The SCCM International High Dividend Composite was 3.4% (net) in the 4th Quarter versus 5.1% for MSCI EAFE.

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1 S C H A F E R C U L L E N C A P I T A L M A N A G E M E N T International High Dividend Equity Strategy Q Commentary Market and Economic Review International equity markets continued their move upwards with MSCI EAFE up over 5% for the quarter. This index is now up over 20% since July 26 th of 2012, when Mario Draghi famously pledged to do whatever it takes to preserve the Euro, while weaker markets within Europe which were more oversold at the time, including Spain, Portugal, Greece and Italy, are up considerably more. Moderating this move up of late is the return of political risk in Euroland, following the indecisive election result in Italy, leading to a hung parliament and the poorly managed banking crisis rescue in Cyprus. We continue to remain cautious in regards the economic outlook in the weaker parts of Europe and have maintained our long standing underweight exposure to this region. Japan was one of the strongest performing markets in the quarter, aided by an aggressive policy of quantitative easing, though it certainly was not the first of its kind over the country s long bear market of the last twenty years. US indices also performed strongly based on optimistic prospects for near-term economic activity. The large emerging markets of Brazil, Russia, India and China (BRICs) lagged while smaller, lesser known emerging and frontier markets performed strongly. In the quarter we underperformed the strong gains of the benchmark which is a satisfactory performance given our objective of outperforming over a complete market cycle, with strong outperformance during down markets. On a sector level, the best performers were non-cyclical sectors such as Healthcare and Consumer Staples, which we are overweight, and the worst performer was the cyclical sector of Basic Materials, which we are underweight. Offsetting this was our underweight allocation to Japan which was one of the best performing markets and our overweight allocation to the emerging markets which were among the worst performing markets. In the quarter, growth outperformed value and small caps outperformed large caps. Portfolio Performance The SCCM International High Dividend Composite was 3.4% (net) in the 4th Quarter versus 5.1% for MSCI EAFE. Since Q1 YTD 1 Year 3 Year 5 Year Incept* SCCM Intl High Div (net) MSCI EAFE S&P *July 31, Performance for periods greater than 1 year is annualized. 645 Fifth Avenue New York, NY Tel Fax

2 Sector Attribution The largest contributor to relative performance was our overweight allocation to high quality companies in non-cyclical sectors such as Healthcare, Consumer Staples and Telecommunication Services, and our underweight exposure to low quality companies in cyclical sectors such as Basic Materials. Outperformance here was driven by leading blue chip multinational companies which are posting strong increases in dividend payments, including Reckitt Benckiser, Diageo and Roche. Stock selection aided performance in Utilities as our dividend discipline enabled us to avoid overleveraged companies with poor growth prospects and deteriorating regulatory outlooks. The largest detractor from relative performance was our stock selection in Energy, Financials, Consumer Staples and Industrials. In Energy we were hurt by holdings which were impacted by short-term considerations which we do not believe materially alters our long-term view of these companies. Among Financials, Consumer Staples and Industrials, the best performers were Japanese companies which do not meet our criteria for high and sustainable dividend yields. Our overweight allocation to Energy and our underweight allocation to Consumer Discretionary hurt performance. Cash was a drag on performance during the quarter. International High Dividend Value Equity ORD vs. ishares MSCI EAFE Index Fund GICS Sector Allocation Effect Selection + Interaction Total Effect 12/31/2012-3/29/2013 Materials Health Care Utilities Information Technology Telecommunication Services [Cash] Consumer Staples Consumer Discretionary Industrials Financials Energy FactSet Research Systems Source: FactSet Page 2 of 8

