Quarterly Market Update Exponent Philanthropy and U.S. Trust, Bank of America Corporation working together to provide investment analysis for philanthropists

STEPHEN CAMPISI, CFA, DIRECTOR, INSTITUTIONAL INVESTMENTS, U.S. TRUST, BANK OF AMERICA CORPORATION Our market updates provide a look at the events that occur in each quarter, along with the subsequent effects that these events have on the investment markets. We present each market update in the context of an overarching theme that provides guidance on how this information might be used in the fiduciary’s role as a steward of the organization’s financial assets.

investor doubts about the current market environment, we thus highlight three main parallels with the 1990s (and ways in which today’s market might differ) that should leave investors more encouraged about the outlook for 2015 and beyond. Table 1. Snapshot of 2014 Market Returns Q4 2014 Return

Year-to-Date Return

R200 - Large Cap Equity

4.41

13.25

RMC - Mid Cap Equity

5.94

13.22

Market Review We see the risks for 2015 mainly concentrated in Europe and assorted emerging markets (EMs).

R2000 - Small Cap Equity

9.73

4.89

EAFE - Foreign Equity

-3.57

-4.90

The Russian currency crisis is most likely an early warning shot ahead of more EM-induced volatility spikes In Europe, political risks are rising as voters’ impatience with the stagnation induced by tight monetary and fiscal policies grows.

Emerging Markets

-4.50

-2.19

Aggregate Bonds

1.79

5.97

Foreign Bonds

-2.91

-2.67

High Yield Bonds

-2.51

0.01

Hedge Funds

-1.74

0.44

Commodities

-12.00

-17.01

12.44

27.15

Coming to America: The search for yield and safety has led foreign investors to U.S. equities Foreign investors, after a long romance with safe and secure U.S. Treasuries, have become enamored with U.S. equities, a barbell strategy that has 1) given foreign investors better U.S. risk-adjusted returns and 2) added more fuel to the bull rally in U.S. equities. “Back to the Future” — 1990s parallels and positive signs for today’s market Coming into 2014, our Investment Strategy Overview theme for the year ahead was “Back to the Future” — an intimation that the unfolding macroeconomic and market environment was likely to echo that of the mid-to-late 1990s. And as we now move into the second half of the current decade, we still see many similarities to the economic expansion and bull market of 20 years ago. In the form of responses to understandable

Real Estate

Source: U.S. Trust, Global Portfolio Solutions and Institutional Investments. Past performance is no guarantee of future results. Please refer to the Important Disclosures and Asset Class/Index Definitions at the end of the presentation for important information.

Institutional Investments & Philanthropic Solutions is part of U.S. Trust, Bank of America Corporation (“U.S. Trust”). U.S. Trust operates through Bank of America, N.A., and other subsidiaries of Bank of America Corporation (“BofA Corp.”). Bank of America, N.A., Member FDIC. Banking and fiduciary activities are performed by wholly owned banking affiliates of BofA Corp., including Bank of America, N.A. Bank of America, N.A., makes available investment products sponsored, managed, distributed or provided by companies that are affiliates of BofA Corp. or in which BofA Corp. has a substantial economic interest. Investment products:

Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value

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Table 2. Stock market indexes, total return (percent change)

Source: Bloomberg. As of December 31, 2014. Past performance is no guarantee of future results. Performance results are extremely short term and may not provide an adequate basis for evaluating performance potential over varying market conditions or economic cycles. Please see end of presentation for asset class disclosures and index definitions.

In the latest three-month period, the major domestic equity indexes posted positive returns. The Russell 2000 Index was the best performer, with a return of 9.7%, while the S&P 500 Index generated the worst return of 4.9%. Over the prior 12-month period, which covers 2014, all domestic equity index returns were positive. In the latest three-month period, the Developed Markets Index posted a return of -3.5%, and the Emerging Markets Index posted a -4.4% return. For the prior 12-month period, returns were negative. The Developed Markets Index posted a return of -4.5%, while the Emerging Markets Index posted a return of -1.8%.

