyflexibility, healthy foreign exchange reserves, and depth ofdomestic demand. Since countries score very differentlyon these dimensions, one can and should expect largedifferentials in performance.

On top of the ability for countries to respond, thereare also the issues of willingness to act and overallcompetence. In the last few months, we have seen theChinese act with great alacrity and clarity to stimulate theireconomy (which appears to be working, at least in the shortrun). On the other hand, Russia went into the crisis withhuge current account and budget surpluses, massiveforeign reserves, and very little sovereign debt. Yet, theyhave managed to squander a third of their reserves trying(and failing) to prevent their currency from depreciating.

Given these differentials, we are excited that theprospects for country picking have improved. Thecountries we are currently most overweight are Korea,Brazil, and Turkey, all of which are trading at very cheapvaluations. We are underweight both India and China giventhat they are relatively expensive compared to otheremerging markets. We are using our judgment to reducethe underweight in China, given that the stimulus appearsto be having positive effects in the short run. In the longerterm, we worry that much of the current lending in Chinawill result in higher non-performing loans for the banksand will exacerbate the structural overinvestment problemsthat China already faced going into the crisis.

As far as Eastern Europe is concerned, we havereduced our weighting (albeit from a very small base) giventhat their problems resemble those of the Asian countriesgoing into the crisis of 1997, only worse. However, thereare a couple of big differences – the G-20 summit lastweek agreed to provide the IMF with over one trilliondollars to help emerging countries, and this money willlikely prevent a complete collapse of their currencies. Onthe other hand, Asia was able to export its way out of crisis

quickly because of the tech bubble of 1999. This timearound, it’s hard to see what Eastern Europe will exportand to whom.

Fixed Income

Review

During the first quarter, developed marketsgovernment bond yields bounced off severely-depressedyear-end lows, and credit spreads and foreign exchangemarkets traded in tandem with gyrating world equitymarkets. The yield on the JPMorgan Global GovernmentBond Index rose from a December low of 2.4% to a highof 2.7% in early March, ending the quarter at 2.6%, a fairlysmall quarterly range given recent quarters. As a result, thelocal currency returns were fairly small, ranging from -1.4%in the U.S. to +1.1% in Switzerland.

Credit markets and foreign currencies rose and fellwith equity markets, given the fairly wild swings stilloccurring in the latter. For a given 5% weekly swing in theS&P, credit returns on the EMBIG (emerging sovereigns)or sub investment-grade U.S. credit (high yield) swung byaround one-quarter as much. The U.S. dollar, meanwhile,appeared to be the release valve, falling by about one-quarter as much as the S&P rose in any given week, bothas measured vs. major currencies or emerging currencies.As the equity market swings dampened toward quarter’send, these relationships began to soften.

JPMorgan GlobalGovernment Bond Index Yield

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

1/04 1/05 1/06 1/07 1/08 1/09

4.0%

2.9% 2.6%

3.7%

Source: JPMorgan


Across currency markets, only three currencies roserelative to the dollar during the quarter, the Chilean peso(+9.4%), the Norwegian krone (+3.7%), and the Brazilianreal (+1.3%), all of which benefited from renewed strengthin commodities prices. The weakest currencies were incentral Europe, namely Hungarian forint (-17.7%), andPolish zloty (-15.8%), as challenges across Europeanbanking systems threatened to cut off financing to thesefinance-dependent economies.

Net/net, the dollar’s rise hurt foreign bonds, draggingdown the returns both to the developed market andemerging market versions of JPMorgan’s GlobalGovernment Bond Index. Credit spread narrowing offsetrate increases to deliver a flat return for the Barclays U.S.

Aggregate Index. And, finally, narrowing credit spreadsand a high running yield provided a healthy +3.4% returnfor the JPMorgan EMBIG.

Price-based liquidity measures began settling at new,lower levels across markets. Volume-based liquidityindicators, such as trading volume surveys, where available,were greatly diminished. For example, off-the-run U.S.TIPS are now indicated only about 10 bps from the latestissue (“on the run”) bond, down from nearly 90 bps earlier.

In emerging debt, the price bid-ask has fallen to about1.3 points, below the crisis levels of 1998, but still nearlythree times the normal markets that prevailed before theLehman Brothers collapse. However, the trading volumesurvey released by the Emerging Markets TradersAssociation revealed that volumes continue to fall,especially among corporate and local currency bonds.

Equities Drive the Bus in Q1

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

-15% -10% -5% 0% 5% 10% 15%S&P Weekly Return

Wee

kly

Ret

urn

Major currencies vs. $U.S. EM currencies vs. $U.S.EMBIG credit High Yield credit

Total Returns Q1 2009

0.1%

3.4%

-4.7% -4.9%

Barclays U.S.Aggregate

Bond

JPMorganGlobal Gov't.

Bond

JPMorganGlobal Gov't.

Bond –Emerging

JPMorganEMBI Global

Source: Bloomberg, JPMorgan, Barclays

Source: JPMorgan, Barclays

Yield Difference from On-the-RunU.S. TIPs 10-Year (bps)

-40

-20

0

20

40

60

80

100

1/07 5/07 9/07 1/08 5/08 9/08 1/09

1st Off-the-Run

Lehman CollapseBear Stearns Sale

3rd Off-the-Run

2nd Off-the-Run

Source: JPMorgan

Price Bid/Offer on JPMorgan EMBIG

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1/07 5/07 9/07 1/08 5/08 9/08 1/09

Current


High Reached during1998 Russia/LTCM

Source: JPMorgan

GMO Quarterly Update 15In foreign exchange markets, bid-ask costs of trading

three-month forwards, the most widely used tenor, grounddown during the quarter from the severely stressed levelsfollowing Lehman’s collapse. However, they are stilldouble pre-Lehman levels in major developed currencieslike yen, Swiss francs, and euro, and several times higher forlesser currencies like Korean won, Brazilian real, orMexican peso. While indications for a currency likeRomanian leu have come in, such indications are somewhatmisleading, since on many days there are no hard currencyoffers due to increased restrictions on trading the currency.

Strategies

With the slight thaw in credit markets during thequarter, our strategies benefited from positivecontributions from the collateral vehicles: The collateralpools delivered more than 100 bps of excess return overthe benchmark from their asset-backed investments during

the quarter. Time passing, and the natural paydown at parof instruments whose mark-to-market prices weresometimes in the 70s, has benefited the portfolios. For thedeveloped market bond and emerging local bond strategies,which have the highest use of synthetic implementationsand therefore the largest exposures to these collateralvehicles, the performance impact was on the order of+100 bps. In emerging external debt, the effect wassomewhat smaller, although still significant.

We believe the credit quality and likelihood of paymentof the collateral vehicles’ investments remains high. Wethink trading volume in the market has picked upsomewhat as the TALF and PPIP programs bring interestto the asset class as an attractive risk-reward investment.However, with thousands of fairly customized, complexsecurities to evaluate, the opportunity comes withsignificant research challenges, hampering liquidityformation.

In developed markets, interest-rate strategiescontributed positively, as the portfolios benefited fromexposure to certain U.S. Treasury bonds severely dislocatedduring the liquidity crisis. Conveniently, old-school cashbond relative value opportunities abound, a symptom ofthe same liquidity dislocation affecting the ABS collateralpools, albeit on a smaller scale. For example, a position infull-faith-and-credit U.S. Treasury Principal Strips, whichhad become significantly cheap, added positive alphaacross the developed-market bond portfolios. Withliquidity normalizing somewhat, the dislocation ebbed,adding to performance. Developed-market currencyattribution was fairly flat, as we only began upping activepositions toward the latter part of the quarter.

In emerging debt, the local debt portfolio’s alpha wassubstantially positive, with contributions across currenciesand rates as well as the collateral pool exposure. Externaldebt portfolios also benefited from the collateral pool tothe extent that they hold the pools and other asset-backedsecurities, many of which still offer higher yield spreadsand higher credit ratings than emerging country debtbonds.

The strategies continued to adapt to the new liquidityenvironment. As cash paydowns come in from thecollateral pools, we continue to migrate those portfoliosthat had used a derivatives+collateral implementation tomore traditional approaches, using either derivatives+cashor direct holdings in bonds. We launched a U.S. Treasury

All-In Bid-Offer on 3M FX Forward

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

1/07 4/07 7/0710/071/08 4/08 7/0810/081/09

Euro

YenSwiss Franc


Source: Citibank

All-In Bid-Offer on 3M FX Forward

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

1/07 4/07 7/0710/071/08 4/08 7/0810/081/09

Mexico

Brazil

Romania


Korea

Source: JPMorgan


Strategy for use as a cash vehicle. We also launched a bondstrategy for use by Asset Allocation to take advantage ofdislocations in cash bonds in the context of ready liquidity.Meanwhile, as the liquidity profile improved across funds,we raised the de minimis amounts investors could redeemfor cash.

We also began raising our awareness of our investors’liquidity needs, crucial in maintaining the balance betweenhaving cash available and remaining fully invested in astrategy given still-elevated transactions costs across fixedincome markets. We therefore found it fascinating that oneof the recommendations highlighted by the Money MarketWorking Group was for money market funds to address“client risk.” If this is needed for money market funds,then it should be needed for lesser-liquidity emerging debtportfolios and even the medium-liquidity governmentbond portfolios in between.

Outlook

So long as the investments in our collateral poolsmaintain their credit quality and continue to pay, ouroutlook improves every day with the simple passage oftime. Collateral pool paydowns raise our portfolios’liquidity positions, freeing them to make cash available toinvestors or pursue some of the many dislocations in themarkets. And, we believe the massive inventory reductionforced upon the primary dealer community has mostly runits course. Equity markets plumbed lows and thenbounced, reducing the worry that sudden portfolio-rebalance shifts would result in large liquidity needs. Inshort, the liquidity pressure is not off, but it’s not ascrushing.

Now the challenges are exciting ones, like retooling ourinvestment strategies in a manner consistent with theliquidity environment. For example, in developed marketswe used to focus on picking up small adjustments incurrencies and rates by trading actively each day based onhigh-frequency market-related variables. However, thiswas premised on a low-transaction cost environment andrelatively free markets.

Now, of course, liquidity is lower, and the markets arehardly free. In currencies, New Zealand had alreadyengaged in unsterilized intervention to weaken its currency;now Switzerland, a traditional safe haven, is engaging inquantitative easing by buying foreign assets, directlyweakening the Swiss franc. Quantitative easing itself, ifimplemented in a textbook way, introduces more of oneparticular currency relative to others, and should, all elseequal, put downward pressure on that currency.

Of course these quantitative or credit easing measuresare also designed to influence long-term interest rates,rendering these markets also less free. Meanwhile,sovereign bond issuance, recently a benign influence on thedirection of interest rates, is back to being important, giventhe enormous scale being undertaken. Finally, thinkingahead to the day when such extraordinary fiscal andmonetary measures are lifted, how will the markets unfold?Designing an investment framework that captures thesenewly important influences is our challenge today.

The liquidity pressure on emerging countries appearsto have been reduced for now as well. Official creditors atthe G-20 meeting announced significant measures toprovide a financing cushion for emerging countries giventhe difficult market environment for borrowers that beganlast fall. The G-20 tripled the IMF’s capital resources to$750 billion; created a “flexible credit line” for use byotherwise healthy countries without precondition; andpledged $250 billion in trade finance and bankrecapitalization. In addition, other multilaterals (EBRD,IADB, ADB, and World Bank) committed a further $100billion of additional lending. This may reduce thelikelihood that liquidity problems in a country becomesolvency problems immediately, but doesn’t change whichcountries were more solvent to begin with.

Corporate Bonds Held byPrimary Dealers ($ Billions)

0

50

100

150

200

250

2001 2002 2003 2004 2005 2006 2007 2008

Source: Federal Reserve

GMO Quarterly Update 17Market mechanisms are themselves changing. For

example, the “Big Bang” protocol introduced a noteworthystandardization of credit derivatives markets. Changesthought unthinkable a year ago were negotiated andimplemented in six months. Foreign exchange markets arebeing influenced by the massive reciprocal swap lines beingintroduced by central banks. No doubt all these factorsshould benefit the health of a functioning market, but theyintroduce new uncertainties in designing an investmentprocess. We therefore follow these developments closely.

We are also encouraging our investors to take a freshlook at their fixed income portfolios with a critical eye. Asour paper “Bond Benchmark Baloney” presaged, fixedincome markets, once neatly segmented into fixed income“asset classes” and reported on by broker/dealers usingdaily, indicative-priced bond benchmarks, are in disarray.The compositional drift that had favored private-sector

debt with ever higher bear-market equity betas in recentyears is now reversing in a brutal manner. Supply of anddemand for such non-sovereign credit has fallen, andsovereigns are getting set to deliver the most brutal of allcrowding outs as debt issuance balloons.

Fixed income investors are left wondering why theyadopted aggregate-style benchmarks, when it merelyinvited underwriters to stuff the benchmark with creditsregardless of their value as risk-adjusted return producers.Merely underweighting credit against such a benchmarkisn’t enough when credit was so mispriced.

We welcome discussions with investors interested inseparating out risk-adjusted returns available across fixedincome and credit markets from “fixed income”investments held for a specific purpose.

Disclaimer: The views expressed herein are through the period ending March 31, 2009, and are subject to change at any time based on market and otherconditions. 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 construedas 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.


GMO ©2009

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

As of March 31, 2009

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

1Q YTD One Five Ten Since2009 2009 Year Year Year Inception

Strategy -9.37 -9.37 -29.20 -4.63 -1.45 9.92Benchmark 3 -11.01 -11.01 -38.09 -4.76 -3.00 9.05

Performance1 Top Ten Holdings2,5

Annual Total Return Net of Fees (%)

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 18.94 0.19 -7.87 -19.73 26.64 9.85 3.66 9.75 1.65 -30.16

Benchmark 21.04 -9.11 -11.88 -22.10 28.69 10.88 4.91 15.80 5.49 -37.00

Sector Weights5

Exxon Mobil Corp. 5.2%Microsoft Corp. 4.9%Pfizer Inc. 4.5%Wal-Mart Stores Inc. 4.4%Chevron Corp. 4.0%Johnson & Johnson 3.9%QUALCOMM Inc. 3.6%Oracle Corp. 3.3%Amgen Inc. 3.0%Cisco Systems Inc. 2.9% Total 39.7%

Strategy Benchmark

Alpha 1.65 0.00Beta 0.93 1.00

R2 0.96 1.00Sharpe Ratio 0.39 0.28

Strategy Benchmark

Price/Earnings - Hist 1 Yr Wtd Med 12.1 x 12.1 xPrice/Book - Hist 1 Yr Wtd Avg 2.2 x 1.7 xDividend Yield - Hist 1 Yr Wtd Avg 2.8 % 3.1 %Return on Equity - Hist 5 Yr Avg 24.1 % 21.9 %Market Cap - Weighted Median $Bil $60.2 $34.5

Characteristics5

Quarterly Strategy Attribution

Underweight/OverweightSector Against Benchmark Strategy Benchmark

Consumer Discretionary 9.0 % 8.8 %Consumer Staples 18.0 12.8Energy 14.3 13.0Financials 4.5 10.8Health Care 27.2 15.3Industrials 4.7 9.7Information Technology 19.1 18.0Materials 1.2 3.3Telecom. Services 1.3 4.0Utilities 0.6 4.3-3.7

-2.7-2.1

-6.31.3

5.20.2

11.9-5.0

1.1

-15 -10 -5 0 5 10 15

Risk Profile Since 9/30/854

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 andother 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 a well-known, independently maintained and published U.S. large capitalization stock index.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 2009.

The U.S. Core Strategy returned -9.4% for the first quarter of 2009, outpacing the -11.0% return of the S&P 500 Index.

Sector selection added to relative returns for the quarter. The strategy saw positive returns relative to the benchmark attributable toits underweight positions in Financials and Industrials and an overweight in Health Care. Underweight positions in Materials andTelecommunication Services detracted from relative returns.

Stock selection detracted from relative returns. Selections in Consumer Staples, Consumer Discretionary, and Industrials added toreturns versus the benchmark while picks in Health Care, Materials, and Energy detracted. Individual stocks adding to relative returnsin the first quarter included an overweight in Qualcomm, an underweight in Wells Fargo, and not owning GE. Stock selectionsdetracting from returns versus the benchmark included overweight positions in Pfizer and UnitedHealth Group and an underweight inApple.

GICS Sectors

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


GMO ©2009



Strategy Benchmark




1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy -0.53 10.67 3.84 -15.63 30.42 12.12 5.57 13.61 -3.73 -34.51

Benchmark -2.13 7.02 -5.59 -15.52 30.03 16.49 7.05 22.24 -0.17 -36.85

Exxon Mobil Corp. 7.2%Chevron Corp. 6.0%Pfizer Inc. 3.7%ConocoPhillips 3.5%Wal-Mart Stores Inc. 3.4%Johnson & Johnson 3.0%UnitedHealth Group Inc. 2.6%Home Depot Inc. 2.6%Microsoft Corp. 2.5%Amgen Inc. 2.4% Total 36.9%



Strategy -12.41 -12.41 -35.73 -6.36 n/a -0.69Benchmark 3 -16.77 -16.77 -42.42 -4.94 n/a -1.42

Sector Weights5

Characteristics5




-5.6-2.1

9.1-10.3

3.72.6

1.7

-2.69.8

-15 -10 -5 0 5 10 15


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 published index which measures the performance of those stocks included in the Russell 1000 Index

with lower price-to-book ratios and lower forecasted growth values.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;



Strategy Benchmark

Alpha 0.99 0.00Beta 0.94 1.00

R2 0.94 1.00Sharpe Ratio -0.22 -0.29


The Intrinsic Value Strategy returned -12.4% for the first quarter of 2009, besting the -16.8% return of the Russell 1000 Value Index.

Sector selection added to relative returns for the quarter. The strategy’s underweight in Financials and overweight positions inInformation Technology and Health Care added to relative returns. Underweight positions in Telecommunication Services, Utilities,and Materials detracted from returns versus the benchmark.

Stock selection also added to relative returns. Selections in Consumer Discretionary, Consumer Staples, and Industrials added toreturns versus the benchmark while picks in Health Care and Financials detracted. Individual names adding to relative returnsincluded underweight positions in Wells Fargo and GE and an overweight in Qualcomm. Stock selections detracting from relativereturns included underweight positions in Goldman Sachs, AT&T, and JPMorgan Chase.

GICS Sectors

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


GMO ©2009





Strategy -8.33 -8.33 -23.77 -2.85 n/a -3.05Benchmark 3 -11.01 -11.01 -38.09 -4.76 n/a -4.97


Sector Weights5

Microsoft Corp. 6.8%Pfizer Inc. 6.8%Johnson & Johnson 6.4%Wal-Mart Stores Inc. 6.3%Exxon Mobil Corp. 6.2%Oracle Corp. 5.7%Coca-Cola Co. 5.7%Chevron Corp. 5.6%Procter & Gamble Co. 4.9%PepsiCo Inc. 4.5% Total 58.9%

Strategy Benchmark

Price/Earnings - Hist 1 Yr Wtd Med 12.1 x 12.1 xPrice/Book - Hist 1 Yr Wtd Avg 2.9 x 1.7 xDividend Yield - Hist 1 Yr Wtd Avg 3.2 % 3.1 %Return on Equity - Hist 5 Yr Avg 26.7 % 21.9 %Market Cap - Weighted Median $Bil $98.0 $34.5Debt/Equity 0.8 x 1.2 x

Characteristics5




-3.3

12.2-10.8

0.113.6

-7.5

-0.1

-7.27.3

-20 -10 0 10 20


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 a well-known, independently maintained and published U.S. large capitalization stock index.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;



The U.S. Quality Strategy returned -8.3% in the first quarter of 2009, besting the -11.0% return of the S&P 500.

Sector selection added to returns versus the benchmark. Not owning Financials, an underweight in Industrials, and an overweight inInformation Technology added to relative returns. Not owning Materials and being underweight Consumer Discretionary detractedfrom relative returns.

Stock selection detracted from relative returns for the quarter. Selections in Consumer Staples and Industrials added to relativereturns while picks in Health Care, Information Technology, and Energy detracted. In terms of individual stock selections, anoverweight in Oracle Corp. and not owning Wells Fargo or GE added to relative returns. Overweight positions in Pfizer and Procter& Gamble and not owning Apple detracted from returns versus the benchmark.