3 Country Attribution The largest contributor to relative performance was our superior stock selection in the United Kingdom, Germany, Netherlands and Hong Kong, where our high quality, dividend paying companies outperformed their respective indices. Our overweight allocation to Switzerland and Indonesia and our underweight allocation to parts of Europe facing limited prospects for growth, including France, Italy and Spain, aided performance. Currency was a tailwind in the quarter as the Japanese Yen, which we are underweight, was down significantly. The largest detractor from relative performance was our underweight allocation to Japan and Australia and our overweight allocation to Mexico, South Africa, Canada and Taiwan. We remain comfortable with these allocation decisions based on valuations and the long-term prospects of our portfolio companies. Stock selection hurt us in Australia and Norway, where we were underweight Financials which outperformed. Cash was a drag on performance during the quarter. International High Dividend Value Equity ORD vs. ishares MSCI EAFE Index Fund Country Allocation Effect Selection + Interaction Total Effect 12/31/2012-3/29/2013 United Kingdom Germany Switzerland Indonesia Hong Kong Netherlands Israel France Russia Brazil Taiwan Norway Singapore [Cash] Canada Mexico Bermuda China South Africa FactSet Research Systems Australia Source: FactSet Page 3 of 8

4 Portfolio Strategy and Changes Purchases GlaxoSmithKline United Kingdom Healthcare GlaxoSmithKline PLC is a leading global healthcare company with a diversified set of businesses across pharmaceuticals, vaccines and consumer products. In pharmaceuticals, the company is a global leader in respiratory drugs that stand to benefit from demographic drivers as over 300 million people globally have asthma or COPD and many of the drugs that treat these illnesses are harder to replicate as generics. Beyond this, Glaxo s drug portfolio is well diversified with an additional 30+ drugs spanning treatment categories such as cardiology/metabolic conditions, HIV/AIDS, vaccines, and oncology, among others. Given the company s meaningful diversification, rich late-stage pipeline (10 compounds) and limited patent cliff exposure, Glaxo is poised for best in class growth in sales and earnings over the next 10 years. In addition, the company stands to benefit from the 3 rd highest exposure to emerging markets in its industry at 27% of sales, as spending grows over the long-term given rising consumer incomes and higher government spending off of a low base. The company s consumer healthcare business (20% of revenues) stands to benefit from demographic drivers in emerging and developed markets, driven by leading consumer healthcare brands such as Sensodyne and Aquafresh toothpaste, Polident dentures, Panadol infant drops, NicoDerm CQ and Nicorette anti-smoking aids, Lucozade energy and sports drinks and Horlicks malted drinks. Other opportunities include meaningful cost cutting opportunities and significant upside if blockbuster pipeline candidates make it to market. Our investment is supported by good contrarian attributes highlighted by relatively poor short-term sentiment from near-term patent expirations whereas longterm earnings and dividend growth is best in class. GlaxoSmithKline trades at 13.1 times forward earnings and offers a 5.7% dividend yield. Lukoil Russia Energy Lukoil OAO is a global integrated oil company, with a world-class portfolio of upstream and downstream assets. The company is the largest private holder of proven oil reserves globally and the second-largest oil producer in Russia, with operations in more than 40 countries globally. As a pioneer in advanced recovery techniques, such as horizontal drilling and multi-stage hydrofracturing, Lukoil is well positioned to increase production rates and improve profitability margins. Moreover, Lukoil has large-scale, international production and development assets in West Africa, Iraq and Uzbekistan that are undervalued relative to those of pure-play peers with similar exposures to these types of potentially rich energy basins. While corporate governance has historically had a major impact on stock valuations in Russia, Lukoil offers strong corporate governance practices owing to its ownership structure, the transparency and quality of its financial reporting, and its outstanding dividend attributes. In addition to being the most attractively valued company in its global peer group, Lukoil offers amongst the best dividend growth prospects of any large cap company globally with a stated policy to grow dividends 15% per annum through In addition to this policy, the company s robust dividend attributes are supported by its low payout ratio and debt levels, as well as its strong historical track record of dividend payments as was seen during the recent financial crisis during which the company was one of the handful globally to increase its dividend. Lukoil trades at 4.6 times forward earnings, 0.7 times book value and offers a 4.8% dividend yield. Page 4 of 8