Table 3. Bond market indexes, total return (percent change)

Source: Bloomberg. As of December 31, 2014. Past performance is no guarantee of future results. Performance results are extremely short term and may not provide an adequate basis for evaluating performance potential over varying market conditions or economic cycles. Please see end of presentation for asset class disclosures and index definitions.

In the latest three-month period, all domestic fixed income indexes posted positive returns, except for the Barclays Capital High Yield Index, which posted a return of -1.0%. The Citigroup Pension Liability Index (CPLI) had the best return of 8.2%, followed by the Barclays Capital Ten-Year Treasury Bellwether Index with a return of 3.6%. In the trailing 12 months, which covers 2014, all fixed income indexes posted positive returns. The CPLI had the best return of 25.4%, followed by the Barclays Capital Ten-Year Treasury Bellwether Index with a return of 10.7%. The Barclays Capital High Yield Index posted the worst return of 2.5%. In the latest three-month period, the Global Aggregate Sovereign Index posted a return of 0.6%, while the Emerging Markets Index posted a return of -2.1%. In the trailing 12 months, the Global Aggregate Sovereign and the Emerging Markets Indexes posted returns of 5.6% and 3.1%, respectively.

Please refer to the Important Disclosures and Asset Class/Index Definitions at the end of the presentation for important information. Diversification does not ensure a profit or protect against loss in declining markets. Past performance is no guarantee of future results. 4th Quarter 2014 | 2

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Table 4. Global Commodity Benchmark Comparison

Source: Thompson Reuters/Jefferies, Bloomberg, Standard & Poor’s, iPath. As of November 30, 2014.

Please refer to the Important Disclosures and Asset Class/Index Definitions at the end of the presentation for important information. Diversification does not ensure a profit or protect against loss in declining markets. Past performance is no guarantee of future results. 4th Quarter 2014 | 3

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Table 5. Commodity Returns

Source: Morningstar Direct. As of December 31, 2014.

Please refer to the Important Disclosures and Asset Class/Index Definitions at the end of the presentation for important information. Diversification does not ensure a profit or protect against loss in declining markets. Past performance is no guarantee of future results. 4th Quarter 2014 | 4

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Table 6. Global Commodity Benchmark Returns

Source: Morningstar Direct. As of December 31, 2014.

Please refer to the Important Disclosures and Asset Class/Index Definitions at the end of the presentation for important information. Diversification does not ensure a profit or protect against loss in declining markets. Past performance is no guarantee of future results. 4th Quarter 2014 | 5

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Table 7. Commodity Fund Flows

Table 9. Global disinflation steepening with oil price slide

Source: Morningstar Direct. As of November 30, 2014. Net Fund flows for Open-End funds & ETFs, excluding Money Market, Fund of Funds, and Obsolete Funds.

Source: Haver Analytics. As of December 30, 2014.

Market Currents Illustrated Table 8. Medium-term domestic vigor

Sources: Conference Board, National Association of Home Builders/ Haver Analytics. As of December 18, 2014.

Table 10. Some moderation in housing activity and prices

Sources: Census, NAR, NAHB, MBA/Haver Analytics. As of December 31, 2014.

Please refer to the Important Disclosures and Asset Class/Index Definitions at the end of the presentation for important information. Diversification does not ensure a profit or protect against loss in declining markets. Past performance is no guarantee of future results. 4th Quarter 2014 | 6

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Table 11. Robust Q4 private consumption

Table 13. 2015 Global growth/inflation: 3.2%/3.5%

Source: Bureau of Labor Statistics/Haver Analytics. As of December 23, 2014.

Source: Consensus Economics Ltd. As of December 19, 2014.

Table 12. Year-to-Year: CPI 1.3%; Core 1.7%; Food 3.2%; Energy -4.9%.

Table 14. Consensus still sees sustainable 3% growth

Source: BLS/Haver Analytics. As of December 17, 2014.

Source: Blue Chip Economic Indicators/Blue Chip Financial Forecasts. As of January 1, 2015.

