Portfolio Review: US Equity Value Fund First Quarter 2013 Review and Outlook During the first quarter, the strategy lagged its benchmark, the One result of this positioning has been a portfolio with a higher Russell 1000 Value Index, extending a frustrating period of than the general market—a somewhat expected outcome given the underperformance. When you practice a consistent investment nature of cyclical versus defensive companies. But the other result— approach for a period of time, you will inevitably encounter lagging performance—has been quite surprising to us, because periods in which that philosophy temporarily falls out of favor. After we’ve seen valuations compress in the portfolio, during a period in several quarters of compression, we firmly believe that the which it has delivered substantially better earnings growth than the portfolio offers compelling prospects for capital appreciation going benchmark. forward. The arguable difference between our portfolio and a typical deep- is defined differently by different . value, defensive, low- portfolio is relative profit margins. Traditional, “deep value” investors typically look for heavy price While profit margins across the entire market are up over the past discounts above all else, and factors such as future earnings few years, the cyclical companies have seen the most improvement. prospects and financial quality are far less important in their Clearly, the market is concerned that should a slowdown develop, decision-making. Somewhat in contrast, our approach seeks out high the margins of manufacturers and tech firms are more vulnerable financial quality, reliable business models (e.g., recurring revenue) than those of food or tobacco companies. and substantial free cash flows, in addition to discounted valuation. From a valuation standpoint, we see convincing indications that This approach has led us to focus the portfolio on economically valuations across the portfolio have bottomed. On some metrics, the sensitive companies in recent quarters, as that is where we’ve found portfolio trades at a deeper discount relative to the traditional value the best values, as well as the companies that we believe have the universe than it did during the depths of the crisis in 2009. We best forward-looking prospects. Conversely, defensive sectors— believe that the portfolio’s combination of promising growth specifically consumer staples, health care, and utilities—have not potential and discounted prices can lead to attractive returns over the seemed as attractive to us, in large part due to being bid up course of 2013. substantially by a -starved investing public.

BROWN ADVISORY US EQUITY VALUE FUND QUARTERLY REPORT Portfolio Review: US Equity Value Fund First Quarter 2013 Sector Diversification vs. Russell 1000 Value

• We shifted the portfolio toward consumer discretionary Large-Cap Russell 1000 during the quarter, moving from an underweight to an Value Value Index Difference Large-Cap Value overweight . The change was driven primarily Sector (%) (%) (%) (%) by bottom-up selection, specifically by the Q1’13 Q1’13 Q1’13 Q4’12 Q1’12 identification of two companies with strong fundamentals and what we view as highly depressed Consumer Discretionary 9.22 8.16 1.06 4.63 5.96 valuations relative to fair value. Consumer Staples 0.00 7.40 -7.40 0.95 6.46 • To make room for new consumer holdings, we trimmed approximately 400 bps from our technology Energy 14.89 15.79 -0.90 14.09 14.97 exposure. We are still overweight the sector relative to the benchmark, simply because many tech companies Financials 25.42 27.67 -2.25 23.38 16.98 capture much of what we look for philosophically— Health Care innovation-driven firms with strong free cash flow and 7.91 11.76 -3.85 9.55 10.22

global business reach, all at low multiples. Industrials 13.93 9.09 4.84 15.98 12.96 Surprisingly, large-cap technology has been one of the consistently cheap sectors in the market for most of the Information Technology 19.74 6.69 13.04 23.66 23.36 last several years. • The portfolio’s sector positioning did not otherwise Materials 5.31 3.59 1.71 4.80 5.57 change significantly during the quarter. As of year’s Telecommunication 0.00 3.25 -3.25 0.00 0.00 end, we were overweight industrials and underweight Services telecommunications, consumer staples and utilities. In Utilities 0.00 6.59 -6.59 0.00 0.00 the sectors where we are underweight, such as health care, we believe that the market’s scramble for yield has largely bid above attractive valuation levels.

Source: Factset. The portfolio information provided is based on a representative Large-Cap Value account and is provided as supplemental information. Sector diversification includes cash. The benchmark is the Russell 1000 Value Index. Please see disclosure statements at the end of this presentation for additional information.