GICS Sectors


2004 2005 2006 2007 2008

Strategy 3.54 -0.78 12.69 6.04 -24.08

Benchmark 7.39 4.91 15.80 5.49 -37.00

Strategy Benchmark

Alpha 0.15 0.00Beta 0.73 1.00

R2 0.88 1.00Sharpe Ratio -0.50 -0.55


GMO U.S. Quality StrategyInception: 2/29/04; Benchmark: S&P 500 Index


GMO ©2009



Strategy Benchmark

Alpha 1.65 0.00Beta 0.94 1.00

R2 0.94 1.00Sharpe Ratio 0.25 0.16

Strategy Benchmark

Price/Earnings - Hist 1 Yr Wtd Med 13.2 x 13.7 xEarnings/Share - F'cast LT Med Growth 10.8 x 12.6 xDividend Yield - Hist 1 Yr Wtd Avg 2.3 % 2.0 %Return on Equity - Hist 5 Yr Avg 24.6 % 24.3 %Market Cap - Weighted Median $Bil $57.3 $25.9



1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 39.04 -12.21 -21.51 -22.94 28.27 4.66 3.93 2.44 5.99 -30.42

Benchmark 33.16 -22.42 -20.42 -27.88 29.75 6.30 5.26 9.07 11.81 -38.44

Wal-Mart Stores Inc. 6.0%Exxon Mobil Corp. 5.0%Microsoft Corp. 4.5%QUALCOMM Inc. 3.9%Cisco Systems Inc. 3.4%Oracle Corp. 3.4%Johnson & Johnson 2.8%Amgen Inc. 2.8%Procter & Gamble Co. 2.5%Coca-Cola Co. 2.4% Total 36.7%



Strategy -6.89 -6.89 -26.81 -5.63 -3.71 8.06Benchmark 3 -4.12 -4.12 -34.28 -4.38 -5.26 7.11

Sector Weights5

Characteristics5





0.0-3.5

9.2-0.4

2.17.2

-0.1

-5.5-7.7

-10 -5 0 5 10


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 published index which measures the performance of those stocks included in the Russell 1000 Index

with higher price-to-book ratios and higher forecasted growth values.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;



The Growth Strategy returned -6.9% in the first quarter of 2009, trailing the -4.1% return of its benchmark, the Russell 1000 GrowthIndex.

Sector selection detracted modestly from relative returns. Underweight positions in Industrials and Utilities and an overweight inEnergy added to relative returns. The strategy’s underweight positions in Information Technology and Materials and an overweight inConsumer Staples detracted from returns versus the benchmark.

Stock selection detracted from relative returns for the quarter. Selections in Utilities and Consumer Discretionary added torelative returns while picks in Health Care, Energy, and Information Technology were among the detractors. Individual stocks addingto returns included overweight positions in Qualcomm and Wyeth and an underweight in Caterpillar. Selections detracting fromrelative returns included overweight positions in Exxon Mobil and Amgen and an underweight in Apple.

GICS Sectors

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


GMO ©2009



Strategy Benchmark

Alpha 0.99 0.00Beta 0.96 1.00

R2 0.95 1.00Sharpe Ratio 0.35 0.30

Strategy Benchmark




1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 3.45 18.95 9.75 -11.48 45.26 20.80 7.95 10.86 -12.37 -26.97

Benchmark 1.47 20.79 9.73 -9.87 44.93 21.58 7.74 20.18 -7.27 -31.99

Family Dollar Stores Inc. 1.5%Ross Stores Inc. 1.5%Dollar Tree Stores Inc. 1.4%Hasbro Inc. 1.3%ITT Educational Services 1.3%W.R. Berkley Corp. 1.3%Advance Auto Parts Inc. 1.3%Edwards Lifesciences Corp. 1.3%Affiliated Computer Services 1.3%Annaly Mortgage Mgmt. Inc. 1.2% Total 13.4%



Strategy -15.46 -15.46 -34.55 -6.02 4.15 8.66Benchmark 3 -16.32 -16.32 -38.66 -4.79 4.72 8.37

Sector Weights5

Characteristics5





1.2-4.2

5.8-6.8

-2.55.7

12.4

-1.4-0.7

-15 -10 -5 0 5 10 15


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 comprised of the Russell 2500 Index from 12/31/1991 to 12/31/1996 and the Russell 2500 Value Index thereafter. The Russell 2500

Value Index is an independently maintained and published index which measures the performance of those stocks included in the Russell 2500 Indes with lower price-to-book ratios and lower forecasted growth values.

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 2009.

The Small/Mid Cap Value Strategy returned -15.5% in the first quarter, outpacing its benchmark, the Russell 2500 Value Index, whichreturned -16.3%.

Sector selection added to returns relative to the benchmark. Overweight positions in Consumer Discretionary, Health Care, andInformation Technology added to relative returns. Underweight positions in Utilities and Materials and an overweight in ConsumerStaples detracted.

Stock selection detracted from relative returns for the quarter. Selections in Consumer Discretionary, Industrials, and Materials addedto relative returns while picks in Health Care, Information Technology, and Financials detracted. Individual stocks adding to relativereturns included overweight positions in AutoNation, Western Digital, and Family Dollar Stores. Individual names detracting fromrelative performance included overweight positions in King Pharmaceuticals, International Bancshares, and Gannett.

GICS Sectors

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


GMO ©2009



Strategy Benchmark

Alpha -0.22 0.00Beta 0.89 1.00

R2 0.96 1.00Sharpe Ratio -0.09 -0.08

Strategy Benchmark

Price/Earnings - Hist 1 Yr Wtd Med 15.4 x 16.8 xEarnings/Share - F'cast LT Med Growth 15.4 x 16.3 xDividend Yield - Hist 1 Yr Wtd Avg 0.9 % 0.9 %Return on Equity - Hist 5 Yr Avg 17.9 % 16.5 %Market Cap - Weighted Median $Bil $1.6 $1.6



1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 29.59 -10.56 -13.03 -17.62 44.10 13.12 9.56 6.69 1.81 -41.40

Benchmark 55.48 -16.09 -10.83 -29.09 46.32 14.59 8.17 12.26 9.69 -41.50

Dollar Tree Stores Inc. 2.8%Ross Stores Inc. 2.6%Myriad Genetics Inc. 2.6%ITT Educational Services 2.1%Edwards Lifesciences Corp. 2.1%Flir Systems Inc. 1.9%Strayer Education Inc. 1.8%J.B. Hunt Transport Services 1.7%Advance Auto Parts Inc. 1.5%Sybase Inc. 1.3% Total 20.4%



Strategy -8.94 -8.94 -38.90 -7.35 -0.91 1.01Benchmark 3 -5.97 -5.97 -38.14 -4.47 0.24 1.49

Sector Weights5

Characteristics5





-0.9-0.1

-1.80.4

-0.40.4

5.9

-1.0-1.9

-8 -4 0 4 8


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 published index which measures the performance of those stocks included in the Russell 2500 Index

with higher price-to-book ratios and higher forecasted growth values.4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolio’ sensitivity to the market; R2 is a measure of how well a portfolio tracks the market;



The Small/Mid Cap Growth Strategy returned -8.9% in the first quarter, trailing the Russell 2500 Growth Index, which fell 6.0%.

Sector selection added to returns versus the benchmark. Overweight positions in Consumer Discretionary and Energy and anunderweight in Industrials added to relative returns. Sectors detracting from returns versus the benchmark included underweightpositions in Telecommunication Services and Information Technology.

Stock selection detracted from relative returns for the quarter. Selections in Consumer Discretionary, Materials, and Financials addedto relative returns while negative attribution came from picks in Health Care, Information Technology, and Energy. Individual stocksadding to relative returns included overweight positions in Ross Stores, Big Lots, and Aeropostale. Individual names detracting fromrelative performance included overweight positions in Flir Systems, Comstock Resources, and Emergent Biosolutions.

GICS Sectors

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


GMO ©2009





1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy -4.51 29.21 9.53 1.86 34.03 30.64 11.27 35.39 -17.15 -33.17

Benchmark -4.55 26.81 12.83 3.64 36.74 31.49 12.13 35.92 -16.82 -37.97

Public Storage Inc. 10.2%Simon Property Group Inc. 6.7%Equity Residential 5.4%Vornado Realty Trust 5.0%HCP Inc. 5.0%Boston Properties Inc. 4.7%Health Care REIT Inc. 3.6%AvalonBay Communities Inc. 3.1%Kimco Realty Corp. 2.6%Regency Centers Corp. 2.3% Total 48.6%




Sector Weights5



Diversified 9.0 % 8.7 %Industrial 4.5 5.2Mortgage 0.0 0.0Office 16.0 16.1Residential 16.8 17.3Retail 22.6 23.4Specialized 31.1 29.21.9

-0.8-0.5

-0.10.0

0.3-0.7

-3 -2 -1 0 1 2 3

Strategy Benchmark

Alpha -0.11 0.00Beta 0.97 1.00

R2 0.99 1.00Sharpe Ratio 0.03 0.04

Strategy Benchmark

Dividend Yield - Hist 1 Yr Wtd Avg 9.8 % 10.0 %Market Cap - Weighted Median $Bil $2.3 $2.1Price/Earnings - Excl Neg Earnings Hist 1 Yr Wtd Avg 18.5 x 19.0 x

Price/Cash Flow - Hist 1 Yr Wtd Med 7.4 x 6.8 xReturn on Assets - 5 Yr Avg 3.9 % 3.7 %

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 a well-known, independently maintained and published index of equity securities issued by REITs.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;



The Real Estate Strategy returned -32.4% for the first quarter of 2009, besting the -32.7% return of the MSCI U.S. REIT Index.

Sector selection added to returns relative to the MSCI U.S. REIT Index. Overweight positions in the GICS Sub-Industry Specializedsector and an underweight in Industrial added to returns versus the benchmark. None of the strategy’s GICS Sub-Industry sectorweightings detracted from relative returns during the period.

Stock selection added to returns relative to the MSCI U.S. REIT Index. Selections in the GICS Sub-Industry Office, Residential, andSpecialized sectors added to relative returns while selections in Retail and Industrial detracted. In terms of individual names,underweight positions in Macerich Co. and Brandywine Realty Trust and an overweight in Public Storage added to relative returns.Overweight positions in Kimco Realty Corp. and Weingarten Realty Investors and an underweight in Digital Realty Trust detracted.

GICS Sub-Industries

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


GMO ©2009






Strategy -15.18 -15.18 -44.83 -1.45 3.41 11.79Benchmark 3 -13.94 -13.94 -46.51 -2.18 -0.84 8.09


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 28.61 -6.49 -10.11 -6.11 41.37 22.33 13.52 27.52 10.58 -41.24

Benchmark 26.96 -14.17 -21.44 -15.94 38.59 20.25 13.54 26.34 11.17 -43.38

Royal Dutch Shell PLC 2.5%BP PLC 2.5%Vodafone Group PLC 2.2%Total S.A. 1.8%NTT DoCoMo Inc. 1.8%GlaxoSmithKline PLC 1.8%Toyota Motor Corp. 1.5%Eni S.p.A 1.4%BG Group PLC 1.3%Nestle S.A. 1.3% Total 18.1%

Strategy Benchmark

Alpha 5.07 0.00Beta 0.79 1.00

R2 0.81 1.00Sharpe Ratio 0.46 0.15

Strategy Benchmark

Price/Earnings - Hist 1 Yr Wtd Med 10.4 x 9.9 xPrice/Cash Flow - Hist 1 Yr Wtd Med 5.7 x 6.2 xPrice/Book - Hist 1 Yr Wtd Avg 1.2 x 1.2 xDividend Yield - Hist 1 Yr Wtd Avg 5.0 % 4.9 %


Underweight/OverweightRegion Against Benchmark (%)

Europe ex-UKUnited KingdomJapanSoutheast AsiaAustralia/New ZealandEmergingCash 2.2

1.8-4.8

1.23.03.7

-7.1

-10 -5 0 5 10



Consumer Discretionary 10.2 % 10.1 %Consumer Staples 12.6 10.5Energy 11.6 9.2Financials 15.9 21.5Health Care 10.1 9.5Industrials 9.6 11.3Information Technology 6.3 5.4Materials 5.7 8.6Telecom. Services 10.0 6.8Utilities 8.0 7.01.0

3.2-2.9

0.9-1.7

0.6-5.6

2.42.1

0.1

-10 -5 0 5 10

Regional Weights5


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 Index (Europe, Australasia, and Far East), is a well-known, independently maintained and published large capitalization international stock index. MSCI

Standard Index Series, net of withholding tax.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;



The International Active Strategy underperformed the MSCI EAFE Index by 1.2% in the first quarter, falling 15.2% while thebenchmark lost 13.9%.

Country selection was 0.2% ahead of the benchmark. Overweight positions in the United Kingdom and Norway added to returns.On the negative side, underweight positions in Australia and Sweden hurt performance.

Stock selection lagged the benchmark by 1.4% in the first quarter. Our holdings underperformed in Japan, the United Kingdom,Belgium, and Switzerland. Stock selection outperformed in Finland and the emerging markets.

GICS Sectors

Characteristics5

Sector Weights5

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


GMO ©2009






Strategy -15.38 -15.38 -44.81 -1.22 3.70 7.02MSCI EAFE Value 3 -15.53 -15.53 -47.72 -2.49 0.59 5.48

MSCI EAFE 3 -13.94 -13.94 -46.51 -2.18 -0.84 3.37Annual Total Return Net of Fees (%)

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 14.62 -1.40 -12.10 -0.59 43.53 25.23 13.98 25.78 10.21 -40.31MSCI EAFE Value 24.15 -3.14 -18.52 -15.91 45.30 24.33 13.80 30.38 5.96 -44.09

MSCI EAFE 26.96 -14.17 -21.44 -15.94 38.59 20.25 13.54 26.34 11.17 -43.38

GlaxoSmithKline PLC 4.9%Novartis AG 3.7%Sanofi-Aventis 3.4%Total S.A. 3.0%AstraZeneca PLC 2.5%Nestle S.A. 2.5%Eni S.p.A 2.1%Royal Dutch Shell PLC 2.1%Honda Motor Co. Ltd. 1.8%Vodafone Group PLC 1.6% Total 27.6%

StrategyM SCI

EAFE ValueM SCIEAFE

Alpha 2.49 0.00 0.00Beta 0.81 1.00 1.00

R2 0.84 1.00 1.00Sharpe Ratio 0.21 0.06 -0.24

StrategyM SCI

EAFE ValueM SCIEAFE

Price/Earnings - Hist 1 Yr Wtd Med 9.7 x 8.4 x 9.9 xPrice/Cash Flow - Hist 1 Yr Wtd Med 6.4 x 4.8 x 6.2 xPrice/Book - Hist 1 Yr Wtd Avg 1.1 x 0.8 x 1.2 xReturn on Equity - Hist 1 Yr Avg 13.4 % 11.0 % 13.5 %Market Cap - Weighted Median $Bil $16.7 $17.6 $18.6Dividend Yield - Hist 1 Yr Wtd Avg 5.1 % 6.2 % 4.9 %


Underweight/OverweightRegion Against M SCI EAFE Value (%)

Europe ex-UKUnited KingdomJapanSoutheast AsiaCanadaAustralia/New ZealandCash 1.4

-4.30.8

-0.45.1

1.0-3.6

-10 -5 0 5 10

Underweight/OverweightSector Against M SCI EAFE Value Strategy Benchmark


-1.4-1.0

0.8

11.5-17.5

3.65.9

0.3

-3.5

-20 -10 0 10 20


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 is a well-known, independently maintained and published large capitalization international stock index

comprised of large/mid capitalization stocks that have a value style. Large/mid cap stocks encompass approximately 85% of each market’s free float-adjusted marketcapitalization. The style is determined using a multi-factor approach based on eight historical and forward-looking characteristics. MSCI Standard Index Series, net ofwithholding tax. The MSCI EAFE Index (Europe, Australasia, and Far East), is a well-known, independently maintained and published large capitalization internationalstock index. MSCI Standard Index Series, net of withholding tax.



The International Intrinsic Value Strategy returned -15.4% during the first quarter of 2009. This was behind the broad market MSCI EAFE Index, which returned -13.9%, but essentially in line with the MSCI EAFE Value benchmark, which returned -15.5%. (This strategy changed benchmarks at the start of the quarter from theS&P EPAC Large Mid Cap Value Index to the MSCI EAFE Value Index.)

Underperformance relative to EAFE resulted primarily from stock selection and currency allocation. Country allocation was slightly negative, while sector exposureshad a positive impact.

Stock selection was weakest within Japan and the Netherlands despite better results within Canada. Within sectors, our Consumer Staples, Materials, andTelecommunication Services holdings underperformed, while our Utilities and Consumer Discretionary stocks did well.

Currency allocation detracted from performance from our underweights to the Australian dollar and British pound and overweight to the Japanese yen. Sector exposures helped performance due mainly to the underweight to Financials and our overweight to Energy. Country allocation had a slight negative impact from our underweight in Australia and overweight in Italy. Relative to the value benchmark, however, performance was better. Country allocation, stock selection, and sector exposures all had better results versus the value

benchmark. This was due to the differences between the two indexes. GMO’s stock selection disciplines had mixed results in the quarter. Stocks ranked highly by intrinsic value outperformed, those stocks chosen by quality-adjusted value

had market-like returns, and stocks (within value) selected for their strong momentum characteristics underperformed. Individual stocks that made significant positive contributions to performance included an overweight in French oil company Total and underweight positions in British

financial HSBC Holdings and French financial AXA. Stock positions that detracted from relative performance included Japanese retailer Seven & I Holdings, Swisspharmaceutical Novartis, and Japanese consumer goods maker Kao Corp.

GICS Sectors


Regional Weights5

Characteristics5

Sector Weights5

GMO International Intrinsic Value StrategyInception: 3/31/87; Benchmarks: MSCI EAFE Value Index and MSCI EAFE Index(Please note that effective January 1, 2009, the benchmark has changed from S&P EPAC Large Mid Cap Value to MSCI EAFE Value. Change is applicable retroactively as well as going forward.)


GMO ©2009




GlaxoSmithKline PLC 4.0%Novartis AG 3.9%Sanofi-Aventis 2.8%Nestle S.A. 2.6%AstraZeneca PLC 2.4%Total S.A. 2.2%Royal Dutch Shell PLC 2.0%BG Group PLC 1.9%Vodafone Group PLC 1.7%Eni S.p.A 1.6% Total 25.1%



Strategy -14.21 -14.21 -44.98 -1.05 n/a 4.34Benchmark 3 -13.94 -13.94 -46.51 -2.18 n/a 1.96




0.6-0.2

4.10.4

-2.4

-3.9

-6 -3 0 3 6



0.1-0.9

0.1-4.0

7.7-7.1

2.90.5

2.0

-10 -5 0 5 10


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 Index (Europe, Australasia, and Far East), is a well-known, independently maintained and published large capitalization international stock index. MSCI

Standard Index Series, net of withholding tax.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;



Strategy Benchmark

Price/Earnings - Hist 1 Yr Wtd Med 10.4 x 9.9 xEarnings/Share - F'cast LT Med Growth Rate 4.5 x 4.0 xPrice/Book - Hist 1 Yr Wtd Avg 1.2 x 1.2 xReturn on Equity - Hist 1 Yr Avg 13.4 % 13.5 %Market Cap - Weighted Median $Bil $17.8 $18.6Dividend Yield - Hist 1 Yr Wtd Avg 5.1 % 4.9 %

The International Core Equity Strategy returned -14.2% during the first quarter of 2009. This was slightly behind the MSCI EAFE Index, whichreturned -13.9%.

Within the portfolio, relative underperformance resulted primarily from currency allocation but also slightly from country allocation. Sectorexposures had a positive impact, while stock selection was mixed.

Currency allocation detracted from performance from our underweights to the Australian dollar and British pound and overweight to the Japaneseyen.

Country allocation had a slight negative impact from our underweight in Australia despite the benefit of our underweight in Spain. Sector exposures helped performance, due mainly to the underweight to Financials and overweight to Energy. Stock selection was mixed as outperformance from holdings in the United Kingdom, France, and Canada outweighed underperformance from

Japanese stocks. By sector, our Consumer Staples and Industrials holdings lagged, while our Consumer Discretionary stocks did relatively well butnot enough to offset other losses.

GMO’s stock selection disciplines had mixed results in the quarter. Stocks ranked highly by intrinsic value outperformed, while those stocks chosenby quality-adjusted value or for their strong momentum characteristics had more market-like returns.