Please refer to the Important Disclosures and Asset Class/Index Definitions at the end of the presentation for important information. Diversification does not ensure a profit or protect against loss in declining markets. Past performance is no guarantee of future results. 4th Quarter 2014 | 7

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Table 15. Fed tightening and (further) dollar strengthening ahead.

Source: Blue Chip Financial Forecasts. As of January 1, 2015.

Table 17. Labor market tightening has some more to go

Source: LABOR, Challenger, Gray & Christmas, Inc./Haver Analytics. As of December 31, 2014.

Table 16. Job growth faster and more broad-based

Sources: BLS/Haver Analytics. As of December 5, 2014.

Please refer to the Important Disclosures and Asset Class/Index Definitions at the end of the presentation for important information. Diversification does not ensure a profit or protect against loss in declining markets. Past performance is no guarantee of future results. 4th Quarter 2014 | 8

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Asset Class Disclosures Equities: Investments in equities are subject to the risks of fluctuating stock prices, which can generate investment losses. Equities have historically been more volatile than global alternatives such as fixed income securities. Fixed income investments: Fixed income investments fluctuate in value in response to changes in interest rates. Commodities: Commodities investments are highly volatile and are speculative. Commodities prices may be affected by overall market movements, changes in interest rates and other factors such as weather, disease, embargoes and international political and economic developments. Hedge Funds: An investment in a hedge fund involves a substantially more complicated set of risk factors than common investments in stocks or bonds, including the risks of using derivatives, leverage and short sales, which can magnify potential losses or gains. Restrictions exist on the ability to redeem units in a hedge fund. Hedge funds are speculative and involve a high degree of risk. Real Estate: Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties, such as rental defaults. International: International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. Private Equity: Investments in private equity involve a high degree of risk and therefore should only be undertaken by qualified investors whose financial resources are sufficient to enable them to assume these risks and to bear the loss of all or part of their investment. Emerging Markets: Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Diversification: Diversification does not ensure a profit or guarantee against loss.

Global: Global investing poses special risks, including foreign taxation, currency fluctuation, risks associated with possible differences in financial standards and other monetary and political risks. Small/Mid Cap: Stocks of small- and mid-cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies. Credit Quality Ratings: The credit quality ratings represent those of Moody’s Investor Service, Inc. (Moody’s) and Standard and Poor’s Corporation (S&P). The ratings represent their opinions as to the quality of the securities they rate. Ratings are relative and subjective and are not absolute standards of quality. The security’s credit quality does not eliminate risk. For information regarding the methodology used to calculate the ratings, please visit Moody’s at www.moodys.com or S&P at www.standardandpoors.com. Alternative Investments: Alternative Investments are sold to qualified investors only by a Confidential Offering Memorandum or Prospectus. Alternative investments provide limited liquidity and include, among other things, the risks inherent in investing in securities and derivatives, using leverage and engaging in short sales. An investment in an alternative investment fund is speculative, involves substantial risks and should not constitute a complete investment program. An alternative investment fund may be highly leveraged. The volatility of the price of its interests may involve complex tax structures and there may be delays in distributing important tax information. These funds may not be subject to the same regulatory requirements as mutual funds, and their fees and expenses may be high. This summary is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy interests in any fund. Interests are not deposits or obligations of, or guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other governmental agency. An investment in alternative investments is not suitable or desirable for all investors. Investors may lose all or a portion of the capital invested.

All sector recommendations must be considered by each individual investor to determine if the sector is suitable for his or her own portfolio based upon his or her own goals, time horizon, and risk tolerances. This presentation is provided for informational purposes only and was not issued in connection with any proposed offering of securities. It was issued without regard to the specific investment objectives, financial situation or particular needs of any specific recipient and does not contain investment recommendations. Bank of America and its affiliates do not accept any liability for any direct, indirect or consequential damages or losses arising from any use of this report or its contents. The information in this report was obtained from sources believed to be accurate, but we do not guarantee that it is accurate or complete. The opinions herein are those of U.S. Trust, Bank of America Private Wealth Management, are made as of the date of this material, and are subject to change without notice. There is no guarantee the views and opinions expressed in this communication will come to pass. Other affiliates may have opinions that are different from and/or inconsistent with the opinions expressed herein and may have banking, lending and/or other commercial relationships with Bank of America and its affiliates. All charts are based on historical data for the time period indicated and are intended for illustrative purposes only.