BROWN ADVISORY US EQUITY VALUE FUND QUARTERLY REPORT Portfolio Review: US Equity Value Fund First Quarter 2013 Sector Diversification vs. Russell 1000 Value and S&P 500

Large-Cap Value Russell 1000 Value S&P 500 27.7

25.4

19.7 18.3

15.8 15.9 14.9 13.9 12.5 11.3 11.8 11.0 10.9 10.1 9.2 9.1 8.2 7.4 7.9 6.7 6.6 5.3

3.6 3.4 3.2 3.5 3.0

0.0 0.0 0.0

Energy

Utilities

Materials

Financials

Industrials

Information Information

Consumer Consumer

Technology

Health Care Health

Discretionary

Services

Consumer Staples Consumer Telecommunication Telecommunication

Source: Factset. The portfolio information provided is based on a representative Large-Cap Value account and is provided as supplemental information. Sector diversification includes cash. Please see disclosure statements at the end of this presentation for additional information.

BROWN ADVISORY US EQUITY VALUE FUND QUARTERLY REPORT Portfolio Review: US Equity Value Fund First Quarter 2013 Quarterly Attribution Detail by Sector vs. Russell 1000 Value

Large-Cap Value Russell 1000 Value Index Attribution Analysis

Average Total Return Average Total Return Allocation Selection Interaction Total Effect Sector Weight (%) (%) Weight (%) (%) Effect (%) Effect (%) Effect (%) (%)

Consumer Discretionary 7.48 23.81 8.13 12.51 0.01 0.82 -0.09 0.74

Consumer Staples 0.39 2.21 7.24 16.79 -0.28 -0.49 0.41 -0.36

Energy 15.64 12.16 16.02 9.78 -0.01 0.38 -0.07 0.30

Financials 24.72 12.03 27.80 12.10 -0.02 0.02 -0.05 -0.05

Health Care 7.96 14.13 11.61 14.60 -0.08 -0.07 -0.01 -0.16

Industrials 13.03 11.69 9.13 12.50 -0.05 -0.06 -0.00 -0.11

Information Technology 20.71 3.49 6.58 16.81 0.60 -0.83 -1.78 -2.00

Materials 4.78 5.27 3.76 2.96 -0.08 0.08 0.01 0.01

Telecommunication Services 0.00 0.00 3.29 7.50 0.14 0.00 0.00 0.14

Utilities 0.00 0.00 6.43 13.60 -0.07 0.00 0.00 -0.07

Total 100.00 10.08 100.00 12.30 -0.51 -0.17 -1.58 -2.23 Source: Factset. Total portfolio return figures provided above reflect the sum of the returns of the equity holdings in the representative account portfolio due to price movements and payments or other sources of income, and include cash. Performance figures may vary from actual portfolio performance, as calculations are based on end-of-day security prices and do not incorporate the actual cost basis or sale price of individual securities. The portfolio information provided is based on a representative Large-Cap Value account and is provided as supplemental information. Sectors are based on the Global Industry Classification Standard (GICS) classification system. Please see disclosure statements at the end of this presentation for additional information.

BROWN ADVISORY US EQUITY VALUE FUND QUARTERLY REPORT Portfolio Review: US Equity Value Fund First Quarter 2013 Quarterly Attribution Detail by Sector vs. S&P 500

Large-Cap Value S&P 500 Index Attribution Analysis

Average Total Return Average Total Return Allocation Selection Interaction Total Effect Sector Weight (%) (%) Weight (%) (%) Effect (%) Effect (%) Effect (%) (%)

Consumer Discretionary 7.48 23.81 11.19 12.26 -0.04 1.17 -0.44 0.69

Consumer Staples 0.39 2.21 10.75 14.58 -0.38 -0.58 0.52 -0.44

Energy 15.64 12.16 11.10 10.18 -0.04 0.21 0.04 0.22

Financials 24.72 12.03 15.93 11.44 0.06 0.10 0.02 0.18

Health Care 7.96 14.13 12.12 15.71 -0.19 -0.18 0.04 -0.34

Industrials 13.03 11.69 10.21 10.68 -0.01 0.11 0.02 0.12

Information Technology 20.71 3.49 18.73 4.74 -0.13 -0.20 0.02 -0.30

Materials 4.78 5.27 3.54 4.79 -0.06 0.01 0.01 -0.04

Telecommunication Services 0.00 0.00 3.00 9.44 0.03 0.00 0.00 0.03

Utilities 0.00 0.00 3.41 13.02 -0.07 0.00 0.00 -0.07

Total 100.00 10.08 100.00 10.61 -1.42 0.65 0.23 -0.53 Source: Factset. Total portfolio return figures provided above reflect the sum of the returns of the equity holdings in the representative account portfolio due to price movements and dividend payments or other sources of income, and include cash. Performance figures may vary from actual portfolio performance, as calculations are based on end-of-day security prices and do not incorporate the actual cost basis or sale price of individual securities. The portfolio information provided is based on a representative Large-Cap Value account and is provided as supplemental information. Sectors are based on the Global Industry Classification Standard (GICS) classification system. Please see disclosure statements at the end of this presentation for additional information.