Individual stocks that made significant positive contributions to performance included overweights in British utility BG Group, Japanese auto makerHonda Motor, and an underweight position in British financial HSBC Holdings. Stock positions that detracted from relative performance includedJapanese retailer Seven & I Holdings, Swiss pharmaceutical Novartis, and Dutch financial ING Groep.

Strategy Benchmark

Alpha 2.85 0.00Beta 0.95 1.00

R2 0.97 1.00Sharpe Ratio 0.14 -0.03


2002 2003 2004 2005 2006 2007 2008

Strategy -2.43 37.67 23.28 15.58 25.56 12.13 -41.34

Benchmark -11.22 38.59 20.25 13.54 26.34 11.17 -43.38

GICS Sectors


Regional Weights5

Characteristics5

Sector Weights5

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


GMO ©2009





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 is a well-known, independently maintained and published large capitalization international stock index

comprised of large/mid capitalization stocks that have a growth style. Large/mid cap stocks encompass approximately 85% of each market’s free float-adjusted marketcapitalization. The style is determined using a multi-factor approach based on eight historical and forward-looking characteristics. MSCI Standard Index Series, net ofwithholding tax. The MSCI EAFE Index (Europe, Australasia, and Far East), is a well-known, independently maintained and published large capitalization internationalstock index. MSCI Standard Index Series, net of withholding tax.



The International Growth Strategy returned -11.4% during the first quarter of 2009. This was ahead of the MSCI EAFE Growth benchmark,which returned -12.4%, and the broad market MSCI EAFE Index, which returned -13.9%. (This strategy changed benchmarks at the start of thequarter from the S&P EPAC Large Mid Cap Growth Index to the MSCI EAFE Growth Index.)

Within the portfolio, outperformance relative to the growth index resulted primarily from stock selection, but also from country allocation, andsector exposures. Currency allocation had a negative impact.

Stock selection was helped by good relative performance from our holdings in France, Switzerland, Germany, and Japan. By sector, our Energy andInformation Technology holdings did well, while our Health Care and Consumer Staples stocks did not.

Country allocation had a positive impact due to our overweight in Canada and underweight in Italy. Sector exposures helped performance mainly from the underweights to Financials and Utilities despite our overweight to Health Care. Currency allocation detracted from performance from our underweights to the Australian dollar and British pound and overweight to the Japanese

yen. GMO’s stock selection disciplines had mixed results in the quarter. Stocks selected for their strong momentum characteristics or ranked highly by

intrinsic value had market-like returns. Stocks chosen for their high quality underperformed. Individual stocks that made significant positive contributions to performance included overweights in British utility BG Group, Canadian fertilizer

maker Potash Corp. of Saskatchewan, and German software company SAP. Stock positions that detracted from relative performance includedJapanese drug maker Takeda Pharmaceutical, Swiss pharmaceutical Novartis, and Japanese retailer Seven & I Holdings.




Strategy -11.41 -11.41 -40.97 0.25 n/a 3.22MSCI EAFE Growth 3 -12.43 -12.43 -45.36 -1.99 n/a 0.65

MSCI EAFE 3 -13.94 -13.94 -46.51 -2.18 n/a 1.25Annual Total Return Net of Fees (%)

2001 2002 2003 2004 2005 2006 2007 2008

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

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

Novartis AG 5.5%GlaxoSmithKline PLC 5.2%Nestle S.A. 4.4%Roche Holding AG 3.6%BG Group PLC 3.2%SAP AG 2.4%Sanofi-Aventis 2.4%Reckitt Benckiser Group 2.3%Telefonica S.A. 2.2%AstraZeneca PLC 1.9% Total 33.1%

StrategyM SCI

EAFE GrowthM SCIEAFE

Alpha 3.13 0.00 0.00Beta 0.92 1.00 1.00

R2 0.96 1.00 1.00Sharpe Ratio 0.09 -0.11 -0.07

Underweight/OverweightRegion Against M SCI EAFE Growth (%)


-2.14.4

-1.2-2.0

2.4-2.7

-6 -3 0 3 6

Underweight/OverweightSector Against M SCI EAFE Growth Strategy Benchmark


1.0-1.2

0.5-4.8

13.8-8.1

-0.20.61.1

-20 -10 0 10 20 GICS Sectors


Regional Weights5

Characteristics5

Sector Weights5

GMO International Growth StrategyInception: 11/30/01; Benchmarks: MSCI EAFE Growth Index and MSCI EAFE Index(Please note that effective January 1, 2009, the benchmark has changed from S&P EPAC Large Mid Cap Growth to MSCI EAFE Growth. Change is applicable retroactively as well as going forward.)

StrategyM SCI

EAFE GrowthM SCIEAFE

Price/Earnings - Hist 1 Yr Wtd Med 11.7 x 11.4 x 9.9 xEarnings/Share - F'cast LT Med Growth Rate 5.4 x 5.1 x 4.0 xPrice/Book - Hist 1 Yr Wtd Avg 2.1 x 1.8 x 1.2 xReturn on Equity - Hist 1 Yr Avg 23.6 % 18.3 % 13.5 %Market Cap - Weighted Median $Bil $22.8 $19.8 $18.6Dividend Yield - Hist 1 Yr Wtd Avg 4.0 % 3.7 % 4.9 %


GMO ©2009






Strategy -10.04 -10.04 -31.78 0.95 3.35 6.10Benchmark 3 -9.61 -9.61 -35.76 -0.90 -1.32 3.82


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 21.00 9.92 -5.31 -14.26 20.96 14.77 27.32 19.31 5.88 -34.09

Benchmark 36.47 -4.38 -15.87 -27.37 19.17 12.01 29.67 19.19 5.32 -39.77

GlaxoSmithKline PLC 5.1%Novartis AG 4.6%Nestle S.A. 3.5%Sanofi-Aventis 2.9%Total S.A. 2.2%Roche Holding AG 2.2%AstraZeneca PLC 2.2%BG Group PLC 2.0%SAP AG 1.6%Reckitt Benckiser Group 1.3% Total 27.6%

Strategy Benchmark

Alpha 3.02 0.00Beta 0.81 1.00

R2 0.87 1.00Sharpe Ratio 0.23 0.01

Strategy Benchmark

Price/Earnings - Hist 1 Yr Wtd Med 10.5 x 9.9 xPrice/Book - Hist 1 Yr Wtd Avg 1.4 x 1.2 xReturn on Equity - Hist 1 Yr Wtd Avg 17.3 % 13.5 %Market Cap - Weighted Median $Bil $20.2 $18.6Dividend Yield - Hist 1 Yr Wtd Avg 4.5 % 4.9 %



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 Index (Europe, Australasia, and Far East) (Hedged) is a well-known, independently maintained and published large capitalization international stock index

that is currency-hedged into U.S. dollars. MSCI Standard Index Series.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;





-3.52.5

-0.50.4

-0.8-5.4

-10 -5 0 5 10



-0.2

0.5-4.1

12.6-12.4

1.73.0

0.8

-1.2

-20 -10 0 10 20

The Currency Hedged International Equity Strategy returned -10.0% during the first quarter of 2009. This was behind the MSCIEAFE Hedged Index, which returned -9.6%.

The U.S. dollar rose significantly on average against most currencies in the quarter. The unhedged EAFE Index returned -13.9%.

The Currency Hedged International Equity Strategy invests in the International Intrinsic Value (50%) and International Growth(50%) Strategies. Performance of the Currency Hedged International Equity Strategy was essentially in line with the MSCI EAFEHedged Index as a result of the outperformance of the International Growth Strategy offsetting the underperformance of theInternational Intrinsic Value Strategy.

GICS Sectors


Regional Weights5

Characteristics5

Sector Weights5

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


GMO ©2009



Markets continued to fall in the early part of 2009, with the bottom coming in March and preceding a strong rally in equities around the globe. Thestrategy lagged the broader markets returning -12.9% vs. -11.9% for the MSCI World benchmark.

The quality adjusted value discipline, the strategy’s repository for traditional value holdings, was the main detractor from returns. The discipline’sbank holdings underperformed during the quarter and were joined by insurers of the financial and health care variety, as a consequence of creditrating downgrades and the potential ramifications of health care reforms in the U.S., respectively.

Currency selection, so often a positive contributor in 2008, was the other main detractor from returns during the quarter (especially in January andFebruary). In particular, the overweight in the yen lost its lustre as details of the dismal fourth quarter collapse in global trade, and in particularJapanese exports. The Swiss franc also gave back a fair amount against other currencies when the Swiss National Bank intervened to stop thecurrency gaining further against the euro. We believe that the euro remains overvalued, at least for the least competitive nations at the currencyzone's fringes. Given even Germany's sensitivity to the health in global trade through its large export sector, the role of the euro as the lastremaining currency holding off from the race to the bottom is unlikely to last for ever.

High quality companies outperformed for the quarter, helping provide a nice tailwind for the strategy’s intrinsic value and momentum disciplines.The intrinsic value discipline made an explicit allocation to high quality U.S. stocks on a contrarian basis in the first quarter of 2008 and during thelatter part of 2008, the strategy picked up additional higher quality positions globally via our momentum discipline. However, toward the quarter enda market rally materialized, dampening the relative performance of high quality companies.

As the market heads upwards, it is natural to question whether this is a bear rally or the start of a new bull market. One way of thinking about this isto assess the degree to which the recent excesses have been squeezed from the system. On the (admittedly narrow) basis of the decent remainingvaluation spread between high and low quality companies in the U.S., there is still unfinished business.






1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 15.95 -0.81 -9.39 -10.70 36.36 17.95 11.08 21.19 6.16 -38.76

Benchmark 24.95 -13.18 -16.82 -19.89 33.11 14.72 9.49 20.07 9.04 -40.71

Johnson & Johnson 4.6%Wal-Mart Stores Inc. 3.1%Coca-Cola Co. 2.4%Pfizer Inc. 2.0%Total S.A. 2.0%Eni S.p.A 1.8%PepsiCo Inc. 1.7%GlaxoSmithKline PLC 1.7%Merck & Co. Inc. 1.4%Google Inc. 1.4% Total 22.1%

Strategy Benchmark

Alpha 2.56 0.00Beta 0.91 1.00

R2 0.94 1.00Sharpe Ratio 0.08 -0.09

Strategy Benchmark

Price/Earnings - Hist 1 Yr Wtd Med 10.9 x 10.8 xPrice/Cash Flow - Hist 1 Yr Wtd Med 7.5 x 6.8 xPrice/Book - Hist 1 Yr Wtd Avg 1.4 x 1.4 xReturn on Equity - Hist 1 Yr Wtd Avg 18.4 % 15.9 %Market Cap - Weighted Median $Bil $27.6 $22.0Dividend Yield - Hist 1 Yr Wtd Avg 4.2 % 3.9 %



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 is a well-known, independently maintained and published global developed markets equity index. MSCI Standard Index Series, net of withholding tax.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;




North AmericaEurope ex-UKUnited KingdomJapanPacific ex-JapanCash 1.2

-3.24.1

1.4-2.4

-1.1

-6 -3 0 3 6

Sector Against Benchmark Strategy Benchmark


-2.4-1.5-2.0

-0.5

-5.31.01.5

0.4

9.6

-10 -5 0 5 10 GICS Sectors


Regional Weights5

Characteristics5

Sector Weights5

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


GMO ©2009






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 Growth Index is a well-known, independently maintained and published global developed markets equity index comprised of large/mid capitalization

stocks that have a growth style. Large/mid cap stocks encompass approximately 85% of each market’s free float-adjusted market capitalization. The style is determinedusing a multi-factor approach based on eight historical and forward-looking characteristics. MSCI Standard Index Series, net of withholding tax. The MSCI World Indexis a well-known, independently maintained and published large capitalization international stock index. MSCI Standard Index Series, net of withholding tax.



Markets continued to fall in the early part of 2009, with the bottom coming in March and preceding a strong rally in equities aroundthe globe. The strategy lagged the broader markets returning -9.4% vs. -8.0% for the MSCI World Growth benchmark.

The “growth at the right price” discipline, the strategy’s repository for valuation sensitive holdings, was the main detractor fromreturns. The discipline’s Health Care overweight underperformed during the quarter and was joined by the few financials that areheld by the strategy. This was a consequence of the potential ramifications of health care reforms in the U.S. and credit ratingdowngrades, respectively.

Currency selection, so often a positive contributor in 2008, was the other main detractor from returns during the quarter (especiallyin January and February). In particular, the overweight in the yen lost its luster as details of the dismal fourth quarter collapse inglobal trade, and in particular Japanese exports, emerged. The Swiss franc also gave back a fair amount against other currencies whenthe Swiss National Bank intervened to stop the currency gaining further against the euro. We believe that the euro remainsovervalued, at minimum for the least competitive nations at the currency zone's fringes. Given even Germany's sensitivity to thehealth in global trade through its large export sector, the role of the euro as the last remaining currency holding off from the race tothe bottom is unlikely to last forever.

As the market heads upward, it is natural to question whether this is a bear rally or the start of a new bull market. One way ofthinking about this is to assess the degree to which the recent excesses have been squeezed from the system. On the (admittedlynarrow) basis of the decent remaining valuation spread between high and low quality companies in the U.S., there is still unfinishedbusiness.



Strategy -9.44 -9.44 -38.79 n/a n/a -1.48MSCI World Growth 3 -7.99 -7.99 -40.61 n/a n/a -2.48

MSCI World 3 -11.92 -11.92 -42.58 n/a n/a -3.24Annual Total Return Net of Fees (%)

2004 2005 2006 2007 2008

Strategy 14.02 10.63 17.83 12.44 -38.36MSCI World Growth 13.57 9.41 15.15 14.76 -41.13

MSCI World 14.56 9.49 20.07 9.04 -40.71

Johnson & Johnson 4.6%Wal-Mart Stores Inc. 4.0%PepsiCo Inc. 2.8%Int'l. Business Machines 2.4%Abbott Laboratories 2.0%McDonalds Corp. 1.7%Google Inc. 1.7%Sanofi-Aventis 1.5%Novartis AG 1.2%AstraZeneca PLC 1.2% Total 23.1%

StrategyM SCI

World GrowthM SCIWorld

Alpha 1.14 0.00 0.00Beta 0.94 1.00 1.00

R2 0.98 1.00 1.00Sharpe Ratio -0.27 -0.35 -0.40

StrategyM SCI

World GrowthM SCIWorld

Price/Earnings - Hist 1 Yr Wtd Med 11.8 x 12.1 x 10.8 xEarnings/Share - F'cast LT Med Growth Rate 10.0 x 10.0 x 7.5 xPrice/Book - Hist 1 Yr Wtd Avg 1.9 x 2.1 x 1.4 xReturn on Equity - Hist 1 Yr Avg 25.5 % 21.5 % 15.9 %Market Cap - Weighted Median $Bil $31.2 $22.1 $22.0Dividend Yield - Hist 1 Yr Wtd Avg 3.1 % 2.6 % 3.9 %

Underweight/OverweightRegion Against M SCI World Growth (%)

North AmericaEurope ex-UKUnited KingdomJapanPacific ex-JapanCash 2.0

-3.6

-2.02.2

-2.63.9

-6 -3 0 3 6

Underweight/OverweightSector Against M SCI World Growth Strategy Benchmark


0.2-2.5

-0.96.2

-1.15.8

-1.70.0

-4.4

-10 -5 0 5 10


Regional Weights5

Characteristics5

Sector Weights5

GICS Sectors

GMO Global Growth StrategyInception: 7/31/04; Benchmarks: MSCI World Growth Index and MSCI World Index(Please note that effective January 1, 2009, the benchmark has changed from S&P Developed Large Mid Cap Growth to MSCI World Growth. Change is applicable retroactively as well as going forward.)


GMO ©2009








1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 41.52 -7.74 3.66 2.61 50.75 29.30 18.91 36.24 8.00 -45.91

Benchmark 23.75 -10.31 -15.70 -7.29 53.73 28.73 22.10 29.42 7.32 -47.67

Capcom Co. Ltd. 2.8%Toyo Suisan Kaisha Ltd. 2.3%Hisamitsu Pharmaceutical 1.8%Rohto Pharmaceutical Co. 1.7%Izumi Co. Ltd. 1.6%Shimachu Co. Ltd. 1.3%Kardex AG 1.3%Snow Brand Milk Products 1.3%Bank Sarasin & Cie. AG 1.1%Chemring Group PLC 1.1% Total 16.3%

Strategy Benchmark

Alpha 5.66 0.00Beta 0.91 1.00

R2 0.92 1.00Sharpe Ratio 0.34 -0.02

Strategy Benchmark




Europe ex-UKUnited KingdomJapanSoutheast AsiaCanadaAustralia/New ZealandEmergingCash 5.6

-2.2-4.4

0.3-1.1

4.9-6.4

3.1

-10 -5 0 5 10



0.4-5.0

2.7-0.3

2.5-3.2

1.82.3

-1.7

-6 -3 0 3 6

The International Active Foreign Small Companies Strategy underperformed its S&P Developed ex-U.S. Small Cap Index benchmarkin the first quarter, falling 12.0% while the benchmark lost 10.7%. This does not reflect fair value pricing, which subtracted 1.3%from returns during the quarter.

Country selection was 0.9% ahead of the benchmark. The largest positive impacts from country selection came from an overweightposition in the United Kingdom and an underweight position in the Spanish market. On the negative side, an underweight position inCanada subtracted from returns.

Stock selection subtracted 2.2% from performance in the first quarter. Our holdings underperformed in Japan, France, Sweden,Canada, and Korea. However, stock selection in Switzerland helped returns.


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 is the small capitalization stock component of the S&P Broad Market Index (BMI). The BMI is a float-weighted index that spans

22 countries and includes the listed shares of all companies with an available market capitalization (float) of at least $100 million at the end of May each year. Companiesare deleted if their float falls below $75 million. Changes are effective before the open of the first business day of July. The Small Cap ex-U.S. is defined as those stocksfalling in the bottom 15% of the cumulative available capital in each country.



GICS Sectors


Regional Weights5

Characteristics5

Sector Weights5

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


GMO ©2009



Underweight/OverweightSector Against M SCI EAFE Small Cap Strategy Benchmark


-0.81.82.0

-2.01.9

-8.6-1.4

2.84.4

-10 -5 0 5 10




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 Small Cap + Index is comprised of the S&P Developed ex-U.S. Small Cap Index from 6/30/1989 to 5/30/2008 and the MSCI EAFE Small Cap Index

(MSCI Standard Index Series, net of withholding tax) thereafter. The MSCI EAFE Index (Europe, Australasia, and Far East), is a well-known, independently maintainedand published large capitalization international stock index. MSCI Standard Index Series, net of withholding tax.



The International Small Companies Strategy returned -14.2% during the first quarter of 2009, compared to the MSCI EAFE Small Cap Index,which returned -9.6%.

Within the portfolio, stock selection was mainly responsible for the underperfomance, but country allocation and currency allocation also hurt.Sector exposures had little impact.

Stock selection within Japan was particularly poor, but holdings in Canada and Germany also underperformed. Our Swedish and British stocksoutperformed. By sector, our Financials and Consumer Discretionary holdings were especially weak.

Country allocation had a small negative impact mainly from our overweight in Germany. Currency allocation detracted from performance due to our underweights to the Australian dollar and British pound and overweight to the Japanese

yen. Sector exposures were helped by our underweight to Financials, but hurt by our underweight to Energy. GMO’s stock selection disciplines had mixed results in the quarter. Stocks chosen by quality-adjusted value had market-like returns, while those

ranked highly by intrinsic value or selected for their strong momentum characteristics underperformed. Individual stocks that made significant positive contributions to performance included Swedish metals company Boliden, UK-based Signet Jewelers,

and Canadian metals company HudBay Minerals. Stock positions that detracted from relative performance included Japanese retailer Daiei, Germanmetals company Norddeutsche Affinerie, and Swedish real estate company Kungsleden.

