2q 2011 European Update

European Quarterly Update
Second Quarter 2011

GMO offers a range of strategies orientated towards institutional investors investing in equities and fixed income in the developed international and emerging markets.
Contents
European Market Review ............................................................. 4 Asset Allocation ............................................................................. 4 Performance Review and Outlook ............................................. 6 Strategy Performance Details.....................................................16 Table of Benchmarks ..................................................................45
GMO European Quarterly Update
2011 Performance of GMO Strategies and Benchmarks

Total Return Net of Fees Average Annual Total Return One Year 30.91 30.51 21.43 22.14 31.34 29.35 30.36 34.25 30.36 21.15 13.43 33.25 28.61 27.80 25.64 25.63 27.13 25.63 29.74 30.69 36.15 28.94 26.77 30.69 One Year 14.16 10.15 19.65 11.73 20.72 19.59 Five Year 1.57 2.28 5.49 6.85 0.72 0.36 1.48 1.74 1.48 -1.14 -3.24 9.57 12.06 11.42 3.98 4.49 2.87 4.49 2.24 2.94 0.97 1.15 4.15 2.94 Five Year 5.63 7.62 9.26 9.59 n/a n/a Ten Year 5.68 3.99 4.64 3.77 8.13 5.96 5.66 n/a n/a n/a n/a 17.72 17.53 16.20 n/a n/a 5.54 4.76 2.05 2.72 2.90 3.99 n/a n/a Ten Year 7.60 8.01 14.03 10.21 n/a n/a Since Inception 7.31 5.65 9.25 7.34 8.57 7.36 5.41 9.33 7.59 -0.88 -2.62 9.99 7.30 6.74 8.43 8.00 10.08 9.36 10.93 10.57 3.81 3.57 3.22 4.05 Since Inception 6.29 5.96 16.60 11.92 5.62 9.42
GMO Equity Strategies/Benchmarks

Global Equity MSCI World World ex-UK Equity FTSE World ex-UK International Intrinsic Value MSCI EAFE Value MSCI EAFE International Core Equity MSCI EAFE Japan Equity MSCI Japan IMI++ Emerging Markets S&P/IFCI Composite MSCI Emerging Markets UK Equity Core FTSE All-Share UK Equity Value FTSE All-Share U.S. Core S&P 500 Intrinsic Value Russell 1000 Value Quality S&P 500
Inception Currency Date 7/31/96 12/31/88 3/31/87 USD GBP USD
2Q 2011 1.89 0.47 1.01 0.30 2.68 0.98 1.56 3.51 1.56 3.41 0.48 -1.48 -0.98 -1.15 2.70 1.91 3.53 1.91 2.85 0.10 1.86 -0.50 3.42 0.10 2Q 2011 3.15 3.33 3.03 4.03 3.35 4.14
YTD 2011 6.66 5.29 3.41 2.59 6.94 5.58 4.98 7.31 4.98 1.85 -3.97 3.15 0.70 0.88 3.80 2.96 4.52 2.96 7.40 6.02 10.35 5.92 7.02 6.02 YTD 2011 4.86 3.89 5.53 5.09 6.09 6.94
YTD Value Added 1.37 0.82 1.37
1/31/02 12/31/05 12/31/93
USD USD USD
2.33 5.83 2.46
11/30/04 11/30/88 9/30/85 5/31/99 2/29/04
GBP GBP USD USD USD
0.84 1.56 1.37 4.43 0.99
GMO Fixed Income Strategies/Benchmarks

Global Bond* J.P. Morgan Global Gov't. Bond Emerging Country Debt* J.P. Morgan EMBI Global + Emerging Country Local Debt Invst.** J.P. Morgan GBI-EM Diversified
Inception Currency Date 12/31/95 4/30/94 2/29/08 USD USD USD
YTD Value Added 0.97 0.44 -0.86
* 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.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. A GIPS compliant presentation is available at www.gmo.com. Copyright 2011 by GMO. All rights reserved. This document may not be reproduced, distributed or transmitted, in whole or in portion, by any means, without written permission from GMO.
2011 Performance of GMO Strategies and Benchmarks

Total Return Net of Fees Average Annual Total Return One Year 19.80 20.59 17.00 18.91 10.33 8.56 31.01 30.47 30.79 30.52 28.65 31.81 One Year 7.07 0.14 -12.62 0.14 8.38 0.49 8.06 0.49 5.54 0.49 16.01 0.49 -3.25 0.14 1.21 0.14 -4.39 0.14 0.32 0.14 Five Year 5.58 4.58 5.21 3.53 5.90 7.18 4.60 3.08 3.14 2.28 2.59 3.23 Five Year 1.30 1.87 -5.27 1.87 5.45 2.93 -1.07 2.93 -6.60 2.93 6.11 2.93 3.23 1.87 7.64 1.87 n/a n/a 2.44 1.87 Ten Year 8.07 4.90 n/a n/a n/a n/a 8.34 4.68 7.62 3.92 3.28 3.11 Ten Year 2.73 2.01 n/a n/a 9.02 2.71 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Since Inception 10.14 8.32 6.89 4.98 10.20 7.50 9.28 7.24 9.41 7.13 10.18 9.55 Since Inception 5.85 2.25 -8.13 2.22 11.31 3.84 0.72 2.83 -4.73 3.15 5.17 3.03 8.35 1.95 7.81 1.96 12.43 0.92 2.92 1.97
GMO Asset Allocation Strategies/Benchmarks

Global Balanced Asset Allocation Blended Benchmark Real Return Global Balanced Asset Alloc. Blended Benchmark Global Allocation Absolute Return CPI Plus 5% Global All Country Equity Allocation Blended Benchmark Global Developed Equity Allocation Blended Benchmark U.S. Equity Allocation Blended Benchmark
Inception Currency Date 6/30/88 6/30/04 7/31/01 12/31/93 3/31/87 2/28/89 USD USD USD USD USD USD
2Q 2011 2.22 0.98 2.33 0.74 1.59 1.59 2.86 0.24 3.21 0.47 3.16 0.02 2Q 2011 -0.71 0.02 8.15 0.02 0.53 0.10 1.78 0.10 -0.32 0.10 1.23 0.10 0.08 0.02 3.72 0.02 -2.04 0.02 1.41 0.02
YTD 2011 5.00 4.04 4.48 3.76 3.03 4.35 6.51 4.81 6.84 5.29 7.36 6.22 YTD 2011 1.80 0.06 1.86 0.06 0.83 0.20 2.81 0.20 0.95 0.20 5.84 0.20 1.21 0.06 -0.27 0.06 1.74 0.06 1.44 0.06
YTD Value Added 0.96 0.72 -1.32 1.70 1.55 1.13
GMO Absolute Return Strategies/Benchmarks

Aggressive Long/Short Citigroup 3-Mo. T-Bill Tactical Opportunities Citigroup 3-Mo. T-Bill Emerging Country Debt Long/Short J.P. Morgan U.S. 3 Month Cash Currency Hedge J.P. Morgan U.S. 3 Month Cash Fixed Income Hedge J.P. Morgan U.S. 3 Month Cash Emerging Currency Hedge J.P. Morgan U.S. 3 Month Cash Mean Reversion Citigroup 3-Mo. T-Bill Systematic Global Macro Citigroup 3-Mo. T-Bill Completion Citigroup 3-Mo. T-Bill Multi-Strategy Citigroup 3-Mo. T-Bill
Inception Currency Date 9/30/00 9/30/04 3/31/96 7/31/03 8/31/05 3/31/06 2/28/02 3/31/02 8/31/07 10/31/02 USD USD USD USD USD USD USD USD USD USD
YTD Value Added 1.74 1.80 0.63 2.62 0.75 5.64 1.15 -0.33 1.68 1.38
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. A GIPS compliant presentation is available at www.gmo.com.

helped by increasing levels of political and social turmoil. However, equity investors seemed to take comfort in the Greek parliament passing a crucial package of austerity measures. The Pacific ex-Japan and emerging equity markets vied to be the worst performing region, achieving respective returns of -2.4% and -3.1%. The U.S. equity market also fell with a -2.0% return in euro terms. Style factors had only minor impact on overall market performance this quarter. There was little appreciable difference in returns between large/medium and small capitalisation stocks in equity markets, although large growth companies were slightly ahead of traditional value. The Eurozone sovereign debt crisis saw investors seek out the safe havens of U.S. and German government debt. Global bonds and emerging market debt rose adding 1.1% and 1.8% respectively during the quarter, both in euro terms. EMU government bonds also gained slightly with the JPM EMU Government All Maturities Index returning 0.7%. The U.S. Dollar as well as the British Pound lost about 2% and the Japanese Yen was flat with +0.4% against the Euro. Mounting concern about the strength of the global recovery and an unexpected announcement in June by the International Energy Agency that it would release 60 million barrels from its strategic oil reserves as a replacement for Libyan supply losses led to a fall of about 10% in the oil price during the quarter.
European Market Review

Global equity markets were buffeted throughout the quarter by a mixture of contradictory news. Steady growth in emerging markets and positive economic data from the U.S., Germany and France were helpful. In contrast, markets were depressed on news of the continuing problems in the Eurozone, rising inflationary pressures and an apparent slowdown in Chinas economy. Overall global equities ended the quarter slightly negative with the MSCI World Index showing a decline of 1.7% in euro terms. The best performing equity regions were in Europe with the European index returning 0.3%. The advance in Europe took place despite the debt crisis. Initially, attention was focused on Portugal but events quickly turned to Greece as the threat of default heightened, not
Global Balanced Asset Allocation: One Example Recommendations as of June 30, 2011 Benchmark: 65% MSCI ACWI Index / 35% Barclays Capital Aggregate
Benchmark
Fixed Income 35.0% U.S. Equities 27.8%
GMO Active Weighting Decisions
U.S. Equities -4.7%
Emerging Equities 8.8%
International Equities 28.4%

Int'l. Equities -2.6%
GMO Allocation
Cash & Special Equivalents Situations 2.1% 3.7% Alpha Only 17.0% Asset Allocation Bond 2.7% Emerging Country Debt 0.5% Strategic Fixed Income 10.7% Domestic Bond 2.5% Emerging Markets 12.1% Flexible Equities 3.3%
Quality 23.1%
Emerging Equities +3.3%

International Intrinsic Value 4.6% International Growth 4.6%
Asset Allocation
Review
Throughout the first four months of 2011, investors around the globe continued to climb a wall of worry, with their speculative zeal trumping any and all concerns surrounding a nasty brew of poor employment numbers, worsening housing markets, rising commodity prices, and dysfunctional European parliaments. And, lets not forget the rolling series of civil wars in the Middle East
International Core Equity 13.3%
Fixed Income +4.2%
-10%
-5%
0%
5%
10%
Note: Asset Allocation ranges are 20% for U.S. and international equities and -10%/+15% for fixed income.
Please be advised, unless otherwise noted, all returns are in U.S. dollar terms.

and North Africa and the nuclear crisis in Japan. In May, however, it was as if having reached the top of the wall investors finally took a more serious survey of the landscape and concluded all is not well. Perhaps it was the looming end of QE2 and all of the unknowns associated with it, or the realization that the Greek debt crisis was merely the tip of a liquidity and sovereign debt crisis iceberg that could destabilize European banks (and the entire money market system here in the U.S.). Whatever the tipping point, a healthy dose of fear, not panic, finally set in. Global equity markets trimmed about 210 basis points during May and almost another 160 basis points in June. The rising yields in the bond market gave way to a classic flight to safety, and Treasury yields fell soundly to around 3.0% in the latter part of the quarter. Our view is that this correction, while painful, is likely not over, with equity markets around the planet trading well above their fair value. As always, the path, speed, and timing of the movement to fair value is unknowable, but whether its a pin-prick event or a slow grind, we believe a hunker down mentality is prudent when it comes to portfolio positioning.
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Treasuries and their negative yields. No, there are still plenty of investors willing to stay at the speculative feast, but we have pushed ourselves away from the table. Our broad strategies are: Emphasize Quality stocks. While one month doth not a trend make, Mays substantial market pull-back was illustrative of what we expect to be a string of market movements over the coming year. The market witnessed a wake-up call, if you will, to the worrisome sets of crises globally. The laundry list of worries the looming end of QE2 most notably has been known for some time, yet the urgency of them somehow spooked the markets starting in May. With that, we witnessed a sizable rotation into Quality. Our Quality Strategy outperformed the S&P 500 by over 330 basis points, as the appeal of highly profitable and stable, unlevered business models suddenly trumped animal spirits. We dont believe this rotation is anywhere near complete. Nor do we believe that the list of worries is by any means checked off. Far from it. Therefore, we happily maintain our Quality bias. Maintain exposure to emerging markets, but with some precise hedging. We remain overweight emerging markets within global equity mandates as they represent a sub-asset class priced to deliver very decent returns. However, the China real estate bubble remains on our watch list, and, where appropriate, we have taken pains to surgically hedge specific areas of the global market that are highly tied to continued growth in Chinese real estate. Specifically, we have hedged direct exposure Chinese real estate developers and banks but we have crafted a custom basket of secondary and tertiary plays on the China bubble days coming to an end (e.g., Australian copper miners and luxury goods manufacturers). Either way, our position remains constructive on the broad universe of emerging equities, but with some serious caveats regarding China.
Strategies
There is, of course, no law that forbids expensive asset classes from becoming more expensive. There are no chiseled tablets forbidding historically low bond yields from going lower. And some bold and courageous investors may want to stay for additional courses. Wall Street is more than willing to provide the investment rationale for such a decision, and CNBC can no doubt line up a healthy roster of yea-sayers to serve up the next dish. But we have other plans. We remain defensive. We remain cautious. We are cognizant that, while valuations are not nearly as stretched as we saw in the summer of 2007, they dance dangerously close. That while the high yield market one of the many canaries in the coal mine is signaling all sorts of speculative froth (from historically low spreads and all manner of dodgy conditions), it is not as bad as it was only four years ago. Faint praise indeed. And lets not get started again on
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Bonds back into very, very expensive territory. The rally in bonds this quarter can be called many things: a flight to safety, a deflation play, etc. We call it the way we see it: already expensive bonds just became more expensive. Our sober forecast for bonds is global in nature, just from a pure valuation perspective. Throw in a good dose of sovereign credit worries and the end of QE2, and you have a whole basket of excuses to, where possible, avoid bonds. Maintain positions in low duration fixed income and cash/cash plus in balanced portfolios. Truth be told, we dont necessarily like holding these low-duration cash instruments given their low yields. Their appeal, then, is not so much that theyre going to make us a ton of money, but rather that they can act as dry powder that we can deploy when expensive assets elsewhere (read: stocks and bonds) get closer to fair value. Yes, these holding are a short-term drag on performance, but the option they provide to put cash to work at better pricing gives us some degree of comfort. Invest in conservative absolute return strategies, where available. Ideally, absolute return strategies are often a pure play on manager skill. Therefore, the return streams should have little correlation to the movements of the markets. Such investment instruments can provide equity-like returns, while helping to diversify other parts of ones portfolio.

had in recent quarters resisted falling prey to European gloom, the second quarter combination of continued European troubles with a number of stumbling points in the U.S. economic recovery held stocks in check. The S&P 500 started off the quarter with a strong April return, but spent the remaining two months giving back those gains to finish with a modest +0.1% quarterly return.
U.S. Equity Markets

Second Quarter 2011 Performance
5% 4% 3% 2% 1% 0% -1% -2% -3% S&P 500 Dow Russell 1000 Russell 2500 MSCI Jones Value Growth Value Growth U.S. U.S. TSM REIT
-0.5% -1.5% 0.8% 0.1% 0.0% 0.4% 3.6%
Performance Review and Outlook

U.S. Equities Market Review
In the second quarter of 2011, U.S. investors softened their affinity for the riskiest segments of the market, as developments domestic and abroad called into question the sustainability of U.S. stocks year-long run. European sovereign debt woes, and their potential to destabilize a global economic recovery, continued to weigh on global markets during the period as troubles in Greece were viewed as a potential canary in the proverbial coal mine for indebted nations around the globe. While U.S. stocks
Where European troubles highlighted a more generalized risk for U.S. investors that European sovereign debt problems could spill over into U.S. markets domestic economic data during the quarter highlighted a more specific risk for U.S. investors: that a stalled U.S. economic recovery would put a limit on stock returns. During the quarter, U.S. investors fretted over a variety of economic reports showing slowing or stalling in the pace of the economic recovery. From jobs data to manufacturing reports, a slew of widely reviewed economic indicators conspired to tell a not so fast cautionary tale to U.S. investors bidding up stocks in anticipation of a return to pre-recession economic conditions. Hints of a less-than-stellar economic rebound were particularly troubling for stocks and areas of the market perceived most levered to general economic conditions. Indeed, the S&P 500s modest +0.1% quarterly return belied a significant underlying split in returns to risk-taking within equities. Of the 10 GICS economic sectors within the S&P 500, only five posted positive absolute returns during the quarter, with
U.S. Equities
Relative Performance of Selected Groups versus the S&P 500 Year-to-Date June 30, 2011
8.0 6.0
Largest 100
3.0 2.0 1.0
Russell 2000
Size
4.0 2.0 0.0 -2.0 12/10
0.0 -1.0 -2.0 -3.0 -4.0 12/10
2/11
4/11
6/11
2/11
4/11
6/11
Investment Disciplines
10.0 8.0 6.0
Cheap on Price/Intrinsic Value
10.0 8.0 6.0 4.0
High Price Momentum
4.0 2.0 2.0 0.0 12/10 0.0 -2.0 12/10
2/11
4/11
6/11
2/11
4/11
6/11
3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0
Consumer Discretionary
Financials
4.0 2.0 0.0 -2.0 -4.0 -6.0 -8.0 -10.0 12/10
Sectors
-4.0 12/10
2/11
4/11
6/11
2/11
4/11
6/11
4.0 2.0 0.0 -2.0 -4.0
Information Technology
12.0 10.0 8.0 6.0 4.0 2.0 0.0
Energy
-6.0 12/10
2/11
4/11
6/11
-2.0 12/10
2/11
4/11
6/11
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the best performance coming from more defensive areas of the market. Health Care led sector winners, rising 7.8%. Utilities advanced 6.1%, and Consumer Staples gained 5.2%. On the negative side, more economicallyexposed sectors posted negative returns during the period, with Financials (-6.0%) and Energy (-4.7%) leading the decliners. The split in returns to risky areas of the market could also be seen in the returns to a number of investment factors during the period. High quality and low volatility stocks posted strong relative returns, while their low quality and high volatility counterparts lagged the market by similar margins. Momentum metrics also underperformed during the quarter, hurt by their exposure to the economically exposed areas of the market that had performed well recently. Bottom-up valuation metrics delivered mixed relative returns, with those incorporating company quality in their valuation faring the best. Investors distaste for risk was also exhibited in index returns for the quarter, with large cap stocks outperforming mid and small caps.