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Index Definitions

merger arbitrage, equity hedge, equity market neutral, relative value arbitrage, event-driven, distressed securities, and macro.

Securities indexes assume reinvestment of all distributions and interest payments. Indexes are unmanaged and do not take into account fees or expenses. It is not possible to invest directly in an index.

HFRX Global Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe. It comprises all eligible hedge fund strategies, including but not limited to convertible arbitrage, distressed securities, equity hedge, equity market neutral, event-driven, macro, merger arbitrage, and relative value arbitrage. The strategies are asset-weighted based on the distribution of assets in the hedge fund industry.

Unlike mutual funds, indexes are not managed and do not incur fees or expenses. It is not possible to invest directly in an index. The Barclays Capital Global High-Yield Index (Global High-Yield Bonds) provides a broad-based measure of the global high-yield fixed income markets. The Global High-Yield Index represents that union of the U.S. High-Yield, Pan-European High-Yield, U.S. Emerging Markets High-Yield, CMBS High-Yield, and Pan-European Emerging Markets High-Yield Indexes. The Citigroup non-Citigroup USD World Government Bond Index (WGBI or Global Aggregate Index or Foreign Bonds or International Fixed Income) measures the performance of bonds issued by governments outside the U.S. It is calculated on a market-weighted basis and includes all fixed-rate bonds with a remaining maturity of one year or longer and with amounts outstanding of at least the equivalent of U.S. $25 million. The index excludes floating or variable rate bonds, securities aimed principally at noninstitutional investors and private placementtype securities. To join the WGBI, a market must satisfy market size, credit, and barriers-to-entry requirements. The Citigroup Pension Liability Index (CPLI) reflects the discount rate that can be used to value liabilities for GAAP reporting purposes and is derived from the Citi Pension Discount Curve. It is a source for plan sponsors and actuaries to value defined-benefit pension liabilities. The index provides an investment performance benchmark for asset-liability management of a “typical” pension plan and to gauge changes in the value of pension liabilities. The Dow Jones Industrial Average Index (“Dow”) is the most widely used indicator of the overall condition of the stock market. It is a price-weighted average of 30 actively traded blue-chip stocks as selected by the editors of The Wall Street Journal. The Dow Jones UBS Commodity Index (“Commodities”) is a broadly diversified index that tracks commodity futures through a single measure. It is composed of futures contracts on physical commodities. MSCI Emerging Markets Equity Index — (“Emerging Markets”) is a global equity index from emerging economies using a representative sample covering a minimum of 75% to 85% of total market capitalization. Within each market stocks are allocated to sectors using the Industry Classification Benchmark. The Barclays Global Aggregate Sovereign Index is a flagship measure of global investment-grade debt from 24 different local currency markets. This multi-currency benchmark includes fixed-rate treasury, government-related, corporate and securitized bonds from both developed and emerging markets issuers. HFRX Equal Weighted Strategies Index (Hedge Funds) is constructed from the same strategies as the HFRX Global Hedge Fund Index and every strategy is given equal weight. As a result, it offers a more balanced diversification and historically lower volatility. The HFRX Global Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe. It consists of eight strategies: convertible arbitrage,