GICS Sectors

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



Strategy -14.20 -14.20 -48.21 -0.91 6.40 6.90MSCI EAFE SC + 3 -9.55 -9.55 -48.46 -0.87 3.25 3.69

MSCI EAFE 3 -13.94 -13.94 -46.51 -2.18 -0.84 3.05Annual Total Return Net of Fees (%)

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 11.00 2.78 -6.70 -1.25 67.44 27.02 24.33 27.78 8.06 -43.77MSCI EAFE SC + 23.75 -10.31 -15.70 -7.29 53.73 28.73 22.10 29.42 7.32 -46.97

MSCI EAFE 26.96 -14.17 -21.44 -15.94 38.59 20.25 13.54 26.34 11.17 -43.38

Boliden AB 1.3%Autonomy Corp. PLC 1.1%CIBA HOLDING AG 1.0%Norddeutsche Affinerie AG 1.0%Point Inc. 0.9%Amlin PLC 0.9%Signet Jewelers Ltd. 0.9%DCC PLC 0.9%Aggreko PLC 0.8%Travis Perkins PLC 0.8% Total 9.6%

M SCI EAFE M SCIStrategy Small Cap + EAFE

Alpha 4.01 0.00 0.00Beta 0.96 1.00 1.00

R2 0.90 1.00 1.00Sharpe Ratio 0.23 -0.01 -0.05

M SCI EAFE M SCIStrategy Small Cap EAFE

Price/Earnings - Hist 1 Yr Wtd Med 8.4 x 9.3 x 9.9 xPrice/Cash Flow - Hist 1 Yr Wtd Med 5.3 x 6.0 x 6.2 xPrice/Book - Hist 1 Yr Wtd Avg 0.8 x 0.8 x 1.2 xReturn on Equity - Hist 1 Yr Avg 11.8 % 10.2 % 13.5 %Market Cap - Weighted Median $Bil $0.7 $0.5 $18.6Dividend Yield - Hist 1 Yr Wtd Avg 5.4 % 4.7 % 4.9 %

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


-4.8

-1.06.0

0.3-3.6

1.5

-10 -5 0 5 10


Regional Weights5

Characteristics5

Sector Weights5


GMO ©2009






Strategy -20.41 -20.41 -35.80 n/a n/a -13.62Benchmark 3 -16.37 -16.37 -34.83 n/a n/a -14.05


2006 2007 2008

Strategy 6.39 -2.39 -24.83

Benchmark 6.24 -4.23 -28.16

Strategy Benchmark

Price/Earnings - Hist 1 Yr Wtd Med 9.7 x 14.3 xEarnings/Share - F'cast LT Med Growth Rate 2.0 x -5.8 xPrice/Book - Hist 1 Yr Wtd Avg 0.8 x 1.0 xReturn on Equity - Hist 1 Yr Avg 9.2 % 6.9 %Market Cap - Weighted Median $Bil $1.9 $6.8Dividend Yield - Hist 1 Yr Wtd Avg 4.2 % 3.0 %




0.62.2

-2.8-2.8-3.2

4.35.6

2.8

-8.4

-10 -5 0 5 10

The Japan Equity Strategy returned -20.4% during the first quarter of 2009. This was behind its benchmark, the MSCI Japan IMIIndex, which returned -16.4%.

Within the portfolio, stock selection was the primary reason for the underperformance, offset slightly by sector exposures. Our stocks underperformed, particularly within Consumer Discretionary, but also in Financials, Materials, and Information

Technology. Sector exposures added some value. Our overweights in Energy and Consumer Discretionary and underweights in Financials and

Health Care helped, while an overweight in Consumer Staples and underweight in Information Technology detracted. Individual stock positions that detracted most significantly from relative performance included an underweight position in Toyota

Motor Corp. and overweight positions in Seven & I Holdings and Mizuho Financial Group. Stocks that made positive contributionsincluded underweight positions in Takeda Pharmaceutical and East Japan Railway and an overweight position Cosmo Oil.

Seven & I Holdings Co. Ltd. 3.7%Mizuho Financial Group 3.6%Tokyo Electric Power Co. 3.6%Fast Retailing Co. Ltd. 2.6%Nippon T & T Corp. 2.5%Resona Holdings Inc. 1.5%Mitsubishi Tokyo Financial 1.4%NTT DoCoMo Inc. 1.4%Cosmo Oil Co. Ltd. 1.2%Nissan Motor Co. Ltd. 1.2% Total 22.7%


2 Portfolio holdings are percent of equity. Portfolio holdings are subject to change and should not be considered a recommendation to buy individual securities.3 The MSCI Japan IMI ++ Index is comprised of the MSCI Japan(Standard Index Series) from 12/31/2005 to 6/30/2008 and the MSCI Japan (Investable Market Index Series)

thereafter.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;



Strategy Benchmark

Alpha 3.26 0.00Beta 1.13 1.00

R2 0.95 1.00Sharpe Ratio -0.87 -1.07

Risk Profile Since 12/31/054 Characteristics5

Sector Weights5

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


GMO ©2009






Strategy -11.74 -11.74 -42.91 -0.51 n/a 4.56Benchmark 3 -11.92 -11.92 -42.58 -3.50 n/a -4.45


2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 17.07 -4.87 -10.00 43.07 22.00 17.66 25.69 8.64 -40.89

Benchmark -11.19 -16.82 -19.89 33.11 14.72 9.49 20.07 9.04 -40.71

Strategy Benchmark




United StatesEurope ex-UKUnited KingdomJapanSoutheast AsiaCanadaAustralia/New ZealandEmergingCash 4.1

1.8-3.2-3.3

0.21.6

-5.3

0.1

3.9

-10 -5 0 5 10



0.8-2.0

0.7-1.3

7.3-5.0

-1.84.1

0.4

-10 -5 0 5 10

The Global Active Equity Strategy outperformed the MSCI World Index by 0.2% in the first quarter, falling 11.7% while thebenchmark lost 11.9%.

The Global Active Equity Strategy had slightly positive country selection in the quarter. The largest positive impact from countryselection came from an underweight position in the Spanish market. On the negative side, underweight positions in Australia andCanada subtracted from returns.

Sector selection was also positive. Underweight positions in the Financials and Utilities sectors helped performance this quarter. Onthe negative side, an underweight position in Materials subtracted from returns.

Stock selection helped returns. Positions in Finland, the United States, and the emerging markets outperformed. On the negativeside, holdings in the United Kingdom, the Netherlands, and Switzerland underperformed.

Wyeth 2.9%Newmont Mining Corp. 2.5%Philip Morris Int'l. Inc. 2.5%Capcom Co. Ltd. 2.4%Comcast Corp. 2.4%Anthem Inc. 2.4%QUALCOMM Inc. 2.1%Microsoft Corp. 2.1%Total S.A. 1.8%Wal-Mart Stores Inc. 1.7% Total 22.8%


2 Portfolio holdings are percent of equity. Portfolio holdings are subject to change and should not be considered a recommendation to buy individual securities.3 The MSCI World Index is a well-known, independently maintained and published global developed markets equity index. MSCI Standard Index Series, net of withholding tax.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;



Strategy Benchmark

Alpha 9.23 0.00Beta 0.91 1.00

R2 0.80 1.00Sharpe Ratio 0.15 -0.45

GICS Sectors


Regional Weights5

Characteristics5

Sector Weights5

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


GMO ©2009






Strategy -1.35 -1.35 -50.28 5.00 11.63 6.06Benchmark 3 1.24 1.24 -47.22 6.85 9.28 3.04


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 77.69 -27.79 9.81 0.78 70.21 26.54 40.15 29.51 37.22 -55.74

Benchmark 67.14 -31.76 1.76 -3.93 57.15 28.11 35.19 35.11 40.28 -53.74

Petroleo Brasileiro S/A Ord 3.9%Taiwan Semicond Manuf 2.4%Companhia Vale do Rio 2.1%Gazprom ADR (USD) 2.1%China Mobile (Hong Kong) 2.0%Samsung Electronics Co. 2.0%Korea Tobacco & Ginseng 1.5%Itau Unibanco Banco 1.4%Teva Pharmaceutical 1.4%MediaTek Inc. 1.2% Total 20.0%

Strategy Benchmark

Alpha 4.25 0.00Beta 0.99 1.00

R2 0.92 1.00Sharpe Ratio 0.14 -0.03

Strategy Benchmark

Price/Earnings - Hist 1 Yr Wtd Med 9.1 x 10.0 xPrice/Cash Flow - Hist 1 Yr Wtd Med 5.6 x 6.6 xPrice/Book - Hist 1 Yr Wtd Avg 1.2 x 1.4 xReturn on Equity - Hist 1 Yr Avg 16.1 % 17.9 %Market Cap - Weighted Median $Bil $2.8 $4.2Dividend Yield - Hist 1 Yr Wtd Avg 4.5 % 3.9 %



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/IFC Investable Composite Index is an independently maintained and published emerging market stock index.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;




East AsiaEuropeLatin/South AmericaMideast/AfricaSouth AsiaCash 2.1

-2.0-2.5

-0.21.21.5

-6 -3 0 3 6



0.6-1.9

1.9-0.2

-0.60.3

-1.9-0.4

1.0

-4 -2 0 2 4

The Emerging Markets Strategy returned -1.4% in the first quarter, trailing the S&P/IFCI Investable Composite, which returned 1.2%, by 2.6%.Country selection detracted 0.8% and stock selection detracted 1.8%.

The relatively flat first quarter in 2009 masked a drop through early March of about 20% followed by a sharp rebound during the remainder of thequarter. Global investors were starved for good news, and the progressively more muscular interventions in the U.S. and Europe provided thecatalyst for the rebound.

Brazil posted negative GDP growth in the last quarter of 2008. Brazil’s central bank lowered its benchmark interest rate by the most in five years, to11.25%. Brazil’s stock market was one of the best performers this quarter. We are overweight Brazil.

China’s leadership is acting aggressively to stimulate the economy as evidence of a rapid slowdown is accumulating. Unlike the situation in the Westwhere capital injections into the banking system have not translated into increased lending, credit growth has picked up in China – testimony to afunctioning banking sector. Our underweight in China was a small detractor from performance this quarter.

Thailand unveiled dismal figures, showing that the economy shrank by a seasonally adjusted 6.1% in the fourth quarter of 2008, as economistswarned that the situation would probably worsen before it improved. Tourism has been badly affected by the global economy and the domesticpolitical instability over the prior year. Our overweight in Thailand detracted from performance.

Eastern and Central Europe had 6 of the 10 worst-performing currencies worldwide in the past six months, destabilizing banks as the higher cost ofrepaying foreign currency debt raised the risk of defaults. Our overweight in Hungary detracted from performance.

Elections for the central government were announced in India in March. The lack of clarity on the ultimate winner and the resulting implicationsfor the structure and speed of future market reforms has depressed investor sentiment. Our underweight in India contributed to performance.

Other key drivers were contributions from an underweight in Mexico and detractions from an overweight in Turkey. Stock selection detracted fromperformance in South Africa, Brazil, and China.

GICS Sectors


Regional Weights5

Characteristics5

Sector Weights5

GMO Emerging Markets StrategyInception: 12/31/93; Benchmark: S&P/IFC Investable Composite Index


GMO ©2009






Strategy -1.70 -1.70 -50.85 3.95 11.80 6.29Benchmark 3 1.24 1.24 -47.22 6.85 9.28 4.70


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 94.69 -28.51 6.03 -0.03 68.27 24.89 37.54 28.95 37.44 -55.81

Benchmark 67.14 -31.76 1.76 -3.93 57.15 28.11 35.19 35.11 40.28 -53.74

Petroleo Brasileiro S/A Ord 3.8%Taiwan Semicond Manuf 2.3%Cia Vale Rio Doce 2.0%China Mobile (Hong Kong) 1.8%Samsung Electronics Co. 1.8%Gazprom ADR (USD) 1.6%Korea Tobacco & Ginseng 1.4%PetroChina Co. Ltd. 1.2%Turkcell Iletisim Hizmetleri 1.1%MediaTek Inc. 1.1% Total 18.1%

Strategy Benchmark

Alpha 2.89 0.00Beta 1.05 1.00

R2 0.92 1.00Sharpe Ratio 0.15 0.05

Strategy Benchmark

Price/Earnings - Hist 1 Yr Wtd Med 9.1 x 10.0 xPrice/Cash Flow - Hist 1 Yr Wtd Med 5.6 x 6.6 xPrice/Book - Hist 1 Yr Wtd Avg 1.2 x 1.4 xReturn on Equity - Hist 1 Yr Avg 16.1 % 17.9 %Market Cap - Weighted Median $Bil $2.4 $4.2Dividend Yield - Hist 1 Yr Wtd Avg 4.6 % 3.9 %

Quarterly Strategy Attribution The Emerging Countries Strategy returned -1.7% in the first quarter, trailing the S&P/IFCI Investable Composite, which returned 1.2%, by 2.9%.

Country selection detracted 0.9% and stock selection detracted 2.0%. The relatively flat first quarter in 2009 masked a drop through early March of about 20% followed by a sharp rebound during the remainder of the

quarter. Global investors were starved for good news, and the progressively more muscular interventions in the U.S. and Europe provided thecatalyst for the rebound.

Brazil posted negative GDP growth in the last quarter of 2008. Brazil’s central bank lowered its benchmark interest rate by the most in five years, to11.25%. Brazil’s stock market was one of the best performers this quarter. We are overweight Brazil.

China’s leadership is acting aggressively to stimulate the economy as evidence of a rapid slowdown is accumulating. Unlike the situation in the Westwhere capital injections into the banking system have not translated into increased lending, credit growth has picked up in China – testimony to afunctioning banking sector. Our underweight in China was a small detractor from performance this quarter.

Thailand unveiled dismal figures, showing that the economy shrank by a seasonally adjusted 6.1% in the fourth quarter of 2008, as economistswarned that the situation would probably worsen before it improved. Tourism has been badly affected by the global economy and the domesticpolitical instability over the prior year. Our overweight in Thailand detracted from performance.

Eastern and Central Europe had 6 of the 10 worst-performing currencies worldwide in the past six months, destabilizing banks as the higher cost ofrepaying foreign currency debt raised the risk of defaults. Our overweight in Hungary detracted from performance.

Elections for the central government were announced in India in March. The lack of clarity on the ultimate winner and the resulting implications forthe structure and speed of future market reforms has depressed investor sentiment. Our underweight in India contributed to performance.

Other key drivers were contributions from an underweight in Mexico and detractions from an overweight in Turkey. Stock selection detracted fromperformance in South Africa, Brazil, and China.


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/IFC Investable Composite Index is an independently maintained and published emerging market stock index.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;




East AsiaEuropeLatin/South AmericaMideast/AfricaSouth AsiaCash 2.1

-1.5-2.6

0.8-0.3

1.6

-6 -3 0 3 6



1.3-1.7

2.4-0.3

-1.60.0

-2.80.20.6

-4 -2 0 2 4 GICS Sectors


Regional Weights5

Characteristics5

Sector Weights5

GMO Emerging Countries StrategyInception: 9/30/97; Benchmark: S&P/IFC Investable Composite Index


GMO ©2009



Strategy Benchmark

Alpha 1.16 0.00Beta 0.85 1.00

R2 0.90 1.00Sharpe Ratio -0.20 -0.29

Strategy Benchmark


The Tax-Managed U.S. Equities Strategy declined 9.2% in the first quarter of 2009, while the Russell 3000 Index declined 10.8%, andthe S&P 500 declined 11.0%. Within U.S. equity markets, January and February saw a continuation of the prior quarter’s decline.However, March witnessed a sharp reversal of sentiment, with markets adding approximately 9%, led by Financial Services andMaterials stocks. For the quarter, Information Technology and Materials were the top performing sectors.

Within the portfolio, exposure to high quality stocks provided most of January and February’s strong relative return, but workedagainst the portfolio in March’s return to risk. The momentum-based stock selection strategy added value for the quarter, benefitingfrom positive selection within Health Care stocks in the second half of the quarter.

Looking at some of the portfolio’s largest active positions, overweight exposure to Wal-Mart, Qualcomm, and Oracle added value.Overweight exposure to Pfizer and UnitedHealth Group detracted from relative returns.


Pfizer Inc. 6.5%Wal-Mart Stores Inc. 6.0%Exxon Mobil Corp. 5.7%Johnson & Johnson 5.3%Microsoft Corp. 5.2%Oracle Corp. 4.8%Chevron Corp. 4.3%QUALCOMM Inc. 3.8%Amgen Inc. 3.3%Coca-Cola Co. 3.2% Total 48.1%



Before-TaxStrategy 3 -9.18 -9.18 -29.65 -4.44 -1.20 -0.09Benchmark 4 -10.80 -10.80 -38.20 -4.86 -3.05 -1.51

After-TaxStrategy -9.37 -9.37 -30.00 -4.74 -1.56 -0.46Benchmark -10.91 -10.91 -38.44 -5.12 -3.37 -1.85

Sector Weights6

Characteristics6





-1.5-3.2

15.2-10.0

0.910.8

-4.3

-6.92.9

-20 -10 0 10 20


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 taxsituation 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’s benchmark is the Russell 3000 + Index (after tax), computed by the Manager by adjusting the return of the Russell 3000 + Index. The Manager estimatesthe Russell 3000 + Index’s after-tax return by applying the maximum historical applicable individual federal tax rate to the Russell 3000 + Index’s dividend yield. The Russell3000 + Index is comprised of the S&P 500 Index from 7/23/98 to 10/15/07, and the Russell 3000 Index thereafter.




1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 16.96 3.21 -9.77 -19.69 25.18 9.17 4.54 10.04 2.61 -30.78

Benchmark 21.04 -9.11 -11.88 -22.10 28.69 10.88 4.91 15.80 5.21 -37.31

GICS Sectors

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


GMO ©2009




GlaxoSmithKline PLC 4.7%Novartis AG 4.2%Sanofi-Aventis 3.6%AstraZeneca PLC 3.0%Nestle S.A. 2.8%Total S.A. 2.5%Eni S.p.A 1.8%Royal Dutch Shell PLC 1.7%Seven & I Holdings Co. Ltd. 1.6%Honda Motor Co. Ltd. 1.6% Total 27.5%

Strategy Benchmark

Alpha 4.68 0.00Beta 0.89 1.00

R2 0.90 1.00Sharpe Ratio 0.16 -0.14

Strategy Benchmark

Price/Earnings - Hist 1 Yr Wtd Med 10.4 x 9.9 xPrice/Cash Flow - Hist 1 Yr Wtd Med 6.6 x 6.2 xPrice/Book - Hist 1 Yr Wtd Avg 1.2 x 1.2 xDividend Yield - Hist 1 Yr Wtd Avg 5.0 % 4.9 %Return on Equity - Hist 1 Yr Avg 13.8 % 13.5 %Market Cap - Weighted Median $Bil $17.8 $18.6



2.7-0.1

3.6-0.3

-4.4

-4.4

-6 -3 0 3 6



0.6-2.5-0.9

-5.010.9

-8.52.7

0.82.8

-20 -10 0 10 20



Before-TaxStrategy 3 -13.60 -13.60 -43.70 -0.05 4.01 5.05Benchmark 4 -13.94 -13.94 -46.51 -2.18 -0.84 0.82

After-TaxStrategy -13.60 -13.60 -44.13 -0.82 3.32 4.38Benchmark -13.61 -13.61 -46.47 -3.06 -1.55 0.16


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 15.25 -4.29 -8.71 -2.33 41.05 24.36 16.55 25.90 13.75 -40.71Benchmark 26.96 -14.17 -21.44 -15.94 38.59 20.25 13.54 26.34 11.17 -43.38


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 taxsituation 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 Managerestimates 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 andto 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 Index(Europe, Australasia, and Far East), is a well-known, independently maintained and published large capitalization international stock index. MSCI Standard Index Series,net of withholding tax.



The Tax-Managed International Equities Strategy declined 13.6% in the first quarter of 2009, while the MSCI EAFE Index declined 13.9%. In localcurrency terms, the MSCI EAFE Index decline was somewhat slighter, falling 10.1%, as the dollar strengthened against the yen and euro. Similar toU.S. markets, international developed markets experienced a continuation of last quarter’s descent through February, but in March turned sharply assentiment improved, led by Financial Services and Materials stocks. For the quarter, Energy, Materials, and Consumer Discretionary were thestrongest performing sectors. Country returns primarily reflected sector mix.

Within the portfolio, overweights in Energy and Consumer Discretionary sectors, along with underweights in Financial Services, all contributedpositively to returns for the quarter. Selection within sectors offset most of these gains, and the portfolio finished the quarter on par with the index.Country selection was not a significant factor for the period. The quality-adjusted value strategy performed on par with the market, while theintrinsic value and momentum strategies finished slightly ahead.

