International Active Update

Fourth Quarter 2013

Performance

GMO

The International Active EAFE Strategy outperformed the MSCI EAFE index by 1.5 percentage points in the fourth quarter; the strategy gained 7.2% net of fees and benchmark rose 5.7%. Country and stock selection were both positive. The strategy beat its benchmark by 1.3 percentage points for the year 2013, returning +24.1%.

5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0

GMOInternational Active Performance (Through December 31, 2013)

GMO International Active 4,251.8%

MSCI EAFE 1,721.4%

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Performance (Year by Year %)

GMO MSCI Int'l Active EAFE 1981 (Jun-Dec) +5.8 -1.0 1982 +2.4 -1.9 1983 +32.1 +23.7 1984 +8.7 +7.4 1985 +65.1 +56.2 1986 +57.4 +69.4 1987 +9.7 +24.6 1988 +21.2 +28.3 1989 +27.4 +10.5 1990 -10.7 -23.4 1991 +13.9 +12.1 1992 -4.0 -12.2 1993 +41.2 +32.6 1994 +5.9 +7.8 1995 +13.8 +11.2 1996 +14.6 +6.0 1997 +6.8 +1.8 1998 +13.9 +20.0 1999 +28.6 +27.0 2000 -6.5 -14.2 2001 -10.1 -21.4 2002 -6.1 -15.9 2003 +41.4 +38.6 2004 +22.4 +20.2 2005 +13.5 +13.5 2006 +27.6 +26.3 2007 +10.5 +11.2 2008 -41.2 -43.4 2009 +25.5 +31.8 2010 +5.0 +7.8 2011 -11.7 -12.1 2012 +14.9 +17.3 2013 +24.1 +22.8 Compound Annual Rate of Return (32 Years, 7 Months) +12.3 +9.3 GMO Value Added +6.8 +4.3 +8.4 +1.3 +8.9 -12.0 -14.9 -7.1 +16.9 +12.7 +1.8 +8.2 +8.6 -1.9 +2.6 +8.6 +5.0 -6.1 +1.6 +7.7 +11.3 +9.8 +2.8 +2.1 -0.0 +1.2 -0.6 +2.1 -6.2 -2.7 +0.5 -2.4 +1.3 +3.0 S&P 500 -4.6 +20.3 +22.6 +6.3 +31.8 +18.7 +5.3 +16.6 +31.7 -3.1 +30.5 +7.6 +10.1 +1.3 +37.6 +23.0 +33.4 +28.6 +21.0 -9.1 -11.9 -22.1 +28.7 +10.9 +4.9 +15.8 +5.5 -37.0 +26.5 +15.1 +2.1 +16.0 +32.4 +11.3 Bonds AAA/AA +2.0 +42.5 +6.3 +16.9 +30.1 +19.8 -0.2 +10.7 +16.2 +6.8 +19.9 +9.4 +13.2 -5.7 +27.2 +1.4 +13.0 +10.8 -7.4 +12.9 +10.6 +16.3 +5.3 +7.9 +5.9 +3.2 +2.6 +8.8 +3.0 +12.4 +18.0 +10.7 -7.1 +10.1

International Active Update

Fourth Quarter 2013

GMO

Outlook: A Stock Pickers Market

Current valuations in the global equity markets reveal no large factor or group of stocks that appears substantially cheaper than another. There is a dearth of valuation dispersion between geographies, between industries, or between styles such as small and large. As a result of the relative lack of thematic valuation opportunity, alpha will have to be delivered via good old-fashioned stock picking. But, while average valuations between countries, sectors, and factors are in a relatively tight band, the valuation dispersion of stocks within those buckets is still fairly wide, meaning there are still plenty of inefficiencies and mispriced companies to provide excess profits. In fact, we believe there are particularly cheap stocks in Europe, Japan, and Emerging Asia. In Europe, value still resides in companies geared to a domestic recovery. We believe industrials, materials, and financials that have significant business exposure to the European economy represent a compelling opportunity. Many of these companies are in the midst of restructuring, cutting costs, and reducing leverage. Companies that are able to achieve breakeven or even positive cash flow on currently depressed revenue levels should reward investors if the European recovery becomes more robust. The European economy remains the thing to watch. While a recovery in Europe is clearly being discounted by the equity markets, growth is anticipated to be modest. Anything better would certainly be a surprise and markets should rally correspondingly. The upcoming Asset Quality Review by the ECB could be a source of good news if it reveals solid balance sheets in the banking sector. Healthy capital positions combined with nascent underlying loan demand will be the true signs of a sustainable recovery in Europe. Japan continues to pursue structural reform under Abes Three Arrows program. The most important policy remains the first arrow of monetary stimulus intended to create nominal asset price increases. Margins in Japan are still very low and operating leverage is so high that, even with modest restructuring and a modicum of pricing power, corporate profits could improve dramatically. With current earnings, valuation looks fair but if policy measures achieve their goals the market is compellingly cheap. The equity market will

