CHESWOLD LANE ASSET MANAGEMENT, LLC 100 FRONT STREET, SUITE 960 WEST CONSHOHOCKEN, PA 19428 PHONE 610-940-5330 FAX 610-941-5009

INTERNATIONAL HIGH DIVIDEND STRATEGY 3RD QUARTER 2014 INVESTMENT LETTER Thank you for your continued interest in Cheswold Lane’s international value equity strategy. During the 3rd quarter of 2014, our investment strategy’s composite declined 6.49% on a gross basis compared with a decline of 5.88% in the MSCI EAFE (Morgan Stanley Capital International Europe, Australasia and Far East Index) including income, net of withholding taxes and expressed in US dollars. Market Review – 3rd Quarter 2014 Global equity market volatility rose significantly during the quarter. September was a particularly challenging month due primarily to deteriorating economic trends in Europe, Latin America and China. Several exogenous factors also affected the market’s risk premium including increased tensions between Russia and the West, the start of US military engagement with ISIS in Iraq and Syria, and most recently, the rapid spreading of the Ebola virus. Foreign currency movements were particularly acute during the last few weeks of September. Many developed market currencies depreciated more than 7% versus the US dollar during the quarter. Diverging economic paths drove this outsized movement. Put simply, markets believe that the Fed’s next move is to increase rates while its peers, the ECB and the BOJ, are more likely to ease monetary conditions in the near term. 3Q 2014 STOCK MARKET RETURNS % LARGE CAP USD Local

SMALL CAP USD Local

Developed Markets S&P 500/Russell 2000 MSCI‐EAFE MSCI‐Europe x‐UK MSCI‐UK MSCI‐JAPAN MSCI‐AUSTRALIA

1.13% ‐5.88% ‐7.45% ‐6.06% ‐2.30% ‐7.93%

0.93% 0.08% ‐0.92% 5.79% ‐0.69%

‐7.65% ‐8.27% ‐11.80% ‐7.56% ‐3.52% ‐7.91%

‐1.94% ‐4.76% ‐2.51% 4.47% ‐0.67%

‐3.50% ‐8.62% ‐15.41% 2.34% 1.42%

0.56% 1.55% ‐4.72% 5.09% 1.61%

‐1.37% ‐14.99% ‐13.46% 0.11% 4.24%

1.70% ‐5.52% ‐5.61% 2.80% 4.43%

Emerging Markets MSCI‐Emerging Markets MSCI‐Brazil MSCI‐Russia MSCI‐India MSCI‐China

Source: MSCI

On a regional basis, emerging markets outperformed developed markets excluding the US. Asian emerging markets significantly outperformed Latin American and Eastern European markets. Russia was a notable

underperformer, as the ruble fell about 10% versus the US dollar. In a reverse from last year, small caps continue to lag large cap stocks across the developed markets, especially in the US and Continental Europe. Within the EAFE index, healthcare – led primarily by the large cap pharmaceutical stocks, was the best performing sector in the quarter. A very sharp drop in oil prices in the 2nd half of the quarter caused energy stocks to fall precipitously. The energy sector was down more than 11% in the 3rd quarter. Cyclical stocks were weak performers relative to non-cyclicals, as global GDP estimates were cut by Wall St. and central banks around the world. In our primary investment market, Europe, economic activity continued to weaken in the 3rd quarter. Economic stagnation found in France and Italy had now arrived in Germany. The impact of Russian sanctions was felt more profoundly in September, as both sides (Russia + EU) had ratcheted up restrictions on trade and investment. Euro-Zone Manufacturing Output PMI + Industrial Production

 

  Employment remains a critical financial and political concern in Continental Europe. The unemployment rate has fallen modestly in the last 12+ months, but remains close to peak levels in Belgium, France, Italy, Spain and Greece. Consumer demand will remain weak due to demographics and limited aggregate wage growth. Euro-Zone & National Unemployment Trends 

  Inflation continues to decelerate, which is putting more and more pressure on the ECB to act. Sovereign bond yields remain at extremely low yields, but some market participants fear that without higher inflation, many periphery countries will not be able to grow their way out of their fiscal debt problems. It’s clear to us that Angela Merkel needs to convince her compatriots of the need for increased fiscal and monetary flexibility within the union. The Germans have left very little room for error or external shocks in their political strategy.