5 Manulife Financial Canada Financials Manulife Financial Corporation is a North American insurance company with operations in Canada and the United States, through its Manulife insurance and John Hancock businesses, as well as across several Asian emerging markets which account for over 30% of the company s earnings. Over the near-term, Manulife stands to benefit from the substantial recovery in global asset markets and a continuation of the strong growth trends in its Asian insurance business. Over the long-term, the company may benefit from rising interest rates and the strong reputation of its growing John Hancock franchise, which offers increased cross-selling opportunities and profitability levels as it gains scale. The company's share price multiple could also re-rate as investors recognize the significant undervaluation of its Asian insurance business versus pure play peers, especially as this business grows its earnings contribution to the company by leveraging its market leading positions across emerging markets that remain vastly underpenetrated with regard to financial service products at a time when middle class consumer incomes continue to grow. These strengths and growth opportunities are supported by a low risk investment portfolio, high level of transparency as required under the more stringent Canadian insurance regulatory framework and significant derisking of business lines relative to the past. Manulife trades at 11.2 times forward earnings, 1.2 times book value and offers a 3.5% dividend yield. Sales Companhia Siderurgica Nacional Brazil Basic Materials While Companhia Siderurgica Nacional continues to be one of the world s lowest cost producers of steel, owing to its integrated business model and ownership of valuable assets, we have decided to sell our position in the company as an impending slowdown in economic activity in its core markets of Brazil and China is likely to pressure the sustainability of dividend payments going forward. Treasury Wine Estates Australia Consumer Staples After earning more than a 30% annualized rate of return in shares of Treasury Wine Estates, we have decided to sell our position in the company as valuations are no longer attractive, with the company trading at 25 times forward earnings. Page 5 of 8

6 Outlook As indicated by continued record low bond yields in most developed markets, economic prospects remain muted in this recovery. However, equity markets are moving higher as companies flush with cash look to return more of it to shareholders, well positioned global multinationals continue to generate strong earnings growth, and merger and acquisition activity picks up given the record wide differential in valuation between equities which are being sought and debt which is used to fund these purchases. As markets react sharply to news headlines and ever-changing political developments, we are once again reminded of the extraordinary volatility that we are continuing to experience in the post-financial crisis, policy driven world that we live in. We continue to believe that our strategy of buying shares in strong companies, at attractive valuations and holding them for the long-term (i.e 5 years) remains attractive in this uncertain environment. Investors thus must keep an eye on both risks and returns and our strategy has been performing well on both of these fronts, producing compelling absolute and risk adjusted returns, as seen below. While valuations for international equities continue to look attractive with MSCI EAFE trading at 12.7 times earnings, a meaningful discount both to its long-term history and to the S&P 500, the potential for downside risks to global economic activity over the short-term continue to remain. In such an environment, the portfolio s attractive valuations and most notably its high and sustainable dividend yield are key. It thus comes as no surprise that new purchases and sales made during the quarter had the primary objective of improving the portfolio s valuation, including its already robust dividend yield, while further enhancing its long-term dividend growth prospects. The recent rise in equity prices comes against a backdrop of slowing company earnings, sluggish economic activity and continued uncertainty on the policy front. It remains paramount at this stage to select attractively valued, high quality investments that will perform satisfactorily irrespective of any volatility in near-term economic conditions. Dividend growth prospects vary markedly based on the circumstances of different companies internationally, with some far better positioned than others. Blue chip global multinational companies in the Healthcare and Consumer Staples sectors which have leading brands and wide Page 6 of 8