continue to favor those companies that should benefit from a modestly devaluing yen such as banks, retailers, and industrials. In the midst of these broader themes there can still be found a cohort of Japanese companies that continue their march toward greater efficiency and higher profitability, and that will reward investors regardless of what happens in the broader economy. In emerging markets, there is the appearance of extreme value, but those stocks that are optically cheap come with high risk. There are only a few countries in aggregate selling below 10 times earnings and all of them are in the emerging markets: China, Russia, Turkey, and Korea. We are most excited about Korea and Turkey. Korea has been out of favor with investors for several years and, as a result, a number of franchises with strong competitive positions can be bought on the cheap. Turkey has some isolated opportunities but it is a struggle to find enough liquidity to make these ideas impactful. In Russia, value is found primarily in the resource sector and comes with an uncomfortable amount of ongoing geopolitical risk. China continues to be a worry for us. While the slowing economy has certainly been recognized by markets, the extent of bad loans and hidden leverage in the banking system has the potential for catastrophe. The Chinese economy has yet to fully digest the massive credit expansion thrust upon it by policy makers after the global financial crisis. The middle kingdom could find a way to muddle through, but systemic risk is high. The major economic themes of 2013 are intact as we enter 2014. The United States will continue to lead other regions, mainly Europe, in a slow recovery from economic malaise. Deleveraging by U.S. consumers and European sovereign governments will still act as a governor on growth, but a counterbalance will be provided by loose monetary policy. While Europe in particular is not out of the woods, global macroeconomic conditions have a trajectory of modest but steady improvement. China contains risk, but as long as the rest of the world is on the mend, any trouble there should be relatively isolated. With few thematic valuation opportunities in the global equity markets, the burden for alpha will rest squarely on good stock selection. Fortunately, there are plenty of forgotten and neglected companies that are either restructuring their business or benefiting from the better

International Active Update

Fourth Quarter 2013

GMO

prevailing economic climate. Either way, we believe these companies will surprise market expectations and provide those early contrarian investors with strong returns.

Country Selection and Market Update

Country selection was 0.2 percentage points ahead of the benchmark. Our positioning in Continental Europe added to returns. The eurozone, in which we have an overweight, was the best performing region in the MSCI EAFE index.* As Ben Bernanke prepared to turn over the reins to the new Chair of the Federal Reserve, Janet Yellen, he took the first step in implementing the much discussed taper. The Fed chose to cut its monthly bond purchases at its December meeting. Stocks soared when this was announced; implying investors had come to terms with the slowing of quantitative easing. With the German elections behind them, Europe had a calm quarter. The economy has stabilized and investors continue to anticipate recovery; all of the European markets in the benchmark had positive returns for the period. The Pacific region lagged as area currencies fell against the U.S. dollar. Australia and New Zealand also continued to see declining commodity prices. Asia ex-Japan is dealing with creeping political instability, and in the quarter these tensions were added to by Prime Minister Abe and his increasing provocation of Japans neighbors.

550M. Not only does Aberdeen have a very strong record on integrating acquisitions and buying at cheap valuations, it would also diversify the group away from a perceived over dependence on emerging markets. The deal appeared advantageously structured from Aberdeens perspective most notably the companys acquiring SWIPs investment solutions arm, which we believe offers solid growth opportunities. A position in the upmarket London builder Berkeley Group also helped performance. Investors may question the wisdom of owning a builder focused on upmarket London property, a market that displays distinct bubble characteristics. However, we remain fans of the manner in which Berkeleys management stewards shareholder capital. The company acquired large tracts of land in London at the bottom of the cycle in 2008 and 2009 and is now busy liquidating much of its portfolio of properties and returning a significant element of this cash to shareholders. Unique among the U.K. house building sector, Berkeley has in the past, and continues to, time the cycle to perfection and use it to their advantage and that of their shareholders. Outperformance in Continental Europe was led by ArcelorMittal, Mediobanca, and Celesio. ArcelorMittal, outperformed as the steel company reiterated its full-year guidance. Investors are hopeful the macro situation in Europe may have bottomed, and we are seeing signs of improvement in the United States. U.S. steel consumption is close to previous peak levels, and the prices are starting to rise. If this continues, it will greatly benefit companies like ArcelorMittal, which has cut costs aggressively and will benefit from operational leverage due to improving volumes. Italian bank Mediobanca started to unravel its cross holdings and, for the first time in many years, focus on operational improvement. The restructuring program has had some early benefits, causing the stock to perform well over the quarter. Celesio, a German health care and pharmaceutical company, agreed to be acquired by McKesson, a U.S. based pharmaceutical distribution company. This was preceded by the acquisition of AllianceBoots by Walgreens, which opened the gates to cross-Atlantic consolidation, and further deals seemed inevitable. We have sold our entire Celesio position since the announcement. Japanese auto manufacturer Mazda outperformed over the quarter as expectations are building for the new

Stock Selection
Stock selection beat the benchmark by 1.3 percentage points in the fourth quarter. Holdings in the United Kingdom, Continental Europe, and Japan outperformed.* In the United Kingdom a large position in Aberdeen Asset Management buoyed the performance of the U.K. portfolio during the quarter. Aberdeen Asset Managements share price rose strongly after the company confirmed that it had agreed to buy Scottish Widows Investment Partnership from Lloyds for
* Data is that of a representative account from within the Composite.