also a widespread view that, to repeat what has become a very tired metaphor, the can will be kicked down the road for several years. And if this happens with the European taxpayer ultimately bearing much of the burden, the crisis need not be disastrous for equity markets broadly. The can kicking at the end of the quarter allowed the MSCI Europe index to end the period above water, returning +2.4% for the period in U.S. dollar terms. The broader MSCI EAFE index of developed international stocks returned +1.6%.
International Equity Markets

Second Quarter 2011 Performance
4%
2.4%
2%
1.6% 0.2% 0.2% -0.2% -0.8% -1.0% -2.4% -2.9%
0%
-2%
In Local Terms In Dollars
Outlook
In the long run, investment returns have three sources: dividends, fundamental growth, and changes in price multiple. There are innumerable factors that influence a companys ability to pay dividends and grow, and the multiple the market is willing to pay for it. But at the heart of a value investment philosophy is an understanding of what is knowable, what is unknowable, the risks to both the known and unknown, and where we derive an edge. Our focus remains on understanding the knowable, acknowledging the unknown, weighing the associated risks, and finding investments trading for less than theyre worth.
-4% EAFE
MSCI Europe Pacific ex-Japan
Japan
S&P/IFCI Composite (Emerging)
In Europe (and elsewhere) the more defensive Pharmaceuticals and Consumer Staples sectors, as well as automotive and retail stocks, drove the outperformance. Large pharma stocks like Novartis, Roche, Sanofi, and GlaxoSmithKline enjoyed gains ranging from 10% to 20%. Although Financials and many riskier industries underperformed, there appeared to be a fairly strong appetite for equities, perhaps stimulated by relatively derisory bond yields. Greece was the worst performing developed market for the quarter, with the MSCI Greece index falling 18% in local terms. It was not a complete wipeout for the PIIGS though, as Ireland was at the other extreme, gaining 5.3%. Germany was the best performing major market, up 4.0% in local terms. While Italy had shown some signs of graduating from the PIIGS acronym (shortened by many commentators to PIGS), that owner of the second I suffered a whiff of contagion,
International Equities Market Review

The sovereign debt crisis in Europe was the dominant news story affecting developed international equity markets. The received wisdom (reflected in bond and CDS prices, if not on the balance sheets of banks) is that Greece will eventually default or restructure. But there is

with a downgrade of its credit ranking, political concerns, and capital raising by a number of its banks, and the MSCI Italy index fell 4.7% in euro terms. Japan is showing some signs of recovery from the tsunami. The MSCI Japan index was up a meager 0.2% for the quarter in dollar terms. Consumer-oriented stocks and financials held up relatively well, but commodity dependent companies and utilities with nuclear power exposure suffered. While currency moves were not dramatic, a falling dollar contributed to positive returns and the outperformance of international equities. The MSCI EAFE index actually fell 0.8% when measured in local currencies. The Swiss franc and New Zealand dollar were the stronger performers, up over 8% against the U.S. dollar. The yen and euro both gained about 2.5%, while British sterling was virtually flat. Oil prices declined in May and June, falling about 10% for the quarter, depending on the benchmark. Energy stocks were the worst performing global sector, though the price falls were muted. Broader commodity indices suffered their first quarterly declines since the end of the financial crisis, and the Materials sector also lagged. Large miners like BHP and Anglo American suffered modest declines, and Glencores IPO in May came off with only muted success. Higher quality stocks outperformed during much of the quarter. On GMOs measure blending high and stable profitability with low leverage, the highest quartile of the EAFE markets outperformed by nearly 4%. Understandably, the gap was widest in Europe, but was observable in Japan as well. Defensive industries (on GMOs definition) outperformed by a similar margin. Lower price volatility stocks also did well and, indeed, the low earnings volatility component of GMOs quality measure was more significant than high profitability or leverage (though all three were ahead).
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Growth outperformed Value for the quarter, as defined either by MSCI indices or price/book (though not as defined by analyst consensus forecasts). MSCI EAFE Growth gained 2.1%, while MSCI EAFE Value was up 1.0%. Smaller cap stocks are generally more cyclical, and the MSCI EAFE Small Cap index rose a more modest 0.8%
Outlook
The more the pendulum swings from greed toward fear, the more opportunities there will be for an investor in equity markets. While it would be nice to be able to say things have gone so far as to provide mouthwatering valuations at little downside risk, things are not generally so simple. The good news is that the story of the lack of growth in much of the developed world has become so widespread that virtually none is priced in for many companies that have stellar track records, and so the odds seem in the investors favor. Some of the more distressed parts of the world have fallen severely, and may rebound sharply, but investing there requires something of a gambling mentality. And stocks with clear exposure to growth, most likely from China, tend to be at least fully priced. Still, volatility and fear are friends of prudent investors, so, while the markets in aggregate may not present the valuations we would hope for, there are opportunities within them that excite us.
Emerging Market Equities Market Review

Emerging markets suffered minor losses over the second quarter, with a strong April getting pulled down by weak May and June returns. Investors spent the quarter chewing over the myriad developments in the sovereign debt crisis and the pace of monetary tightening in several key markets. The last days of the quarter saw sentiment turn bullish as concern of a Greek default eased after the government secured enough votes to push
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ahead with budget cuts. The quarter saw country performances as diverse as an 8.5% jump in Chile and a 15.2% plunge in Peru. Among sectors, the spread was tighter, with Consumer Discretionary leaping 8.3% and Energy dropping 7.4%. Russian Energy underperformed the asset class as the outlook for commodities grew less rosy and concern deepened that tighter monetary policy in Russia would curb economic growth. The central bank unexpectedly raised interest rates in April to check inflation. The central bank had in the past relied on currency gains and higher reserve requirements as its tools in fighting inflation rather than hiking rates. The concerns over the ultimate resolution to Greeces debt crisis, inflation fighting efforts in countries such as China and India, and speculation that U.S. demand may be slowing have all led to a fall in energy prices. Investors in Hungary were cheered by signs of a strengthening global economic recovery. Closer to home, they found comfort in the ongoing talks between the government and commercial banks on ending a moratorium on evictions and stimulating mortgage lending. The market was also influenced by rumors that the government would lower a special tax on banks as part of an agreement with lenders to help distressed borrowers after the moratorium on evictions runs out. The government had relied on temporary industry taxes and the effective nationalization of private pension portfolios to reach budget targets in the past rather than imposing austerity measures directly on the populace. A happy combination of rapid growth, slowing inflation, and low interest rates is boosting domestic spending in Indonesia. The central bank forecasts the economy to grow as much as 6.5% this year, the fastest pace since 2004. However, inflation decelerated, with consumer prices rising 6.0% in May from a year earlier. This has helped convince the central bank to let the benchmark interest rate stay at a near record low of 6.75%.

Perus stocks dropped as the market awaited President -elect Humalas economic policies. Investors fear that he will expand the role of the state and call for higher mining taxes. Humala said that he is seeking economic growth with social inclusion. Some of the gloom was lifted by the central bank unexpectedly keeping its benchmark rate unchanged for the first time in six months.
Outlook
This outlook takes a look at some recent significant political developments in emerging markets. Changes in leadership in these markets often have a greater impact on the macroeconomic policies of a country than they do in developed markets.
Peru Elections
President-elect Humala has put investors on edge by some of his campaign pledges to revise mining contracts and revisit free-trade agreements with the U.S. and other nations. Peru is the worlds largest silver and third largest copper producer. The central bank estimates that mining projects will account for almost half of the $47.5 billion of private investment expected in Peru from 2011 to 2013. While he has praised his one-time ally, Venezuelan President Hugo Chavez, in the past, more recently his comments have been peppered with references to the business-friendly policies of Brazil. In a trip to the U.S. after his election, he stated that relations are good, but, We want to improve them during my government. His post-election comments have also included a goal of balancing economic growth with social inclusion. Investors, however, remain uncertain of his policies and eagerly await his first moves once he takes office at the end of July.

Thailand Elections
The Pheu Thai party, backed by former premier Thaksin Shinawatra, won 265 seats in the 500-member parliament. Yingluck Shinawatra, Thaksins youngest sister, will become prime minister, and has built a fiveparty coalition to broaden her mandate. Thaksin was ousted in a 2006 coup and has lived overseas since fleeing a jail sentence for abuse of power. Parties linked to him have won the past four national elections based on support in northern rural areas for cheap health care plans and microcredit policies. While the waters could yet get muddy, there is a sense that this time Pheu Thai can corral more support than earlier. A reduction in political uncertainty would cheer businesses and improve growth prospects. The party made campaign pledges to raise the minimum wage and guarantee rice prices for farmers. Optimists hope for greater political stability and controlled fiscal expenditure while pessimists fear a return to political disorder and patronage spending.
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skepticism as to whether they will be a force for moderation or a divisive, fundamentalist element. Protests, though on a much smaller scale, are ongoing in Egypt as activists demand more rapid trials of former government officials and policemen accused of killing protesters in the uprising that toppled Mubarak. In Morocco, the other emerging market in the Middle East, a draft constitution was widely approved in a referendum. The constitution was written at King Mohammeds orders in response to protests that echoed the uprisings in Tunisia and Egypt. Under the plan, the prime minister will be chosen from the party that wins elections and will replace the king as the head of government. However, the king will retain the power to overrule or dismiss parliament. While many supported it as a significant step toward democratization, others felt that it wasnt close enough to their ideal. Moroccos tradition of greater social freedoms and deeper political participation suggest that this move, while well short of achieving genuine democracy, will probably be enough to deflect the current pressure.
Elections in the Middle East

Massive street protests forced Egyptian President Mubarak to resign in February and cede interim authority to the Supreme Council of the Armed Forces. But, five months later, there is still considerable opacity over the future political landscape. Parliamentary elections are scheduled in September. Egypts Cabinet approved a draft law under which half of the seats would be contested through slates of candidates and the rest by individual candidates. According to the draft, parliament would have 500 seats and candidates of different parties may run on one slate, allowing alliances to be struck. Mubaraks 30-year-long stay in office has shrunk any opposition, leading to a dearth of viable alternative parties. The Egyptian Brotherhood is one of the few groups with a significant grassroots network. Senior officials at the Brotherhood pledge support for private enterprise and free markets. However, there is
Fixed Income Review

Bonds had a good quarter, particularly unhedged foreign bonds, as yields fell nearly everywhere and the U.S. dollar declined. U.S. Treasuries returned +2.5%, slightly outpacing the broader Barclays U.S. Aggregate Bond index, where widening sector spreads detracted. USD emerging debt (EMBIG series) returned +4.0%, partially a reflection of the relatively longer interest-rate duration of the asset class, but also due to the spread return from it. Foreign government bonds, both from developed countries and emerging countries, produced positive returns, all the more so when the positive currency returns were added given the U.S. dollars near uniform decline.
12
Total Returns Second Quarter 2011
4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% U.S. Gov't. USD USD Non-U.S. Non-U.S. Bonds Bonds Emerging Bonds: Bonds: (JPM GBI) (Barclays Bonds Developed Emerging U.S. Agg) (EMBIG) (JPM GBI) (JPM GBIEM)
2.5% 2.3% 1.6% 4.0% 3.1% 2.2% Currency Bonds 1.1%

In terms of yield levels, interest rates fell in most markets. Among developed countries, Canadian, Swedish, and U.S. yields fell the most, and Japanese and New Zealand the least, with the eclines ranging from 1030 basis points for 10-year yields. Among emerging countries, the declines were greater than 30 basis points in eight markets, although here we take 5-year yields. Only in Turkey did rates rise and do so sharply, as the market lost patience with the Central Bank of Turkeys monetary policy experimentalism. In currencies, apart from idiosyncratic circumstances, the foreign currencies gained relative to the U.S. dollar fairly broadly for a second quarter in a row. Most emerging currencies rose relative to the U.S. dollar, with the largest quarterly spot gain coming from Colombian peso, +5.8%. Another nine currencies registered spot gains greater than 2%, including Brazil, Poland, Czech Republic, Korea, Singapore, Taiwan, Chile, Hungary, and Israel. On the downside, Turkish lira was the stand-out loser, -4.9%. A yawning current account deficit (financed mostly by short-term debt) defied authorities confidence that their unusual monetary policy would simultaneously cool domestic demand and deter hot money inflows. The CBRT did acknowledge in its spring financial stability report that sharply rising short-term borrowing (mostly by banks) was the main threat to financial stability. They vowed to continue reserve requirement hikes (rather than interest-rate hikes) to pinch credit growth. Other laggards included Argentine peso, -1.4%, and Thai baht, -1.3%. In Argentina, although the question of whether Cristina Fernandez de Kirchner would run for president in the fall was settled (yes), locals were already voting with their pesos in leaving the country. Although difficult to observe directly, the parallel (or ironically named Blue Chip) peso rate fell even faster than the official one. Despite the declines, the official pesos return was +0.5% due to the high carry in the NDF (non -deliverable forwards) points. In Thailand, pre-election
The main exception to this positive bond story continued to be the fallen angels of sovereign bonds, less charitably referred to as PIG (Portugal, Ireland, Greece). Lucky for J.P. Morgans series, none of these countries pertains to its Global Government Bond Index series, which draws the line to include Italy and Spain but not the PIGs. Unlucky for the fallen angels, unless they default, they are ineligible for J.P. Morgans Emerging bond indices, which exclude high income countries unless they default. So, the fallen angels, all at or near junk ratings at quarter end, are homeless from a bond index perspective, compounding woes for the countries in their search for buyers of their debt.
European Government Bond Total Returns 2Q vs. 1Q 2011

2.1% 1.9% 1.9% 1.4% 1.0%2.1% 0.5% 0.5% -0.4% -5.7% -6.0% -8.6% -11.8% 1Q 2011 2Q 2011 -14.5% 0.2%
-2.3% -2.0% -2.4%
It a ly
an d
an y
ai n
nc
um
ga l rtu
la nd
G er m
Fr a
Sp
lg i
et he r
Be
Source: J.P. Morgan
Po
G re
Ire l
ec

jitters weighed on the baht and temporarily narrowed onshore-offshore forwards. In Peru, leftist candidate Ollanta Humala emerged victorious, although the margin was small. During the final months of the campaign he did a Lula makeover, and each gesture lifted the depreciation pressure on the new sol. By quarter end, the new sol had risen by 1.9%, a middling performance in the region (Chile +2.2%, Brazil +4.4%, Mexico +1.5%). Chinas currency ended the quarter +1.3%, with all of the gains coming in April, ahead of the U.S./China Strategic and Economic dialog. As has become a seasonal pattern, China allows the currency to rise ahead of the meeting (and the U.S. semiannual report on currency manipulation), then backs off afterwards. In G10, somewhat unusually, the quarters lead gainers were safe haven Swiss franc, +8.7%, and highcarry New Zealand dollar, +8.3%. Swiss franc reached all -time highs in real effective terms, prompting one Swiss lawmaker to suggest imposing negative interest rates on foreign investors (read: Greek deposit flight) to deter further inflows. New Zealand dollar, meanwhile, continued to benefit from post-quake reconstruction and insurance inflows. The euro ended the quarter surprisingly well, considering that euro member Greeces bonds are pricing significant bondholder losses. The single currency seesawed between 1.405 and 1.475 relative to the dollar
13
during the quarter, alternatively buoyed by the ECBs first post-crisis interest-rate increase (and the strong hints of more) and deflated by the ongoing slow-motion sovereign crises in the periphery. During the quarter, the ratings for Greek debt were cut deep into junk; Portugal rested on the edge of junk (and downgraded to below right after quarter end); while Ireland delivered a rather nasty haircut to bank bondholders. In credit markets, emerging debt spreads (EMBIG series) tightened by 10 basis points to 288 basis points during the quarter. Eurozone countries suffered more downgrades from the ratings agencies, which were not convinced by plans to allow Greece to impose losses on bondholders without technically defaulting. CDS spreads on Greece more than doubled to imminent-default levels in line with the CCC/Caa1 ratings. Ireland and Portugal kept their investment-grade ratings through the end of the quarter, although Moodys dropped Portugal to Ba2 immediately afterwards. Liquidity in the emerging cash bond market deteriorated slightly and the average bidoffer spread widened to 67 basis points at the end of the quarter from 62 at the beginning. New issuance of $81 billion fell slightly from the first quarter, but was above the average of the previous four quarters. The biggest index gainers were Ivory Coast (+12.5%), Nigeria (+6.9%), Venezuela (+6.4%), and Uruguay (+6.4%). The Ivory Coast bond continued to rally during the quarter as the internationally-recognized Ouattara administration took office, although it missed another
Second Quarter 2011 Change in Interest Rates (10Y DM, 5Y EM)

0.4
-0.1 -0.1 -0.2 -0.2 -0.2 -0.2 -0.3 -0.3 -0.3 -0.3 -0.3 -0.7 -0.9
-0.4 -0.4 -0.4 -0.5 -0.5 -0.4
-0.3 -0.3 -0.3 -0.2
0.0 0.0 -0.1 -0.1 -0.1 -0.1
Ne w
Ho x ng ico Ko ng Ru ss ia Br az Po il lan d S. Afr Cz ica ec h. Re p. Si n g. Isr ae l Ch ile Ko r Hu ea ng ar Ta y iwa n GB I -E MD Ma lay Th sia ail an d Ch ina Tu rke y
Ze ala nd Ja pa n GB I Eu ro Au s Sw tralia it z erl an d UK No rw ay U. Sw S. ed e Ca n na da
on e Ind
Me
sia
Source: J.P. Morgan
14
coupon without committing to a schedule for making up the overdue payments. Nigerian elections were peaceful by local standards and the re-elected president showed signs of supporting positive reforms in the electricity sector. Venezuelan bonds recovered from earlier losses at the end of June when President Chavez had to be hospitalized in Cuba and was found to have cancer. The Uruguayan economy performed well in the first quarter, and the Central Bank conducted a well-received investor road show. Index laggers for the quarter included Belize (-19.9%), Iraq (-0.2%), Pakistan (+0.2%), and Serbia (+1.4%). The Belize bond collapsed at the end of June when the government nationalized the electric utility, which was not able to pay for imported fuel. Iraq and Pakistan both experienced political conflict well-covered by the media. In asset-backeds, the market generally experienced tightening spreads. According to J.P. Morgan, credit card spreads declined from 22 basis points to 16 basis points, auto spreads from 40 basis points to 32 basis points, and student loan spreads remained flat at 40 basis points. The ABX subprime indices declined sharply quarter-over -quarter, although the final week of June did show improvement. For the quarter, the triple-A Indices were 4% to 14% down in price; however, they finished the quarter 2% to 10% off of their lows.
GMO European Quarterly Update Strategies

Fixed income strategies were mixed during the quarter: currency positioning, both developed and emerging, performed well, while developed markets interest-rate selection, emerging debt exposure, and assetbacked portfolios formerly used as cash sweep suffered during the quarter. The U.S. dollars somewhat uniform fall helped our long FX positions in both developed and emerging currencies. Overweights in New Zealand, Australia, and Norway contributed on the developed side, while overweight positions in Brazil, Hungary, Poland, Peru, Mexico, Chile, and Indonesia were notable in emerging fx. In developed markets interest-rate strategies, opportunistic positions hindered performance during the quarter, while the cross-market strategy and yield curve trades contributed positively. This quarter marks the culmination of a months-long research effort to refine Fixed Incomes systematic strategies. The group reconsidered all components of the strategies, including the base factors used, their weightings, and the construction of the ultimate target portfolios. The end result is a series of refinements, which the team believes will benefit going forward.
Second Quarter 2011 Currency Spot Returns