Looking at some of the portfolio’s largest active positions, overweight exposure to Honda Motor Co and AstraZeneca added value. Overweightexposure to Seven & I Holdings and Novartis, which had added value last quarter, detracted from relative returns.

Quarterly Strategy AttributionGICS Sectors


Regional Weights6

Characteristics6

Sector Weights6

GMO Tax-Managed International Equities StrategyInception: 8/31/98; Benchmark: MSCI EAFE Index (after tax)


GMO ©2009



Performance1



Strategy 1.25 1.25 -7.67 1.02 4.44 5.48Benchmark 2 -0.99 -0.99 6.95 5.24 6.21 6.79


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy -1.79 14.26 7.44 11.85 3.83 4.41 2.95 3.77 5.03 -8.52

Benchmark -2.23 13.24 7.23 11.50 2.36 3.48 2.65 3.48 8.66 12.39

Strategy Benchmark

Alpha -0.70 0.00Beta 0.87 1.00

R2 0.70 1.00Sharpe Ratio 0.41 0.67

Strategy Benchmark

Modified Duration 5.0 4.9Yield to Maturity 11.1 % 4.0 %Average Maturity 6.4 Yrs. 6.3 Yrs.Average Coupon 4.0 % 4.0 %Average Quality AA AAA


CorporateDebt0.1%

Treasuries/Agencies

1.0%

Treasuries16.2%

Other6.1%

Cash1.0%CMBS

5.0%

Asset-Backed Securities

70.6%


2 The Barclays Capital U.S. Government Index is a well-known, independently maintained and published U.S. government bond index, regularly used as a comparative fixedincome benchmark.



5 Please note portfolio yield includes the yield on the portfolio’s cash assets, for example, via the Short Duration Collateral Fund.

The Domestic Bond Strategy returned +1.3%, outperforming the Barclays Capital U.S. Government Index return of -1.0% by 2.2%. U.S. interest rates rose, and the U.S. Treasury yield curve steepened during the quarter. The 10-year U.S. Treasury yield rose from a

low of near 2% in December to a high of just over 3% at the end of February. Recall that in December, the Federal Reserve loweredthe target federal funds rate to a historic low of 0-0.25% and suggested that its next move would be to buy Treasuries and AgencyMBS to influence longer-dated interest rates. Indeed, with the sharp move up in rates, the Federal Reserve embarked on this “credit”easing in mid March, and 10-year rates promptly reversed course and fell by nearly 50 bps. However, the improved tone in equitymarkets by the latter parts of March combined with the massive fiscal stimulus package weighed on the Treasury market, and the 10-year yield ended the quarter at 2.7%.

Global financial markets saw signs of improvement, and credit spreads mostly tightened as investors’ appetite for risk returned,increasing trading volume. Agency bond (about 30% of the benchmark’s market capitalization) spreads fell from 93 bps to 78 bps byquarter-end, as the Federal Reserve purchased large quantities of agency debt with the intent of reducing mortgage costs.

Exposure to cash collateral in the GMO Short Duration Collateral Fund (SDCF) contributed to positive relative performance in thefirst quarter.


Portfolio Sector Weights4

Characteristics4, 5

Benchmark Sector Weights4

GMO Domestic Bond StrategyInception: 8/31/94; Benchmark: Barclays Capital U.S. Government Index

U.S. Agencies28%

U.S. Treasuries72%


GMO ©2009



Performance1



Strategy 1.34 1.34 -16.98 -1.55 3.53 4.09Benchmark 2 0.12 0.12 3.13 4.13 5.70 6.19


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy -2.34 14.10 8.51 6.55 10.96 6.59 3.95 5.76 -1.01 -18.00

Benchmark -0.82 11.63 8.44 10.26 4.10 4.34 2.43 4.33 6.97 5.24

Strategy Benchmark

Alpha -1.84 0.00Beta 1.02 1.00

R2 0.45 1.00Sharpe Ratio 0.16 0.72

Modified Duration 3.7Average Coupon 5.4 %Average Maturity 5.7 Yrs.Average Yield 12.7 %Emerging Cntry Debt Exp. 3 %


Underweight/OverweightAgainst Benchmark (%)

Europe

North America

Asia Pacific

Emerging

-0.3

-3.2

3.6

3.5

-6 -3 0 3 6


2 The Barclays Capital U.S. Aggregate Index is a well-known, independently maintained and published index comprised of U.S. fixed rate debt issues, having a maturity of atleast one year, rated investment grade or higher by Moody’s Investors Service, Standard & Poor’s Corporation or Fitch Investors Service.



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

The Core Plus Bond Strategy returned +1.3% in the first quarter, outperforming the return of its benchmark, the Barclays CapitalU.S. Aggregate Index, by 1.2%. The Barclays Capital U.S. Aggregate Index posted a small positive return during the quarter: U.S.Treasury 10-year yields rose by 43 bps to 2.7%, and U.S. Treasury 2-year yields rose by 9 bps to 0.8%, almost completely offsettinggains on tightening sector spreads.

Credit spreads tightened during the first quarter, as liquidity conditions began to thaw. The overall option-adjusted spread of theBarclays Capital U.S. Aggregate Index tightened by 29 bps, with most sector spreads tightening 11 bps to 249 bps. ABS spreadstightened the most during the quarter, as both the buy side and the investment dealers participated as liquidity came into the asset-backed market. Only CMBS and double-A credit spreads widened during the quarter, by 39 bps and 18 bps, respectively.

Exposures to cash collateral in the GMO Short Duration Collateral Fund and the GMO World Opportunity Overlay Fund were thelargest positive contributors, followed by positive contributions from interest-rate positioning, and exposure to emerging country debtvia the GMO Emerging Country Debt Fund.


Regional Weights4, 6

Characteristics4, 5

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


North America 0.0

-10 -5 0 5 10

Currency Weights4


GMO ©2009



Performance1



Strategy 5.72 5.72 -22.94 n/a n/a -5.60Benchmark 2 5.51 5.51 -2.04 n/a n/a 5.99

Quarterly Strategy Attribution The Inflation Indexed Plus Bond Strategy returned +5.7% in the first quarter, outperforming the Barclays Capital U.S. Treasury

Inflation Notes Index by 0.2%. The real yield curve steepened substantially during the first quarter: real 2-year yields fell by 452 bpsto 1.3%, while real 10-year yields fell by 61 bps to 1.4%, resulting in a +5.5% return for the index. Signaling that the market’sinflation expectation is rising, the spread between real 10-year yields and nominal 10-year yields widened by 104 bps to 1.2% duringthe quarter.

Exposures to cash collateral in the GMO Short Duration Collateral Fund (SDCF) and the GMO World Opportunity Overlay Fund(WOOF) were the largest positive contributors, followed by positive contributions from interest-rate positioning, and exposure toemerging country debt via the GMO Emerging Country Debt Fund.


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





Europe

North America

Asia Pacific

Emerging

-0.4

4.2

0.4

3.4

-6 -3 0 3 6


North America 0.0

-10 -5 0 5 10

Strategy Benchmark

Alpha -11.23 0.00Beta 0.98 1.00

R2 0.59 1.00Sharpe Ratio -0.77 0.30

Modified Real Rate Duration 5.9Average Coupon 2.6 %Average Maturity 9.2 Yrs.Average Yield 12.0 %Emerging Cntry Debt Exp. 3 %


2006 2007 2008

Strategy 3.58 3.06 -24.75

Benchmark 2.51 11.64 -2.35



Characteristics4, 5

Currency Weights4

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


GMO ©2009



Performance1



Strategy 2.95 2.95 -17.71 n/a n/a -6.24Benchmark 2 0.58 0.58 3.35 n/a n/a 4.94

Quarterly Strategy Attribution The Strategic Fixed Income Strategy returned +3.0% during the first quarter, outperforming the JPMorgan U.S. 3 Month Cash Index

return by 2.4%.

U.S. interest rates rose, and the U.S. Treasury yield curve steepened during the quarter. The 10-year U.S. Treasury yield rose from alow of near 2% in December to a high of just over 3% at the end of February. Recall that in December, the Federal Reserve loweredthe target federal funds rate to a historic low of 0-0.25% and suggested that its next move would be to buy Treasuries and AgencyMBS to influence longer-dated interest rates. Indeed, with the sharp move up in rates, the Federal Reserve embarked on this “credit”easing in mid March, and 10-year rates promptly reversed course and fell by nearly 50 bps. However, the improved tone in equitymarkets by the latter parts of March combined with the massive fiscal stimulus package weighed on the Treasury market, and the 10-year yield ended the quarter at 2.7%.

Exposures to cash collateral in the GMO Short Duration Collateral Fund (SDCF) and the GMO World Opportunity Overlay Fund(WOOF) were the largest positive contributors, followed by positive contributions from interest-rate positioning, and exposure toemerging country debt via the GMO Emerging Country Debt Fund.


2 The JPMorgan U.S. 3 Month Cash + Index is comprised of the Barclays Capital U.S. Treasury 1-3 Year Index from 5/31/2006 to 9/29/2006 and the JPMorgan U.S. 3Month Cash Index thereafter. The JPMorgan U.S. 3 Month Cash Index is an independently maintained and published index that measures the total return performanceof a constant-maturity euro-currency deposit, the only short-term securities consistent across all markets in terms of liquidity, maturity, and credit quality. The JPMorganU.S. 3 Month Cash Index is calculated daily for three-month deposits in the United States.



5 Please note portfolio yield includes the yield on the portfolio’s cash assets, for example, via the Short Duration Collateral Fund.

Strategy Benchmark

Alpha 0.46 0.00Beta -6.13 1.00

R2 0.19 1.00Sharpe Ratio -1.24 2.67



2006 2007 2008

Strategy 4.79 -0.77 -22.18

Benchmark 3.56 5.70 4.12

Risk Profile Since 5/31/063 Characteristics4, 5

GMO Strategic Fixed Income StrategyInception: 5/31/06; Benchmark: JPMorgan U.S. 3 Month Cash + Index


GMO ©2009



Performance1



Strategy -4.47 -4.47 -24.92 -0.98 3.62 5.75Benchmark 2 -5.78 -5.78 -5.44 4.55 5.49 6.11


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy -5.48 -0.27 -2.55 17.15 26.95 14.88 -8.08 9.33 3.66 -13.95

Benchmark -6.17 -2.47 -3.60 22.10 18.63 12.04 -9.24 6.84 11.30 11.39

Strategy Benchmark

Alpha 0.19 0.00Beta 0.92 1.00

R2 0.74 1.00Sharpe Ratio 0.25 0.27




Europe

North America

Asia Pacific

Emerging

-0.4

3.6

-3.0

3.4

-6 -3 0 3 6


Europe

North America

Asia Pacific

Euro -2.3

15.7

-1.6

-11.8

-20 -10 0 10 20


2 The JPMorgan Non-U.S. Government Bond Index is an independently maintained and published index composed of non-U.S. government bonds with maturities of oneyear or more.






Characteristics4, 5

Currency Weights4

GMO International Bond StrategyInception: 12/31/93; Benchmark: JPMorgan Non-U.S. Government Bond Index

The International Bond Strategy returned -4.5% in the first quarter, outperforming the JPMorgan Non-U.S. Government Bond Indexby 1.3%. The U.S. dollar’s rise versus many developed countries, particularly the yen, accounted for all of the -5.8% quarterly returnfor the benchmark.

The tone in financial markets improved toward the end of first quarter of 2009, reducing the flight-to-quality demand forgovernment bonds. With economic activity indicators flashing deeply red, global central banks continued to ease policy interest ratesand announce or embark on unconventional measures to counteract the resultant deflationary impulses. As a result, short-datedyields fell. Longer-dated yields, however, see-sawed between the forces of higher yields given record announced fiscal stimuluspackages and the resultant rise in borrowing and “quantitative” or “credit” easing policies wherein central banks purchase longer-dated assets to contain the rise in yields.

Global yield curves steepened across the board during the first quarter of 2009. Australian (88 bps), Swedish (77 bps), and Euro-zone (58 bps) yield curves steepened the most, while Swiss (23 bps), Canadian (22 bps), and Japanese (4 bps) curves steepened theleast.

The U.S. dollar gained against most foreign currencies during the quarter, with the bulk of the gains coming during the period whenequities and other risk assets were declining sharply in January and February. However, when the U.S. Federal Reserve announced itsintent to begin a program of “quantitative easing,” the dollar turned around and gave back some of the gains, and equities reboundedsharply. By quarter-end, the dollar had gained 9.0% versus yen, 6.8% versus Swiss franc, and 4.5% versus Swedish krona. The onlycurrency to rise versus the dollar during the quarter was Norwegian krone, which rose 3.7%.

Exposures to cash collateral in the GMO Short Duration Collateral Fund (SDCF) and the GMO World Opportunity Overlay Fund(WOOF) were the largest positive contributors, followed by positive contributions from developed currency selection, developedinterest-rate strategies, and exposure to emerging country debt via the GMO Emerging Country Debt Fund.


GMO ©2009



Performance1



Strategy 2.89 2.89 -11.87 -0.41 3.36 7.13Benchmark 2 0.54 0.54 7.47 5.09 5.30 7.56


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 2.65 12.52 6.35 3.01 8.77 8.91 7.25 2.45 -4.00 -13.56

Benchmark 2.43 9.46 6.03 7.01 1.99 6.73 6.54 1.79 3.42 9.22

Strategy Benchmark

Alpha 0.28 0.00Beta 0.93 1.00

R2 0.29 1.00Sharpe Ratio 0.69 1.18



Europe

North America

Asia Pacific

Emerging

-0.3

-2.6

3.3

2.8

-6 -3 0 3 6


North America 0.0

-10 -5 0 5 10


2 The JPMorgan Non-U.S. Government Bond Index (hedged) (ex-Japan) + is comprised of the JPMorgan Non-U.S. Government Bond Index (hedged) prior to 12/31/2003,and the JPMorgan Non-U.S. Government Bond Index (hedged) (ex-Japan) thereafter. The JPMorgan Non-U.S. Government Bond Index (hedged) (ex-Japan) is anindependently maintained and published index composed of non-U.S. government bonds with maturities of one year or more that are currency-hedged into U.S. dollars.






Characteristics4, 5

Currency Weights4

GMO Currency Hedged International Bond StrategyInception: 9/30/94; Benchmark: JPMorgan Non-U.S. Government Bond Index (hedged) (ex-Japan) +

Quarterly Strategy Attribution The Currency Hedged International Bond Strategy returned +2.9% in the first quarter, outperforming the JPMorgan Non-U.S.

Government Bond ex-Japan Hedged Index return of 0.5% by 2.4%. The tone in financial markets improved toward the end of first quarter of 2009, reducing the flight-to-quality demand for

government bonds. With economic activity indicators flashing deeply red, global central banks continued to ease policy interest ratesand announce or embark on unconventional measures to counteract the resultant deflationary impulses. As a result, short-datedyields fell. Longer-dated yields, however, see-sawed between the forces of higher yields given record announced fiscal stimuluspackages and the resultant rise in borrowing and “quantitative” or “credit” easing policies wherein central banks purchase longer-dated assets to contain the rise in yields.



Exposures to cash collateral in the GMO Short Duration Collateral Fund (SDCF) and the GMO World Opportunity Overlay Fund(WOOF) were the largest positive contributors, followed by positive contributions from developed interest-rate strategies, andexposure to emerging country debt via the GMO Emerging Country Debt Fund.


GMO ©2009



Performance1



Strategy -2.54 -2.54 -22.67 -1.33 3.33 4.28Benchmark 2 -4.75 -4.75 -2.62 4.80 5.86 5.65


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy -5.56 4.44 -0.62 13.74 21.99 12.12 -5.84 7.94 2.58 -14.93

Benchmark -5.08 2.34 -0.80 19.38 14.51 10.10 -6.53 5.94 10.81 12.00

Strategy Benchmark

Alpha -0.76 0.00Beta 0.90 1.00

R2 0.64 1.00Sharpe Ratio 0.13 0.29



Europe

North America

Asia Pacific

Emerging

-0.2

3.7

-2.9

3.3

-6 -3 0 3 6


Europe

North America

Asia Pacific

Euro -2.2

14.0

-1.3

-10.5

-20 -10 0 10 20

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 otherincome. 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 JPMorgan Global Government Bond Index is an independently maintained and published index composed of government bonds of developed countries, includingthe U.S., with maturities of one year or more.






Characteristics4, 5

Currency Weights4

GMO Global Bond StrategyInception: 12/31/95; Benchmark: JPMorgan Global Government Bond Index

Quarterly Strategy Attribution The Global Bond Strategy returned -2.5% during the first quarter, outperforming the JPMorgan Global Government Bond Index

return by 2.2%. The U.S. dollar’s rise versus many developed countries, particularly the yen, accounted for most of the -4.7%quarterly return for the benchmark.




Exposures to cash collateral in the GMO Short Duration Collateral Fund (SDCF) and the GMO World Opportunity Overlay Fund(WOOF) were the largest positive contributors, followed by positive contributions from developed currency selection, developedinterest-rate strategies, and exposure to emerging country debt via the GMO Emerging Country Debt Fund.


GMO ©2009



Performance1



Strategy 3.02 3.02 -28.43 2.20 13.00 14.38Benchmark 2 3.38 3.38 -8.49 5.18 10.15 10.98


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 32.38 24.08 14.23 19.44 36.40 18.76 15.65 14.41 7.49 -33.46

Benchmark 25.97 14.41 1.36 13.11 25.66 11.73 10.73 9.88 6.28 -10.91

Yield to Maturity 10.8 %Sovereign Spread 792 Bps.Portfolio Maturity 6.3 Yrs.Modified Duration 4.8Average Credit Rating BB+


Underweight/Overweight

Against Benchmark (%)

Asia

CEEMEA*

Latin America

United States-7.3

-3.8

-1.9

12.8

-20 -10 0 10 20

Characteristics4

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 otherincome. 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 JPMorgan Emerging Markets Bond Index Global + represents the JPMorgan EMBI prior to 8/95, JPMorgan EMBI+ through 12/31/99, and the JPMorgan EMBIGlobal thereafter. The JPMorgan EMBI Global is an independently maintained and published index composed of debt securities of countries, which includes Brady bonds,sovereign debt, local debt and Eurodollar debt, all of which are U.S. dollar denominated.


4 The above information is based on a representative account that was selected due to its current availability. The performance information above is supplemental to theGIPS compliant presentation that was made available on GMO’s website in April of 2009.

Strategy Benchmark

Alpha 2.66 0.00Beta 1.20 1.00

R2 0.90 1.00Sharpe Ratio 0.61 0.49

Risk Profile Since 4/30/943 Regional Weights4

GMO Emerging Country Debt StrategyInception: 4/30/94; Benchmark: JPMorgan Emerging Markets Bond Index Global +

The Emerging Country Debt Strategy returned +3.0% in the first quarter, behind the JPMorgan Emerging Market Bond Index Globalreturn of +3.4% by 0.4%. The index spread tightened by 68 bps to 657 bps during the period, while the yield on the 10-year U.S.Treasury bond increased by 43 bps to 2.7%.

The biggest index gainers were Pakistan (+39.5%), Dominican Republic (+29.4%), and Ecuador (+28.7%). In a reversal of marketconditions in the fourth quarter of 2008, liquidity seeped back into the market and the least liquid bonds recorded the biggest gains,albeit still on small volume. The average bid-offer spread on all the bonds in the EMBIG fell to 1.27 points at the end of the quarterfrom 2.08 at the beginning. In terms of fundamentals, none of the top three countries showed significant improvement. Thepolitical and security situation in Pakistan went from bad to worse, the DR suffered from falling tourism revenues and remittancessent home by workers in the U.S., and Ecuador defaulted on two of its Eurobonds as oil revenues plummeted. Bonds from thesethree countries remained among the least liquid at the end of the period, but bid-offer spreads tightened, especially in the case ofPakistan, where they fell from seven points (on a bid of 36) to three (on a bid of 49).

The weakest performers of the quarter were Trinidad & Tobago (-11.8%), Argentina (-9.0%), and Mexico (-3.4%). T&T was hurt bylower prices for its energy exports. The Argentine government continued to fight with the country’s largest foreign exchange earners– agricultural exporters – who withheld their harvests from the market. The Mexican economy is highly correlated with the U.S.,especially the U.S. automobile sector. Latin bonds, 49.1% of the EMBIG at the end of the quarter, underperformed the rest of theindex, +0.8% to +6.0%.

