QUARTERLY INVESTMENT UPDATE

QUARTERLY INVESTMENT UPDATE December 31, 2015

Quarterly Market Perspectives Global equity markets staged an impressive rally from their late summer swoon across the first two months of the quarter ended December 31, 2015. The recovery came even as the price of oil continued to fall, reaching a low price of $37/barrel at year end, declining 18% for the quarter and 66% since June 2014. Domestic Chinese equity markets, a sell off in which had helped precipitate the August stock market correction, rebounded (albeit, in retrospect, only temporarily). U.S. economic growth continued apace, pushing the current expansion well into its sixth year and prompting the Federal Reserve to boost the Fed Funds rate +25 basis points (0.25%) in mid December. Yields on Treasury bonds of various maturities mostly followed the Fed s lead. Widening interest rate differentials between the U.S. and other nations contributed to further gains in the U.S. dollar versus most foreign currencies. A good fourth quarter for equities in most Developed Markets (MSCI World Index: +5.6%) was not matched by Emerging Markets (MSCI Emerging Markets Index: +0.5%), and returns in most stock markets were not large enough to offset poor returns produced across the year s prior three quarterly periods. For all of 2015, global equities returned 1.8% (MSCI ACWI Index), the lowest one year total return on stocks since 2011 *. Low yields combined with modest declines in bond prices produced flat quarterly returns of 0.6% on taxable bonds (Barclays Aggregate Bond Index) and +0.8% on tax exempt bonds (Barclays 1 10 Year Municipal Bond Index). As a result, investments in bonds produced some of the sector s most lackluster returns of the past 10 years. With oil and prices of various industrial metals also plunging, commodities ( 10.5%, Bloomberg Commodities Index) continued their losing ways. Most hedge fund strategies were unable to deliver particularly robust results despite rising volatility across global markets; for the quarter, the average hedge fund returned +0.7% (HFRI Fund of Funds Index). In an e mail to clients last August, written in the midst of a 15.5% (MSCI ACWI Index) decline from the market s earlier YTD high price, we said that almost every recent period of rising volatility was precipitated by a different set of circumstances but was met by a similar over reaction in market prices. Now, only a few months later, it appears that our statement was only partly accurate. The same set of concerns (i.e., China worries, plunging oil prices) that produced the August sell off is fueling another sharp, rapid downturn in equity prices as 2016 begins. Paced by China (the benchmark Shanghai Composite Index sold off 7% before U.S. markets even began their year), global markets are on track to have their worst yearly start since January 2009 (when the MSCI ACWI Index returned 8.5%). And oil prices have fallen as low as $26/barrel in January, the lowest price since early 2003. But unlike that earlier, particularly bleak period (i.e., 2008 2009) for world economies, current issues are not nearly as endemic or as potentially debilitating as those of the prior period. Then, the unanticipated collapse of U.S. housing prices following a sharp run up from 2002 2006 (with attendant high debt taken on by consumers) coupled with extremely high leverage in the global banking system created systemic losses that were substantial relative to the size of the world economy and that nearly shut down global financial markets. Today, China s much discussed economic evolution and current slowdown, while certain to impact both China and its key suppliers to some meaningful extent, seems unlikely to dramatically alter the near term course of the U.S. economy. A low unemployment rate, recovering home prices, lower debt service and potentially rising wages are all supportive of a strong consumer and, as a result, a continued U.S. economic expansion in the year ahead. Likewise, the sharp decline in oil prices should not produce stresses that become greatly magnified across U.S. and global economies. For all the losses now being absorbed by oil exporting nations, energy companies, and investors in energy company equities and debt securities, there are also large, less visible gains in the form of lower spending on gasoline and energy that will redound to the benefit of major oil importing economies and global consumers. (Though, in somewhat of a surprise to economists, so far U.S. consumers have chosen not to spend much of the savings resulting from sub $2.00/gallon gasoline). The lack of marketplace recognition that China worries and low oil prices do not affect all sectors and markets equally as reflected in this month s indiscriminate selling of risk assets across all major world markets suggests to us that the herd instinct of investors is alive and well as 2016 begins. But, as we illustrate on pages 5 6, falling stock prices have reduced valuations to levels last seen in early 2014, producing better entry points for un invested cash balances and increasing the likelihood but by no means the certainty of earning a positive rate of total return (price gains and cash dividends) across a longer term investment horizon. Thomas M. Chapin, Chief Investment Officer January 26, 2016 *please see the most recent edition of our Capital Markets Annual for full details on returns earned in various market sectors in 2015 Page 1

