Risk-Based Portfolios

Navigator Fixed Income

For the first quarter of 2015 the Navigator Fixed Income portfolio lost -0.02% (net of fees*) compared to a 1.45% gain for the Barclay’s Capital Intermediate Government and Credit Index. The Fixed Income portfolio’s mission is to provide core U.S. fixed income exposure via a mix of solid, proven mutual funds and ETFs; the firm’s long-standing bias towards credit risk has driven many of the recent investment decisions. Deflation in Europe and the resultant extremely low and even negative interest rates drove activity in the bond markets during the first quarter. In Switzerland and Germany short and even intermediate-term interest rates have gone negative. Such extremely low interest rates have made U.S. Treasuries a compelling buy to foreign investors, and the resulting distortions are putting downward pressure on U.S. interest rates. This has led U.S. Treasuries to continue to perform well. Nevertheless, Clark Capital’s market outlook continues to view the overall economic environment as conducive to healthy economic growth and favorable towards credit. As a result our portfolio looks to take on as much credit risk as we can while remaining investment grade; thus the portfolio’s current average credit quality is BBB+. The portfolio does include a position in Navigator Duration Neutral Bond (NDNIX), which is an interest rate hedged municipal bond fund. We continue to like the fund because it provides a hedge against the potentially large loss that could hit bonds if interest rates rise; additionally, municipal bonds are attractive on both a pre-tax and post-tax basis. The portfolio’s largest detractors were Navigator Duration Neutral Bond Fund and Loomis Sayles Investment Grade (LSIIX). The portfolio’s top contributors were Blackrock U.S. Mortgage Portfolio (MSUMX) and the Pioneer Bond Fund (PICYX).

Navigator Capital Preservation with Sentry

For the first quarter of 2015 the Navigator Capital Preservation with Sentry gained 0.84% (net of fees*) compared to a 0.77% return for the Dow Jones Conservative Portfolio Index. The tactical fixed income portion of the portfolio re-entered high yield bonds early in the quarter, and thus for the quarter the broader portfolio was bullish on credit in general. The core fixed income portion of the portfolio continues to favor corporate bonds and spread contraction plays in general; while the strategy experienced short-term weakness, we continue to believe in its risk-reward ratio longer-term. Within the alternative sphere we underweighted commodities and focused on large-cap equity, long/short and managed futures mutual funds, and credit spread narrowing plays. In the portfolio’s core equity portion small cap stocks continued to lead global markets higher, while international equities rebounded and for the first time in many quarters produced impressive gains.

Hedging one’s equity exposure during a strong market for equities is an exercise in patience and understanding the proper role of a hedge in a broader portfolio. When our assessment of the markets are broadly bullish – as they remain today and for most of 2015 – the portfolio’s hedging strategy (via the Navigator Sentry Managed Volatility Fund) attempts to manage the cost of hedging while maintaining a minimal hedge required to safeguard client assets. Put spreads on the S&P 500 that manage the cost of the hedge combined with call spreads on volatility (VXX) are at the center of the portfolio’s hedging philosophy. The core of the protection strategy continues to be using these S&P 500 put spreads, usually putting on spread trades that are 2% and 7% or 3% and 8% below the S&P 500’s price level at the time of execution. By both owning puts and then writing puts at a lower level, we are able to greatly reduce the cost of the portfolio’s protection.

Navigator Conservative Growth with Sentry

For the first quarter of 2015 the Navigator Conservative Growth with Sentry returned 1.52% (net of fees*) compared to a 1.48% return for the Dow Jones Moderately Conservative Portfolio Index. The tactical fixed income portion of the portfolio re-entered high yield bonds early in the quarter, and thus for the quarter the broader portfolio was bullish on credit in general. Within core fixed income the portfolio emphasized credit risk over interest rate risk, and the portfolio added small positions in high yield and convertible bonds during the quarter. Within U.S. equity styles, the portfolio shifted its focus away from large cap stocks to mid and small cap stocks, emphasizing growth stocks in particular. Within the U.S. sector sphere, the portfolio emphasized Health Care, Consumer Discretionary, and Technology in particular, and our relative strength rankings have kept us out of energy in particular. Among international equities, our relative strength rankings pushed the portfolio towards Japan, China, small cap Europe. For the first time, the portfolio added currency hedged ETFs to its universe, and we thus established positions in hedged Europe and hedged Japan ETFs.

Hedging one’s equity exposure during a strong market for equities is an exercise in patience and understanding the proper role of a hedge in a broader portfolio. When our assessment of the markets are broadly bullish – as they remain today and for most of 2015 – the portfolio’s hedging strategy (via the Navigator Sentry Managed Volatility Fund) attempts to manage the cost of hedging while maintaining a minimal hedge required to safeguard client assets. Put spreads on the S&P 500 that manage the cost of the hedge combined with call spreads on volatility (VXX) are at the center of the portfolio’s hedging philosophy. The core of the protection strategy continues to be using these S&P 500 put spreads, usually putting on spread trades that are 2% and 7% or 3% and 8% below the S&P 500’s price level at the time of execution. By both owning puts and then writing puts at a lower level, we are able to greatly reduce the cost of the portfolio’s protection.