Market selection accounted for 245 bps of positive alpha, as most of the portfolio’s active positions went in our favor. Largeunderweights in Mexico, Brazil, and Turkey contributed 67, 64, and 27 bps, respectively. Overweights in the Dominican Republic andUkraine added an additional 43 bps and 25 bps, respectively. Two primary positions hurt performance: the Argentina overweight (-33bps) and the Russia underweight (-17 bps).

Security selection, including allocations outside the index, cost 311 bps. Most of those losses came from Russia, where unrestructuredforeign trade obligations and CDS on quasi-sovereign credits underperformed the bonds in the index. In Ukraine, a Swiss francsovereign bond lagged the bonds in the index, after hedging the currency exposure. Argentine defaulted bonds also did worse thanthe index. Outside index bets made a positive contribution since Ivory Coast bonds recovered some of their losses. To avoid marginmovements, the strategy did not hedge its euro-denominated bonds with currency forwards, which hurt performance when the euroweakened against the dollar. Positive returns from asset-backed securities (18% of the portfolio) added back 31 bps.

* Central Eastern Europe, Middle East, and Africa


GMO ©2009



Performance1



Strategy 1.13 1.13 -31.14 n/a n/a -29.28Benchmark 2 -4.92 -4.92 -12.62 n/a n/a -11.20



Asia

CEEMEA*

Latin America

-33.3

-20.0

-15.8

-40 -20 0 20 40


Asia

CEEMEA*

Latin America

-19.6

-12.5

-22.0

-40 -20 0 20 40

Regional Weights4, 5 Currency Weights4

GMO Emerging Country Local Debt Investment StrategyInception: 2/29/08; Benchmark: JPMorgan GBI- EM Diversified Index

The GMO Emerging Country Local Debt Investment Strategy returned +1.1% in the first quarter, outperperforming the GBI-EMDiversified (GBI-EMD) by 6.0%. The overall asset class underweight – both currencies and bonds – was the largest positivecontributor, followed by the collateral pool.

The GBI-EMD fell 4.9% in the first quarter: spot currency returns were -5.5%, and local currency bond markets returned a modest0.6%. Among currencies, Hungarian forint and Polish zloty were the hardest hit, -16% each, as tight U.S. dollar and euro liquidityacross the European financial system resulted in pressure on local currency markets. On the other end of the returns scale, Chileanpeso rose 6%, while Brazilian real was up 1.3%.

In local currency bond markets, several had stand-out quarters, with 4+% gains in Chile, Colombia, Egypt, Mexico, Peru, and Turkey.On the downside, Hungary’s bond market fell 9.4%, and South Africa’s fell 5.4%.

Portfolio positioning remained defensive and longs were concentrated in cheap exposures. However, there are few of these,particularly in light of competing markets. In currencies, positive contributions came from underweights in forint and zloty, as well asrand and Colombian peso. A later-quarter purchase of Taiwan dollar and ruble was also a positive contributor. Rates positioning wasless successful, though still a positive contribution to performance. Unlike the fourth quarter, when rates markets sold off with fx,most rates markets were able to decouple from fx weakness, as central banks continued to cut rates aggressively. The two big winswere the underweights in Hungary and South Africa, the two worst performing bond markets. The collateral pool (GMO AlphaLIBOR [Offshore] L.P.) contributed 1.1%, and instrument selection was also positive.



2008

Strategy -32.06

Benchmark -7.52

Strategy Benchmark

Alpha -19.04 0.00Beta 0.86 1.00

R2 0.54 1.00Sharpe Ratio -1.37 -0.67

Yield to Maturity 15.6 %Modified Duration 0.9


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 otherincome. Returns for the composite are based on estimated market values for the period from and including October 2008 through February 2009.

2 The JPMorgan GBI-EM Diversified Index is the first comprehensive, global local emerging markets index, and consists of regularly traded, liquid fixed-rate, domesticcurrency government bonds to which international investors can gain exposure.



5 Country weights are duration adjusted.


GMO ©2009



U.S. Quality30.5%

Alpha Only9.1%

U.S. Core1.5%

Cash & CashEquivalents

4.8%Special

Situations3.3%


0.8%


0.3%


10.8%

InflationIndexed Plus

1.1% DomesticBond8.2%

EmergingMarkets

7.4%

FlexibleEquities

2.1%


10.0%

InternationalGrowth

5.1%


4.9%

Performance1



Strategy -3.99 -3.99 -20.29 1.73 6.39 9.27Benchmark 2 -6.91 -6.91 -28.98 -1.03 1.02 7.00


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 11.44 8.23 3.88 0.84 28.47 13.55 9.06 12.30 7.94 -20.85

Benchmark 15.94 -2.85 -6.03 -9.70 21.99 10.23 5.99 13.41 9.26 -27.74

+0.4%+3.6%+2.8%

-6.8%-10%-5%0%5%

10%

U.S. Equities Int'l. Equities EmergingEquities

Fixed Income


Strategy Weights Relative to Benchmark3

Fixed Income35.0%

U.S. Equities29.1%

EmergingEquities7.0%

InternationalEquities28.9%

Strategy Composition3

The Global Balanced Asset Allocation Strategy finished the quarter down 4.0%, outperforming its benchmark by 2.9%. Asset allocation added 2.9%while implementation was flat.

Within our asset allocation decisions, our underweight to equities and overweight to fixed income were positive for the quarter. In addition, ouroverweight to U.S. equities versus international developed market equities further helped performance. Within equities, our allocation to emergingequities was positive for the portfolio as emerging outperformed our global balanced equity benchmark. Within fixed income our allocation to cash“plus” strategies was positive as long-term bond yields increased. While equity markets continued to fall during the first two months of the year, weseized the opportunity in March to increase the overall equity weight of the portfolio by adding to our U.S. Quality exposure.

Within implementation, gains in our fixed income and U.S. equity portfolios were fully offset with losses from our international equity portfolios.Our fixed income portfolios were aided by the incipient recovery in our cash collateral pools. The assortment of policies rolled out by central banksto improve lending conditions helped stabilize fixed income markets. In particular, some investors returned to the asset-backed bond market, whichwas reflected in slowly improving liquidity and pricing. We are reassured by the market’s reaction and expect ongoing improvement. In addition, weadded some inflation protected bonds to the Strategic Fixed Income Strategy, which also helped performance. Although our U.S. equity strategiescontinued to outperform their benchmarks, our international equity strategies had a difficult quarter. In particular, the Flexible Equities Strategy,which currently targets domestic Japanese companies, significantly underperformed its benchmark.

Strategy Benchmark

Alpha 3.32 0.00Beta 0.78 1.00

R2 0.85 1.00Sharpe Ratio 0.63 0.26


2 The blended Global Balanced Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist ofS&P 500, MSCI ACWI and Barclays Capital Aggregate or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting ofeach market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis.



Benchmark Composition3

(65% MSCI AC World / 35% Barclays U.S. Aggregate)


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


GMO ©2009



U.S. Core3.2%

U.S. Quality25.0%Alpha Only

3.4%

Multi-Strategy31.0%Special

Situations1.7%


2.4%


0.8%


0.3%Strategic

Fixed Income5.5% Inflation

Indexed Plus1.2%

DomesticBond3.0%

FlexibleEquities

2.1%

InternationalGrowth10.4%


10.1%

Performance1



Strategy -3.94 -3.94 -13.20 n/a n/a 4.55Benchmark 2 -7.04 -7.04 -26.86 n/a n/a -0.64


U.S. Equities30.1%


Absolute Return20.0%

Fixed Income20.0%



2 The blended Real Return Global Balanced Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarksconsist of MSCI World, Barclays Capital Aggregate, and Citigroup 3-Month T-Bill or some like proxy for each market exposure they have. For each underlying accountbenchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis.



Benchmark Composition3

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


2004 2005 2006 2007 2008

Strategy 10.11 8.09 13.26 7.63 -11.36

Benchmark 7.45 5.80 13.69 7.87 -25.17

Strategy Benchmark

Alpha 4.53 0.00Beta 0.56 1.00

R2 0.79 1.00Sharpe Ratio 0.38 -0.38-9.2%

+18.5%

-1.9%-7.2%

-20%-10%

0%

10%20%

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

Strategy Weights Relative to Benchmark3 Risk Profile Since 6/30/044

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

The Real Return Global Balanced Asset Allocation Strategy fell 3.9% for the first quarter, outperforming its benchmark by 3.1%. Asset allocationwas responsible for 2.7% of the outperformance while implementation added 0.4%.

Within our asset allocation decisions, our underweight to equities and overweights to fixed income and absolute return were positive for the quarter.In addition, our overweight to U.S. equities versus international developed market equities further helped performance. Within fixed income ourallocation to cash “plus” strategies was positive as long-term bond yields increased. While equity markets continued to fall during the first twomonths of the year, we seized the opportunity in March to increase the overall equity weight of the portfolio by adding to our U.S. Quality exposure.

Within implementation, gains in our fixed income and U.S. equity portfolios were fully offset with losses from our international equity portfolios.Our fixed income portfolios were aided by the incipient recovery in our cash collateral pools. The assortment of policies rolled out by central banksto improve lending conditions helped stabilize fixed income markets. In particular, some investors returned to the asset-backed bond market, whichwas reflected in slowly improving liquidity and pricing. We are reassured by the market’s reaction and expect ongoing improvement. In addition, weadded some inflation protected bonds to the Strategic Fixed Income Strategy, which also helped performance. Although our U.S. equity strategiescontinued to outperform their benchmarks, our international equity strategies had a difficult quarter. In particular, the Flexible Equities Strategy,which currently targets domestic Japanese companies, significantly underperformed its benchmark.


GMO ©2009



Multi-Strategy20.0%

Alpha Only16.0%

SpecialSituations

2.5%

AlternativeAssets Opportunity

0.9%


3.8% AssetAllocation Bond

0.7% EmergingCountry Debt

1.2%


15.0%

EmergingMarkets

5.4%

FlexibleEquities

2.6%

U.S. Quality28.2%

InternationalSmall Companies

3.8%

Performance1



Strategy -1.83 -1.83 -6.97 6.69 n/a 10.45Benchmark 2 1.81 1.81 4.71 7.71 n/a 7.51


2001 2002 2003 2004 2005 2006 2007 2008

Strategy 0.16 8.80 34.20 15.29 13.54 11.01 9.99 -6.61

Benchmark 1.94 7.60 6.90 8.51 8.61 7.70 9.31 5.16



Strategy

Std. Deviation 7.40Sharpe Ratio 1.21

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


2 The CPI Plus 5% Index is an internally maintained benchmark based on the Consumer Price Index (CPI). The CPI is published monthly by the U.S. Government as anindicator of changes in price levels (or inflation). The CPI + 5% Index is calculated by adding 5% annualized to the return of the CPI Index. The index is internallyblended by GMO and maintained on a monthly basis.


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

+17.0%

+43.1%

+28.2%

+11.8%

0%

20%

40%

60%


Absolute Strategy Weights3

Quarterly Strategy Attribution The Global Allocation Absolute Return Strategy fell 1.8% in the first quarter.

Our defensive stance continued to protect the portfolio from the worst of the market volatility, but not sufficiently to avoid thewidespread carnage entirely. In particular, our fixed income funds were aided by the incipient recovery in our cash collateral pools.The assortment of policies rolled out by central banks to improve lending conditions helped stabilize fixed income markets. Someinvestors returned to the asset-backed bond market, which was reflected in slowly improving liquidity and pricing. We are reassuredby the market’s reaction and expect ongoing improvement. In addition, we added some inflation protected bonds to the StrategicFixed Income Strategy, which also helped performance.

Although Multi-Strategy had a strong start to the year, the subsequent rally in risk assets led to the fund giving back some of its gains.

While equity markets continued to fall during the first two months of the year, we seized the opportunity in March to increase theoverall equity weight of the portfolio by adding to our U.S. Quality and international exposures.

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


GMO ©2009



EmergingMarkets18.4%

FlexibleEquities

2.3%



39.4%

Performance1



Strategy -13.06 -13.06 -43.99 1.03 6.02 5.67Benchmark 2 -11.20 -11.20 -46.48 -0.72 1.35 3.03


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 27.59 -8.89 -4.81 -1.69 48.86 24.06 19.03 25.91 17.39 -40.96

Benchmark 33.43 -16.22 -16.47 -12.66 42.77 21.11 16.71 26.94 16.08 -45.26


Emerging Markets19.5%

DevelopedInt'l.

80.4%

Strategy Benchmark

Alpha 3.40 0.00Beta 0.91 1.00

R2 0.92 1.00Sharpe Ratio 0.17 -0.05


2 The blended International All Country Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the accountbenchmarks consist of MSCI AC World ex-U.S. or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of eachmarket index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis.



-1.1%

+1.2%

-2.0%-1.0%0.0%

1.0%2.0%

Developed Int'l. Equities Emerging Equities

Strategy Composition3 Benchmark Composition(MSCI AC World ex-U.S. Index)


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

The International All Country Equity Allocation Strategy returned -13.1% for the quarter, underperforming its benchmark by 1.9%.Asset allocation detracted 0.3% while implementation detracted an additional 1.6%.

The largest negative contributor to performance within asset allocation was our exposure to the GMO International Intrinsic ValueStrategy. Value indexes struggled on a global basis as they underperformed growth stocks. Part of this relative return was likely due,in part, to ongoing deterioration in fundamentals. Our allocation to the GMO Emerging Markets Strategy, however, was able topartly contain the damage as this sector remained mostly unaffected.

Within implementation, all of our international equity funds underperformed their benchmarks, hurting performance. In particular,our International Intrinsic Value Strategy was hurt by its overweight to Japan where both its currency and stock market fell.


GMO ©2009



FlexibleEquities

2.3%



48.7%

Performance1





1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 18.01 -2.93 -10.80 -0.93 46.65 24.89 15.56 25.50 12.69 -38.39

Benchmark 25.90 -14.30 -21.64 -14.83 40.04 21.17 14.41 26.62 11.58 -43.33

Quarterly Strategy Attribution The International Developed Equity Allocation Strategy returned -15.6% for the quarter, underperforming its benchmark by 1.6%.

Asset allocation added 0.7% while implementation detracted 2.3%.

Our asset allocation decision to overweight international growth equities was the biggest positive contributor.

Within implementation, all of our international strategies underperformed their benchmarks, hurting performance. In particular, ourInternational Intrinsic Value Strategy was hampered by its overweight to Japan where both its currency and stock market fell. Someof the largest negative stock contributors included overweights in Novartis and ING along with underweights in Rio Tinto and BHPBilliton.

Strategy Benchmark

Alpha 3.39 0.00Beta 0.86 1.00

R2 0.87 1.00Sharpe Ratio 0.25 0.02


2 The blended International Developed Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the accountbenchmarks consist of MSCI EAFE or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market indexwill vary slightly. The index is internally blended by GMO and maintained on a monthly basis.



Strategy Composition3 Benchmark Composition(MSCI EAFE Index)


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


GMO ©2009



U.S. Core6.5%

U.S. Quality41.0%

Alpha Only2.3%Emerging

Markets10.0%

FlexibleEquities

2.3%


19.8%

InternationalGrowth

9.1% InternationalIntrinsic Value

8.9%

Performance1



Strategy -10.22 -10.22 -32.80 0.47 5.62 7.26Benchmark 2 -10.70 -10.70 -42.72 -3.28 -1.37 4.32


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 20.85 2.90 -0.27 -5.69 38.75 17.62 12.51 18.87 11.12 -31.41

Benchmark 25.65 -11.45 -13.50 -19.11 33.76 14.86 9.95 20.34 10.38 -41.82


Emerging Markets10.8%

U.S. Equities44.7%


The Global All Country Equity Allocation Strategy was down 10.2% for the quarter, outperforming its benchmark by 0.5%. Ourasset allocation decisions added 0.9% while implementation detracted 0.4%.

Our main contribution in asset allocation was to hedge out a small amount of our underlying equity exposure by investing in ourAlpha Only Strategy. In addition, our underweight to international equities versus U.S. equities also helped performance.

Within implementation, our U.S. Quality and U.S. Core Strategies both outperformed their benchmarks, adding to relative returns,with the strongest performance coming from U.S. Quality. Within non-U.S. equities, our International Intrinsic Value, InternationalCore, and International Growth Strategies all underperformed their respective benchmarks as value and momentum models failed toadd value. In particular, our International Intrinsic Value Strategy was hurt by its overweight to Japan.

Strategy Benchmark

Alpha 3.76 0.00Beta 0.81 1.00

R2 0.90 1.00Sharpe Ratio 0.32 0.03


2 The blended Global All Country Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarksconsist of MSCI AC World or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will varyslightly. The index is internally blended by GMO and maintained on a monthly basis.



-0.8%

+2.3%+2.8%

-4.4%-6%-3%0%3%6%

U.S. Equities Developed Int'l.Equities

EmergingEquities

Fixed Income

Strategy Composition3 Benchmark Composition(MSCI AC World Index)


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


GMO ©2009



U.S. Core17.7%

U.S. Quality39.6%

FlexibleEquities

2.0%



20.1%

Performance1





1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 17.07 0.73 -2.54 -4.23 38.64 17.36 12.26 20.22 9.69 -33.19

Benchmark 23.35 -12.39 -16.17 -19.42 32.32 13.64 9.42 20.05 9.02 -40.70



U.S. Equities50.1%

The Global Developed Equity Allocation Strategy was down 11.8% for the quarter, outperforming its benchmark by 0.1%.Implementation was the main driver of the outperformance, adding 0.1%.

Asset allocation decisions were marginal to the overall portfolio this quarter as small gains from our allocation to the GMOInternational Growth Strategy were nearly entirely offset by our modest allocation to the GMO International Intrinsic Value Strategyas value significantly underperformed.

Within implementation, our U.S. Quality and U.S. Core Strategies both outperformed their benchmarks, adding to relative returns,with the strongest performance coming from U.S. Quality. Within non-U.S. equities, our International Intrinsic Value, InternationalCore, and International Growth Strategies all underperformed their respective benchmarks as value and momentum models failed toadd value. In particular, our International Intrinsic Value Strategy was hurt by its overweight to Japan.

Strategy Benchmark

Alpha 3.68 0.00Beta 0.84 1.00

R2 0.87 1.00Sharpe Ratio 0.32 0.05


2 The blended Global Developed Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarksconsist of MSCI World or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will varyslightly. The index is internally blended by GMO and maintained on a monthly basis.



-7.2%

+7.2%

-10%

-5%

0%

5%

10%

U.S. Equities International Equities

Strategy Composition3 Benchmark Composition(MSCI World Index)


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


GMO ©2009



U.S. Core46.8%

Small/MidCap Growth

0.8%

Small/MidCap Value

0.9%

U.S. Quality51.5%

Performance1





1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 15.88 4.74 -3.17 -15.61 29.99 10.74 3.68 9.93 2.25 -27.87

Benchmark 21.46 -8.16 -11.62 -21.76 29.69 11.45 5.53 15.71 5.39 -37.15

+22.3%

-11.3% -10.9%-20%-10%

0%10%20%30%

Large Cap Small Value Small Grow th

Quarterly Strategy Attribution The U.S. Equity Allocation Strategy finished the first quarter down 9.0%, outperforming its benchmark by 2.0%. Asset allocation

added 0.1% while implementation added 1.9%.

Within asset allocation, our decision to overweight large cap stocks was the biggest driver of performance.

Within implementation, by far and away the largest contributor to performance was our decision to overweight U.S. quality stocks viaour U.S. Quality Strategy. This strategy holds only those U.S. companies with low leverage along with high and consistent historicalprofitability. A notable aspect of the strategy is that it does not hold any financial companies. We continue to believe that U.S. qualitycompanies will be the most able to defend their profitability in a difficult economic environment, and this continues to be our biggestequity weight in the portfolio and our highest conviction equity asset class.

Strategy Benchmark

Alpha 2.46 0.00Beta 0.86 1.00

R2 0.93 1.00Sharpe Ratio 0.40 0.22


2 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&P500, 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.



Large Cap76.0%

Small Grow th11.7%

Small Value12.2%

Strategy Composition3 Benchmark Composition3

(Russell 3000 Index)


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


GMO ©2009



U.S. Equities23.5%

Multi-Strategy8.0%

Tax-ManagedAbsolute Return

8.3%

MunicipalBonds37.8%

EmergingEquities

5.2%

InternationalEquities

17.1%

Performance1



Strategy -3.57 -3.57 -14.81 3.27 n/a 6.74Benchmark 2 -5.36 -5.36 -26.19 -0.68 n/a 3.02



2 The blended Tax-Managed Global Balanced Allocation Composite benchmark is comprised of two components (60% MSCI AC World and 40% Barclays Capital Muni 7Year Index). The index is internally blended by GMO and maintained on a monthly basis using the two underlying indices which are calculated by each respective providerMSCI and Barclays Capital.