Quarterly Economic Developments U.S. GDP grew at a weaker (first estimate: +0.7%) annualized rate during the 2015 Fourth Quarter. Personal consumption continued to grow, though less rapidly than earlier in the year. Exports of goods were weaker, reflecting the longer term impact of a stronger dollar on foreign sales. For all of 2015, the U.S. economy grew +2.4%. Private sector payroll growth averaged 284,000 jobs/month during the year s final quarter; the unemployment rate shrank to 5.0%. Nationwide, home prices continued their gradual rise, +5.2% in 2015 and +31% since bottoming in early 2012. On average, home prices are now 95% of prices at the July 2006 housing peak. Auto sales of 17.5 million topped previous record set in 2000. Continued relatively modest growth in spending, pared with rising revenues, further shrank the U.S. government s annual budget deficit. The deficit relative to overall U.S. GDP was 2.4% this past year, compared to 10.0% at the depths of the recession. Inflation and Interest Rates: Core consumer prices increased +2.1% for the most recent 12 month period, but were just +0.7% inclusive of falling ( 12.6% year over year) energy costs. The much anticipated first increase in the Fed Funds rate came in mid December, with the Fed lifting its target rate from 0.25% to 0.50%. Corporate Profits: Per share earnings of public companies comprising the Russell 1000 Index (approximately 90% of U.S. publicly traded corporations by market value) were 5.6% on a small ( 3.2%) change in overall sales for the year s third quarter. Once again, poor Energy sector results (sales 38%, earnings 57%) offset strong earnings produced in other market sectors (e.g., Healthcare +12%, Consumer Discretionary +13%). Value of Merger and Acquisition activities for all of 2015 topped previous (2007) one year record. Cash dividends paid to shareholders (S&P 500 Index) were +12% year over year. Interest Rates and Bond Markets Yields rose, on balance, during the quarter. The benchmark 10 year Treasury yield rose 25 basis points (to 2.31%) and the 2 year Treasury yield increased 36 basis points (to 1.09%), driven mostly by the Fed s decision to lift short term interest rates. Quarterly returns were modestly negative across the taxable bond market: Treasuries ( 0.9%), Agencies ( 0.4%), Mortgages ( 0.1%) and Corporates ( 0.7%) all lost value. In aggregate, the taxable bond market returned 0.6% for the quarter (Barclays Aggregate Index). Additional widening of credit spreads on below investment grade ( junk ) bonds contributed to negative returns ( 2.1%) on High Yield bonds. Falling prices contributed to quarterly losses ( 2.2%) on Loans. Muni bonds added to returns during the quarter; shorter maturity bonds broke even, but longer maturity (7+ years to maturity) gained from +1.2% to +2.1%. In aggregate, the taxexempt bond market returned +0.8% (Barclays 1 10 Year Municipal Bond Index). Laddered 1 10 year tax exempt bond portfolios ended the period with blended yields of about 1.56%, little changed from the prior quarter and from December 2014. Benchmark Bond Market Yields 12/31/2014 12/31/2015 Long Term* Treasury Bills 0.04% 0.16% 3.65% 2 Year Treasury 0.67% 1.05% 4.20% 10 Year Treasury 2.17% 2.27% 5.03% Muni Money Market 0.03% 0.01% 2.67% 5 Year Muni Bond 1.49% 1.40% 3.69% 10 Year Muni Bond 2.41% 2.22% 4.32% High Yield Bonds 6.60% 8.77% 10.12% * average yields, 12/1996 to 12/2006 Page 2