8.3 8.7 5.8 3.1 3.5 2.2 2.2 2.6 0.8 0.0 0.2 -1 -1 .4 .3 -4.9 -0.5 -0.3 -0.2 -0.1 0.0 0.2 0.3 3.1 3.4 2.2 2.2 2.4 2.7 2.8 .8 .9 .5 .5 1 1 2.1 1 1 .1 .3 1 1 4.4
n Ca UK na da GB Eu I e ro x-U . Ja S. pa No n r Au w a y Ne str w Z e alia Sw alan d it z erl an d
Tu Ar rkey ge n Th tina ail Ro and ma S. nia Afr ica Ind ia H o Eg y pt ng Ph Ko n ilip g pi Ma nes la GB ysia I -E M Ch D in M a Ind exic on o es Ru ia ss ia Pe ru Isr ae Hu ng l ary Ch Ta ile Sin iwan ga po re C z Ko r ec e h. a Re Po p. lan d Br C o a zi lom l bia
Sw
ed e
Source: J.P. Morgan

In external emerging debt strategies, country selection and security selection were detractors. Emerging local debt strategies benefited from instrument selection and country selection, but currency selection detracted. Finally, after nine consecutive quarters of positive contributions, the collateral pools reported negative returns for the quarter, detracting alpha from all of the strategies in direct proportion to each strategys exposure.
15
be worth anything is a different question, one the market seems to be betting negatively about given the dollars near uniform decline. We continue to keep our portfolios tilted toward those currencies, interest-rate, credit markets, and instruments that we believe represent good value. At quarter end that included a continued underweight in the U.S. dollar, both against most G10 currencies and most emerging ones. In developed rates, we moved to overweight duration from underweight, mostly by cutting our substantial Japan underweight and adding a bit to our U.S. overweight. In credit, we still see value in assetbacked securities and emerging debt.
Outlook
At press time, no durable solution had been proposed to either deal with the PIGs issues or contain the fallout from not doing so. We put it in the too hard category to offer a credible opinion about the outcome (other than to say, having lived through a number of such crises in emerging countries, that default isnt the end of the world). Given the number of stakeholders and the chasm that separates their interests, a disorderly outcome cant be ruled out. On the matter of the U.S. debt ceiling, the irresponsible brinksmanship being played out by politicians and pundits in the news masks the more fundamental truth about the looming August deadline: the U.S. has both the willingness and ability to pay its debts in nominal U.S. dollars. Whether these dollars will
Second Quarter 2011 J.P. Morgan EMBIG Returns by Country

1 2.5 6.9 5.1 5.3 5.4 5.4 5.5 5.5 6.2 6.4 6.4 3.4 3.6 3.7 3.7 4.0 4.0 4.0 4.1 4.1 4.3 4.4 4.5 4.6 4.7 4.7 1 1 1 2.0 2.1 2.4 2.4 2.8 2.9 3.1 .9 .9 .9 .6 .7 .8 .4 1 1 1 0.2 1 -1 .3 -0.2
-1 9.4
Disclaimer: The views expressed herein are through the period ending June 30, 2011, and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security, is not intended to be investment advice and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please be advised, unless otherwise noted, all returns are in U.S. dollar terms.
B Se elize ne ga l Ira Pa kis q t Se an rbi Ga a Vie bon tn Uk am Ma raine Ar lays ge ia nti Gh na an C a Bu hile Ka lg za aria kh s Ru tan ss i C a Le hina ba n Po o n Sr lan iL d an k So Tur a ut h ke Do Afr y m. ica R Ge ep. o rg ia Pe EM ru Cr BIG o Be atia lar Cr us Ja oatia El ma Sa ica lva d Ph Me or xic ilip pi o Hu nes Ind nga on ry es i Br a Jo azil Ec rdan Co uado lom r Pa bia na m E a Ur gyp Ve ugua t ne zu y e Ivo Nige la ry ria Co as t
16
GMO Global Equity Strategy

Inception: 7/31/96; Benchmark: MSCI World Index Performance (USD)1
Total Return Net of Fees (%) Average Annual Total Return (%)
As of June 30, 2011

Top Ten Holdings2,5
Five Year 1.57 2.28 Ten Year 5.68 3.99 Since Inception 7.31 5.65
2Q 2011 Strategy Benchmark

3
YTD 2011 6.66 5.29
One Year 30.91 30.51
1.89 0.47
Annual Total Return Net of Fees (%)
2001
2002
2003 36.36 33.11
2004 17.95 14.72
2005 11.08 9.49
2006 21.19 20.07
2007
2008
2009 24.61 29.99
2010 10.40 11.76
Strategy -9.39 -10.70 Benchmark -16.82 -19.89
6.16 -38.71 9.04 -40.71
Johnson & Johnson Royal Dutch Shell PLC Coca-Cola Co. Google Inc. (Cl A) Apple Inc. Merck & Co Inc Wal-Mart Stores Inc. PepsiCo Inc. ENI S.p.A. QUALCOMM Inc. Total
Strategy
3.8% 2.5% 2.3% 2.0% 1.9% 1.7% 1.7% 1.7% 1.6% 1.5% 20.7%
Risk Profile Since 7/31/964

Strategy Benchmark
Characteristics5
Benchmark
Alpha Beta 2 R Sharpe Ratio
2.47 0.91 0.95 0.32
0.00 1.00 1.00 0.16
Price/Earnings - Hist 1 Yr Wtd Med Price/Cash Flow - Hist 1 Yr Wtd Med Price/Book - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Wtd Med Market Cap - Weighted Median $Bil Dividend Yield - Hist 1 Yr Wtd Avg
13.3 10.2 1.7 16.9 $41.4 3.1

5
x x x % %
15.2 10.6 1.8 14.5 $33.7 2.6
x x x % %
Regional Weights
Region
Sector Weights
North America Europe ex-UK United Kingdom Japan Pacific ex-Japan Cash
-10
Underweight/Overweight Against Benchmark (%) -3.3 3.4 0.8 0.5 -3.2 1.7 -5 0 5 10
Underweight/Overweight Sector Against Benchmark Strategy Benchmark Consumer Discretionary 10.5 % 10.5 % 0.0 Consumer Staples 9.1 9.9 -0.8 Energy 14.3 11.4 2.9 -7.0 Financials 12.6 19.6 6.2 Health Care 16.0 9.8 0.4 Industrials 11.9 11.5 0.9 Information Technology 12.1 11.2 -2.0 Materials 6.2 8.2 0.0 Telecom. Services 4.2 4.2 -0.6 Utilities 3.2 3.8 -10 -5 0 5 10
GICS Sectors
Quarterly Strategy Attribution

Global equity markets fell during most of the quarter but a rally in the last few days meant that the MSCI World Index eked out a gain of 0.5% when measured in terms of the weak US dollar, but provided negative returns from the perspective of most other currencies. The Global Equity Strategy outperformed its benchmark this quarter by 1.4%. crisis in Europe continues its steady trundle towards an end game. The cost of borrowing in peripheral Europe reached ever higher during the quarter with market participants now pricing The some sort of restructuring of government debt in Greece as a certainty and in Portugal and Ireland as a near certainty. As policy makers vacillate, the bond markets have come to their own conclusions. Nevertheless, European equities were the best performing developed market region, despite weakness in financials-dominated Greece and debt-laden Italy. European equities are pricing in a decent amount of disaster already; at the end of June, eurozone markets comprised 11 of the cheapest 13 developed markets, with discounts ranging from 12% for Germany through to 60% for Greece. By contrast, Canada trades at a premium, with little or no cushion for the unexpected built into valuations. Increase in nerves over the quarter meant that Canada could underperform Portugal, Italy, Ireland, and Spain despite being perceived as being in a fundamentally more robust state. strategy is overweight European equities on valuation grounds. Outside of Europe, our policy has ranged from avoid (Canada and Australia are the strategys two most significant The geographical underweights) to invest with caution (in the US, where we retain a significant allocation to high quality blue chips). Overall country selection made a positive contribution to returns this quarter. strategys stock selection disciplines also contributed to relative returns with the most significant part coming from the allocation to high quality companies unsurprising given the overall The nervous tone of the markets. Pharmaceuticals put in the strongest performance of any industry over the period as investors remembered that pharmaceuticals have several desirable characteristics, not least the defensive nature of their revenues in the face of concern for the broader economic outlook. The US high quality stocks remain the most significant driver of relative returns for the strategy at this point. momentum stock picks had relatively little impact as the strategy shifts emphasis away from the Asian-facing growth stocks that allowed us to profit in rising markets last year. We have The been gradually replacing that exposure with the beneficiaries of rising energy prices in the global oil sector. We have also added to German exporters, such as chemical manufacturer BASF and auto producer Volkswagen, supported by an increasingly competitive exchange rate as a consequence of the trouble in Southern Europe. Overall, energy stocks lagged for the quarter, whilst the German exporters added to returns. strategys value discipline outperformed modestly. Given the emphasis on Europe, especially the weaker eurozone members, this was a welcome validation of the philosophy underpinning The this strategy by buying into areas where prices are low, a certain buttressing against unpleasant events is achieved. We continued to refine our valuation-based exposures over the quarter, increasing allocations to the eurozone in general and Spain in particular. We increased our stakes in Santander for example we rate the large Spanish banks as among the better quality and more diversified large banks in the eurozone today; they trade on reasonable valuations too. Prices for European stocks are in many cases significantly lower than those outside Europe. Our principal European investments are in oil companies, auto manufacturers, utilities, and financials. We have assembled exposure to integrated oil stocks (for example Italian oil major ENI and Total in France) at an average 30% discount to the global sector. Our investments in autos, utilities, and financials trade on average at discounts of 20-30% to their global peers. This debt crisis, like others before it, has opened windows of opportunity in terms of valuation.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The MSCI World Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of global developed markets. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios 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 GMOs website in April of 2011.
1
GMO 2011
17
GMO World ex-UK Equity Strategy

Inception: 12/31/88; Benchmark: FTSE World ex-UK Total Return Index Performance (GBP)1
As of June 30, 2011

Top Ten Holdings2,5

3
YTD 2011 3.41 2.59
One Year 21.43 22.14
Five Year 5.49 6.85
Ten Year 4.64 3.77
Since Inception 9.25 7.34
1.01 0.30
2001
2002
2003 23.70 20.66
2004 9.75 7.83
2005 25.88 24.85
2006 5.41 5.65
2007
2008
2009 13.64 18.86
2010 13.64 16.69
7.41 -14.80 9.70 -17.12
Johnson & Johnson Coca-Cola Co. Google Inc. (Cl A) Apple Inc. ENI S.p.A. Merck & Co Inc PepsiCo Inc. Wal-Mart Stores Inc. Sanofi-Aventis S.A. QUALCOMM Inc. Total
Strategy
3.8% 2.2% 1.8% 1.8% 1.8% 1.8% 1.6% 1.6% 1.4% 1.4% 19.2%

Strategy Benchmark
Characteristics5
Benchmark
1.94 0.84 0.79 0.20
0.00 1.00 1.00 0.09
Price/Earnings - Hist 1 Yr Wtd Med Price/Cash Flow - Hist 1 Yr Wtd Med Price/Book - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Med Market Cap - Weighted Med GBP Bil. Dividend Yield - Hist 1 Yr Wtd Avg
13.4 10.3 1.7 16.4 23.2 2.9

5
x x x % %
15.2 10.5 1.8 14.2 18.9 2.5
x x x % %
Regional Weights
Region
Sector Weights
Underweight/Overweight Against Benchmark (%) 3.0 -3.0 0.2 -3.1 1.7 1.3 -10 -5 0 5 10
Europe ex-UK North America Japan Pacific ex-Japan Emerging Cash
Underweight/Overweight Sector Against Benchmark Strategy Benchmark -0.2 Consumer Discretionary 10.6 % 10.8 % -0.6 Consumer Staples 8.6 9.2 4.4 Energy 14.3 9.9 -6.8 Financials 13.7 20.5 5.1 Health Care 13.9 8.8 -0.3 Industrials 11.6 11.9 0.7 Information Technology 13.3 12.6 -1.7 Materials 6.7 8.4 -0.2 Telecom. Services 4.0 4.2 -0.3 Utilities 3.3 3.6 -10 -5 0 5 10
GICS Sectors

World ex-UK Equity Strategy returned +1.0% for the second quarter, outperforming the FTSE World ex-UK Index which returned +0.3% in sterling terms. The strategy is overweight European equities on valuation grounds. Outside of Europe, our policy has ranged from avoid (Canada and Australia are the strategys two The most significant geographical underweights) to invest with caution (in the U.S., where we retain a significant allocation to high quality blue chips). Overall country selection made a positive contribution to returns this quarter. strategys stock selection disciplines also contributed to relative returns with the most significant part coming from the allocation to high quality companies The unsurprising given the overall nervous tone of the markets. Pharmaceuticals put in the strongest performance of any industry over the period as investors remembered that pharmaceuticals have several desirable characteristics, not least the defensive nature of their revenues in the face of concern for the broader economic outlook. The U.S. high quality stocks remain the most significant driver of relative returns for the strategy at this point. momentum stock picks had relatively little impact as the strategy shifts emphasis away from the Asian-facing growth stocks that allowed us to profit in rising The markets last year. We have been gradually replacing that exposure with the beneficiaries of rising energy prices in the global oil sector. We have also added to German exporters, such as chemical manufacturer BASF and auto producer Volkswagen, supported by an increasingly competitive exchange rate as a consequence of the trouble in Southern Europe. Overall, energy stocks lagged for the quarter, whilst the German exporters added to returns. strategys value discipline outperformed modestly. Given the emphasis on Europe, especially the weaker eurozone members, this was a welcome validation of the The philosophy underpinning this strategy by buying into areas where prices are low, a certain buttressing against unpleasant events is achieved. We continued to refine our valuation-based exposures over the quarter, increasing allocations to the eurozone in general and Spain in particular. We increased our stakes in Santander for example we rate the large Spanish banks as among the better quality and more diversified large banks in the eurozone today; they trade on reasonable valuations too. Prices for European stocks are in many cases significantly lower than those outside Europe. Our principal European investments are in oil companies, auto manufacturers, utilities, and financials. We have assembled exposure to integrated oil stocks (for example Italian oil major ENI and Total in France) at an average 30% discount to the global sector. Our investments in autos, utilities, and financials trade on average at discounts of 20-30% to their global peers. This debt crisis, like others before it, has opened windows of opportunity in terms of valuation. Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The FTSE World ex-UK Index is an independently maintained and widely published index comprised of developed (excluding the UK) and emerging large and mid capitalization stocks. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios 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 GMOs website in April of 2011.
1
GMO 2011
18
Inception: 3/31/87; Benchmark: MSCI EAFE Value Index and MSCI EAFE Index Performance (USD)1
Total Return Net of Fees (%)
GMO International Intrinsic Value Strategy

Average Annual Total Return (%)
As of June 30, 2011

Top Ten Holdings2,5
2Q 2011 Strategy MSCI EAFE Value MSCI EAFE

3 3
YTD 2011 6.94 5.58 4.98

2003 43.53 45.30 38.59 2004 25.23 24.33 20.25 2005 13.98 13.80 13.54
One Year 31.34 29.35 30.36

2006 25.78 30.38 26.34
Five Year 0.72 0.36 1.48

2007
Ten Year 8.13 5.96 5.66

2008
Since Inception 8.57 7.36 5.41

2010 7.53 3.25 7.75
2.68 0.98 1.56

2001 2002
2009 21.41 34.23 31.78
Strategy -12.10 -0.59 MSCI EAFE Value -18.52 -15.91 MSCI EAFE -21.44 -15.94
10.21 -40.31 5.96 -44.09 11.17 -43.38
Sanofi-Aventis S.A. Total S.A. GlaxoSmithKline PLC Royal Dutch Shell PLC AstraZeneca PLC ENI S.p.A. Enel S.p.A. Novartis AG E.ON AG Takeda Pharmaceutical Total
4.3% 3.9% 3.3% 3.2% 3.1% 2.7% 2.2% 1.8% 1.6% 1.5% 27.6%

Strategy M SCI EAFE Value M SCI EAFE
Characteristics5
M SCI Strategy EAFE Value M SCI EAFE
2.58 0.81 0.86 0.33
0.00 1.00 1.00 0.18
0.00 1.00 1.00 0.08
Price/Earnings - Hist 1 Yr Wtd Med 11.0 x Price/Cash Flow - Hist 1 Yr Wtd Med 6.4 x Price/Book - Hist 1 Yr Wtd Avg 1.3 x Return on Equity - Hist 1 Yr Med 12.8 % Market Cap - Weighted Median $Bil $29.8 Dividend Yield - Hist 1 Yr Wtd Avg 4.1 %
11.6 6.3 1.2 10.7 $34.4 4.4
x x x % %
14.0 9.1 1.5 11.4 $29.3 3.4
x x x % %
Regional Weights
Region
Sector Weights
Sector
Europe ex-UK United Kingdom Japan Southeast Asia Canada Australia/New Zealand -6.5 Cash
-10
Underweight/Overweight Against M SCI EAFE Value (%) -0.3 0.7 2.8 -0.4 2.0 1.6 -5 0 5 10
Underweight/Overweight Against M SCI EAFE Value Strategy Benchmark 3.2 Consumer Discretionary 11.1 % 7.9 % 1.2 Consumer Staples 3.9 2.7 4.6 Energy 15.9 11.3 -18.4 Financials 16.1 34.5 6.5 Health Care 16.5 10.0 2.7 Industrials 9.8 7.1 0.7 Information Technology 3.4 2.7 0.9 Materials 7.8 6.9 -0.8 Telecom. Services 8.6 9.4 -0.6 Utilities 6.9 7.5 -20 -10 0 10 20
GICS Sectors

International Intrinsic Value Strategy returned +2.7% during the second quarter of 2011, compared to the broad market MSCI EAFE index, which The returned +1.6%, and the MSCI EAFE Value benchmark, which returned +1.0%. Stock selection and sector exposures both contributed to the outperformance relative to EAFE. Selection was particularly good within the United Kingdom (especially among high quality drug companies) and Japan (notably among consumer stocks and rebuilding-related stocks). By sector, stock selection was best in Consumer Discretionary, Health Care, and Utilities. Sector exposures (as a result of stock selection) added value mainly from our overweight to Health Care, which was the best performing sector in EAFE. country allocation, the positive impact from our underweight to Australia, which underperformed, was largely offset by the negative impact from our In overweight to Italy, which also underperformed. Compared to the value benchmark, the strategy did even better due to the many differences between EAFE and EAFE Value. EAFE Value index has less in Consumer Staples, which outperformed, and more in Energy, which underperformed, and holds different stocks. These The resulted in better relative performance from sector exposures and stock selection versus EAFE Value. GMOs stock selection disciplines had good results in the quarter as momentum outperformed value. Stocks selected for their strong momentum characteristics had the best returns. Those stocks chosen by quality-adjusted value were next, and those ranked highly by intrinsic value (the quality component did very well; valuation did not) trailed. All three disciplines outperformed. Individual stock positions that added significant value included overweights in pharmaceuticals Sanofi (France), GlaxoSmithKline (UK), and AstraZeneca (UK). Stock positions that were significant detractors included overweights in oil companies Total (France), Eni (Italy), and Encana (Canada).
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The MSCI EAFE (Europe, Australasia, and Far East) Value Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of international large and mid capitalization stocks that have a value style. Large and mid capitalization stocks encompass approximately 85% of each markets free float-adjusted market capitalization. Style is determined using a multi-factor approach based on historical and forward-looking characteristics. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios 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 GMOs website in April of 2011.
1
GMO 2011
19
GMO International Core Equity Strategy