Fixed Income40.0%

U.S. Equities26.8%


-2.2%

+16.3%

-3.3%-10.9%-20%

-10%0%

10%20%


Strategy Benchmark

Alpha 5.04 0.00Beta 0.72 1.00

R2 0.86 1.00Sharpe Ratio 0.72 0.04


2003 2004 2005 2006 2007 2008

Strategy 23.15 12.73 9.91 12.08 7.16 -14.95

Benchmark 21.82 10.02 5.91 12.95 7.12 -25.89

The Tax-Managed Global Balanced Strategy declined 3.6% in the first quarter of 2009, while the blended benchmark declined 5.4%.January and February saw a continuation of the prior quarter’s decline, however, March witnessed a sharp reversal of sentiment. Inlocal terms, international equity markets declined less than U.S. equity markets, but a strengthening dollar pulled returns for U.S. basedinvestors down further. Emerging equities fared better during the quarter, and finished the quarter with positive returns.

Within the portfolio, the relative advantage versus the benchmark came from asset allocation. The portfolio was underweight equitiesin the declining market, in favor of alternative investments. In addition, the portfolio was underweight international equities relativeto U.S. equities. Within international equities, an overweight of emerging equities relative to international developed added value.

Within implementation, both U.S. and international developed equity portfolios moderately outpaced their markets. Gains from moredefensive positioning at the beginning of the year added value, and the portfolios were able to retain the better part of these gainsdespite March’s switchback. Within alternative investments, implementation within the long/short equity portfolio was a negativefactor for the quarter.

Strategy Composition3 Benchmark Composition3

(GMO Tax-Managed Global Balanced Index)


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


GMO ©2009



Performance1



Strategy -0.65 -0.65 9.83 5.61 8.06 5.55Benchmark 2 0.05 0.05 1.13 3.06 3.19 3.84


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 1.65 19.37 15.10 11.63 2.71 2.64 4.95 3.34 7.74 12.16

Benchmark 4.74 5.96 4.09 1.70 1.07 1.24 3.00 4.76 4.74 1.80


2 The Citigroup 3 Month T-Bill Index is an independently maintained and published short-term bill index.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 2009.4 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.


Strategy


Drawdown(9/30/97-2/28/99)

-10.03


The Alpha Only Strategy was down 0.6% for the quarter, underperforming its cash benchmark by 0.7%. In an environment wherenearly every equity market was falling, hedging strategies proved their mettle. Along with positive alpha in our U.S. Core and U.S.Quality Strategies and most of our international portfolios, we also added some asset allocation alpha by hedging our U.S. marketexposure with a basket of low quality stocks.

Position Exposure %

S&P 500EAFE Baskets/Forwards

European Low Quality

U.S. Low Quality -19.2

-15.7

-15.6

-10.6

-30 -20 -10 0

Position Exposure %

Cash

U.S. Quality

Int'l. Growth

Int'l. Intrinsic Value

U.S. Core 13.3

17.9

17.9

25.6

23.2

0 10 20 30

Long Exposure3 Short Exposure3

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


GMO ©2009



Performance1



Strategy 0.34 0.34 5.37 4.66 n/a 5.00Benchmark 2 0.05 0.05 1.13 3.06 n/a 2.62


2002 2003 2004 2005 2006 2007 2008

Strategy 0.82 5.07 4.53 2.30 4.11 4.43 10.67

Benchmark 0.25 1.07 1.24 3.00 4.76 4.74 1.80

Completion11.4%

Currency Hedge4.2%

Global Tactical7.6%

Mean Reversion19.2%

Short-TermMarket Opportunities

6.8%Emerging

Currency Hedge2.8%

Fixed IncomeHedge7.9%

Emerging CountryDebt L.P.

6.0%

Pan-EuropeanLong/Short

11.6%Tactical

Opportunities16.5%

Market Neutral3.1%

AggressiveLong/Short

2.8%


2 The Citigroup 3 Month T-Bill Index is an independently maintained and published short-term bill index.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.


Quarterly Strategy Attribution Multi-Strategy returned +0.3% for the quarter. The portfolio benefited from improvements in our fixed income funds that managed

to offset the negative returns from the quality long/short exposures in the portfolio. Strong implementation was notable in the GMOFixed Income Hedge, Currency Hedge, and Emerging Country Debt Long/Short Strategies. Eight out of the twelve underlyingstrategies in the portfolio outperformed their benchmarks.

For the quarter, the strongest contributor was the GMO Fixed Income Hedge Strategy, which rose 7.4% thanks to a narrowing of theTreasury Strips curve versus the LIBOR swap curve. The Currency Hedge Strategy generated performance from its exposure tolong-dated options on the dollar relative to the yen. Our fixed income strategies also benefited from the incipient recovery in ourcash collateral pools. The assortment of policies rolled out by central banks to improve lending conditions helped stabilize fixedincome markets. In particular, some investors returned to the asset-backed bond market, which was reflected in slowly improvingliquidity and pricing. We are reassured by the market’s reaction and expect ongoing improvement.

On the negative side, performance was dragged down by steep drops in both the Market Neutral and Tactical OpportunitiesStrategies. The Market Neutral Strategy was hurt by negative stock selection, particularly by positions in Goldman Sachs, AMR, andWells Fargo. Tactical Opportunities was whipsawed during the quarter and, despite healthy gains in the first two months of the year,the returning risk appetites in March left the strategy stranded.

Strategy


Drawdown(6/30/07-9/30/07)

-3.36

Risk Profile Since 10/31/023 Strategy Composition4

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


GMO ©2009



Performance1

Position Absolute %LIBORSovereign CDSU.S. Low Quality EquitiesEuropean Low Quality EquitiesIL Gilt SwapLong Guilt FuturesJr. FedRateAntic 2Spanish IBEX Total Return SwapBritish PoundDanish KroneOMX Cope KFX Index swapS&P 500 FuturesMetal CommoditiesSwiss FrancsChina Renminbi (Yuan)Italian SPMIB Total Return SwapTurkish LirasHungarian ForintsPolish ZlotysRussell 2000 FuturesSentiment Sector ShortSystematic Sentiment Trading ShortREIT SwapCopper Futures

-2.0-2.0-2.0-2.1-2.3-2.3-2.3-2.8-2.9-3.4-4.6-6.2-8.7

-12.5-14.6

-29.8-42.0

-57.8-109.2

-1.3-1.8

-0.7-0.4-0.1

-120 -100 -80 -60 -40 -20 0

Position Absolute %TreasuriesU.S. High Quality EquitiesEuropean High Quality EquitiesInvestment Grade SwapMR JPY InflationJapanese CPI SwapKorean WonU.S. InflationCanadian DollarNominal Bonds Long/ShortMSCI France Total Rtn. Swap & Eq.Norwegian KroneEmerging EquitiesJapanese REITABSLoan Credit Default Swap IndexLong FinancialsPrecious metalsComm HedgeHigh Yield (CDX)MSCI Netherlands Total Rtn. SwapSentiment Sector LongSystematic Sentiment Trading LongGerman EquitiesEuroSwiss EquitiesSwedish KronaJapanese Yen 0.0

0.60.9

1.1

1.31.51.82.22.33.33.84.24.64.65.25.65.75.75.9

14.514.6

25.128.4

38.4109.2

0.91.0

1.2

0 20 40 60 80 100 120



Strategy 0.50 0.50 11.89 11.05 n/a 14.77Benchmark 2 0.05 0.05 1.13 3.06 n/a 2.54


2002 2003 2004 2005 2006 2007 2008

Strategy 9.93 35.76 11.42 6.96 5.63 18.63 18.43

Benchmark 1.41 1.07 1.24 3.00 4.76 4.74 1.80


Strategy


Drawdown(6/30/02-10/31/02)

-8.62





Quarterly Strategy Attribution The first quarter of 2009 was a slightly positive one for the Mean Reversion Strategy, which had a return of +0.5%. It was a mostly negative quarter for equities, with the S&P 500 down 11.0%, MSCI EAFE shedding 13.9%, and MSCI Emerging edging into positive

territory with a return of +0.9%. Despite the poor quarter for equities, our quality/junk trades hurt us in the quarter, with the U.S. portion costingthe portfolio around 2.5% and the European part detracting 80 basis points. Other trades that hurt us in the quarter included our Japanese inflationswap, which cost us 1%, and our short bond positions in the U.S. and U.K., which cost 60 basis points. The big winner in the quarter was our ILGilt short, which added over 3% as rates rose from the very low levels of year end. Our Euro-area divergence trade won within equities and lost inCDS, adding around 30 basis points net, and our Treasury strips/LIBOR swap trade added another 1.5%. Our currency positions added another 20basis points, and the other positions in aggregate were slightly positive.

We made a number of changes to the portfolio in the quarter. We traded out of our yen long and into a basket of Norwegian krone, Canadiandollars, Korean won, and gold. We initiated short positions in long-term government bonds in the U.S. and U.K., bought credit protection on anumber of European sovereigns and some European insurers, and closed out our short position in Australian stocks. We also significantly increasedour position long Japanese inflation, where 10-year strike levels are still below -1% per year. We began selectively buying asset-backed and corporatedebt where market prices had fallen to particularly attractive levels.

Long Exposure3Short Exposure3

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


GMO ©2009



Performance1

Sector Net Weight (%)

FinancialsConsumer DiscretionaryEnergyUtilitiesIndustrialsTelecommunication ServicesMaterialsConsumer StaplesHealth CareInformation Technology -3.6

-1.7-1.1

-0.2

0.03.74.1

-0.1

-0.6-0.8

-6 -3 0 3 6

Long Short

Equity Exposure 63 % 63 %

P/E - Hist 1 Yr Wtd Median 14.5 x 18.1 x

P/E - Excl Neg Earnings Hist 1 Yr Wtd Avg 10.2 x 10.6 x

Sector Exposure3



Strategy -7.72 -7.72 -4.55 -0.99 n/a 1.51Benchmark 2 0.05 0.05 1.13 3.06 n/a 2.88


2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 5.70 5.18 8.50 -2.53 1.59 -5.09 5.15 -3.51 7.29

Benchmark 2.58 4.09 1.70 1.07 1.24 3.00 4.76 4.74 1.80






Strategy


Drawdown(7/31/08-3/31/09)

-10.93

Quarterly Strategy Attribution The Market Neutral Strategy lost 7.7% in the first quarter, trailing T-bills by 7.8%.

While the strategy is geared to be sector neutral, the small bets in the portfolio at quarter-end were slightly negative. The bet in favorof Energy was positive but was offset by the net short in Information Technology and net long in Financials.

Stock selection, on the other hand, contributed nearly the entire negative alpha this month. Selections in Financials, Energy,Industrials, and Materials were all weak. Positions in CF Industries, Citigroup, and MasterCard had a positive impact this quarterwhile positions in Wells Fargo, AMR, and Goldman Sachs all disappointed.

GICS Sectors

Current Profiles3

GMO Market Neutral StrategyInception: 7/31/00; Benchmark: Citigroup 3 Month T-Bill Index


GMO ©2009



Long Short




Performance1



Strategy -5.01 -5.01 5.29 0.61 n/a 7.12Benchmark 2 0.05 0.05 1.13 3.06 n/a 2.82


2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 22.20 17.15 25.92 -5.61 1.07 3.56 -1.90 -5.37 14.26

Benchmark 1.57 4.09 1.70 1.07 1.24 3.00 4.76 4.74 1.80






Strategy


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

-15.48


Consumer StaplesHealth CareConsumer DiscretionaryInformation TechnologyUtilitiesIndustrialsTelecom. ServicesEnergyMaterialsFinancials -7.2

-7.1-1.9

-0.5

4.06.4

9.4

1.4

-1.4-1.8

-10 -5 0 5 10

Quarterly Strategy Attribution The Aggressive Long/Short Strategy lost 5.0% in the first quarter, lagging T-bills by 5.1%.

Tilting toward mega cap stocks and away from mid and small cap stocks was disappointing during the quarter. Selections such asNTSE EuroNext, JetBlue, and Celgene all added to returns, while Allstate, Proctor and Gamble, and Goldman Sachs all detracted.

GICS Sectors

Sector Exposure3Current Profiles3

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


GMO ©2009




Consumer StaplesHealth CareInformation TechnologyEnergyUtilitiesTelecom. ServicesConsumer DiscretionaryMaterialsIndustrialsFinancials -21.7

-11.9-6.6

10.214.0

26.6

-2.52.5

-3.6-5.9

-40 -20 0 20 40

Long Short

Price/Earnings - Hist 1 Yr Wtd Median 12.1 x 80.9 xPrice/Book - Hist 1 Yr Wtd Avg 2.8 x 1.0 xDividend Yield - Hist 1 Yr Wtd Avg 3.1 % 1.9 %Return on Equity - Hist 5 Yr Avg 26.7 % 6.0 %Market Cap - Weighted Median $Bil $98.0 $2.4Debt/Equity 0.8 x 1.5 x% Long/Short 118 % 115 %

Performance1



Strategy -3.62 -3.62 26.28 n/a n/a 4.58Benchmark 2 0.05 0.05 1.13 n/a n/a 3.28





Quarterly Strategy Attribution The Tactical Opportunities Strategy declined 3.6% in the first quarter, lagging T-bills by 3.7%. At the end of February, the strategy

had gained over 3% year-to-date against a backdrop of plummeting equity markets, but lost that and more in March.

In spite of heroic gains within the Financials sector in March, these stocks ended the first quarter leading the pack in terms ofabsolute declines. Sector attribution in the strategy was positive, particularly the short bets in both Financials and Industrials alongwith the long bet in Information Technology.

Stock attribution was negative, offsetting all of the gains from sector selection. Health Care, Information Technology, andTelecommunication Services detracted.

We remain confident that holding a basket of high quality companies in a long portfolio alongside a short portfolio of low qualitycompanies is the optimal positioning for a tactical fund seeking to exploit the misvaluations of each.

GICS Sectors


2004 2005 2006 2007 2008

Strategy -7.57 -13.24 -1.65 17.87 36.52

Benchmark 0.44 3.00 4.76 4.74 1.80


Strategy


Drawdown(9/30/04-4/30/06)

-25.29

Sector Exposure3Current Profiles3

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


GMO ©2009



Long Short





Performance1





Health CareConsumer StaplesEnergyTelecom. ServicesUtilitiesInformation TechnologyConsumer DiscretionaryMaterialsIndustrialsFinancials

-7.7-4.0

0.60.71.9

14.316.7

-23.4

-0.9-2.8

-30 -20 -10 0 10 20 30

Quarterly Strategy Attribution The Pan-European Long/Short Strategy returned -3.4% during the first quarter of 2009, compared to the 3 Month LIBOR Index, which returned

+0.3%. Within the portfolio, stock selection was the primary driver of the underperformance, while country allocation also detracted. Sector exposures

added some value. Stock selection within the United Kingdom was particularly poor, but holdings in Sweden and Switzerland also underperformed. Our Spanish and

French stocks outperformed. By sector, our Energy, Health Care, and Consumer Staples holdings were especially weak, although ConsumerDiscretionary and Financials outperformed.

Despite the positive impact of our long position in the United Kingdom, country allocation had a negative impact on relative performance due toour short positions in Austria and Norway and our long position in Germany.

Sector exposures added value as the benefit of our long position in Energy outweighed the negative impact of our long position in Health Care. Among the individual stocks that significantly impacted performance, short positions in French steel maker ArcelorMittal added 0.4%, Finnish tire

maker Nokian Renkaat also added 0.4%, and French financial AXA added 0.3%. On the negative side, long positions in Swiss pharmaceutical Novartis, German utility E.On, and British pharmaceutical GlaxoSmithKline each cost

0.5%.

Country Exposure4

Country Net Weight (%)United KingdomBelgiumSwitzerlandNetherlandsFinlandIrelandFranceSwedenItalyPortugalDenmarkSpainAustriaGermanyNorway

-5.4-4.5

-4.0-2.3-1.7

1.11.22.7

5.35.9

-7.1

-4.1-4.4

13.5

0.5

-20 -10 0 10 20


2003 2004 2005 2006 2007 2008

Strategy -1.27 12.00 10.07 2.43 0.71 12.67

Benchmark 0.71 1.48 3.39 5.24 5.60 3.48

Strategy


Drawdown(2/28/09-3/31/09)

-6.24


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


GICS Sectors

Current Profiles4

Sector Exposure4

GMO Pan-European Long/Short Equity StrategyInception: 5/31/03; Benchmark: 3 Month LIBOR Index


GMO ©2009



Regional Weights4

Underweight/Overweight


Asia

CEEMEA*

Latin America

United States

-5.1

11.3

-0.9

20.2

-30 -20 -10 0 10 20 30



Strategy 3.40 3.40 -20.19 1.57 13.31 9.74Benchmark 2 0.58 0.58 3.35 4.03 3.97 4.40

Performance1


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Strategy 60.65 37.28 17.37 18.09 13.13 11.46 8.13 12.23 5.51 -26.52

Benchmark 5.57 6.81 4.94 2.01 1.31 1.48 3.37 5.25 5.70 4.12

EMBIG Beta 0.6Modified Duration 0.9Swap Spread Duration 4.2 Yrs.


2 The JPMorgan U.S. 3 Month Cash Index is an independently published and maintained index. The index measures the total return performance of a constant-maturityeuro-currency deposit, the only short-term securities consistent across all markets in terms of liquidity, maturity, and credit quality. The JPMorgan U.S. 3 Month Cash Indexis calculated daily for three-month deposits in the United States. It is maintained and calculated by JPMorgan and is not actively managed.



Strategy


Drawdown(4/30/98-9/30/98)

-51.97

GMO Emerging Country Debt Long/Short StrategyInception: 3/31/96; Benchmark: JPMorgan U.S. 3 Month Cash Index

The Emerging Country Debt Long/Short Strategy gained 3.4% in the first quarter of 2009. The portfolio performed well as creditspreads for all emerging country debt tightened during the quarter.

The portfolio has a beta of 0.5 to the credit spread risk of the JPMorgan EMBIG. Correlations across emerging countries are stillhigh, so virtually all of the strategy’s country positions performed well. The ongoing liquidity crisis had little effect on the portfolio,since its less liquid assets had already been marked down, and continue to pay income.

The portfolio targets absolute return by taking long and short positions in the same countries. As credits around the world stabilized,income and small price increases helped the strategy. In addition, many of the quasi-sovereign credits the portfolio holds performedparticularly well, relative to their sponsoring sovereign credit.





GMO ©2009





Strategy 3.05 3.05 -4.38 5.00 n/a 7.21Benchmark 2 0.58 0.58 3.35 4.03 n/a 3.33


2002 2003 2004 2005 2006 2007 2008

Strategy 19.75 3.79 1.33 4.63 8.39 15.06 -3.88

Benchmark 1.56 1.31 1.48 3.37 5.25 5.70 4.12


2 The JPMorgan U.S. 3 Month Cash Index is an independently maintained and published index that measures the total return performance of a constant-maturity euro-currency deposit, the only short-term securities consistent across all markets in terms of liquidity, maturity, and credit quality. The JPMorgan U.S. 3 Month Cash Index iscalculated daily for three-month deposits in the United States.



Strategy


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

-15.44

Currency Selection4

Country Net Weight (%)

Netherlands

Japan

Net Equity Markets 0.0

-5.0

5.0

-6 -3 0 3 6

Country Net Weight (%)

United States

Japan

Net Bond Markets 0.0

-20.0

20.0

-40 -20 0 20 40

Currency Net Weight (%)

United StatesJapanese YenUK PoundEuroSwiss FrancNet Cash -4.4

-14.0-12.0

22.04.0

0.0

-40 -20 0 20 40

Commodity Net Weight (%)

GoldCocoaCopperHogsNet Commodities 4.4

-6.42.0

6.82.0

-10 -5 0 5 10


Commodity Markets4

Performance1 Risk Profile Since 3/31/023

Equity Market Selection4

Bond Market Selection4

GMO Global Tactical StrategyInception: 3/31/02; Benchmark: JPMorgan U.S. 3 Month Cash Index

The Global Tactical Strategy returned +3.1% during the first quarter as bond and commodity selection added value. Over the same period the S&P500 fell 11.0%.