Investment Markets U.S. stock prices rebounded from their late summer correction (a price decline of 10% or more) to finish the year with a flat (+0.5%) total return, the lowest one year result since 2011. Large Cap Growth (+7.3%) stocks outpaced Large Cap Value (+5.6%) stocks, with Small Cap stocks (+3.6%) producing the weakest U. S. outcomes for the quarter and for the full year. The overall U.S. stock market returned +6.3% (Russell 3000 Index). Strongest sectors: Materials (+9.7%), Technology (+9.2%), Healthcare (+9.2%); weakest sectors: Energy (+0.2%), Utilities (+1.1%). Cumulative Quarterly Price Changes Stocks in selected world equity markets rallied more Global Equity Markets sharply than U.S. stocks for the quarter. Across the largest 110 such markets, stocks in Germany (+10.7%) and in Japan (+9.7%) made up the most ground during the period. European currencies sold off versus the U.S. Dollar, with the Swiss Franc ( 2.9%), the Euro ( 2.8%) and the British Pound ( 2.6%) all slipping versus the greenback. The Japanese Yen ( 0.3%) was comparatively stable. Net of currency changes, European stocks returned +2.5% (MSCI Europe Index) and Pacific stocks +9.0% (MSCI Pacific Index) to USD based investors. Stock prices in emerging markets were mixed. Shares in China (+4.0%), Russia (+3.8%) and South Korea (+3.2%) advanced; stock prices in Turkey ( 3.9%) and Brazil ( 5.0%) continued to fall. Indexed Market Prices ( 9/30/2015 = 100) 105 100 95 U.S. Market Other Dev. Mkts Emerging Mkts Additional currency losses in selected emerging markets again trimmed returns to U.S. investors. The worst performing currencies included the Russian Ruble ( 11.1%), and South African Rand ( 10.4%). The Chinese Yuan ( 2.1%) and Indian Rupee ( 0.9%) were comparatively stable. Net of currency changes, stocks in Emerging Asia (+3.5%) performed better than those in the Emerging Latin American ( 2.6%) and EMEA ( 8.2%) stock markets (MSCI regional indices). The broad universe of alternative investment strategies produced mixed quarterly outcomes. Hedged Equity strategies (+1.9%) shared in some of the global stock market s rebound, but Macro ( 0.03%) and Event Driven ( 0.1%) strategies were little changed in the face of diverging price trends across many segments of the global capital markets. Continued excess global supply contributed to a further decline in crude oil prices, with benchmark U.S. crude falling to $37/barrel ( 18%). Growing concerns about the future growth rate of the Chinese economy contributed to 5% to 13% declines in spot minerals prices. Gold prices ( 4.8%) trended down, ending the year at $1,061 an ounce. Page 3

Capital Markets Long Term Returns (periods ended December 31, 2015) Perspectives: Trends Affecting Capital Markets in 2016 Slower Economic Growth in China Adjusting to a New Reality : China s transition to slower growth (reported at 6.8% for 2015; still well above global averages) as economy begins long term shift from infrastructure build out to expanding personal consumption. Volatility of Chinese currency and Chinese equity markets, and unconventional/inconsistent government responses to resulting wide (i.e., 7%) price swings, creating economic and market uncertainties beyond China. Lower Oil Prices Annualized Returns at 12/31/2015 1 Year 3 Years 5 Years 10 Years Global Equities 1.8% 8.3% 6.7% 5.3% United States 0.5% 14.7% 12.2% 7.4% Developed Europe 2.3% 5.1% 4.5% 4.0% Developed Pacific 3.2% 6.0% 3.4% 2.6% Emerging Asia 9.5% 0.8% 0.4% 6.1% Emerging Latin America 30.8% 19.2% 14.2% 1.4% Emerging EMEA 19.7% 13.2% 8.6% 0.6% Commodities 24.7% 17.3% 13.5% 6.4% Oil 30.5% 26.1% 16.5% 4.9% Gold 10.4% 14.1% 5.7% 7.5% Taxable Bonds 0.6% 1.4% 3.3% 4.5% Tax Exempt Bonds 2.4% 2.2% 3.6% 4.1% Cash (T Bills) 0.0% 0.0% 0.1% 1.2% Consumer Prices (all) 0.0% 1.0% 1.6% 1.9% Substantially lower oil prices (2014 average: $93/barrel; 2015: $49; January 2016: $32) upending economics of the energy sector and certain (e.g., Saudi Arabia, Russia) global economies. U.S. oil production and oil stockpiles remain at or near all time highs, even as rig count starts to drop. Overall global oil supply continues to exceed global demand; may continue to do so into late 2017. The U.S. Economy Consumer confidence will likely continue to grow in 2016, and this confidence should help to extend the current economic expansion. Continued jobs growth should further reduce the unemployment rate, create wage pressures. Rising interest rates and low gas prices will boost disposable incomes and all important consumption of goods and services. Interest Rates The Fed may boost interest rates, possibly four times for a total increase of +100 basis points. Consumer inflation will likely rise (wildcard: lower energy prices, given renewed downturn in oil prices). The U.S. Dollar The dollar will likely remain strong as U.S. interest rates rise but other major central banks (Eurozone, Japan, possibly the United Kingdom) hold rates down to further support their economies. Strong dollar will hurt U.S. exporters, benefit non U.S. competitors and economies. Page 4