Inception: 1/31/02; Benchmark: MSCI EAFE Index Performance (USD)1
As of June 30, 2011

Top Ten Holdings2,5

3
YTD 2011 7.31 4.98
One Year 34.25 30.36
Five Year 1.74 1.48
Ten Year n/a n/a
3.51 1.56
2002 Strategy -2.43 Benchmark -11.22
2003 37.67 38.59
2004 23.28 20.25
2005 15.58 13.54
2006 25.56 26.34
2007
2008
2009 23.73 31.78
2010 10.33 7.75
12.13 -41.34 11.17 -43.38
Sanofi-Aventis S.A. GlaxoSmithKline PLC Total S.A. Royal Dutch Shell PLC AstraZeneca PLC ENI S.p.A. Novartis AG Enel S.p.A. Vodafone Group PLC Takeda Pharmaceutical Total
3.6% 3.3% 3.0% 2.9% 2.7% 2.5% 1.9% 1.8% 1.4% 1.4% 24.5%

Strategy Benchmark
Characteristics5
Strategy Benchmark
2.57 0.94 0.98 0.45
0.00 1.00 1.00 0.31
Price/Earnings - Hist 1 Yr Wtd Med Earnings/Share - F'cast LT Med Growth Rate Price/Book - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Med Market Cap - Weighted Median $Bil Dividend Yield - Hist 1 Yr Wtd Avg
11.8 8.8 1.4 12.5 $28.5 3.8
x x x % %
14.0 10.2 1.5 11.4 $29.3 3.4
x x x % %
Regional Weights5
Region Underweight/Overweight Against Benchmark (%) 1.2 -0.6 2.8 -0.3 1.2 -5.1 0.7 -5 0 5 10
Sector Weights5
Underweight/Overweight Against Benchmark Strategy Benchmark 2.6 Consumer Discretionary 13.1 % 10.5 % -5.1 Consumer Staples 5.1 10.2 5.4 Energy 13.5 8.1 -11.4 Financials 12.1 23.5 7.4 Health Care 16.1 8.7 -1.3 Industrials 11.6 12.9 0.3 Information Technology 5.0 4.7 -2.1 Materials 9.2 11.3 2.8 Telecom. Services 8.3 5.5 1.2 Utilities 5.9 4.7 Sector -20 -10 0 10 20
GICS Sectors
Europe ex-UK United Kingdom Japan Southeast Asia Canada Australia/New Zealand Cash
-10

International Core Equity Strategy returned +3.5% during the second quarter of 2011, compared to the MSCI EAFE index, which returned The +1.6%. Stock selection and sector exposures both contributed to the outperformance relative to EAFE. Stock selection was particularly good within the United Kingdom (especially among high quality drug companies), Japan (notably among consumer stocks and rebuilding-related stocks), and France (in drug and chemical companies). By sector, stock selection was best in Consumer Discretionary, Health Care, and Utilities. Sector exposures (as a result of stock selection) added value mainly from our overweight to Health Care, which was the best performing sector in EAFE, and underweight to Financials, which underperformed. country allocation, the positive impact from our underweight to Australia, which underperformed, was largely offset by the negative impact from In our overweight to Italy, which also underperformed. GMOs stock selection disciplines had good results in the quarter as momentum outperformed value. Stocks selected for their strong momentum characteristics had the best returns. Those stocks chosen by quality-adjusted value were next, and those ranked highly by intrinsic value (the quality component did very well; valuation did not) trailed. All three disciplines outperformed. Individual stock positions that added significant value included overweights in pharmaceuticals Sanofi (France) and GlaxoSmithKline (UK) and chemical company Rhodia (France). Stock positions that were significant detractors included overweights in oil companies Encana (Canada), Total (France), and Eni (Italy).
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The MSCI EAFE (Europe, Australasia, and Far East) Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of international large and mid capitalization stocks. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios 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 GMOs website in April of 2011.
1
GMO 2011
20
GMO Japan Equity Strategy

Inception: 12/31/05; Benchmark: MSCI Japan IMI ++ Index Performance (USD)1
As of June 30, 2011

Top Ten Holdings2,5
Five Year -1.14 -3.24 Ten Year n/a n/a Since Inception -0.88 -2.62

3
YTD 2011 1.85 -3.97
One Year 21.15 13.43
3.41 0.48
2006 Strategy Benchmark 6.39 6.24
2007
2008
2009 -1.78 6.12
2010 21.95 16.02
-2.39 -24.83 -4.23 -28.16
KDDI Corp. Mizuho Financial Group Nippon T & T Corp. NTT DoCoMo Inc. Sumitomo Mitsui Financial Daito Trust Construction Yamada Denki Co. Ltd. Resona Holdings Inc. Takeda Pharmaceutical Co. Sumitomo Corp. Total
4.9% 4.1% 4.0% 3.1% 2.5% 2.3% 1.8% 1.8% 1.7% 1.3% 27.5%

Strategy Benchmark
Characteristics5
Strategy Benchmark
2.84 1.09 0.94 -0.13
0.00 1.00 1.00 -0.29
% Negative Earnings 5.8 % Price/Earnings - Excl Neg Earn Hist 1 Yr Wtd Med 10.1 x Price/Earnings - Hist 1 Yr Wtd Med 10.4 x Price/Book - Hist 1 Yr Wtd Avg 0.8 x Return on Equity - Hist 1 Yr Med 8.1 % Market Cap - Weighted Median $Bil $2.2 Dividend Yield - Hist 1 Yr Wtd Avg 2.6 %
4.3 16.1 16.7 1.0 6.7 $10.1 1.9
% x x x % %
Sector Weights5
Underweight/Overweight Against Benchmark Strategy Benchmark -1.8 Consumer Discretionary 18.2 % 20.0 % 2.0 Consumer Staples 7.9 5.9 2.5 Energy 4.1 1.6 4.0 Financials 21.2 17.2 -1.0 Health Care 4.8 5.8 -1.5 Industrials 19.5 21.0 Information Technology -9.1 3.7 12.8 -1.9 Materials 6.7 8.6 8.3 12.1 Telecom. Services 3.8 -1.4 Utilities 1.9 3.3 Sector -10 -5 0 5 10
GICS Sectors
Quarterly Strategy Attribution Japan Equity Strategy returned +3.4% during the second quarter of 2011. This was ahead of its benchmark, the MSCI Japan IMI The index, which returned +0.5%. Within the portfolio, stock selection and the resulting sector exposures were the primary reasons for the outperformance. Performance was particularly good within Consumer Discretionary, but also within Telecommunication Services, Financials, and Materials. Individual stock positions that added value included overweight positions in telecom company KDDI Corp., real estate developer Daito Trust Construction, and leisure company Round One Corp. Stock positions that were significant detractors included underweights in office electronics company Canon, machinery company Fanuc, and electronics company Hitachi. Sector exposures also added some value, thanks to our overweight to Telecommunication Services, which outperformed, and our underweight to Utilities, which lagged.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The MSCI Japan IMI (Investable Market Index Series) ++ Index is an internally maintained benchmark computed by GMO, comprised of (i) the MSCI Japan (MSCI Standard Index Series, net of withholding tax) from 12/31/2005 to 6/30/2008 and (ii) the MSCI Japan IMI (MSCI Standard Index Series, net of withholding tax) thereafter. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios 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 GMOs website in April of 2011.
1
GMO 2011
21
GMO Emerging Markets Strategy

Inception: 12/31/93; Benchmark: S&P/IFCI Composite Index Performance (USD)1
As of June 30, 2011

Top Ten Holdings2,5

3
YTD 2011 3.15 0.70
One Year 33.25 28.61
Five Year 9.57 12.06
Ten Year 17.72 17.53
-1.48 -0.98
2002 0.78 -3.93
2003 70.21 57.15
2004 26.54 28.11
2005 40.15 35.19
2006 29.51 35.11
2007
2008
2009 71.89 81.03
2010 20.20 20.64
37.22 -55.74 40.28 -53.74
OAO Gazprom ADR Samsung Electronics Co. Vale S.A. (ADS) Petroleo Brasileiro S/A Lukoil Oil Company ADR China Mobile Ltd. (ADS) Ind. & Comm. Bank of China Astra International Banco do Brasil S.A. KGHM Polska Miedz S.A. Total
4.7% 3.3% 2.6% 2.4% 2.1% 2.1% 1.6% 1.5% 1.5% 1.4% 23.2%

Strategy Benchmark
Characteristics5
Strategy Benchmark
4.01 0.99 0.93 0.32
0.00 1.00 1.00 0.16
Price/Earnings - Hist 1 Yr Wtd Med Price/Cash Flow - Hist 1 Yr Wtd Med Price/Book - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Avg Market Cap - Weighted Median $Bil Dividend Yield - Hist 1 Yr Wtd Avg
11.4 7.6 1.7 16.0 $9.2 2.7
x x x % %
13.6 9.4 1.8 14.4 $7.3 2.3
x x x % %
Regional Weights5
Region Underweight/Overweight Against Benchmark (%) -1.5 10.3 -6.2 -3.3 -0.8 1.6 -20 -10 0 10 20
Sector Weights5
Underweight/Overweight Against Benchmark Strategy Benchmark Consumer Discretionary 7.7 % 8.4 % -0.7 Consumer Staples 2.4 6.7 -4.3 Energy 12.9 8.3 21.2 -1.7 Financials 21.0 22.7 -0.6 Health Care 0.9 1.5 -4.6 Industrials 4.8 9.4 -2.6 Information Technology 11.1 13.7 0.6 Materials 15.2 14.6 5.6 Telecom. Services 12.1 6.5 0.0 Utilities 3.5 3.5 Sector -10 -5 0 5 10
GICS Sectors
East Asia Europe Latin/South America Mideast/Africa South Asia Cash

Emerging Markets Strategy fell 1.5% in the second quarter, trailing the -1.0% return of the S&P/IFCI Composite by 0.5%. Overall, country/sector selection detracted The 0.1%, while stock selection cost 0.4%. Emerging markets suffered minor losses over the second quarter as investors chewed over the myriad developments in the sovereign debt crisis and the pace of monetary tightening in several key markets. The last days of the quarter saw sentiment turn bullish as concern of a Greek default eased after the government secured enough votes to push ahead with budget cuts. The quarter saw country performances as diverse as an 8.5% jump in Chile and a 15.2% plunge in Peru. Among sectors, the spread was tighter, with Consumer Discretionary leaping 8.3% and Energy dropping 7.4%. Russian Energy underperformed the asset class as the outlook for commodities grew less rosy and concern deepened that tighter monetary policy in Russia would curb economic growth. The central bank unexpectedly raised interest rates in April to check inflation. The concerns over the ultimate resolution to Greeces debt crisis, inflation fighting efforts in countries such as China and India, and speculation that U.S. demand may be slowing have all led to a fall in energy prices. Our overweight in Russian Energy, a reflection of its cheapness and positive momentum, detracted from performance. Investors in Hungary found comfort in the ongoing talks between the government and commercial banks on ending a moratorium on evictions and stimulating mortgage lending. The market was also influenced by rumors that the government would lower a special tax on banks as part of an agreement with lenders to help distressed borrowers after the moratorium on evictions runs out. The government had relied on temporary industry taxes and the effective nationalization of private pension portfolios to reach budget targets in the past rather than imposing austerity measures directly on the populace. Our overweight in Hungarian Financials, driven by low valuations, added to performance. happy combination of rapid growth, slowing inflation, and low interest rates is boosting domestic spending in Indonesia. The central bank forecasts the economy to grow A as much as 6.5% this year, the fastest pace since 2004. However, inflation decelerated with consumer prices rising 6.0% in May from a year earlier. This has helped convince the central bank to let the benchmark interest rate stay at a near record low of 6.75%. Our overweight in Indonesian Consumer Discretionary contributed to performance. Perus stocks dropped as the market awaited President-elect Humalas economic policies. Investors fear that he will expand the role of the state and call for higher mining taxes. Humala said that he is seeking economic growth with social inclusion. Some of the gloom was lifted by the central bank unexpectedly keeping its benchmark rate unchanged for the first time in six months. Our underweight in Peruvian Financials and Materials helped performance. Stock selection detracted from performance in Chinese Information Technology and Korean Industrials, but contributed positively in Taiwanese Information Technology.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The S&P/IFCI Composite Index is an independently maintained and widely published index comprised of emerging markets stocks. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios 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 GMOs website in April of 2011.
1
GMO 2011
22
GMO UK Equity Core Strategy

Inception: 11/30/04; Benchmark: FTSE All-Share Total Return Index Performance (GBP)1
As of June 30, 2011

Top Ten Holdings2,5
Five Year 3.98 4.49 Ten Year n/a n/a Since Inception 8.43 8.00

3
YTD 2011 3.80 2.96
One Year 25.64 25.63
2.70 1.91
2005 25.95 22.04
2006 14.93 16.75
2007
2008
2009 25.67 30.12
2010 15.33 14.51
2.71 -26.67 5.32 -29.93
BP PLC Royal Dutch Shell PLC BHP Billiton PLC AstraZeneca PLC GlaxoSmithKline PLC Vodafone Group PLC Rio Tinto PLC British American Tobacco HSBC Holdings PLC Barclays PLC Total
7.7% 6.4% 5.2% 4.8% 4.4% 3.7% 3.3% 3.3% 3.3% 2.5% 44.6%

Strategy Benchmark
Sector Weights5
Sector Underweight/Overweight Against Benchmark Strategy Benchmark 1.1 14.3 % 13.2 % 1.1 12.9 11.8 -2.5 7.1 9.6 -5.5 16.6 22.1 3.2 10.5 7.3 1.5 9.1 7.6 1.8 18.8 17.0 0.8 -0.4 -0.9 -10 -5 0 5 10
1.40 0.92 0.98 0.38
0.00 1.00 1.00 0.29
Basic Materials Consumer Goods Consumer Services Financials 5 Health Care Characteristics Strategy Benchmark Industrials Oil & Gas Price/Forecast Earnings - aggregation 10.3 x 10.7 x Technology Dividend Yield - net, wtd. avg. 3.1 % 3.0 % Telecommunications Price/Book - aggregation 3.8 x 3.6 x Utilities Price/Sales - aggregation 1.2 x 1.1 x 6 Quality Adjusted Value 0.9 x Ex-Ante Tracking Error 1.9 % Ex-Post Tracking Error 2.2 %
2.5 5.4 2.9
1.7 5.8 3.8

FTSE Sectors

UK equity market was influenced by events in Europe and mixed economic data at home, with disappointing consumer sales offsetting better than expected The manufacturing news. Other negative influences were rising inflationary pressures and for some sectors, such as the Banks, concern over loan exposure as the Greek debt crisis continued to make the headlines. Overall the UK market put in a relatively robust performance compared to some other markets and, following a strong gain in the last week, the FTSE All-Share Index finished with a positive return of 1.9% for the quarter. In comparison, the UK Equity Core strategy returned +2.7%. Large capitalisation stocks with a return of 1.6% lagged behind their smaller compatriots this quarter as medium and small caps achieved returns of 4.0% and 2.5% respectively. Similarly, traditional value stocks with a return of 1.3% (S&P UK BMI Value Index) lagged behind growth stocks at 2.7% although this position was reversed when looking at the market in terms of yield where the FTSE 350 High Yield Index returned 2.8% versus 1.2% for the Low Yield Index. strategy performed well across a fairly broad front, there being no major prominent feature. Looking at sectors first, the key contributors to performance were an The overweight to the Pharmaceuticals sector which returned 11% and an underweight to Banks, which was one of the worst performing sectors, falling 4%. An overweight to Industrial Engineering companies also helped as they outperformed the market by 7%. The major negative position was an underweight to the Real Estate Investment Trusts sector which was 10% ahead. corporate highlight was an initial public offering by Glencore International, the giant commodity trading company. The listing in May valued the company at about The $60bn by market value, making it only the third company, and the first for 25 years, to enter the FTSE 100 Index on its first day of trading. The strategy was underweight which resulted in a small positive impact for overall portfolio performance as the shares declined during the remainder of the quarter. Underweights in the two banking shares of HSBC and Lloyds, which fell 3% and 16% respectively, were key portfolio contributors. Lloyds was badly hit as, among other things, it had to make a large provision to compensate customers who were mis-sold payment protection insurance cover. One of the largest beneficial positions was the strategys overweight in pharmaceutical company AstraZeneca which returned 9%. Other favourable positions were an overweight in Drax Group, an electricity generator that rose 32%, and not holding any Tullow Oil shares which fell 14%. The largest negative position was an overweight in BG Group, an oil and gas company, whose shares fell 8%. terms of the stock selection techniques, Signals was the out and out winner this month with a return more than 3% ahead of the benchmark. It managed to perform In well across the board: of the 38 sub-sectors that we track, it added value in 27 of them with only 1 sector registering a negative impact in double digit basis points. Value was the next best performer, outperforming by 0.8% largely due to its healthy allocation to Pharmaceuticals. Momentum was the only technique to lag the market, underperforming by just over 1%. Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The FTSE All-Share Total Return Index is an independently maintained and widely published capitalization-weighted index comprised of stocks with 98-99% of the U.K. market capitalisation. This index is the aggregation of the FTSE 100, FTSE 250 and FTSE Small Cap Indices. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios 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 GMOs website in April of 2011. 6 Quality adjusted value is GMOs aggregate measure of valuation. GMO 2011
1
23
GMO UK Equity Value Strategy

Inception: 11/30/88; Benchmark: FTSE All-Share Total Return Index Performance (GBP)1
As of June 30, 2011

Top Ten Holdings2,5

3
YTD 2011 4.52 2.96
One Year 27.13 25.63
3.53 1.91
2001
2002
2003 22.97 20.86
2004 16.25 12.84
2005 23.16 22.04
2006 16.67 16.75
2007
2008
2009 30.68 30.12
2010 9.81 14.51
0.40 -30.16 5.32 -29.93
Royal Dutch Shell PLC BP PLC GlaxoSmithKline PLC AstraZeneca PLC Rio Tinto PLC Vodafone Group PLC BG Group PLC British American Tobacco BHP Billiton PLC HSBC Holdings PLC Total
9.9% 9.6% 8.7% 7.1% 3.2% 2.6% 2.5% 2.3% 2.3% 2.2% 50.4%