BROWN ADVISORY US EQUITY VALUE FUND QUARTERLY REPORT Portfolio Review: US Equity Value Fund First Quarter 2013 Quarterly Contribution to Return

• Our two best performers are both new holdings this quarter. Best Large-Cap Value Buy Co. Inc. offers, in our view, excellent potential to recover Top Five Contributors from depressed valuation, depressed margins and depressed Name Avg. Total Contribution sentiment. Investors are enthusiastic about the new management Weight Return to Return (%) team and new strategies for cost-cutting, which include reduction (%) (%) of expensive outsourcing arrangements as well as headcount. Strategically, it is committed to a new online strategy that will DECK Deckers Outdoor Corp. 1.67 51.99 0.82 improve loyalty program communication, integration with stores BBY Best Buy Co. Inc. 1.17 42.07 0.76 and the overall e-commerce experience. XEC Cimarex Energy Co. 2.36 30.91 0.70 • Likewise, Deckers Outdoor Corp.—maker of UGG boots—was added at an attractive price, as the stock had fallen considerably. SCHW Charles Schwab Corp. 3.21 23.63 0.65 The stock was priced as if the company’s run has already ended, NVS Novartis AG ADS 3.88 16.01 0.59 but we still see life in its story due to opportunities for Total international expansion as well as manufacturing innovation to 12.30 32.00 3.52 reduce costs. Large-Cap Value • Kennametal Inc., another new holding, declined during the Bottom Five Contributors quarter. Investors are reacting (in our view, overreacting) to a Name Avg. Total Contribution drop-off in its recent order volume, but the company generally Weight Return to Return produces choppy results period-to-period, so we feel that an (%) (%) (%) outlook based on -term results isn’t likely to be accurate. We believe that the company is a strong, innovative supplier and the AAPL Apple Inc. 3.37 -16.35 -0.64 leader in a recovering and increasingly consolidated industry. KMT Kennametal Inc. 1.16 -4.85 -0.13 • Apple Inc. was the portfolio’s weakest performer during the quarter, and the primary driver of portfolio underperformance. As ANF Abercrombie & Fitch Co. Cl A 2.02 -3.28 -0.07 noted earlier, we believe that the company is an excellent long- ORCL Oracle Corp. 3.15 -2.97 -0.03 term value based on its growth potential and current valuation, Freeport-McMoRan Copper & Gold FCX 2.16 -2.35 -0.01 but the market is less certain about its near-term trajectory, Inc. particularly in the face of increasing competition. Total 11.87 -6.63 -0.88 Source: Factset. The portfolio information provided is based on a representative Large-Cap Value account and is provided as supplemental information. Top and bottom five contributors exclude cash. Please see disclosure statements at the end of this presentation for additional information. BROWN ADVISORY US EQUITY VALUE FUND QUARTERLY REPORT Portfolio Review: US Equity Value Fund First Quarter 2013 Additions and Deletions

• We were relatively active during the quarter, exiting a number of Large-Cap Value names based on a re-evaluation of upside potential versus downside Portfolio Activity risk. CA Inc., Harris Corp., Diageo PLC ADS, Emerson Electric Co. and Tiffany & Co. have all performed well, and we saw better Additions Sector opportunities to deploy capital in new names and across the existing portfolio. BBY Best Buy Co. Inc. Consumer Discretionary CNQ Canadian Natural Resources Ltd. Energy • Dell Inc. was also sold during the quarter to raise funds for new ideas DECK Deckers Outdoor Corp. Consumer Discretionary but primarily due to the higher valuation and higher uncertainty level KMT Kennametal Inc. Industrials produced by its ongoing leveraged-buyout activity.

• We discussed new holdings Best Buy Co. Inc., Deckers Outdoor Corp. and Kennametal Inc. earlier in this report. Our other new holding this quarter is Canadian Natural Resources Ltd., which is Deletions Sector weighed down currently by depressed sentiment due to several CA CA Inc. Information Technology operating misses in recent quarters. We believe that the stock is DELL Dell Inc. Information Technology undervalued for several reasons. First, we established the position at a price that assumed no improvement in the record $40+ spread DEO Diageo PLC ADS Consumer Staples between U.S. and Canadian oil, but that spread was unsustainable in EMR Emerson Electric Co. Industrials our view, and it has already narrowed to a level closer to historical norms. Additionally, we expect Canadian Natural’s cash flow HRS Harris Corp. Information Technology generation to improve as its capital expenditures level off and volume TIF Tiffany & Co. Consumer Discretionary begins to ramp up from its Horizons oil sands project.