Short Term Perspectives: Global Equity Markets Global equity markets have started 2016 with record poor returns. The U.S. stock market fell 9.6% (Russell 3000 Index) during the first 12 days of trading. Prices in all major global equity markets (Europe: 10.3%; Japan: 13.6%; Emerging: 13.3%) were also sharply lower. Recent price declines reduced U.S. valuations (e.g., S&P 500 Index Forward P/E ratio) from 17.4x Fourth Quarter 2015 average to 15.2x, producing the lowest market valuations since January 2014. 2150 2100 S&P 500 Index, 2012 2016 2,131 19.0 2050 2000 18.0 S&P 500 Index Price (End of Day) 1950 1900 1850 1800 1750 1700 1650 1600 1550 1500 1450 1400 1350 Index Valuation Index Price 1,862 1,868 15.8 15.8 Recent S&P 500 Valuations Date Trend Price Trailing EPS Forward EPS 10/15/2014 Low 1862 16.5 15.5 5/10/2015 High 2131 18.9 18.0 8/25/2015 Low 1868 16.6 15.8 11/3/2015 High 2110 18.8 17.8 1/20/2016 Low (?) 1859* 16.5 15.0 1,859 17.0 16.0 15.2 15.0 14.0 Index Valuation (Price/Estimated Earnings) 1300 1250 2013 to 2016 Daily Average 17.5 16.3 *index reached an intra day low of 1,812 at 12:20 pm on 1/20/16 13.0 Short Term Perspectives: Oil Prices and Energy Investments Continued decline in oil prices, to lowest since 2003, the result of excess global supply rather than slowing demand. Cash flow needs, oil exporting nations national budgetary needs, and geopolitics all contributing to daily average production that exceeds daily average consumption by more than 1 million barrels/day. Continued excess production has created record high levels of crude oil inventories. Current U.S. inventories are at levels not seen for this time of year in at least the last 80 years according to the U.S. Department of Energy. The DOE estimates that it may be mid to late 2017 before the U.S. experiences a net drawdown of excess oil. Energy related investments continue to perform poorly. Energy stocks in the S&P 1500 (large, mid, and small cap) index are 11.3% YTD ( 22.1% in 2015). Investment grade energy bonds (Barclays Index) are 3.9% ( 4.1% in 2015) and low quality ( junk ) energy sector bonds 10.1% YTD ( 23.7% in 2015). Energy company earnings expected to be 47% in 2015, down a similar amount this year unless prices rebound. Oil Consumption vs. Demand, 2011 2017e* * source: U.S. Energy Information Administration Page 5

Longer Term Perspectives: U.S. Stocks Short term (e.g., 12 month) returns in stock markets impossible to predict; historically, rolling 12 month returns have varied between +61.2% (period ending 6/30/83) and 43.3% (2/28/2009). Median 12 month total return since 1960: +12.3%. Investing Rule of Thumb: Expect less variability of total returns the longer the investment period. Losses are possible but unlikely (i.e., they occur in less than 4% of historical periods) across time horizons of longer than 5 years. At similar valuations (S&P 500 current valuation of 16.6x trailing earnings), markets have historically provided strong (i.e., +7% to +9%) average annualized returns across longer term holding periods. Risk tolerant investors can take advantage of periods of above average market volatility by accelerating any dollar cost averaging plans for investable cash. 70.00% Range of Historical Rolling Total Returns, 1960 2015* 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 10.00% 12.31% 10.78% 10.65% 10.33% 10.57% 13.78% 10.02% 7.91% 6.83% 8.90% 1 Year 3 Years 5 Years 7 Years 10 Years 20.00% 30.00% 40.00% Median, 1960 Present Median, at Current Valuations 50.00% Based on S&P 500 Index monthly total returns, 1960 2015. Source: Bloomberg Sources: Bloomberg and MCCA Analysis Page 6

Important Information This publication has been prepared by Mill Creek Capital Advisors, LLC ( MCCA). The publication is provided for information purposes only. The information contained in this publication has been obtained from sources that MCCA believes to be reliable, but MCCA does not represent or warrant that it is accurate or complete. The views in this publication are those of MCCA and are subject to change, and MCCA has no obligation to update its opinions or the information in this publication. While MCCA has obtained information believed to be reliable, neither MCCA nor any of their respective officers, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents. Unless otherwise noted, all market and price data is through December 31, 2015. Data used in the preparation of this report was drawn from a variety of sources, including Barclays Capital, Bloomberg LP, the Department of Energy s Energy Information Administration, the International Monetary Fund, the National Bureau of Economic Research, the U.S. Bureau of Economic Analysis, and Zephyr Associates. Page 7