Strategy Benchmark
Sector Weights5
Sector Underweight/Overweight Against Benchmark Strategy Benchmark -1.1 12.1 % 13.2 % -2.5 9.3 11.8 -4.1 5.5 9.6 -7.3 14.8 22.1 8.8 16.1 7.3 -0.2 6.9 0.2 -1.3 0.6 -10 -5 0 5 10
2.01 0.94 0.90 0.28
0.00 1.00 1.00 0.14
Basic Materials Consumer Goods Consumer Services Financials 5 Health Care Characteristics Strategy Benchmark Industrials Oil & Gas Price/Forecast Earnings - aggregation 9.7 x 10.7 x Technology Dividend Yield - net, wtd. avg. 3.4 % 3.0 % Telecommunications Price/Book - aggregation 3.5 x 3.6 x Utilities Price/Sales - aggregation 1.1 x 1.1 x 6 Quality Adjusted Value 0.8 x Ex-Ante Tracking Error 3.2 % Ex-Post Tracking Error 2.5 %
7.4 23.9 1.9 4.5 4.4
7.6 17.0 1.7 5.8 3.8

FTSE Sectors

UK equity market was influenced by events in Europe and mixed economic data at home, with disappointing consumer sales offsetting better The than expected manufacturing news. Other negative influences were rising inflationary pressures and for some sectors, such as the Banks, concern over loan exposure as the Greek debt crisis continued to make the headlines. Overall the UK market put in a relatively robust performance compared to some other markets and, following a strong gain in the last week, the FTSE All-Share Index finished with a positive return of 1.9% for the quarter. In comparison, the UK Equity Value strategy returned 3.5%. Large capitalisation stocks with a return of 1.6% lagged behind their smaller compatriots this quarter as medium and small caps achieved returns of 4.0% and 2.5% respectively. Similarly, traditional value stocks with a return of 1.3% (S&P UK BMI Value Index) lagged behind growth stocks at 2.7% although this position was reversed when looking at the market in terms of yield where the FTSE 350 High Yield Index returned 2.8% versus 1.2% for the Low Yield Index. strategy performed well across a fairly broad front, there being no major prominent feature. Looking at sectors first, the key contributors to The performance were an overweight to the Pharmaceuticals sector which returned 11% and an underweight to Banks, which was one of the worst performing sectors, falling 4%. An overweight to Industrial Engineering companies also helped as they outperformed the market by 7%. The major negative position was an overweight to the Oil & Gas Producers sector which was 2.3% behind the benchmark, although the strategys choice of stocks was favourable within the sector and more than counterbalanced this position. corporate highlight was an initial public offering by Glencore International, the giant commodity trading company. The listing in May valued the The company at about $60bn by market value, making it only the third company, and the first for 25 years, to enter the FTSE 100 Index on its first day of trading. The strategy was underweight which resulted in a small positive impact for overall portfolio performance as the shares declined during the remainder of the quarter. Overweights in the two pharmaceutical shares of GlaxoSmithKline and AstraZeneca, which rose 13% and 9% respectively, were key portfolio contributors. Another significant contributor was an overweight in Drax Group, an electricity generator that rose 32%. Other favourable positions were underweights in BG Group, an oil and gas company, whose shares fell 8% and HSBC. The largest negative position was an overweight in Enterprise Inns that fell 28%.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The FTSE All-Share Total Return Index is an independently maintained and widely published capitalization-weighted index comprised of stocks with 98-99% of the U.K. market capitalisation. This index is the aggregation of the FTSE 100, FTSE 250 and FTSE Small Cap Indices. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios 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 GMOs website in April of 2011. 6 Quality adjusted value is GMOs aggregate measure of valuation.
1
GMO 2011
24
19 GMO European Quarterly Update
GMO U.S. Core Strategy

Inception: 9/30/85; Benchmark: S&P 500 Index Performance (USD)1
As of June 30, 2011

Top Ten Holdings2,5

3
YTD 2011 7.40 6.02
One Year 29.74 30.69
2.85 0.10
2001
2002
2003 26.64 28.69
2004 9.85 10.88
2005 3.66 4.91
2006 9.75 15.80
2007
2008
2009 21.41 26.46
2010 8.96 15.06
1.65 -30.17 5.49 -37.00
Microsoft Corp. Pfizer Inc. Wal-Mart Stores Inc. Oracle Corp. Google Inc. (Cl A) Int'l. Business Machines Johnson & Johnson Merck & Co Inc Procter & Gamble Co. Coca-Cola Co. Total
4.8% 4.6% 4.1% 3.8% 3.2% 3.2% 2.8% 2.7% 2.7% 2.5% 34.4%

Strategy Benchmark
Sector Weights5
Sector Underweight/Overweight Against Benchmark Strategy Benchmark
1.33 0.92 0.96 0.49
0.00 1.00 1.00 0.41
Characteristics5
Strategy Benchmark
Price/Earnings - Hist 1 Yr Wtd Med Price/Book - Hist 1 Yr Wtd Avg Dividend Yield - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Med Market Cap - Weighted Median $Bil
16.1 2.9 2.2 20.6 $94.6
x x % %
16.2 2.2 2.0 16.4 $50.1
x x % %
-4.0 Consumer Discretionary Consumer Staples -4.7 Energy -12.8 Financials Health Care -7.0 Industrials Information Technology Materials -2.6 Telecom. Services Utilities -3.4 -20 -10 0
6.7 % 20.3 8.0 2.3 14.7 26.4 4.3 9.5 27.3 1.1 3.5 0.4 0.0
9.7 10 20
10.7 % 10.6 12.7 15.1 11.7 11.3 17.8 3.7 3.1 3.4
GICS Sectors
Quarterly Strategy Attribution U.S. Core Strategy returned +2.9% for the second quarter of 2011, leading the +0.1% return of the S&P 500 index. The Sector selection added to relative returns for the quarter. The strategy saw positive returns relative to the benchmark attributable to its overweight positions in Health Care and Consumer Staples and an underweight in Financials. Underweight positions in Utilities and Consumer Discretionary and an overweight in Information Technology detracted. Stock selection also added to relative returns. Selections in Consumer Discretionary, Information Technology, and Materials added to returns versus the benchmark while picks in Telecommunication Services and Health Care detracted. Individual stocks adding to relative returns in the second quarter included overweight positions in UnitedHealth Group, Johnson & Johnson, and Merck. Stock selections detracting from returns versus the benchmark included overweight positions in Google, ConocoPhillips, and Oracle.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The S&P 500 Index is an independently maintained and widely published index comprised of U.S. large capitalization stocks. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios 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 GMOs website in April of 2011.
1
GMO 2011
25
GMO Intrinsic Value Strategy

Inception: 5/31/99; Benchmark: Russell 1000 Value Index Performance (USD)1
As of June 30, 2011

Top Ten Holdings2,5

3
YTD 2011 10.35 5.92
One Year 36.15 28.94
1.86 -0.50
2001
2002
2003 30.42 30.03
2004 12.12 16.49
2005 5.57 7.05
2006 13.61 22.24
2007
2008
2009 19.42 19.69
2010 11.86 15.51
Strategy 3.84 -15.63 Benchmark -5.59 -15.52
-3.73 -34.51 -0.17 -36.85
UnitedHealth Group Inc. Pfizer Inc. ConocoPhillips Exxon Mobil Corp. Microsoft Corp. AT&T Inc. Chevron Corp. Oracle Corp. Apple Inc. Google Inc. (Cl A) Total
4.0% 3.7% 3.7% 3.4% 3.3% 3.3% 3.2% 3.0% 2.9% 2.6% 33.1%

Strategy Benchmark
Sector Weights5
Underweight/Overweight Against Benchmark Strategy Benchmark -4.8 Consumer Discretionary 4.2 % 9.0 % 4.7 Consumer Staples 11.9 7.2 2.6 Energy 15.0 12.4 -16.1 Financials 10.6 26.7 14.0 26.3 Health Care 12.3 -3.3 Industrials 6.1 9.4 Sector
0.85 0.92 0.94 0.12
0.00 1.00 1.00 0.06
Characteristics5
Strategy Benchmark
Price/Earnings - Hist 1 Yr Wtd Med Price/Book - Hist 1 Yr Wtd Avg Dividend Yield - Hist 1 Yr Wtd Avg Return on Equity - Hist 1 Yr Med Market Cap - Weighted Median $Bil
13.7 2.1 2.1 18.9 $55.6
x x % %
14.9 1.5 2.3 11.5 $38.2
x x % %
Information Technology Materials Telecom. Services Utilities

-20
10.0 -2.0 0.8 -6.1 -10 0 10 20
18.6 0.9 5.5 0.7
8.6 2.9 4.7 6.8

GICS Sectors
Quarterly Strategy Attribution Intrinsic Value Strategy returned +1.9% for the second quarter of 2011, leading the -0.5% return of the Russell 1000 Value index. The Sector selection added to relative returns for the quarter. The strategys overweight positions in Health Care and Consumer Staples and an underweight in Financials added to relative returns. An overweight position in Information Technology and an underweight in Utilities detracted from returns versus the benchmark. Stock selection also added to relative returns. Selections in Health Care, Consumer Discretionary, and Financials added to returns versus the benchmark while picks in Information Technology and Consumer Staples detracted. Individual names adding to relative returns included overweight positions in UnitedHealth Group, Biogen, and WellPoint. Stock selections detracting from relative returns included overweight positions in Hewlett-Packard, Google, and Apple.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The Russell 1000 Value Index is an independently maintained and widely published index comprised of the stocks included in the Russell 1000 Index with lower price-tobook ratios and lower forecasted growth values. Russell Investments is the source and owner of the Russell index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is GMOs presentation of the data. FCR is not responsible for the formatting or configuration of this material or for any inaccuracy in GMOs presentation thereof. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios 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 GMOs website in April of 2011.
1
GMO 2011
26
GMO Quality Strategy

Inception: 2/29/04; Benchmark: S&P 500 Index Performance (USD)1
As of June 30, 2011

Top Ten Holdings2,4
Five Year 4.15 2.94 Ten Year n/a n/a Since Inception 3.22 4.05

3
YTD 2011 7.02 6.02
One Year 26.77 30.69
3.42 0.10
2005 -0.78 4.91
2006 12.69 15.80
2007
2008
2009 19.90 26.46
2010 5.48 15.06
6.04 -24.08 5.49 -37.00
Johnson & Johnson Microsoft Corp. Oracle Corp. Philip Morris Int'l. Inc. Pfizer Inc. Cisco Systems Inc. Coca-Cola Co. Wal-Mart Stores Inc. Exxon Mobil Corp. Apple Inc. Total
6.2% 6.1% 4.9% 4.9% 4.5% 4.5% 4.3% 3.5% 3.5% 3.3% 45.7%
Characteristics4
Strategy Benchmark

Strategy Benchmark
Price/Earnings - Hist 1 Yr Wtd Med 15.0 x Price/Book - Hist 1 Yr Wtd Avg 3.1 x Dividend Yield - Hist 1 Yr Wtd Avg 2.6 % Return on Equity - Hist 1 Yr Med 22.2 % Market Cap - Weighted Median $Bil $142.3 Debt/Equity - Wtd Med 0.6 x
16.2 2.2 2.0 16.4 $50.1 0.8
x x % % x
0.15 0.73 0.86 0.13
0.00 1.00 1.00 0.13
Regional Weights4
Cash 4.2% Int'l. Equities 14.1% U.S. Equities 81.7%
Sector
Sector Weights4
Underweight/Overweight Against Benchmark Strategy Benchmark -8.5 19.6 -3.8 -15.1 16.1 -9.8 10.7 -3.7 -2.3 -3.4 -40 -20 0 20 40
Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecom. Services Utilities
2.2 % 30.2 8.9 0.0 27.8 1.5 28.5 0.0 0.8 0.0
10.7 % 10.6 12.7 15.1 11.7 11.3 17.8 3.7 3.1 3.4
GICS Sectors

Quality Strategy gained 3.4% in the second quarter, leading developed market equity indices. Despite the 4% increase in the S&P 500 in the last The 4 days of the quarter, the index was just barely in positive territory, with a paltry return of +0.1%. There was a distinct size bias in equity performance for the period, favoring mid cap stocks which were the leaders with mega cap stocks just trailing. Both of these groups were well ahead of the higher-risk group of small caps. In addition to size, high quality outpaced low quality, and an accompanying move in beta returns reflected this: low beta stocks (where quality currently resides) gained on high beta. However, within quality the impact from size still favors non-mega cap stocks. Since 2010 mega cap quality stocks have lagged non-mega cap quality stocks. The strategy mostly avoids this group because these stocks are expensive. Instead, over 90% of the strategy remains in mega cap stocks because of their historically low valuations. Two of the characteristics that quality companies exhibit high ROE and high effective yields also turned in better-than-market returns. Financials were the worst performing sector followed by the Energy sector, both of which are economically exposed sectors. President Obama called for the release of 60 million barrels of reserves during the quarter and the price of oil subsequently dropped. This negatively affected ExxonMobil, Chevron, Total, and Royal Dutch Shell PLC, all significant positions in the strategy. The absence of financials had nearly a 1% positive impact for the quarter. more defensive sectors of Consumer Staples and Health Care were strong, and our large exposure to these groups was positive. The exposure to non-U.S. quality stocks also had a positive impact. Our
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 Portfolio holdings are percent of equity. They are subject to change and should not be considered a recommendation to buy individual securities. 3 The S&P 500 Index is an independently maintained and widely published index comprised of U.S. large capitalization stocks. 4 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 GMOs website in April of 2011. 5 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios 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.
1
GMO 2011
27
GMO Global Bond Strategy

Inception: 12/31/95; Benchmark: J.P. Morgan Global Government Bond Index Performance (USD)1
As of June 30, 2011

2
YTD 2011 4.86 3.89

2002 13.74 19.38 2003 21.99 14.51 2004 12.12 10.10 2005 -5.84 -6.53
One Year 14.16 10.15

2006 7.94 5.94 2007 2.58 10.81
Five Year 5.63 7.62

2008 -14.93 12.00
Ten Year 7.60 8.01

2009 20.30 1.91

2010 14.14 6.42
3.15 3.33
2001
Strategy -0.62 Benchmark -0.80

Strategy Benchmark
Characteristics4,5
Modified Duration Average Coupon Average Maturity Average Yield Emerging Cntry Debt Exp. 6.8 4.0 8.6 6.9 4 % Yrs. % %
0.94 0.93 0.67 0.46
0.00 1.00 1.00 0.41
Regional Weights4,6
Underweight/Overweight Against Benchmark (%)
Currency Weights4
Europe North America Pacific Emerging

-20 -10 -5.4
-0.5 12.5
Europe North America Pacific

4.7 0 10 20
-10
-2.0 -3.1 5.1 -5 0 5 10

Global Bond Strategy returned +3.1% during the second quarter, underperforming the J.P. Morgan Global Government Bond index return of +3.3% by 0.2%. The The U.S. dollars decline versus key developed currencies drove positive index returns, followed by gains provided by the 16-basis-point fall in the index yield, which resulted in a 1.8% rise in the index when measured in local currency terms. Government bond markets rose across the board during the quarter: in local currency J.P. Morgan Global Bond index terms, gains were the highest in Sweden (+3.3%) and lowest in Japan (+1.2%). The +2.1% index total return for the euro area incorporates total returns from all euro currency participants, only the largest of which (Germany, Italy, France, Spain, Netherlands, and Belgium) pertain. Core euro zone debt markets, including Germany and France, rose by 1-2% during the quarter, while peripheral countries Ireland (-6.0%), Portugal (-11.8%), and Greece (-14.5%) reported large total return losses. The European debt crisis continued to intensify during the quarter given fears of a possible Greek default. A bilateral EU-IMF review called for further austerity measures to be implemented before releasing a 12 billion installment of last years 110 billion bailout package. By the end of the quarter, the Greek Parliament approved an austerity bill crucial for the release of that installment, therefore temporarily addressing short-term liquidity issues. After bouncing back handily from its 2009 recession, with GDP rising by 5.5% in 2010 and forecasting to rise by more than 4% in 2011, Sweden is focusing on cutting back on the countrys debt burden by decreasing issuance, leading to lower yields. In other bond markets, Australia (+2.6%), the U.K. (+2.6%), Canada (+2.5%), the U.S. (+2.5%), and Switzerland (+1.8%) also reported total return gains. Global yield curves (measured by the difference between 10-year and 2-year swap rates) were mixed, with yield curves in Switzerland and the U.K. steepening, and in the rest flattening. Japans yield curve flattened the most during the quarter. currencies, somewhat unusually, the quarters lead gainers were safe haven Swiss franc, +8.7%, and high-carry New Zealand dollar, +8.3%. Swiss franc reached allIn time highs in real effective terms, prompting one Swiss lawmaker to suggest imposing negative interest rates on foreign investors (read: Greek deposit flight) to deter further inflows. New Zealand dollar, meanwhile, continued to benefit from post-quake reconstruction and insurance inflows. The euro ended the quarter surprisingly well, considering that euro member Greeces bonds are pricing significant bondholder losses. The single currency see-sawed between 1.405 and 1.475 relative to the dollar during the quarter, alternatively buoyed by the ECBs first post-crisis interest-rate increase (and the strong hints of more) and deflated by the ongoing slow-motion sovereign crises in the periphery. During the quarter, the ratings for Greek debt were cut deep into junk; Portugal rested on the edge of junk (and downgraded to below right after quarter end); while Ireland delivered a rather nasty haircut to bank bondholders. policy actions, besides the ECB, Norway and Sweden each raised policy interest rates by 25 basis points during the quarter, to 2.25% and 1.75%, respectively. At In quarter end, the U.S. Federal Reserve ended its active QE2 policy. In a hint that things arent really back to normal, however, the major central banks rolled their crisis fx swap lines for another year through August 2012. Exposures to GMO Short Duration Collateral Fund (SDCF) and GMO World Opportunity Overlay Fund (WOOF) contributed negatively for the first time in nine quarters, driving Q2 losses. Negative contributions also came from developed markets interest-rate positioning during the quarter. Developed markets currency selection contributed positively, however. Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The J.P. Morgan Global Government Bond Index is an independently maintained and widely published index comprised of government bonds of developed countries with maturities of one year or more. 3 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios 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. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. 5 Please note portfolio yield includes the yield on the portfolios cash assets, for example, via the Short Duration Collateral Fund. 6 Regional weights are duration adjusted.
1
GMO 2011
28
GMO Emerging Country Debt Strategy

Inception: 4/30/94; Benchmark: J.P. Morgan EMBI Global + Index Performance (USD)1
As of June 30, 2011

2
YTD 2011 5.53 5.09
One Year 19.65 11.73
Five Year 9.26 9.59
Ten Year 14.03 10.21
3.03 4.03
2001 Strategy 14.23 Benchmark 1.36
2002 19.44 13.11
2003 36.40 25.66
2004 18.76 11.73
2005 15.64 10.73
2006 14.39 9.88
2007
2008
2009 47.92 28.18
2010 24.24 12.04
7.49 -33.46 6.28 -10.91

