Exhibit 14A Cumulative return of asset allocation fund and benchmark, June 1996-

Question

Exhibit 14A Cumulative return of asset allocation fund and benchmark, June 1996-September 2001. 90% 80% 70% 60% 2 50% GMO Global Balanced Fund 30% 20% 10% 0% -10% Jun-96 Dec-96 Jun-97 Dec-97 Jun-98 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Source: GMO Exhibit 14B Cumulative return of asset allocation fund relative to its benchmark, June 1996-September 2001. 10% 5% 0% -5% -10% -15% -20% -25% -30% 2 CO 2 Jun-96 Dec-96 Jun-97 Dec-97 Jun-98 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Sharpe Ratio Annualized Volatility AnnualizedStandard Draw Down Alpha Deviation of Tracking Error Return GMO Asset Allocation Fund Benchmark Risk-free (3 month T-bill) 9.4% 8.2% 52% 7.4% 11.0% 0.4% 1.2% N/A N/A 8.9% N/A N/A 0.56 0.27 N/A 18% 32% N/A Source: GMO Note: The draw down was the worst peak-to-trough decline in over the period

Explanation / Answer

Exhibit 14 A

This exhibit shows cumulative return of asset allocation fund and benchmark index. It can be clearly observed that in initial phase till Dec 97, benchmark index had lower return than the fund, thereafter from Dec 97 to Dec 00, benchmark outperformed the fund with a huge margin. Thereafter again, the fund started performing better than the benchmark.

Exhibit 14 B

This exhibit shows the difference between Fund return and benchmark return. For first few years, the difference was positive, thereafter for a large period of time, the difference became negative and thereafter again the difference became positive.

Clearly the Fund’s annualized return (9.40%) is greater than Benchmark return (8.20%). Also the benchmark has higher fluctuations and volatility. Apart from that, the fund is able to generate a positive alpha and its Sharpe ratio is greater than benchmark Sharpe ratio. All in all, this fund is recommended to be invested in by the investor.

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