Gains from commodity market selection were due to long positions in gold and gasoline, which rose by 4.8% and 12.6% in January, and shortpositions in hogs and natural gas, which fell 7.7% and 22.0%, respectively. Long positions in crude oil and copper added to these gains duringFebruary and March.

Bond market selection added value from a long position in U.S. bonds and a short position in Japanese bonds. Although our currency positionsadded good value in January as long positions in the Japanese yen and U.S. dollar appreciated over 8% against our short positions in the Swiss francand euro, these positions lost value in the following two months.

During the quarter the strategy reduced the number of positions it holds from 51 to 17, by removing most of the smaller positions. In times ofnormal volatility and stable correlations, such positions benefit the portfolio by providing diversification. However, these are not normal times andif market correlations break down, those types of positions can significantly add to portfolio risk, increasing potential loss. The portfolio reflectsthe market views we have the most conviction in now. While our portfolio is more concentrated, the strategy is now targeting a lower level ofoverall risk (measured by annualized ex-ante tracking error), in the range of 6% to 10% per annum, lower than our long run average target of 15%per annum. Our risk taking will increase as opportunities arise, meanwhile we will continue taking precautions against unnecessary risk exposures.

Despite last month’s rebound, the strategy has yet to establish a net long equity position owing to both value and sentiment reasons. We still judgesentiment to be negative due to a poor economic outlook and because our momentum models generally don’t follow sharp, short-term moves.Meanwhile, our valuation models, and the assumptions they are based on, indicate that equity markets could become cheaper. As a result, thestrategy is currently focused on market selection opportunities over directional asset class views.


GMO ©2009





Strategy 3.61 3.61 -31.99 -5.73 n/a -3.03Benchmark 2 0.58 0.58 3.35 4.03 n/a 3.69

Performance1




2003 2004 2005 2006 2007 2008

Strategy 5.70 2.93 8.94 13.60 -15.57 -28.70

Benchmark 0.50 1.48 3.37 5.25 5.70 4.12

Strategy

Std. Deviation 13.16Sharpe Ratio -0.27

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

-41.19





GMO Currency Hedge StrategyInception: 7/31/03; Benchmark: JPMorgan U.S. 3 Month Cash Index

In the first quarter of 2009, the Currency Hedge Strategy returned +3.6%, compared to its benchmark, the JPMorgan U.S. 3 MonthCash Index, which gained 0.6%.

The U.S. dollar gained against most foreign currencies during the quarter, with much of the gains coming during the period whenequities and other risk assets were declining sharply in January and February. However, when the U.S. Federal Reserve announced itsintent to begin a program of “quantitative easing,” the dollar turned around and gave back some of the gains, and equities reboundedsharply.

By quarter-end, the dollar had gained 9.0% versus yen, 6.8% versus Swiss franc, and 4.5% versus Swedish krona. The only currencyto rise versus the dollar during the quarter was Norwegian krone, which rose 3.7%.

Positive relative performance for the Currency Hedge Strategy derived primarily from its exposure to long-dated options on the dollarrelative to the yen. In addition, the collateral pool contributed positively to performance. Toward quarter-end the strategy beganscaling into more currency positions, mainly via options.


GMO ©2009



Performance1

Net Weight (%)

EuropeNorth AmericaAsia Pacific

6.2

45.6

4.5

-60 -40 -20 0 20 40 60











2005 2006 2007 2008

Strategy 1.45 -4.61 -23.39 -25.45

Benchmark 1.32 5.25 5.70 4.12

Strategy


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

-48.54

Performance Attribution4 Country Weights4

GMO Fixed Income Hedge StrategyInception: 8/31/05; Benchmark: JPMorgan U.S. 3 Month Cash Index

The Fixed Income Hedge Strategy returned +7.4% in the first quarter, outperforming its benchmark, the JPMorgan U.S. 3 MonthCash Index, which returned 0.6%.



The portfolio continues to carry a concentrated opportunistic position in Treasury strips versus zero-coupon LIBOR swaps. This isthe strategy’s biggest trade and it consumes the bulk of allocated risk. This position contributed positively during the quarter as stripsoutperformed their LIBOR hedges.

In a welcome development, prices in the collateral pool (GMO Alpha LIBOR [Offshore] L.P.) improved during the quarter,contributing the remainder of the strategy’s outperformance. The negative momentum that the asset-backed market experiencedduring the latter half of 2008 reversed somewhat during the first quarter of 2009, as the tone of the asset-backed market improved.

Strategy Net Contribution (%)

Cross-MarketOpportunisticRate AnticipationVolatilityYield CurveCash Mgmt./Fees/Other 1.7

0.00.00.0

0.05.2

-6 -3 0 3 6


GMO ©2009


As of March 31, 2009GMO Emerging Currency Hedge StrategyInception: 3/31/06; Benchmark: JPMorgan U.S. 3 Month Cash Index




Performance1



Strategy


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

-31.61


2 The JPMorgan U.S. 3 Month Cash Index is an independently maintained and published index that measures the total return performance of a constant-maturity euro-currency deposit, the only short-term securities consistent across all markets in terms of liquidity, maturity, and credit quality. The JPMorgan U.S. 3 Month Cash Index iscalculated daily for three-month deposits in the United States.



2006 2007 2008

Strategy 5.13 9.72 -28.32

Benchmark 4.07 5.70 4.12

In the first quarter of 2009, the Emerging Currency Hedge Strategy returned +2.2%, while its benchmark, the JPMorgan U.S. 3Month Cash Index gained 0.6%. Positive relative performance stemmed both from currency positioning as well as a positivecontribution from the collateral pool.

Emerging markets in general – currencies, equities, and credit – responded to global risk assets, selling off with equities early in thequarter, then staging a dramatic rebound with equities for the last three weeks of March. Economic data from the countries is dire,with production and trade numbers collapsing and, in some cases, disruptions from U.S. and European financial marketscontaminating local markets. Happily, both the G-7 meeting and the G-20 meeting resulted in substantially improved safety nets forthose sound emerging countries whose economies and markets were being sucked into the void of deleveraging by developed-countryfinancial systems.

Such a positive backdrop, coupled with sharply reduced economic activity and declining inflation numbers, gave room for emergingcountry central banks to lower policy interest rates. Most continued to do so, though all the emerging country rates far exceed thosein developed markets, where zero or near-zero interest-rate bounds are being met with “quantitative” or “credit” (e.g., extraordinary)monetary policy measures.

While China’s pre-G-20 call to create a currency system linked to the IMF Special Drawing Right (SDR) garnered a lot of press, lessfrequently cited were China’s stepped-up efforts to internationalize the renminbi. The centerpiece of such efforts was China’sagreement to provide CNY 650 billion (~$95 billion) in CNY-oriented currency swap lines. Recall that the major developed countrieshad put USD ones in place starting last year, with facilities among the Federal Reserve, Bank of Canada, the ECB, the Swiss NationalBank, as well as others including Mexico, Korea, Singapore, and Brazil.

China’s group includes Argentina, Belarus, Hong Kong, Indonesia, South Korea, and Malaysia. The idea is to allow importers to payfor Chinese goods without needing dollars to do so, since the dollar liquidity is so tight.

Positive currency contributions came from longs in Colombian peso, Mexican peso, Russian ruble, South African rand, Korean won,Indian rupee, Taiwan dollar, and Indonesian rupiah. Partially offsetting these gains were losses from shorts in Chilean peso, Peruviannew sol, Polish zloty, Chinese yuan, Malaysian ringgit, and Thai baht.


GMO ©2009





Strategy -0.13 -0.13 -29.84 n/a n/a -2.69Benchmark 2 -2.85 -2.85 -23.45 n/a n/a 0.38

Performance1


2 The GMO Alternative Asset Opportunity index is comprised of 50% Dow Jones-AIG Commodity Index and 50% JPMorgan 3 Month Cash Index. The Dow Jones-AIGCommodity index is a rolling commodities index composed of futures contracts on physical commodities traded on U.S. exchanges. The index serves as a liquid anddiversified benchmark for the commodities’ asset class.



The Alternative Asset Opportunity Strategy returned -0.1% in the first quarter, outperforming its benchmark, the Alternative AssetOpportunity index (50% Dow Jones-AIG Commodity Index/50% JPMorgan 3 Month Cash index), by 2.7%.

Overall, commodity performance was positive during the quarter. Underweight positions in lean hog, live cattle, and wheat contractscontributed positively to performance, as prices on these contracts fell. In addition, the collateral pool contributed positively toperformance.

An overweight position in crude oil contract prices contributed negatively to performance during the quarter, as prices on thesecontracts fell. Underweight positions in silver and cocoa contract prices also contributed negatively, as prices on these contracts rose.


2005 2006 2007 2008

Strategy 9.48 2.69 8.58 -26.28

Benchmark 8.76 3.95 11.00 -16.77

Energy Futures Position Meats Position

Crude Oil Long Live Cattle ShortUnleaded Gas Short Lean Hogs ShortHeating Oil Long Grains Position

Natural Gas Long Soybeans ShortMetals Position Soybean Meal ShortCopper Short Soybean Oil ShortSilver Short Corn ShortGold Long Wheat ShortSofts Position

Coffee ShortCocoa LongCotton ShortSugar Short

Current Exposure4



Strategy


Drawdown(6/30/08-2/28/09)

-37.06

GMO Alternative Asset Opportunity StrategyInception: 4/30/05; Benchmark: Alternative Assets Opportunity Index


GMO ©2009



Long Short




Market Cap - Weighted Median $Bil $8.9 $1.9


Consumer StaplesConsumer DiscretionaryEnergyIndustrialsMaterialsHealth CareUtilitiesInformation TechnologyFinancialsTelecom. Services -6.5

-5.9-3.3

-0.6

3.97.6

8.9

0.6

-2.3-2.5

-10 -5 0 5 10

Performance1





2001 2002 2003 2004 2005 2006 2007 2008

Strategy -3.64 16.99 -8.37 1.96 5.76 -1.28 -4.53 10.31

Benchmark 2.66 1.70 1.07 1.24 3.00 4.76 4.74 1.80





Quarterly Strategy Attribution The Tax-Managed Absolute Return Strategy declined 2.8% for the first quarter of 2009. The long portfolio, which invests in stocks

that are attractive based on either valuation, momentum, or a combination of these measures, declined 9.7%. The short portfolio,which invests in stocks that are unattractive using these same measures, declined 6.9%.

There were multiple factors contributing to the portfolio’s return. First, net short exposure to wireless telecommunications stocksworked against the portfolio, as the segment posted positive returns for the quarter. Second, short exposure to biotech firms, whichhad dropped sharply last quarter but improved this quarter, also dragged down returns. Within the long portfolio, the decline in valueof major oil companies Exxon and Chevron worked against the portfolio. Finally, selection within Consumer Discretionary stocks,especially retailers, was strong for the quarter, offsetting losses from within other sectors.

Strategy


Drawdown(3/31/01-4/30/01)

-16.91


GICS Sectors

Current Profiles3 Sector Exposure3

GMO Tax-Managed Absolute Return StrategyInception: 3/31/01; Benchmark: Citigroup 3 Month T-Bill Index


GMO ©2009

BENCHMARKS AND INDEXES 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. Indexes 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.

Full Name Sponsor or Publisher Description 3 Month LIBOR London Inter-Bank Offered

Rate London Inter-Bank Offered Rate for a 3 month deposit in U.S. dollars during a given month

Barclays Capital U.S. Aggregate Index

Barclays Capital Well-known, independently maintained and published index comprised of U.S. fixed rate debt issues, having a maturity of at least one year, rated investment grade or higher by Moody’s Investors Service, Standard & Poor’s Corporation or Fitch Investors Service.

Barclays Capital U.S. Government Index

Barclays Capital Well-known, independently maintained and published U.S. government bond index, regularly used as a comparative fixed income benchmark.

Barclays Capital U.S. Treasury Inflation Notes Index

Barclays Capital Independently maintained and published index comprised of Inflation-Protection Securities issued by the U.S. Treasury.

Citigroup 3 Month Treasury-Bill Index

Citigroup Independently maintained and published short-term bill index.

CPI Plus 5% Index U.S. Government/GMO An internally maintained benchmark based on the Consumer Price Index (CPI). The CPI is published monthly by the U.S. Government as an indicator of changes in price levels (or inflation). The CPI Plus 5% Index is calculated by adding 5% annualized to the return of the CPI Index. The index is internally blended by GMO and maintained on a monthly basis.

GMO Alternative Asset Opportunity Index

GMO The GMO Alternative Asset Opportunity index is comprised of 50% Dow Jones-AIG Commodity Index and 50% JPMorgan 3 Month Cash Index. The Dow Jones-AIG Commodity index is a rolling commodities index composed of futures contracts on physical commodities traded on U.S. exchanges. The index serves as a liquid and diversified benchmark for the commodities’ asset class.

GMO Blended Global All Country Equity Allocation Index

GMO 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 AC World 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.

GMO Blended Global Asset Balanced Allocation Index

GMO The blended Global Balanced Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of S&P 500, MSCI ACWI 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.

GMO Blended Global Developed Equity Allocation Index

GMO 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 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.

GMO Blended International All Country Equity Allocation Index

GMO 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 AC World ex-U.S. 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.

GMO Blended International Developed Equity Allocation Index

GMO 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 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.

GMO Blended Real Return Global Balanced Asset Allocation Index

GMO The blended Real Return Global Balanced Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI World, 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.

GMO Blended Tax-Managed Global Balanced Index

GMO The blended Tax-Managed Global Balanced Allocation Composite benchmark is comprised of two components (60% MSCI AC World, 40% Barclays Capital Muni 7 Year (6-8) Index). The index is internally blended by GMO and maintained on a monthly basis using the two underlying indices which are calculated by each respective provider MSCI, and Barclays Capital.

GMO Blended U.S. Equity Allocation Index

GMO 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.

JPMorgan Emerging Markets Bond Index Global

JPMorgan Independently maintained and published index composed of debt securities of countries, which includes Brady bonds, sovereign debt, local debt and Eurodollar debt, all of which are U.S. dollar denominated.

JPMorgan Emerging Markets Bond Index Global +

GMO The JPMorgan Emerging Markets Bond Index Global + is comprised of the JPMorgan EMBI prior to 8/31/1995, JPMorgan EMBI + through 12/31/1999, and the JPMorgan EMBI Global thereafter.


GMO ©2009

Full Name Sponsor or Publisher Description JPMorgan Global Government Bond Index

JPMorgan Independently maintained and published index composed of government bonds of developed countries, including the U.S., with maturities of one year or more.

JPMorgan Government Bond Index-Emerging Markets (GBI-EM) Diversified Index

JPMorgan The JPMorgan GBI-EM Index is the first comprehensive, global local emerging markets index, and consists of regularly traded, liquid fixed-rate, domestic currency government bonds to which international investors can gain exposure.

JPMorgan Non-U.S. Government Bond Index

JPMorgan Independently maintained and published index composed of non-U.S. government bonds with maturities of one year or more.

JPMorgan Non-U.S. Government Bond Index (hedged) (ex-Japan) +

JPMorgan The JPMorgan Non-U.S. Government Bond Index (hedged) (ex-Japan) + is comprised of the JPMorgan Non-U.S. Government Bond Index (hedged) prior to 12/31/2003, and the JPMorgan Non-U.S. Government Bond Index (hedged) (ex-Japan) thereafter.

JPMorgan U.S. 3 Month Cash Index

JPMorgan Independently maintained and published index that measures the total return performance of a constant-maturity euro-currency deposit, the only short-term securities consistent across all markets in terms of liquidity, maturity, and credit quality. The JPMorgan U.S. 3 Month Cash Index is calculated daily for three-month deposits in the United States.

JPMorgan U.S. 3 Month Cash + Index

JPMorgan The JPMorgan U.S. 3 Month Cash + Index is comprised of the Barclays Capital U.S. Treasury 1-3 Year Index from 5/31/2006 to 9/29/2006 and the JPMorgan U.S. 3 Month Cash Index thereafter.

MSCI EAFE Growth Index Morgan Stanley Capital International

The MSCI EAFE (Europe, Australasia, and Far East) Growth Index is a well-known, independently maintained and published large capitalization international stock index comprised of large/mid capitalization stocks that have a growth style. Large/mid cap stocks encompass approximately 85% of each market’s free float-adjusted market capitalization. The style is determined using a multi-factor approach based on eight historical and forward-looking characteristics. MSCI Standard Index Series, net of withholding tax.

MSCI EAFE Index Morgan Stanley Capital International

The MSCI EAFE Index (Europe, Australasia, and Far East), is a well-known, independently maintained and published large capitalization international stock index. MSCI Standard Index Series, net of withholding tax.

MSCI EAFE (Hedged) Index Morgan Stanley Capital International

The MSCI EAFE Index (Europe, Australasia, and Far East) (Hedged) is a well-known, independently maintained and published large capitalization international stock index that is currency-hedged into U.S. dollars. MSCI Standard Index Series.

MSCI EAFE Small Cap + Index Morgan Stanley Capital International

The MSCI EAFE Small Cap + Index is comprised of the S&P Developed ex-U.S. Small Cap Index from 6/30/1989 to 5/30/2008 and the MSCI EAFE Small Cap Index (MSCI Standard Index Series, net of withholding tax) thereafter.

MSCI EAFE Value Index Morgan Stanley Capital International

The MSCI EAFE (Europe, Australasia, and Far East) Value Index is a well-known, independently maintained and published large capitalization international stock index comprised of large/mid capitalization stocks that have a value style. Large/mid cap stocks encompass approximately 85% of each market's free float-adjusted market capitalization. The style is determined using a multi-factor approach based on eight historical and forward-looking characteristics. MSCI Standard Index Series, net of withholding tax.

MSCI Japan IMI ++ Index Morgan Stanley Capital International

The MSCI Japan IMI ++ Index is comprised of the MSCI Japan (Standard Index Series) from 12/31/2005 to 6/30/2008 and the MSCI Japan (Investable Market Index Series) thereafter.

MSCI U.S. REIT Index Morgan Stanley & Co., Inc. Well-known, independently maintained and published index of equity securities issued by REITs.

MSCI World Growth Index Morgan Stanley Capital International

Well-known, independently maintained and published global developed markets equity index comprised of large/mid capitalization stocks that have a growth style. Large/mid cap stocks encompass approximately 85% of each market’s free float-adjusted market capitalization. The style is determined using a multi-factor approach based on eight historical and forward-looking characteristics. MSCI Standard Index Series, net of withholding tax.

MSCI World Index Morgan Stanley Capital International

Well-known, independently maintained and published global developed markets equity index. MSCI Standard Index Series, net of withholding tax.

Russell 1000 Growth Index Russell Investments Independently maintained and published index which measures the performance of those stocks included in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values.

Russell 1000 Value Index Russell Investments Independently maintained and published index which measures the performance of those stocks included in the Russell 1000 Index with lower price-to-book ratios and lower forecasted growth values.

Russell 2500 Growth Index Russell Investments Independently maintained and published index which measures the performance of those stocks included in the Russell 2500 Index with higher price-to-book ratios and higher forecasted growth values.

Russell 2500 Value + Index GMO The Russell 2500 Value + Index is comprised of the Russell 2500 Index from 12/31/1991 to 12/31/1996 and the Russell 2500 Value Index thereafter.

Russell 3000 + Index GMO The Russell 3000 + Index is comprised of the S&P 500 Index from 7/23/1998 to 10/15/2007, and the Russell 3000 Index thereafter.

S&P 500 Index Standard & Poor’s Corporation Well-known, independently maintained and published U.S. large capitalization stock index. S&P Developed ex-U.S. Small Cap Index

Standard & Poor’s Corporation The S&P Developed ex-U.S. Small Cap is the small capitalization stock component of the S&P Broad Market Index (BMI). The BMI is a float-weighted index that spans 22 countries and includes the listed shares of all companies with an available market capitalization (float) of at least $100 million at the end of May each year. Companies are deleted if their float falls below $75 million. Changes are effective before the open of the first business day of July. The Small Cap ex-U.S. is defined as those stocks falling in the bottom 15% of the cumulative available capital in each country.

S&P/IFC Investable Composite Index

Standard & Poor’s Corporation /International Finance Corp.

Independently maintained and published emerging market stock index.

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Documents

GMO 2009 Q1 Update