Russell 3000® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. Russell 1000® Index is a subset of the Russell 3000® Index that measures the performance of the 1,000 largest capitalization companies of the U.S. equity universe. Russell 200 Index (R200 or “Large Cap Equity”) is a subset of the Russell 1000® Index that measures the performance of the 200 largest capitalization companies of the Russell 1000 index. Russell Mid Cap Index (RMC or Mid Cap Equity) is a subset of the Russell 1000® Index that measures the performance of the 800 smallest companies of the Russell 1000 index. Russell 2000 Index (R2000 or ”Small Cap” or “Small Cap Equity”) is a subset of the Russell 3000® Index that measures the performance of the 2,000 smallest capitalization companies of the Russell 3000 index. Standard & Poor’s (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization U.S. stocks. The Barclays Bond Indexes are used as performance benchmarks in each respective category of U.S. debt issuances. The Barclays Capital U.S. Aggregate Index (Aggregate Bonds) is an unhedged market capitalization-weighted index of the total U.S. investment-grade bond market. The Barclays Capital U.S. Corporate High-Yield Bond Index (High-Yield Bonds) is an unmanaged, market value-weighted index, which covers the U.S. non-investment-grade fixed-rate debt market. The index is composed of U.S. dollar-denominated corporate debt in industrial, utility and finance sectors with a minimum $150 million par amount outstanding and a maturity greater than 1 year. The Barclays Capital Mortgage-Backed Securities Index (Mortgage-Backed Securities) is a bond index consisting of a pool of mortgages. These securities may be issued by the Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac). Mortgage-backed securities are subject to credit risk and the risk that the mortgages will be prepaid, so that portfolio management may be faced with replenishing the portfolio in a possibly disadvantageous interest rate environment. The Barclays Capital Ten-Year Treasury Bellwether Index (U.S. Treasury Bonds) measures the performance of government bonds issued by the U.S. Treasury. The Barclays Global Emerging Markets — is an index of bonds from the emerging markets countries.

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The Bloomberg Commodity Index is composed of futures contracts on 22 physical commodities. It reflects the return on fully collateralized futures positions. It is denominated in U.S. dollars. The Commodity Research Bureau (CRB) Commodity Index (or Commodities) is a measure of price movements of 22 sensitive basic commodities whose markets are presumed to be among the first to be influenced by changes in economic conditions. The commodities used are in most cases either raw materials or products close to the initial production stage which, as a result of daily trading in fairly large volumes of standardization qualities, are particularly sensitive to factors affecting current and future economic forces and conditions. The FTSE NAREIT All-REIT Index (Real Estate or REITs) is based upon the last closing price of the month for all tax-qualified REITs listed on the NYSE, the American Stock Exchange, and the NASDAQ National Market System. The Nasdaq Composite Index is a market capitalization price-only index that tracks the performance of domestic common stocks traded on the regular Nasdaq market as well as National Market System-traded foreign common stocks and American Depositary Receipts. The Morgan Stanley Capital International Europe, Australasia, Far East Index (EAFE – Foreign Stocks, or Developed Markets Index) is a capitalization-weighted index that tracks the total return of common stocks in 21 developed-market countries within Europe, Australasia and the Far East.

Excess return (sometimes referred to as “alpha”) is a measure of performance versus a benchmark. A positive excess return of 1.0 means the fund has outperformed its benchmark index by 1%, while an excess return of -1.0 means the fund has underperformed its benchmark by 1%. Global Equity is a hypothetical blend of 63% U.S. Equity and 37% Foreign Equity, with U.S. as a blend consisting of 50% Russell 200 Index, 25% Russell Mid Cap Index and 25% Russell 2000 Index; and Foreign Equity consisting of 60% Morgan Stanley Capital International Europe, Australasia, Far East Index and 40% MSCI Emerging Markets Index. Global Bonds is a hypothetical blend of 80% Barclays Capital U.S. Aggregate Index, 10% Citigroup non-Citigroup USD World Government Bond Index and 10% Barclays Capital Global HighYield Index. Global Alternatives is a hypothetical blend of 30% FTSE NAREIT All-REIT Index, 30% Dow Jones UBS Commodity Index and 40% HFRX Global Hedge Fund Index. The S&P GSCI Index measures a fully collateralized investment of 24 commodities futures that is rolled forward from the fifth to the ninth business day of each month. The Thompson/Reuters CRB Index is an arithmetic average of commodities futures prices with monthly rebalancing.

Developed Markets (“Foreign Equity”) is represented by EAFE, the MSCI Emerging Markets Index, a free-float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. As of May 30, 2011, the MSCI Emerging Markets Index consists of the following 21 emerging market country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey.

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