Strategy Benchmark
Regional Weights4
3.65 1.20 0.89 0.79
0.00 1.00 1.00 0.62
Asia CEEMEA* Latin America United States Developed

-10 -5 0 -5.0 -1.4
1.4
3.4 4.5 5 10
Characteristics4
Yield to Maturity Sovereign Spread Portfolio Maturity Modified Duration Average Credit Rating 5.3 % 229 Bps. 20.6 Yrs. 7.7 BB
* Central Eastern Europe, Middle East, and Africa

Emerging Country Debt Strategy returned +3.0% in the second quarter, behind the J.P. Morgan Emerging Market Bond Index Global return of The +4.0% by 1.0%. The index spread tightened by 10 basis points to 288 basis points during the period, and the yield on the 10-year U.S. Treasury bond fell 30 basis points to 3.2%. Eurozone countries suffered more downgrades from the ratings agencies, who were not convinced by plans to allow Greece to impose losses on bondholders without technically defaulting. CDS spreads on Greece more than doubled to imminent-default levels in line with the CCC/Caa1 ratings. Ireland and Portugal kept their investment-grade ratings through the end of the quarter, although Moodys dropped Portugal to Ba2 immediately afterwards. Liquidity in the emerging cash bond market deteriorated slightly and the average bid-offer spread widened to 67 basis points at the end of the quarter from 62 at the beginning. New issuance of $81 billion fell slightly from the first quarter, but was above the average of the previous four quarters. biggest index gainers were Ivory Coast (+12.5%), Nigeria (+6.9%), Venezuela (+6.4%), and Uruguay (+6.4%). The Ivory Coast bond continued The to rally during the quarter as the internationally-recognized Ouattara administration took office, although it missed another coupon without committing to a schedule for making up the overdue payments. Nigerian elections were peaceful by local standards and the re-elected president showed signs of supporting positive reforms in the electricity sector. Venezuelan bonds recovered from earlier losses at the end of June when President Chavez had to be hospitalized in Cuba and turned out to have cancer. The Uruguayan economy performed well in the first quarter, and the Central Bank conducted a well-received investor road show. worst performers of the quarter were Belize (-19.9%), Iraq (-0.2%), Pakistan (+0.2%), and Serbia (+1.4%). The Belize bond collapsed at the end The of June when the government nationalized the electric utility, which was not able to pay for imported fuel. Iraq and Pakistan both experienced political conflict well-covered by the media. Market selection accounted for 33 basis points of negative alpha. The overweight in Argentina cost 30 basis points, and the Belize and Iraq overweights 15 and 11 more, respectively. The overweight in Ivory Coast helped performance, adding 22 basis points of alpha. Security selection, including allocations outside the index, was negative by 37 basis points. Most of the security-selection losses came in Argentina, where the curve steepened so that our short-dated CDS hedges lost money even as the longer dated bonds went down in price. Holdings in Mexico and Philippines also underperformed the index, while in Venezuela they outperformed. Outside-index allocations to Congo, South Korea, and Angola were positive contributors. Negative returns from asset-backed securities (7% of the portfolio) cost 19 basis points.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The J.P. Morgan EMBI Global (Emerging Markets Bond) Index + is an internally maintained benchmark computed by GMO, comprised of (i) the J.P. Morgan Emerging Markets Bond Index (EMBI) through 8/31/1995, (ii) the J.P. Morgan EMBI+ through 12/31/1999, and (iii) the J.P. Morgan EMBIG thereafter. 3 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios 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. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011.
1
GMO 2011
29
GMO Emerging Country Local Debt Investment Strategy

Inception: 2/29/08; Benchmark: J.P. Morgan GBI-EM Diversified Index Performance (USD)1
As of June 30, 2011

2
YTD 2011 6.09 6.94

2008 Strategy Benchmark -32.06 -7.52 2009 42.51 20.44
One Year 20.72 19.59

2010 16.81 13.32
Five Year n/a n/a
Ten Year n/a n/a
3.35 4.14

Strategy Benchmark
Characteristics4
Yield to Maturity Modified Duration 7.8 % 5.0
-2.58 1.01 0.67 0.38
0.00 1.00 1.00 0.65
Regional Weights4,5
Currency Weights4
Asia CEEMEA* Latin America

-20 -10.4
-1.9
Asia CEEMEA*
5.7
-8.5 2.1 2.3 -10 -5 0 5 10
Latin America
20
-10
10

Emerging Country Local Debt Investment Strategy returned 3.3% in the second quarter, underperforming the GBI-EM Diversified (GBI-EMD) by 0.8%. The Instrument selection and country selection were positive, while currency selection and the collateral pool detracted. GBI-EM Diversified rose by 4.1% in the second quarter. Spot currencies returned +1.1%, and local currency bonds returned +3.0%. Such results compared The favorably on the bond side but not fx when compared with developed markets (as measured by the J.P. Morgan GBI-exUS index). The comparable figures in developed markets were +1.6% for bonds and 2.2% for fx. Most emerging currencies rose relative to the U.S. dollar during the quarter, with the largest quarterly spot gain coming from Colombian peso, +5.8%. Another nine currencies registered spot gains greater than 2%, including Brazil, Poland, Czech Republic, Korea, Singapore, Taiwan, Chile, Hungary, and Israel. the downside, Turkish lira was the stand-out loser, -4.9%. A yawning current account deficit (financed mostly by short-term debt) defied authorities confidence that On their unusual monetary policy would simultaneously cool domestic demand and deter hot money inflows. The CBRT did acknowledge in its spring financial stability report that sharply rising short-term borrowing (mostly by banks) was the main threat to financial stability. They vowed to continue reserve requirement hikes (rather than interest-rate hikes) to pinch credit growth. Other laggards included Argentine peso, -1.4%, and Thai baht, -1.3%. In Argentina, although the question of whether Cristina Fernandez de Kirchner would run for president in the fall was settled (yes), locals were already voting with their pesos in leaving the country. Although difficult to observe directly, the parallel (or ironically named Blue Chip) peso rate fell even faster than the official one. Despite the declines, the official pesos return was +0.5% due to the high carry in the NDF points. In Thailand, pre-election jitters weighed on the baht and temporarily narrowed onshore-offshore forwards. Peru, leftist candidate Ollanta Humala emerged victorious, although the margin was small. During the final months of the campaign he did a Lula makeover, and In each gesture lifted the depreciation pressure on the new sol. By quarter end, the new sol had risen by 1.9%, a middling performance in the region (Chile +2.2%, Brazil +4.4%, Mexico +1.5%). Chinas currency ended the quarter +1.3%, with all the gains coming in April ahead of the U.S.-China Strategic and Economic dialog. As has become a seasonal pattern, China allows the currency to rise ahead of the meeting (and the U.S. semiannual report on currency manipulation), then backs off afterwards. local currency bond markets, Brazils return was the highest, +9.4%, followed by Egypt, +6.8%, Chile, +5.8%, Colombia, +5.0%, and Mexico, +4.8%. The rest of the In other bond markets posted positive returns as well, from as little as +0.1% in Thailand to +3.8% in South Africa. A number of countries enjoyed positive ratings actions this quarter, including Indonesia, Hungary, Brazil, Colombia, and the Philippines. On the downside, however, the ratings agencies were cautious on China, where a postcrisis, policy-led credit binge is now being met with monetary and administrative restraint, raising the chances for a tide of NPLs in the formal and informal banking systems. course, the real ratings headlines continued in the European periphery, where Greece was downgraded to Caa1 and European policymakers went about conjuring Of ways to avoid acknowledging an eventual D when/if it occurs. Portugal was downgraded to junk, and Italy and Japans Aa2 Moodys ratings were put on review for downgrade. Even the U.S.A. saw its ratings outlook cut for its AAA S&P rating this quarter. performance attribution, currency positioning detracted, with negative contributions from the underweight in Colombian peso, Czech crown, and the overweight in In Turkish lira the main issues. After that, the collateral pool detracted. Country selection was positive, particularly the overweights in Chile, Colombia, and Mexico, partially offset by the underweight in Poland. Finally, instrument selection was positive. Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The J.P. Morgan GBI-EM (Government Bond Index-Emerging Markets) Diversified Index is an independently maintained and widely published index of global local emerging markets consisting of regularly traded, liquid fixed-rate, domestic currency government bonds. 3 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios 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. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. 5 Regional weights are duration adjusted.
1
GMO 2011
30
Inception: 6/30/88; Benchmark: Blended Benchmark Performance (USD)1
GMO Global Balanced Asset Allocation Strategy

2
As of June 30, 2011
YTD 2011 5.00 4.04

2002 0.84 -9.70 2003 28.47 21.99 2004 13.55 10.23 2005 9.06 5.99
One Year 19.80 20.59

2006 12.30 13.41 2007
Five Year 5.58 4.58

2008
Ten Year 8.07 4.90

2009 24.15 24.14

2010 7.93 11.05
2.22 0.98
2001
Strategy 3.88 Benchmark -6.03
7.94 -20.83 9.26 -27.72
Strategy Composition3
Cash & Cash Special Equivalents Situations 2.1% 3.7% Alpha Only 17.0%
Benchmark Composition
(65% MSCI ACWI / 35% Barclays U.S. Aggregate)
Quality 23.1%
Asset Allocation Bond 2.7% Emerging Country Debt 0.5% Strategic Fixed Income 10.7% Domestic Bond 2.5% Emerging Markets 12.1%
Fixed Income 35.0%

International Intrinsic Value 4.6% International Growth 4.6% International Core Equity 13.3%
U.S. Equities 27.8%
Flexible Equities 3.3%
Emerging Equities 8.8%
Strategy Weights Relative to Benchmark3

6% 3% 0% -3% -6% +3.3% +4.2%

Strategy Benchmark
-2.6% -4.7% U.S. Equities Int'l. Equities Emerging Equities Fixed Income
3.24 0.79 0.86 0.77
0.00 1.00 1.00 0.43

Global Balanced Asset Allocation Strategy finished the second quarter up 2.2%, outperforming its benchmark by 1.2%. Asset allocation detracted 0.8%, while The implementation added 2.1% Global equity markets began the quarter with a mad dash, but reversed course after April for a net quarterly performance that was essentially flat. While the contributions of our aggregate stock versus bond positions were largely benign, our sub-asset class positions provided a bit more excitement. Our long-standing overweight to Quality proved to be quite additive, as Quality outperformed the S&P 500 by over 330 basis points. Our naked exposure to small cap stocks also proved fruitful, as the Russell 2000 declined by 1.6% during the quarter. However, two important positions detracted from the asset allocation side of the equation. First, an overweight to emerging markets acted as a drag, as emerging markets, generally, were spooked by fears of a China slowdown and finished the quarter down 1.0%. Second, on the bond side we continued to maintain a low-duration profile, which proved to be a net negative this quarter as global fears on a host of fronts paralysis on the Greek debt situation, concerns about a slowing China, weak employment reports in the U.S. had the net effect of a classic flight to safety, thus benefiting longduration strategies. Our overall defensive positions proved to be a mixed bag in this environment. Implementation was the real hero this quarter. Three of our international strategies International Intrinsic Value, International Growth Equity, and International Core Equity all outperformed their respective benchmarks by over 200 basis points. The Alpha Only, Strategic Fixed Income, and Asset Allocation Bond Strategies, all relatively large holdings, also beat their respective cash benchmarks. So, despite the low duration of this segment of the portfolio, good implementation helped reduce the drag. rally in April caused us to continue to trim overall equity exposure in the portfolio, adhering to the larger theme of becoming more defensive. About mid-quarter, The team members were commenting that While were not in the bunker yet, we certainly are in crouch position. This sums up our overall positioning nicely defensive on a number of dimensions: first, an underweight to equities; second, the equities we own have a Quality tilt to them; third, the risky emerging equity position has been carefully hedged by a basket of short positions designed to protect the portfolio in the event of the Chinese real estate bubble popping; and fourth, weve raised a fair amount of cash or cash substitutes. Gloomy news on the employment front, the real estate front, the U.S. budget front, the Greek (and peripheral Europe) front, the Chinese front, etc., has us all scratching our heads whenever we hear about an incredibly successful dot-com IPO or another takeover. From a valuation perspective, were dancing dangerously close to 2007 levels, so we continue to slowly step away from the party that Wall Street seems hell-bent on continuing. Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The GMO blended Global Balanced Asset Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of S&P 500, MSCI ACWI (MSCI Standard Index Series, net of withholding tax) and Barclays Capital Aggregate or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 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 GMOs website in April of 2011. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios 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.
1
GMO 2011
31
GMO Real Return Global Balanced Asset Allocation Strategy

As of June 30, 2011

2
YTD 2011 4.48 3.76

2004 2005 8.09 5.80 2006 13.26 13.69 2007
One Year 17.00 18.91

2008
Five Year 5.21 3.53

2009 13.02 19.17
Ten Year n/a n/a

2010 5.00 8.94
2.33 0.74
Strategy Benchmark
10.11 7.45
7.63 -11.36 7.87 -25.17
Multi-Strategy 27.0% Special Situations 3.7% Alpha Only 3.6% Cash & Cash Equiv alents 1.1% Domestic Bond 0.9% Asset Allocation Bond 1.1% Emerging Country Debt 0.4% International Intrinsic Value 12.4% International Growth 12.6% Flexible Equities 3.0% Strategic Fixed Income 6.7% Emerging Markets 3.0% U.S. Core 2.1% Quality 22.6%
(60% MSCI World / 20% Citigroup 3-Mo. T-Bill / 20% BC U.S. Agg.)
Absolute Return 20.0%
U.S. Equities 29.7%
Fixed Income 20.0% International Equities 30.3%

20% 10% 0% -10% -20% U.S. Equities Int'l. Equities -5.0% -11.8% Fixed Income Absolute Return +0.7% +16.3%

Strategy Benchmark
4.09 0.59 0.76 0.82
0.00 1.00 1.00 0.27

Real Return Global Balanced Asset Allocation Strategy returned +2.3% for the quarter, outperforming its benchmark by 1.6%. Asset allocations The contribution was modestly negative, while implementation was strongly positive. Within asset allocation decisions, our out-of-benchmark allocation to emerging equities and our decision to maintain a low duration profile in fixed income acted as drags on performance. Implementation was the real hero this quarter. On the U.S. front, the Quality Strategy beat the S&P 500 by over 330 basis points. Two of our international strategies International Intrinsic Value and International Growth Equity each outperformed their respective benchmarks by over 200 basis points. Alpha Only and Strategic Fixed Income also beat their respective cash benchmarks. So, despite the low duration of this segment of the portfolio, good implementation helped reduce the drag. Finally, our holding in Multi-Strategy this quarter helped overall performance as it was able to add close to 170 basis points over its benchmark. continue to maintain a defensive position, given concerns on a number of fronts (aside from valuation): gloomy news on employment, real estate, We the U.S. budget, Greece (and peripheral Europe), China, etc., has us all scratching our heads whenever we hear about an incredibly successful dot-com IPO or another takeover. From a valuation perspective, were dancing dangerously close to 2007 levels, so we continue to slowly step away from the party that Wall Street seems hell-bent on continuing.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The GMO blended Real Return Global Balanced Asset Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI World (MSCI Standard Index Series, net of withholding tax), Barclays Capital Aggregate, and Citigroup 3-Month T-Bill or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 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 GMOs website in April of 2011. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios 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.
1
GMO 2011
32
Inception: 7/31/01; Benchmark: CPI Plus 5% Index Performance (USD)1
GMO Global Allocation Absolute Return Strategy

2
As of June 30, 2011
YTD 2011 3.03 4.35
One Year 10.33 8.56
Five Year 5.90 7.18
Ten Year n/a n/a
1.59 1.59
2002 8.80 7.60
2003 34.20 6.90
2004 15.29 8.51
2005 13.54 8.61
2006 11.01 7.70
2007 9.99 9.31
2008 -6.61 5.16
2009 13.41 7.99
2010 2.72 6.30
Multi-Strategy 20.0% Quality 19.8%
Absolute Strategy Weights3

60% 40%
+43.7% +19.8% +17.6% +18.9%
Special Situations 3.6% Alpha Only 18.7% Alternative Asset Opportunity 0.6% Cash & Cash Equivalents 0.8%
Currency Hedged Int'l. Equity 6.1% Flexible Equities 3.7% Emerging Markets 7.8% Strategic Fixed Income 10.6%
20% 0%
U.S. Equities
Int'l. Equities
Fixed Income
Absolute Return

Strategy
Asset Emerging Allocation Bond Country Debt 6.8% 1.5%
Std. Deviation Sharpe Ratio Drawdown

(10/31/07-2/28/09)
7.08 1.31 -10.33
Quarterly Strategy Attribution Global Allocation Absolute Return Strategy returned +1.6% in the quarter. The Despite the relatively flat performance of global equity markets this quarter, our long exposures to equities were aided by the strong performance from the underlying strategy investments. The Quality Strategy posted strong absolute returns of over 3.0%. Our absolute return strategies, Alpha Only and Multi-Strategy, both delivered modest yet positive performance during the quarter.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The CPI (Consumer Price Index) Plus 5% Index is an internally maintained (monthly) benchmark based on the CPI Index for All Urban Consumers US All Items which is published monthly by the U.S. government as an indicator of changes in price levels (or inflation) paid by urban consumers for a representative basket of goods and services. The CPI Plus 5% Index is calculated by adding 5% annualized to the return of the CPI Index. 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 GMOs website in April of 2011. 4 Std. Deviation is a measure of the volatility of a portfolios 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.
1
GMO 2011
33
GMO Global All Country Equity Allocation Strategy

As of June 30, 2011

2
YTD 2011 6.51 4.81

2002 2003 38.75 33.76 2004 17.62 14.86 2005 12.51 9.95
One Year 31.01 30.47

2006 18.87 20.34 2007
Five Year 4.60 3.08

2008
Ten Year 8.34 4.68

2009 24.19 34.45

2010 10.12 12.94
2.86 0.24
2001
11.12 -31.41 10.38 -41.82
Emerging Markets 16.5% Alpha Only 1.0% U.S. Core 5.1%
(MSCI ACWI)
Emerging Markets 13.6% U.S. Equities 42.8%

Quality 34.2%
Flexible Equities 2.7%
International Core Equity 23.2%
International Growth 8.8%
International Intrinsic Value 8.6%
Developed Int'l. Equities 43.7%

4% 2% 0% -2% -4% -3.5% U.S. Equities -0.4% +3.0% +1.0%

Strategy Benchmark
3.47 0.82 0.91 0.49
0.00 1.00 1.00 0.25
Developed Int'l. Equities
Emerging Equities
Absolute Return
Quarterly Strategy Attribution Global All Country Equity Allocation Strategy returned +2.9% for the quarter, outperforming its benchmark by 2.6%. Asset The allocations contribution was modestly negative, while implementation was the primary driver of positive returns. modest U.S. equity underweight acted as a drag on relative performance. In addition, our overweight in emerging market equities Our detracted as emerging underperformed its developed country counterparts. From an implementation perspective, the Quality Strategy outperformed its benchmark by over 300 basis points and was responsible for the lions share of this quarters overall positive performance. In addition, the underlying international equity strategies (International Intrinsic Value, International Growth Equity, and International Core Equity) were each able to beat their benchmarks by over 200 basis points.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The GMO blended Global All Country Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI ACWI (All Country World Index) (MSCI standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 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 GMOs website in April of 2011. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios sensitivity to the market; R2 is a measure of how well a portfolio tracks the market;
1
GMO 2011
34
GMO Global Developed Equity Allocation Strategy