International Active Update

Fourth Quarter 2013

GMO

Mazda 3. There is anticipated strong demand for the model, which will also have a better profit profile as these cars will eventually be produced in the new North American plant. The company has traditionally been held back by a relatively weak balance sheet, but this structural issue appears to have been largely overcome due to improving profitability and lower cap-ex demands going forward. Separately, telecom operator KDDI benefited from surprising the market with better than expected data ARPU (Average Revenue Per User), implying that the marketing team continues to find clever ways to price connectivity for the increasingly data hungry smart phones. The company also has been effective in finding subscriber growth synergy after the merger with cable operator 3Com.

Currency and Hedging

Currencies were mixed relative to the U.S. dollar in the quarter. The euro continued its climb, rising 1.8%, and the U.K. pound gained 2.3%. However, benchmark currencies in the Pacific region were mostly negative, with the Japanese yen losing 6.7% and the Australian dollar falling 4.3%. The strategy was unhedged in the quarter.

International Active Update

Fourth Quarter 2013

GMO
December 31, 2013
MSCI EAFE Sector Performance YTD 2013 Fourth Quarter
5.4% 3.4% 6.5% 6.2% 7.3% 5.0% 8.1% 3.0% 11.6% 1.6% 35.1% 16.9% 11.9% 24.5% 28.1% 24.5% 26.8% 2.8% 46.2% 13.8%

Sector Weights and Performance

Sector Weight December 31, 2013 GMO Int'l Active* MSCI EAFE
16.7% 8.6% 6.9% 26.0% 3.7% 14.5% 4.9% 8.0% 5.8% 4.8% 11.9% 10.9% 7.3% 25.6% 10.0% 12.9% 4.5% 7.6% 5.7% 3.5%

Sector
Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials Information Technology Materials Telecommunication Services Utilities

GMO Parameter Profile Actual P/BK, P/E, P/CF, and Yield

December 31, 2013
Price-toEarnings 17.1 17.4 -2% Price-toCash Flow 10.3 11.6 -11%

Region/Country GMO* MSCI EAFE GMO Premium/(Discount) to MSCI EAFE

Price-toBook 1.6 1.7 -6%

(weighted median)

(weighted median)

Yield 2.9% 3.0% -3%

*Data is based on a representative account selected because it has the fewest restrictions and best represents the implementation of the Strategy. This information is supplemental to the GIPS compliant presentation of the strategy that has preceded this report in the last 12 months or accompanies it. GIPS compliant presentations of composite performance are also available at www.gmo.com.

International Active Update

Fourth Quarter 2013
MSCI EAFE Country and Currency Returns
December 31, 2013 GMO MSCI EAFE Int'l Active Weight Weight 9.5% 0.9% 3.4% 0.3% 2.2% 1.2% 2.7% 1.2% 22.0% 0.4% 10.0% 0.8% 3.2% 8.9% 2.8% 0.3% 20.9% 0.2% 1.5% 7.4% 0.1% 0.0% 0.0% 7.7% 1.0% 1.9% 0.4% 7.2% 0.0% 3.7% 1.3% 21.9% 0.0% 16.5% 0.5% 1.4% 3.3% 1.1% 0.4% 20.3% 0.0% 0.0% 5.8% 0.0% 3.5% 2.3% MSCI EAFE Return in Local Currency 11.3% 9.8% 9.4% 9.4% 8.8% 8.4% 6.7% 6.1% 5.0% 4.5% 4.1% 6.8% 6.4% 5.2% 2.6% 3.3% 1.4% 9.6% -0.5% 1.3% 3.6% -2.9% 2013 Q4 MSCI EAFE Currency Return 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 2.3% 1.6% 1.8% -0.8% -0.6% 0.1% 1.7% 0.0% 1.8% -6.7% 1.8% -0.6% -4.3% -1.2% MSCI EAFE Return in $US 13.3% 11.8% 11.4% 11.3% 10.8% 10.3% 8.7% 8.0% 7.4% 6.2% 6.0% 5.9% 5.7% 5.2% 4.3% 3.3% 3.2% 2.3% 1.3% 0.7% -0.9% -4.1%

GMO

Country Germany Finland Spain Ireland Italy Denmark Netherlands Belgium United Kingdom Israel France Norway MSCI EAFE Sweden Switzerland Hong Kong Austria Japan Portugal Singapore Australia New Zealand Emerging Markets Cash

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. The returns assume the reinvestment of dividends and other income. Fees are disclosed in Part II of GMOs Form ADV and are also available in each strategys compliant presentation. Composite performance is supplemental to the GIPS compliant presentation for the strategy that was made available on GMO's website in September of 2013. Performance is shown compared to the MSCI EAFE Index, a broad-based securities market index that measures large capitalization international stocks. Broad-based indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds. Investments cannot be made directly into an index. Information about the composite is as of the period-end noted above, subject to change without notice and not intended as investment advice. Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an as is basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the MSCI Parties) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages (www.mscibarra.com).

Copyright 2014 by GMO LLC. All rights reserved.

International Active Update

Fourth Quarter 2013

GMO

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