7 geographic reach of sales, appear well set to continue to reward shareholder. However, overleveraged companies in Telecommunication Services, Utilities and Financials, most notably in Europe, facing slowing demand and additional headwinds in the form of increased competition or regulatory scrutiny, look set to disappoint. Japanese companies continue to treat shareholders poorly and are unlikely to be a source of steady and growing dividends. These views are clearly expressed in our portfolio s construction. In our International High Dividend portfolio, 82% of our companies have paid dividends thus far in the year. 72% of these companies have raised their dividend with an average increase of 7.5%. With strong balance sheets, continued earnings growth and improving confidence, we anticipate that this trend will continue in 2013 and beyond. Best Regards, Schafer Cullen Capital Management, Inc. Disclosure: Schafer Cullen Capital Management (SCCM or the Adviser ) is an independent investment advisor registered under the Investment Advisers Act of This information should not be used as the primary basis for any investment decision nor should it be considered as advice to meet your particular investment needs. The portfolio securities and sector weights may change at any time at the discretion of the Adviser. It should not be assumed that any security transactions, holdings or sectors discussed were or will be profitable, or that future recommendations or decisions will be profitable or equal the investment performance discussed herein. Investing in equity securities is speculative and involves substantial risk. Past performance is no guarantee of future results. Market conditions can vary widely over time and can result in a loss of portfolio value. Individual account performance results will vary and will not match that of the composite or model. This variance depends on factors such as market conditions at the time of investment, and / or investment restrictions imposed by a client which may cause an account to either outperform or underperform the composite or model s performance. A list of all recommendations made by SCCM within the immediately preceding period of not less than one year is available upon request. The strategy depicted in this report has been managed in accordance with the investment objectives of the strategy as determined by the Adviser. The Adviser has selected benchmarks, which in their opinion closely resemble the style of the securities held in the composite or model portfolio of the strategy (e.g. large cap value, small cap value, international, etc.). The securities held in the composite or model are actively managed while the benchmark index is not. Investors should be aware that the Adviser makes no attempt to match the portfolio securities, or the security weightings of the benchmark. The composite or model s performance will be affected greater by the price movements of individual securities as the composite or model is more concentrated, generally less than 100 securities, while a comparative benchmark will generally have between 500 and 2,500 securities where individual security price movements have a lesser affect. An individual cannot invest directly in an index. In the case where this report displays model results, please be aware that such results do not represent actual trading and that results may not reflect the impact that material economic and market factors might have had on the Adviser's decision-making if the Adviser were actually managing clients' money. Model and actual results reflect the deduction of advisory fees, brokerage or other commissions, and any other expenses that a client would have paid or actually paid (Net of Fee performance) and reflect the reinvestment of dividends and other earnings. Schafer Cullen Capital Management, Inc. makes no representation that the use of this material can in and of itself be used to determine which securities to buy or sell, or when to buy or sell them; SCCM makes no representation, either directly or indirectly, that any graph, chart, formula or other device being offered herein will assist any person in making their own decisions as to which securities to buy, sell, or when to buy or sell them. For comparative purposes, the adviser uses the ishares MSCI EAFE ETF. All opinions expressed constitute Schafer Cullen Capital Management s judgment as of the date of this report and are subject to change without notice. Page 7 of 8

8 Appendix: Portfolio Exposure And Characteristics As Of 03/31/2013 Portfolio Exposure Sectors % Asset Regions % Asset Consumer Discretionary 0.0 Developed Asia Pacific 11.6 Consumer Staples 15.7 Developed Europe 62.5 Energy 13.0 North America 7.2 Financials/ REIT 18.2 Asia Pacific Emerging 6.3 Health Care 17.3 Latin America 2.7 Industrials 12.1 EMEA 6.5 Information Technology 1.8 Materials 5.3 Developed Markets 81.3 Telecommunications 10.7 Emerging Markets 15.5 Utilities 2.5 Cash 3.4 Cash 3.4 Total Total Top 10 Countries United Kingdom Switzerland Germany France Canada Singapore Australia Norway Netherlands Indonesia Top 10 Holdings Sanofi Novartis AG Nestle S.A. Roche Holding AG Muenchener Reuckver Reckitt Benckiser Group Singapore Telecom Ltd. Unilever N.V. Deutsche Post AG British American Tobacco Portfolio Characteristics Forward Forward Q1 13 Est. Est. Q1 13 Price / Dividend LT Debt / LT DPS LT EPS Market Earnings Yield Capital Growth Growth Cap SCCM Intl High Div $78,895 ishares MSCI EAFE Index $60,794 Source: SCCM Research, Bloomberg, FactSet Page 8 of 8