2
As of June 30, 2011
YTD 2011 6.84 5.29

2002 2003 38.64 32.32 2004 17.36 13.64 2005 12.26 9.42
One Year 30.79 30.52

2006 20.22 20.05 2007
Five Year 3.14 2.28

2008
Ten Year 7.62 3.92

2009 20.55 29.97

2010 9.25 11.77
3.21 0.47
2001
9.69 -33.19 9.02 -40.70
Emerging Flexible Markets Equities 3.0% 2.0% U.S. Core 8.9%
(MSCI World Index)
U.S. Equities 49.5%

International Growth 25.2% Quality 35.9%

International Intrinsic Value 25.0%

6% 3% 0% -3% -6% -4.7% +4.7%

Strategy Benchmark
3.44 0.84 0.88 0.44
0.00 1.00 1.00 0.20
Quarterly Strategy Attribution Global Developed Equity Allocation Strategy returned +3.2% for the quarter, outperforming its MSCI World benchmark by The 2.7%. Implementation accounted for virtually all of the positive relative performance. From an implementation perspective, the Quality Strategy significantly outperformed its benchmark and was responsible for the lions share of this quarters overall outperformance. In addition, the underlying international equity strategies (International Intrinsic Value and International Growth Equity) were each able to beat their benchmarks by over 200 basis points each.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The GMO blended Global Developed Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI World (MSCI Standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. 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 GMOs website in April of 2011. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios 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.
1
GMO 2011
35
GMO U.S. Equity Allocation Strategy

As of June 30, 2011

2
YTD 2011 7.36 6.22

2002 2003 29.99 29.69 2004 10.74 11.45 2005 3.68 5.53
One Year 28.65 31.81

2006 9.93 15.71 2007
Five Year 2.59 3.23

2008
Ten Year 3.28 3.11

2009 20.54 27.46

2010 7.43 16.26
3.16 0.02
2001
2.25 -27.87 5.39 -37.15
Small/Mid Cap Value 1.1% Small/Mid Cap Growth 1.3%
(Russell 3000 Index)
Small Growth 9.1% Small Value 9.9%
U.S. Core 48.7%
Quality 48.8%
Large Cap 81.0%

20% 10% 0% -10% -20% Large Cap Small Value Small Growth -8.8% -7.8% +16.5%

Strategy Benchmark
2.02 0.85 0.92 0.52
0.00 1.00 1.00 0.38
Quarterly Strategy Attribution U.S. Equity Allocation Strategy finished the quarter with a return of +3.2%, outperforming its benchmark by 3.1%. Virtually all The of the outperformance came from implementation. Quality, which was a key driver, outperformed its benchmark by over 300 basis points. While the weights to small cap were quite modest, the U.S. Small/Mid Cap Growth and U.S. Small/Mid Cap Value Strategies each beat their respective benchmarks by close to 400 basis points this quarter.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The GMO blended U.S. Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of S&P 500, Russell 3000 or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. Russell Investments is the source and owner of the Russell index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is GMOs presentation of the data. FCR is not responsible for the formatting or configuration of this material or for any inaccuracy in GMOs presentation thereof. 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 GMOs website in April of 2011. 4 Alpha is a measure of risk-adjusted return; Beta is a measure of a portfolios 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.
1
GMO 2011
36
GMO Aggressive Long/Short Strategy

Inception: 9/30/00; Benchmark: Citigroup 3-Month T-Bill Index Performance (USD)1
As of June 30, 2011

Strategy

2
YTD 2011 1.80 0.06
One Year 7.07 0.14
Five Year 1.30 1.87
Ten Year 2.73 2.01
-0.71 0.02

(9/30/01-11/30/01)
13.00 0.46 -15.48
2002 25.92 1.70
2003 -5.61 1.07
2004 1.07 1.24
2005 3.56 3.00
2006 -1.90 4.76
2007 -5.37 4.74
2008 14.26 1.80
2009 -7.47 0.16
2010 3.51 0.13
Current Profiles4
Long Short
Sector Exposure4
Sector Net Weight (%) 6.7 4.5 0.9 6.4 18.2 1.3 21.3 3.6 1.2 -0.1 -40 -20 0 20 40
% Long/Short P/E - Excl Neg Earnings Hist 1 Yr Wtd Med % Negative Earnings
71 % 14.9 x 6.6 %
7 % 20.6 x 0.0 %
Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecom. Services Utilities
Quarterly Strategy Attribution Aggressive Long/Short Strategy returned -0.7% in the second quarter. The losses were spread out among our Fundamental Value, Volatility, and Merger Arbitrage strategies. The losses were driven much The more by specific situations in individual ideas than any macro factor or a flight toward or away from risk. Three of our top holdings responded poorly to missed earnings and other concerns around their businesses, falling 8%, 18%, and 30% for the quarter (compared with a flat S&P 500). In each case, we used this opportunity to add to our positions as the incremental information did not materially change our view on the companies and they each became more attractive on our valuation models. were also hurt by Nasdaqs decision to retract its bid to buy NYSE Euronext. Here too, we responded by adding to our position We in this deal as we are confident Deutsche Boerse remains a viable suitor. quantitative equity strategies were the bright spot for us in the second quarter, adding approximately 30 basis points. Our
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The Citigroup 3-Month Treasury Bill Index is an independently maintained and widely published index comprised of short-term U.S. Treasury bills. 3 Std. Deviation is a measure of the volatility of a portfolios return. Sharpe Ratio is the return over the risk free rate per unit of risk. Drawdown is the largest negative cumulative portfolio return from peak to trough. Risk profile data is gross. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. Exposure information is not normalized and shown as a percent of total net assets.
1
GMO 2011
37
GMO Tactical Opportunities Strategy

As of June 30, 2011

Strategy

2
YTD 2011 1.86 0.06
One Year -12.62 0.14
Five Year -5.27 1.87
Ten Year n/a n/a
Since Inception -8.13 2.22
8.15 0.02

(11/30/08-3/31/11)
18.72 -0.47 -60.51
2004 Strategy -7.57 Benchmark 0.44
2005 -13.24 3.00
2006 -1.65 4.76
2007 17.87 4.74
2008 36.52 1.80
2009
2010
-41.61 -25.25 0.16 0.13
Current Profiles4
Long Short
Sector Exposure4
Sector Net Weight 36.9 Long Short
P/E - Ex Neg Earn Hist 1 Yr Wtd Med % Negative Earnings Price/Book - Hist 1 Yr Wtd Avg Dividend Yield - Hist 1 Yr Wtd Avg
Return on Equity - Hist 1 Yr Med

Market Cap - Weighted Median $Bil Debt/Equity Wtd Med % Long/Short
14.8 0.6 3.1 2.5 22.0 $153.9 0.6 135
x % x % % x %
17.6 41.9 1.8 1.3 6.3 $4.8 1.4 138
x % x % %
x
%
Regional Weights4
Region Net Weight -5.7 3.3 -10 -5 0 5 10
-13.0 Consumer Discretionary Consumer Staples -3.1 Energy -42.9 Financials Health Care -14.9 Industrials Information Technology -10.7 Materials -3.7 Telecom. Services -1.9 Utilities Unassigned -60 -30 0
23.6 20.5
6.8 30 60
2.9 % 38.2 11.3 0.0 35.7 2.0 37.2 0.0 1.1 0.0 6.8
15.9 % 1.3 14.4 42.9 12.1 16.9 16.7 10.7 4.8 1.9 0.0
United States Non-United States
Quarterly Strategy Attribution Tactical Opportunities Strategy generated gains of 8.2% in the second quarter of 2011. Positive absolute returns were generated in The both the high quality long portfolio and the low quality short portfolio. dominance of non-mega cap stocks abated in the second quarter, reflecting a shift from risk to anti-risk. There was a distinct The size bias in equity performance for the period, which favored mid cap stocks. They were the leaders, but mega cap stocks, which were within shouting distance of the mid caps, handily outpaced small caps. This had a positive impact on both the long and short sides of the strategy. High quality outpaced low quality and an accompanying move in beta returns reflected this: low beta stocks (where quality currently resides) gained on high beta. However, within quality the impact from size continues to favor non-mega cap stocks. Since 2010, mega cap quality stocks have lagged non-mega cap quality stocks. The strategys long side is predominantly mega cap quality so while our long side had good returns, it could have done better by owning expensive non-mega cap quality stocks. Two of the characteristics that quality companies exhibit high ROE and high effective yields also turned in better-than-market returns for the period. Despite the shift in pricing of risk for the quarter, quality still remains a cheap asset class especially in mega cap quality, which is below market valuations. Importantly, this group has continued to retain its economic value. The lower prices of quality companies translate into even more attractive valuations. From an industrial sector analysis, Financials, the largest short position in the strategy, generated robust gains. The largest longs Consumer Staples, Information Technology, and Health Care all generated gains. The net short positions in more cyclical sectors such as Industrials and Materials also generated gains. strategys average net exposure for the quarter was neutral. The
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The Citigroup 3-Month Treasury Bill Index is an independently maintained and widely published index comprised of short-term U.S. Treasury bills. 3 Std. Deviation is a measure of the volatility of a portfolios return. Sharpe Ratio is the return over the risk free rate per unit of risk. Drawdown is the largest negative cumulative portfolio return from peak to trough. Risk profile data is gross. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011. Exposure information is not normalized and shown as a percent of total net assets.
1
GMO 2011
38
Inception: 3/31/96; Benchmark: J.P. Morgan U.S. 3 Month Cash Index Performance (USD)1
GMO Emerging Country Debt Long/Short Strategy

As of June 30, 2011

Strategy

2
YTD 2011 0.83 0.20
One Year 8.38 0.49
Five Year 5.45 2.93
Ten Year 9.02 2.71
0.53 0.10

(4/30/98-9/30/98)
15.71 0.77 -51.97
2002 18.09 2.01
2003 13.13 1.31
2004 11.46 1.48
2005 8.13 3.37
2006 12.23 5.25
2007
2008
2009 37.20 1.45
2010 14.37 0.45
5.51 -26.52 5.70 4.12
Characteristics4
EMBIG Beta Modified Duration Spread Duration 0.5 3.4 3.5 Yrs.
Regional Weights4
Asia CEEMEA* Latin America United States Developed

-20 -3.5 -10 0
3.3 11.0 7.1 10.7
10
20
Quarterly Strategy Attribution Emerging Country Debt Long/Short Strategy gained 0.5% in the second quarter of 2011, outperforming its benchmark, the J.P. The Morgan 3 Month Cash index, by 0.4%. The strategy invests mostly in countries in the J.P. Morgan Emerging Bond Market index (EMBIG), which returned 4.0% for the quarter. portfolio has a beta of 0.5 to the credit spread risk of the J.P. Morgan EMBIG. Its interest rate duration is low, so the 29-basisThe point fall in U.S. interest rates didnt help the strategy. Due to its positive spread duration, the portfolio benefited from the slight tightening in spreads for the asset class, from 299 basis points to 289 basis points. strategy targets absolute return by taking long and short positions in the same countries. Large holdings in Argentina, Russia, and The Venezuela contributed only modestly to returns, as the spreads in those countries moved little.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The J.P. Morgan U.S. 3 Month Cash Index is an independently maintained and widely published index comprised of three month U.S. dollar Euro-deposits. The duration of the Index is generally 90 days. 3 Std. Deviation is a measure of the volatility of a portfolios return. Sharpe Ratio is the return over the risk free rate per unit of risk. Drawdown is the largest negative cumulative portfolio return from peak to trough. Risk profile data is gross. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011.
1
GMO 2011
39
GMO Currency Hedge Strategy

As of June 30, 2011

Strategy

2
YTD 2011 2.81 0.20
One Year 8.06 0.49
Ten Year n/a n/a
1.78 0.10

(6/30/07-12/31/08)
12.17 0.05 -41.19
2004 2.93 1.48
2005 8.94 3.37
2006 13.60 5.25
2007
2008
2009 23.08 1.45
2010 3.17 0.45
-15.57 -28.70 5.70 4.12
Performance Attribution4
Net Contribution (%)
Currency Weights4
Net Weight
Europe North America Asia Pacific Cash Mgmt/Fees/Other

-4
0.5 -0.6 3.1 -1.3 -2 0 2 4
Europe North America Asia Pacific

-72.1
-23.5 95.6 -120 -80 -40 0 40 80 120
Quarterly Strategy Attribution the second quarter of 2011, the Currency Hedge Strategy returned of +1.8%, compared to its benchmark, the J.P. Morgan 3 Month In Cash index, which gained 0.1%. Somewhat unusually, the quarters lead gainers were safe haven Swiss franc, +8.7%, and high-carry New Zealand dollar, +8.3%. Swiss franc reached all-time highs in real effective terms, prompting one Swiss lawmaker to suggest imposing negative interest rates on foreign investors (read: Greek deposit flight) to deter further inflows. New Zealand dollar, meanwhile, continued to benefit from postquake reconstruction and insurance inflows. euro ended the quarter surprisingly well, considering that euro member Greeces bonds are pricing significant bondholder losses. The The single currency see-sawed between 1.405 and 1.475 relative to the dollar during the quarter, alternatively buoyed by the ECBs first post-crisis interest-rate increase (and the strong hints of more) and deflated by the ongoing slow-motion sovereign crises in the periphery. During the quarter the ratings for Greek debt were cut deep into junk; Portugal rested on the edge of junk (and downgraded to below right after quarter end); while Ireland delivered a rather nasty haircut to bank bondholders. policy actions, besides the ECB, Norway and Sweden each raised policy interest rates by 25 basis points during the quarter, to In 2.25% and 1.75%, respectively. At quarter end, the U.S. Federal Reserve ended its active QE2 policy. In a hint that things arent really back to normal, however, the major central banks rolled their crisis FX swap lines for another year through August 2012. performance attribution, the cross-market strategy was successful, as were opportunistic positions. In the cross-market strategy, In positive contributions came from the overweights in New Zealand, Australia, and Norway primarily. Opportunistically, the overweight New Zealand relative to Australia also contributed positively. On the downside, the collateral pool detracted.
1
GMO 2011
40
GMO Fixed Income Hedge Strategy

As of June 30, 2011

Strategy

2
YTD 2011 0.95 0.20
One Year 5.54 0.49
Ten Year n/a n/a
Since Inception -4.73 3.15
-0.32 0.10

(5/31/06-1/31/09)
14.85 -0.40 -48.54
2006
2007
2008
2009 21.63 1.45
2010 11.03 0.45
-4.61 -23.39 -25.45 5.25 5.70 4.12
Performance Attribution4
Strategy Net Contribution (%) 1.0 -0.4 1.0 0.0 -1.3 -0.8 -2 -1 0 1 2
Country Weights4
Net Weight (%)
Cross-Market Rate Anticipation Yield Curve Volatility Opportunistic Cash Mgmt./ABS/Fees/Other
Europe North America Asia Pacific

-200
-33.0 120.6 -52.2 -100 0 100 200
Quarterly Strategy Attribution Fixed Income Hedge Strategy returned -0.3% in the second quarter, underperforming its benchmark, the J.P. Morgan U.S. 3 The Month Cash index, which returned 0.1%. Opportunistic strategies and tactical duration overlay positions detracted, though gains provided by cross-market strategies and the yield curve strategy partly offset losses. Government bond markets rose across the board during the quarter: in local currency J.P. Morgan Global Bond index terms, gains were the highest in Sweden (+3.3%) and lowest in Japan (+1.2%). After bouncing back handily from its 2009 recession, with GDP rising by 5.5% in 2010 and forecasting to rise by more than 4% in 2011, Sweden is focusing on cutting back on the countrys debt burden by decreasing issuance, leading to lower yields. Fears of a possible Greek default boosted investor demand for safe-haven German bunds, which returned +2.1% for the quarter. In other bond markets, Australia (+2.6%), the U.K. (+2.6%), Canada (+2.5%), the U.S. (+2.5%), and Switzerland (+1.8%) also reported total return gains. Global yield curves (measured by the difference between 10-year and 2-year swap rates) were mixed, with yield curves in Switzerland and the U.K. steepening, and in the rest flattening. Japans yield curve flattened the most during the quarter. Given rising inflation pressures in the eurozone, the ECB had its first interest-rate increase since the emergency level was established in spring 2009, raising policy rates by 25 basis points to 1.25% in April. Further, Swedens Riksbank continued its policy tightening program, raising rates by 25 basis points to 1.75% during the same month. Central banks in the strategys opportunity set have been quiet since. Opportunistic strategies hindered performance during the quarter. The strategy held a mean-reverting position in the U.S. yield curve, which instead moved further away from fair value during the quarter. Tactical Duration Overlay positions also detracted during the quarter. The strategy was incorrectly positioned short duration during the late quarter bond market rally, and long duration for the subsequent bond market selloff. While unable to fully offset losses, the cross-market strategy contributed positively during the quarter, thanks to long U.S., Swiss, and Canadian positions. Yield curve trades also added value, as the Japanese yield curve flattened more than the rest.
1
GMO 2011
41
GMO Emerging Currency Hedge Strategy

As of June 30, 2011

Strategy

2
YTD 2011 5.84 0.20
One Year 16.01 0.49
Five Year 6.11 2.93
Ten Year n/a n/a
1.23 0.10

(7/31/08-12/31/08)
12.41 0.40 -31.61
2007
2008
2009 35.51 1.45
2010 9.88 0.45
9.72 -28.32 5.70 4.12
Quarterly Strategy Attribution the second quarter of 2011, the Emerging Currency Hedge Strategy returned +1.2%, while its benchmark, the J.P. Morgan 3 Month In Cash index, gained 0.1%. Positive relative performance resulted entirely from currency positioning. Most emerging currencies rose relative to the U.S. dollar during the quarter, with the largest quarterly spot gain coming from Colombian peso, +5.8%. Another nine currencies registered spot gains greater than 2%, including Brazil, Poland, Czech Republic, Korea, Singapore, Taiwan, Chile, Hungary, and Israel. the downside, Turkish lira was the stand-out loser, -4.9%. A yawning current account deficit (financed mostly by short-term debt) On defied authorities confidence that their unusual monetary policy would simultaneously cool domestic demand and deter hot money inflows. The CBRT did acknowledge in its spring financial stability report that sharply rising short-term borrowing (mostly by banks) was the main threat to financial stability. They vowed to continue reserve requirement hikes (rather than interest-rate hikes) to pinch credit growth. Other laggards included Argentine peso, -1.4%, and Thai baht, -1.3%. In Argentina, although the question of whether Cristina Fernandez de Kirchner would run for president in the fall was settled (yes), locals were already voting with their pesos in leaving the country. Although difficult to observe directly, the parallel (or ironically named Blue Chip) peso rate fell even faster than the official one. Despite the declines, the official pesos return was +0.5% due to the high carry in the NDF points. In Thailand, pre-election jitters weighed on the baht and temporarily narrowed onshore-offshore forwards. Peru, leftist candidate Ollanta Humala emerged victorious, although the margin was small. During the final months of the In campaign he did a Lula makeover, and each gesture lifted the depreciation pressure on the new sol. By quarter end, the new sol had risen by 1.9%, a middling performance in the region (Chile +2.2%, Brazil +4.4%, Mexico +1.5%). Chinas currency ended the quarter +1.3%, with all the gains coming in April ahead of the U.S.-China Strategic and Economic dialog. As has become a seasonal pattern, China allows the currency to rise ahead of the meeting (and the U.S. semiannual report on currency manipulation), then backs off afterwards. Currency positioning was mostly positive this quarter. Notable contributions came from long positions in Brazil, Hungary, Poland, Peru, Mexico, Chile, and Indonesia. The long position in Turkey and a short position in Colombia detracted.
1
GMO 2011
42
GMO Mean Reversion Strategy