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Euro-Zone Headline CPI Inflation (%) 

 

Portfolio Review Weakness in our consumer discretionary stock holdings led to the portfolio’s modest underperformance during the quarter. More specifically, our new positions in the luxury branded goods sector, like the Swatch Group and Richemont, continue to lag, due to ongoing weak demand in Hong Kong, China and tourists shopping in Europe. We added to our overall luxury portfolio believing that the foreign currency headwinds would turn into tailwinds by the end of 2014 and that demand in Asia, especially from Chinese consumers, would return to growth, as the government anti-corruption pressure eases. Travel sanctions placed on über wealthy Russians, and the Occupy Central protests in Hong Kong, have put additional short-term pressure on the shares. Another consumer cyclical, Michelin, the French multi-national tire company, has seen its stock beaten down during the quarter due to the highly cyclical nature of the auto, truck and specialty tire market. Strong stock selection was generated in the financial sector. Dah Sing Financial, the last family controlled, mid-size commercial bank in Hong Kong, was the sector’s outstanding performer. The company’s returns on capital are rising due to strong results in its high quality insurance subsidiary. Earnings revisions have turned positive and the valuation remains at an 80% discount to the most recent comparable M&A transaction in Hong Kong. Cheswold Lane Sector Attribution

Source: Bloomberg

During the quarter, four new names were added to the portfolio: Deutsche Post, BT Group, Nitto Denko and Omron Corp. Deutsche Post is an attractively priced, domestic mail and international commercial package delivery company. Deutsche Post is the only developed market carrier with a domestic mail business that is growing revenues. In Germany, internet driven parcel delivery revenue growth is outstripping traditional letter revenue declines. Deutsche Post also owns DHL, the leading Asian

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commercial package delivery business. Currently, the company is restructuring its global freight forwarding business, which should afford it a step-change improvement in returns on capital in 2015-2016. BT Group is the incumbent wireline telecom company in the UK. The company is undergoing a significant transformation based on its adoption of the Verizon “quality network” business strategy. BT has made large capital investments in its domestic UK fiber network focused on attracting consumers with a triple play offering – broadband internet, home phone and TV. Last year, its fledging sports network, BT Sports, outbid its principal rival, satellite company, Sky Sports, for the exclusive broadcasting rights in the UK for the 20152017 UEFA Champions League Football season (soccer) as well as select high profile matches this season in the English Premiere League. Corporate revenue growth is accelerating as the rapidly growing consumer division is offsetting secular declines in the company’s enterprise wireline business. In 2015, BT will launch a mobile phone product on a stand-alone and “quad play” package offering. The key to the mobile strategy is marrying the highest quality fiber data network with an innovative Wi-Fi wireless network in densely populated areas across England. The ability to move rapidly, large volumes of wireless data directly onto its own fiber network affords the consumer a superior experience and BT significant cost advantages. The incremental capital requirements and ongoing operating costs for BT’s mobile service are low compared to pure wireless competitors using 4G or LTE technology. Nitto Denko and Omron Corp are Japanese exporters with large exposures to the consumer and industrial end-markets. Both companies are positively levered to a depreciating Japanese yen. Nitto Denko is an electronic materials company (specialty chemicals) focused primarily on high tech films for applications in cell phones, tablets, notebooks, TVs and other LCD display products. Nitto Denko has a very strong technology platform and counts Apple as one of its leading clients – iPhones and iPads. The company is coming to market in early 2015 with a next generation display film that could allow it to leapfrog its South Korean competitors. Returns on capital are strong in the industry, but innovation is critical to retaining market share with the industry’s demanding consumer clients. Omron Corp is a factory automation equipment supplier with leading positions in the consumer, semiconductor and industrial manufacturing endmarkets. The company is seeing strong demand from Chinese consumer electronics manufacturers who are investing in equipment in order to increase productivity and competitiveness versus other Asian producers. After years of aggressive wage growth, Chinese manufacturers are no longer cost competitive with their Asian peers. Many Chinese companies are trying to move up the value curve, which requires significant capital investment in design, manufacturing and testing equipment. Recently, Omron is seeing exceptional equipment order growth from local Chinese smartphone producers – Xiaomi, Huawei, and Lenovo. These new positions replaced four sales in the quarter: Challenger Financial, Sogo Medical, Tesco and GlaxoSmithKline. Cheswold Lane Sector Weights Relative To MSCI EAFE

Source: MSCI

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Outlook As we start the 4th quarter, downward market volatility has accelerated. Weaker macroeconomic trends and increased geopolitical concerns are weighing on markets. Continental Europe could enter a “triple dip” recession in the 2nd half of the year. Italy’s GDP will be negative in 2014; France slightly above zero, but most concerning, the German economy decelerated significantly in the 3rd quarter and may experience negative growth. European lawmakers remain incapable of pro-growth reforms, which require increased flexibility in the labor market and a shift in fiscal spending priorities. During the 2012-13 market rally, institutional investors had low expectations of true structural reforms in Europe; they relied on slow, but cyclically improving, global economic growth, and progressively looser monetary policy from the ECB to lift the European economy. However, over the summer, the macroeconomic clouds started to darken across Europe and expectations shifted more towards the ECB and Mario Draghi to execute a US Fed style QE program. This expectation change added to the weight against the Euro and other European currencies relative to the US dollar. Yet, Mario Draghi’s October ECB press conference quashed any hopes for near term QE. In fact, it appears the German Bundesbank is even against the new ECB asset backed lending program. Political tension is growing again in Europe between the EU (read Germany) and its major partners – France and Italy – regarding their 2015 fiscal budgets. There is market speculation that France will propose a budget that doesn’t comply with its EU fiscal deficit agreements (