Source: Factset. The portfolio information provided is based on a representative Large-Cap Value account and is provided as supplemental information. Please see disclosure statements at the end of this presentation for additional information.

BROWN ADVISORY US EQUITY VALUE FUND QUARTERLY REPORT Portfolio Review: US Equity Value Fund First Quarter 2013 Portfolio Characteristics vs. Russell 1000 Value and S&P 500

Large-Cap Russell 1000 S&P 500 Value Value Index Index

Number of Holdings 37 698 500

Market Capitalization ($bn)

Weighted Average 65.7 95.1 106.3

Weighted Median 28.8 40.7 59.0

Maximum 415.6 405.7 415.6

Minimum 1.9 0.4 1.8

P/E Ratio FY2 Est. 11.2x 11.9x 12.8x

Earnings Growth 3-5 Yr. Est. (%) 10.2 8.1 10.4

PEG Ratio 1.1 1.5 1.2

Dividend Yield (%) 2.0 2.3 2.1

Top 10 Equity Holdings (%) 36.9 26.9 18.5

Source: Factset. The portfolio information provided is based on a representative Large-Cap Value account and is provided as supplemental information. Please see disclosure statements at the end of this presentation for additional information.

BROWN ADVISORY US EQUITY VALUE FUND QUARTERLY REPORT Portfolio Review: US Equity Value Fund First Quarter 2013 Disclosures

Performance data relates to the Brown Advisory Large-Cap Value Composite. The performance is net of management fees and operating expenses. Past performance may not be a reliable guide to future performance and you may not get back the amount invested. The Fund’s investment strategy is the same as the Brown Advisory Large-Cap Value strategy which was established in 2000. Changes in exchange rates may have an adverse effect on the value price or income of the product. The difference at any one time between the sale and repurchase price of units in the US Equity Value (UCITS) Fund means that the investment should be viewed as medium to long term. This review is issued by Brown Advisory Limited, authorised and regulated by the Financial Conduct Authority. This is not an invitation to subscribe and is by way of information only. Cancellation rights do not apply and UK regulatory complaints and compensation arrangements may not apply. This is not intended as investment advice. Investment decisions should not be made on the basis of this Review. You should read the Fund’s prospectus in full to understand the features and risks associated with this Fund. The Fund’s prospectus and Key Information Document are available by calling 020 3301 8130 or visiting the Fund website.

Brown Advisory US Equity Value Fund is a sub-fund of Brown Advisory Funds plc, an umbrella fund with segregated liability between sub-funds. The Fund is authorised in Ireland as a UCITS pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities Regulations, 2003 as amended) and a recognised collective investment scheme for the purposes of section 264 of the Financial Services and Markets Act 2000. The Fund is managed by Brown Advisory LLC.

The views expressed are those of the author and Brown Advisory as of the date referenced and are subject to change at any time based on market or other conditions. These views are not intended to be a forecast of future events or a guarantee of future results. Past performance is not a guarantee of future performance. In addition, these views may not be relied upon as investment advice. The information provided in this material should not be considered a recommendation to buy or sell any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. To the extent specific securities are mentioned, they have been selected by the author on an objective basis to illustrate views expressed in the commentary and do not represent all of the securities purchased, sold or recommended for advisory clients. The information contained herein has been prepared from sources believed reliable but is not guaranteed by us as to its timeliness or accuracy, and is not a complete summary or statement of all available data. This review is intended solely for our clients and prospects and is for informational purposes only. It should not be construed as a research report.

The benchmark is the Russell 1000® Value Index. The Russell 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000® Index companies with lower price-to-book ratios and lower forecasted growth values. The Russell 1000® Value Index is constructed to provide a comprehensive and unbiased barometer for the large-cap value segment. The Index is completely reconstituted annually to ensure the new and growing equities are included and that the represented companies continue to reflect value characteristics. The Russell 1000® Value Index is a trademark/service mark of the Frank Russell Company. Russell® is a trademark of the Frank Russell Company. An investor cannot invest directly into an index.

Figures shown on sector diversification and quarterly attribution by detail slides may not total due to rounding.

Brown Advisory is the marketing name for Brown Advisory, LLC, Brown Investment Advisory & Trust Company, Brown Advisory Securities, LLC, Brown Advisory, Ltd., and Brown Advisory Trust Company of Delaware, LLC.

BROWN ADVISORY US EQUITY VALUE FUND QUARTERLY REPORT