Manager Commentary

As of December 31, 2013

International equity markets delivered strong performance during the quarter and year ended December 31, 2013. Investors took encouragement from signs of economic recovery in Europe and the U.K. following several years of recessionary conditions in these markets due to sovereign debt1 concerns following the Global Financial Crisis of 2007-2008. Aggressive economic stimulus policies in Japan served to encourage investments in riskier assets such as stocks while forcing the value of the yen lower which helped to improve the international competitiveness of Japan’s exports. In addition, investors reacted favorably to indications from policymakers in China following leadership meetings there that they will increase eff orts to transition that economy to a more open, consumer-driven economy.

The year was not without its challenges. Fears of the potential negative impact on currencies was an ongoing concern through the fourth quarter as the U.S. Federal Reserve (the Fed) considered reducing its quantitative easing2 (QE)-related bond buying. Currency values were volatile and currency translation had the potential to reduce the investment returns of foreign investors in local markets.

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1Sovereign debt is the amount of money that a country’s government has borrowed, typically issued as bonds denominated in a reserve currency. Following the Global Financial Crisis of 2007-2008, concerns emerged about the ability of several European countries to repay their sovereign debts.

2Quantitative easing is monetary policy used by central banks to stimulate a national economy. Typically, central banks implement quantitative easing by buying financial assets from commercial banks and other private institutions, injecting a pre-determined quantity of money into the economy.

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