As of June 30, 2011

Strategy

2
YTD 2011 1.21 0.06

2004 11.42 1.24 2005 6.97 3.00 2006 5.63 4.76 2007 18.63 4.74
One Year -3.25 0.14

2008 18.43 1.80
Five Year 3.23 1.87

2009 -13.43 0.16
Ten Year n/a n/a

2010 -8.61 0.13
0.08 0.02
2002 2003 35.76 1.07

(2/28/09-12/31/10)
11.25 0.89 -24.87
Strategy Benchmark
9.93 1.41
Fixed Income Exposure4

Position Aussie 10 Yr. Bonds Opportunistic Debt Aussie Linkers Kiwi 10 Yr. Bonds China Sovereign / Banks 50 Yr. GILTS Euro Insurance CDS JPY IR Swap Absolute % 8.5 5.8 5.4 4.8 -13.2 -20.7 -30.0 -42.6 -60 -30 0 30 60
Equity Exposure4
Position Absolute % Quality 13.2 Emerging Equities 5.1 Japanese REIT 4.3 Opportunistic Long Equities 4.3 Euro Div. Swaps 3.8 Opportunistic Japanese Equities 1.5 U.S. Housing -1.5 Australian Banks -2.8 Opportunistic Short Equities -6.0 Chinese Equities -14.2 S&P 500 -18.7 Junk -24.1 Russell 2000/S&P Midcap -60 -30 0 30 55.6
60
Currency Exposure4
Position Absolute % 8.4 Korean Won 4.8 Singapore Dollars -1.3 China Renminbi (Yuan) -4.2 New Zealand Dollar -6.0 Swiss Franc -7.8 Australian Dollars -10 -5 0 5 10
Position
Other4
Absolute % 32.7 3.0 -1.0 -2.9 -20 0 20 40 JPY Inflation Swap Credit Opportunities Strategy S&P Volatility Currency Volatility -40

Mean Reversion Strategy was mildly positive in the second quarter of 2011, rising 0.1%. It was a flat quarter for equities, with the S&P 500 up The 0.1%, MSCI EAFE gaining 1.6%, and MSCI Emerging shedding 1.1%. It was a good quarter for quality, which rose 3.4% in the quarter, against a 1.6% fall for the Russell 2000 and a 2.0% fall for low quality stocks. For the quarter, the portfolios equity positions earned 2.4%, as quality/junk added about 2.9%, anti-China added 10 basis points, emerging detracted 35 basis points, and U.S. housing and dividend swaps each cost 10 basis points. other significant winners in the quarter were the Japanese inflation swaps, which added 50 basis points, our volatility positions, which added 10 The basis points, and our government bond positions, apart from the IL Gilts, which added 20 basis points. The Credit Opportunities Strategy added 5 basis points, as it rose 1.7% in the quarter on the back of decent yields on its positions. The two biggest losers were the IL Gilts, which cost 1.5% as yields fell back to 0.45%, and currencies, which cost 1.2% as the Aussie dollar, New Zealand dollar, and Swiss franc strengthened versus the Singapore dollar, South Korean won, and U.S. dollar. During the quarter, we increased our anti-China equity positions to over 6% of NAV (8% of NAV if you include the Australian banks as anti-China). Within currencies we also moved some of our Aussie dollar short to the New Zealand dollar, which looks almost as expensive but with lower rates and a weaker economy, and our yen short to the Swiss franc, which looks to be the most overvalued non-commodity currency around. have also modestly reduced the ex-ante beta of the portfolio to around -0.1 or -0.2. Global stock markets are significantly overvalued, and, as we We reach the end of QE2 and Year 3 of the Presidential Cycle (which ends in October) with the world facing a number of significant problems (e.g., Greece, Libya), we believe conditions warrant a somewhat more conservative stance.
Performance data quoted represents past performance and is not predictive of future performance. Returns are shown after the deduction of management fees, transaction costs and other expenses, but before custody charges, withholding taxes, and other indirect expenses. The returns assume the reinvestment of dividends and other income. 2 The Citigroup 3-Month Treasury Bill Index is an independently maintained and widely published index comprised of short-term U.S. Treasury bills. 3 Std. Deviation is a measure of the volatility of a portfolios return. Sharpe Ratio is the return over the risk free rate per unit of risk. Drawdown is the largest negative cumulative portfolio return from peak to trough. Risk profile data is gross. 4 The above information is based on a representative account selected because it has the least number of restrictions and best represents the implementation of the strategy. The performance information above is supplemental to the GIPS compliant presentation that was made available on GMOs website in April of 2011.
1
GMO 2011
43
GMO Systematic Global Macro Strategy

As of June 30, 2011

Strategy

2
YTD 2011 -0.27 0.06

2004 1.33 1.24 2005 4.63 3.00 2006 8.39 4.76 2007 15.06 4.74
One Year 1.21 0.14

2008 -3.88 1.80
Five Year 7.64 1.87

2009 15.28 0.16
Ten Year n/a n/a

2010 10.37 0.13
3.72 0.02
2002 2003 3.79 1.07

(6/30/08-9/30/08)
10.53 0.81 -15.44
Strategy 19.75 Benchmark 1.26
Equity Market Selection4

Country Net Weight (%) 40.0 35.0 15.0 8.0 1.0 -4.0 -10.0 -15.0 -38.0 32.0 -60 -30 0 30 60
Country
Bond Market Selection4

Net Weight (%) 40.0 8.3 48.3 -80 -40 0 40 80
United States UK Korea Taiwan Netherlands Canada Norway Japan Australia Net Equity Markets
United States Asset Backed Net Bond Markets
Commodity Markets4
Commodity
Currency Selection4
Currency
Japanese Yen Australian Dollar United States Net Cash
Net Weight (%) 20.0 4.0 -24.0 -67.3 -100 -50 0 50 100
Soybeans Sugar Cattle Soy Oil Cotton Corn Wheat Natural Gas Hogs Silver Net Commodities
Net Weight (%) 5.0 5.0 5.0 4.0 -2.0 -2.0 -5.0 -5.0 -8.0 -10.0 -13.0 -20 -10 0 10 20
Quarterly Strategy Attribution Systematic Global Macro Strategy added 3.7% in the June quarter. The optimism supporting rising equity and commodity markets in April disappeared in May when commodity markets plunged as The worse-than-expected U.S. economic data and renewed concerns about European debt cast doubts about global growth. Equity markets fell 1.2% in May, according to the MSCI World index (in local currency), bond yields fell, pushing the J.P. Morgan Global Government Bond index 1.1% higher, and the U.S. dollar strengthened against most other G10 currencies. May, the strategy added 2.1% as our short commodity market positions and long bond allocation added strong value. While the In S&P GSCI Total Return index, an index of commodity markets returns, fell 6.9%, our largest short position was held in silver, down 21.2%. The strategy switched to a net short commodity allocation in January on the basis that commodity prices were too high relative to our measure of value and they had moved too high too quickly according to our measures of sentiment. strategy added a further 1.8% in June while share markets fell 1.6%. The strategy added good value from commodity market The positions. Several commodity markets partly reversed prior exaggerated moves on worries about global growth, high prices, and changing supply expectations. Our strategys long and short positions profited from divergent price moves: long positions in sugar, up 25.6% over the month, and cattle, +6.7%, were held against short positions in wheat, -26.9%, and silver, -9.1%. The strategy added further value from its overall net short allocation to commodities as they fell 5.3% according to the S&P GSCI Total Return index. Equity market selection was the only sub-strategy to lose value this quarter. Long positions in the Netherlands and Canada lost value in April, while a short position in Japan outperformed a long position in Taiwan in June.
1
GMO 2011
44
GMO Multi-Strategy
As of June 30, 2011

2
YTD 2011 1.44 0.06
One Year 0.32 0.14
Five Year 2.44 1.87
Ten Year n/a n/a
1.41 0.02
2003 5.07 1.07
2004 4.53 1.24
2005 2.30 3.00
2006 4.11 4.76
2007 4.43 4.74
2008 10.67 1.80
2009 -5.51 0.16
2010 -1.78 0.13

Strategy
Fixed Income Hedge 9.7% Currency Hedge 2.9% Emerging Currency Hedge 3.9% Mean Reversion 15.6%

(2/28/09-9/30/09)
5.58 0.49 -11.02
Systematic Global Macro 14.7%
Completion 15.8%
Emerging Country Debt L.P. 10.7% Tactical Opportunities 15.0
Aggressive Long/Short 11.7%
Quarterly Strategy Attribution Multi-Strategy portfolio returned +1.4% for the second quarter, outperforming its cash benchmark. The of the nine underlying strategies posted positive performance, with Tactical Opportunities and Systematic Global Macro doing Six particularly well. The strongest headwind came from the Completion Strategy, whose holdings in some asset-backed securities suffered some volatility toward the latter end of the quarter.
1
GMO 2011
45
GMO measures each strategys 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 strategys portfolio may differ to varying degrees from that of its Benchmark. Indices are not managed and do not pay fees and expenses. One cannot invest directly in an index. In some cases, a strategys Benchmark differs from the broad based index against which performance is shown in the strategys prospectus. GMO may change a strategys benchmark from time to time.
Full Name Citigroup 3-Month Treasury Bill Index CPI Index CPI Plus 5% Index Description The Citigroup 3-Month Treasury Bill Index is an independently maintained and widely published index comprised of short-term U.S. Treasury bills. The CPI (Consumer Price Index) for All Urban Consumers US All Items is published monthly by the U.S. government as an indicator of changes in price levels (or inflation) paid by urban consumers for a representative basket of goods and services. The CPI (Consumer Price Index) Plus 5% Index is an internally maintained (monthly) benchmark based on the CPI Index for All Urban Consumers US All Items which is published monthly by the U.S. government as an indicator of changes in price levels (or inflation) paid by urban consumers for a representative basket of goods and services. The CPI Plus 5% Index is calculated by adding 5% annualized to the return of the CPI Index. The FTSE All-Share Total Return Index is an independently maintained and widely published capitalization-weighted index comprised of stocks with 98- 99% of the U.K. market capitalisation. This index is the aggregation of the FTSE 100, FTSE 250 and FTSE Small Cap Indices. The FTSE World ex-UK Index is an independently maintained and widely published index comprised of developed (excluding the UK) and emerging large and mid capitalization stocks. The GMO blended Global All Country Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI ACWI (All Country World Index) (MSCI standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The GMO blended Global Balanced Asset Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of S&P 500, MSCI ACWI (MSCI Standard Index Series, net of withholding tax) and Barclays Capital Aggregate or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The GMO blended Global Developed Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI World (MSCI Standard Index Series, net of withholding tax) or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The GMO blended Real Return Global Balanced Asset Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of MSCI World (MSCI Standard Index Series, net of withholding tax), Barclays Capital Aggregate, and Citigroup 3-Month T-Bill or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The blended U.S. Equity Allocation Composite benchmark is comprised of a weighted average of account benchmarks; many of the account benchmarks consist of S&P 500, Russell 3000 or some like proxy for each market exposure they have. For each underlying account benchmark, the weighting of each market index will vary slightly. The index is internally blended by GMO and maintained on a monthly basis. Russell Investments is the source and owner of the Russell index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is GMOs presentation of the data. FCR is not responsible for the formatting or configuration of this material or for any inaccuracy in GMOs presentation thereof. The J.P. Morgan EMBI Global (Emerging Markets Bond) Index is an independently maintained and widely published index comprised of debt securities of countries, including Brady bonds, sovereign debt, local debt, and Eurodollar debt, all of which are U.S. dollar denominated. The J.P. Morgan EMBI Global (Emerging Markets Bond) Index + is an internally maintained benchmark computed by GMO, comprised of (i) the J.P. Morgan Emerging Markets Bond Index (EMBI) through 8/31/1995, (ii) the J.P. Morgan EMBI+ through 12/31/1999, and (iii) the J.P. Morgan EMBI Global thereafter. The J.P. Morgan GBI-EM (Government Bond Index-Emerging Markets) Diversified Index is an independently maintained and widely published index of global local emerging markets consisting of regularly traded, liquid fixed-rate, domestic currency government bonds. The J.P. Morgan Global Government Bond Index is an independently maintained and widely published index comprised of government bonds of developed countries with maturities of one year or more.
Benchmarks and Indices
FTSE All-Share Index
FTSE World ex-UK Index GMO Blended Benchmark of Global All Country Equity Allocation Composite
GMO Blended Global Balanced Asset Allocation Index
GMO Blended Global Developed Equity Allocation Index
GMO Blended Real Return Global Balanced Asset Allocation Index
GMO Blended U.S. Equity Allocation Index
J.P. Morgan EMBI Global Index J.P. Morgan EMBI Global + Index J.P. Morgan GBI-EM Diversified Index J.P. Morgan Global Government Bond Index
J.P. Morgan U.S. 3 Month Cash The J.P. Morgan U.S. 3 Month Cash Index is an independently maintained and widely published index comprised of three month U.S. Index dollar Euro-deposits. The duration of the Index is generally 90 days. MSCI EAFE Index The MSCI EAFE (Europe, Australasia, and Far East) Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of international large and mid capitalization stocks. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.
46
Full Name MSCI EAFE Value Index Description
The MSCI EAFE (Europe, Australasia, and Far East) Value Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of international large and mid capitalization stocks that have a value style. Large and mid capitalization stocks encompass approximately 85% of each markets free float-adjusted market capitalization. Style is determined using a multi-factor approach based on historical and forward-looking characteristics. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.
MSCI Emerging Markets Index The MSCI Emerging Markets Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of global emerging markets large and mid capitalization stocks. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. MSCI Japan Index The MSCI Japan Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of equity securities issued by Japanese companies listed on Tokyo Stock Exchange, Osaka Stock Exchange, JASDAQ and Nagoya Stock Exchange. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The MSCI Japan IMI (Investable Market Index Series) ++ Index is an internally maintained benchmark computed by GMO, comprised of (i) the MSCI Japan (MSCI Standard Index Series, net of withholding tax) from 12/31/2005 to 6/30/2008 and (ii) the MSCI Japan IMI (MSCI Standard Index Series, net of withholding tax) thereafter. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The MSCI World Growth Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of global developed markets large and mid capitalization stocks that have a growth style. Large and mid capitalization stocks encompass approximately 85% of each markets free float-adjusted market capitalization. Style is determined using a multi-factor approach based on historical and forward-looking characteristics. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The MSCI World Index (MSCI Standard Index Series, net of withholding tax) is an independently maintained and widely published index comprised of global developed markets. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. The Russell 1000 Value Index is an independently maintained and widely published index comprised of the stocks included in the Russell 1000 Index with lower price-to-book ratios and lower forecasted growth values. Russell Investments is the source and owner of the Russell index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is GMOs presentation of the data. FCR is not responsible for the formatting or configuration of this material or for any inaccuracy in GMOs presentation thereof. The S&P 500 Index is an independently maintained and widely published index comprised of U.S. large capitalization stocks. The S&P/IFCI Composite Index is an independently maintained and widely published index comprised of emerging markets stocks.
MSCI Japan IMI ++ Index
MSCI World Growth Index
MSCI World Index
Russell 1000 Value Index
S&P 500 Index S&P/IFCI Composite Index
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Kirchgasse 48 PO Box 570 8024 Zurich Switzerland +41 44 560 3060
GMO UK Limited Regulated by FSA Registered Number 4658801 England Visit our website at www.gmo.com

2q 2011 European Update

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2q 2011 European Update

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European Quarterly Update

Second Quarter 2011

GMO European Quarterly Update

2011 Performance of GMO Strategies and Benchmarks

GMO Equity Strategies/Benchmarks

Inception Currency Date 7/31/96 12/31/88 3/31/87 USD GBP USD

YTD Value Added 1.37 0.82 1.37

1/31/02 12/31/05 12/31/93

USD USD USD

2.33 5.83 2.46

11/30/04 11/30/88 9/30/85 5/31/99 2/29/04

GBP GBP USD USD USD

0.84 1.56 1.37 4.43 0.99

GMO Fixed Income Strategies/Benchmarks

Inception Currency Date 12/31/95 4/30/94 2/29/08 USD USD USD

YTD Value Added 0.97 0.44 -0.86

GMO European Quarterly Update

2011 Performance of GMO Strategies and Benchmarks

GMO Asset Allocation Strategies/Benchmarks

YTD Value Added 0.96 0.72 -1.32 1.70 1.55 1.13

GMO Absolute Return Strategies/Benchmarks

GMO European Quarterly Update

European Market Review

GMO Active Weighting Decisions

U.S. Equities -4.7%

Emerging Equities 8.8%

International Equities 28.4%

Emerging Equities +3.3%

International Core Equity 13.3%

Fixed Income +4.2%

GMO European Quarterly Update

GMO European Quarterly Update

U.S. Equity Markets

Performance Review and Outlook

GMO European Quarterly Update

3.0 2.0 1.0

4.0 2.0 0.0 -2.0 12/10

0.0 -1.0 -2.0 -3.0 -4.0 12/10

10.0 8.0 6.0

Cheap on Price/Intrinsic Value

10.0 8.0 6.0 4.0

High Price Momentum

4.0 2.0 2.0 0.0 12/10 0.0 -2.0 12/10

3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0

4.0 2.0 0.0 -2.0 -4.0

12.0 10.0 8.0 6.0 4.0 2.0 0.0

GMO European Quarterly Update

International Equity Markets

1.6% 0.2% 0.2% -0.2% -0.8% -1.0% -2.4% -2.9%

MSCI Europe Pacific ex-Japan

S&P/IFCI Composite (Emerging)

International Equities Market Review

GMO European Quarterly Update

Emerging Market Equities Market Review

GMO European Quarterly Update

GMO European Quarterly Update

Elections in the Middle East

Fixed Income Review

GMO European Quarterly Update

European Government Bond Total Returns 2Q vs. 1Q 2011

-2.3% -2.0% -2.4%

Source: J.P. Morgan

GMO European Quarterly Update