Navigator Moderate Growth with Sentry

For the first quarter of 2015 the Navigator Moderate Growth with Sentry returned 2.06% (net of fees*) compared to a 2.26% return for the Dow Jones Moderate Portfolio Index. The tactical fixed income portion of the portfolio re-entered high yield bonds early in the quarter, and thus for the quarter the broader portfolio was bullish on credit in general. Within core fixed income the portfolio emphasized credit risk over interest rate risk, and the portfolio added small positions in high yield and convertible bonds during the quarter. Within U.S. equity styles, the portfolio shifted its focus away from large cap stocks to mid and small cap stocks, emphasizing growth stocks in particular. Within the U.S. sector sphere, the portfolio emphasized Health Care, Consumer Discretionary, and Technology in particular, and our relative strength rankings have kept us out of energy in particular. Among international equities, our relative strength rankings pushed the portfolio towards Japan, China, small cap Europe. For the first time, the portfolio added currency hedged ETFs to its universe, and we thus established positions in hedged Europe and hedged Japan ETFs. Within the Alternative sphere, the portfolio avoided commodities and emphasized global equities and alternative strategies such as long/short and managed futures.

Hedging one’s equity exposure during a strong market for equities is an exercise in patience and understanding the proper role of a hedge in a broader portfolio. When our assessment of the markets are broadly bullish – as they remain today and for most of 2015 – the portfolio’s hedging strategy (via the Navigator Sentry Managed Volatility Fund) attempts to manage the cost of hedging while maintaining a minimal hedge required to safeguard client assets. Put spreads on the S&P 500 that manage the cost of the hedge combined with call spreads on volatility (VXX) are at the center of the portfolio’s hedging philosophy. The core of the protection strategy continues to be using these S&P 500 put spreads, usually putting on spread trades that are 2% and 7% or 3% and 8% below the S&P 500’s price level at the time of execution. By both owning puts and then writing puts at a lower level, we are able to greatly reduce the cost of the portfolio’s protection.

Navigator Growth

For the first quarter of 2015 the Navigator Growth portfolio returned 2.53% (net of fees*) compared to a 2.98% return for the Dow Jones Moderately Aggressive Portfolio Index. The tactical fixed income portion of the portfolio re-entered high yield bonds early in the quarter, and thus for the quarter the broader portfolio was bullish on credit in general. Within U.S. equity styles, the portfolio shifted its focus away from large cap stocks to mid and small cap stocks, emphasizing growth stocks in particular. Within the U.S. sector sphere, the portfolio emphasized Health Care, Consumer Discretionary, and Technology in particular, and our relative strength rankings have kept us out of energy in particular. Among international equities, our relative strength rankings pushed the portfolio towards Japan, China, small cap Europe. For the first time, the portfolio added currency hedged ETFs to its universe, and we thus established positions in hedged Europe and hedged Japan ETFs. Within the Alternative sphere, the portfolio avoided commodities and emphasized global equities and alternative strategies such as long/short and managed futures.

Looking forward to the rest of 2015, we continue to expect U.S. markets to follow a generally upward path. We expect news regarding the U.S. and international economies to improve during the second half of the year. International markets in particular could enjoy a strong second half of the year. We continue to note that is has been since 2011 that markets have endured a 10% correction; however, this long period of low volatility does not mean a correction is imminent. Either way, we would view a correction during 2015 as an opportunity to add exposure to risk assets. While we are constantly watchful for deteriorating conditions and are ready to take a more defensive stance, we remain cautiously optimistic about the next few months.

Navigator Aggressive Growth

For the first quarter of 2015 the Navigator Aggressive Growth portfolio returned 3.01% (net of fees*) compared to a 3.66% return for the Dow Jones Aggressive Portfolio Index. The tactical fixed income portion of the portfolio re-entered high yield bonds early in the quarter, and thus for the quarter the broader portfolio was bullish on credit in general. Within U.S. equity styles, the portfolio shifted its focus away from large cap stocks to mid and small cap stocks, emphasizing growth stocks in particular. Within the U.S. sector sphere, the portfolio emphasized Health Care, Consumer Discretionary, and Technology in particular, and our relative strength rankings have kept us out of energy in particular. Among international equities, our relative strength rankings pushed the portfolio towards Japan, China, small cap Europe. For the first time, the portfolio added currency hedged ETFs to its universe, and we thus established positions in hedged Europe and hedged Japan ETFs. Within the Alternative sphere, the portfolio avoided commodities and emphasized global equities and alternative strategies such as long/short and managed futures.

Looking forward to the rest of 2015, we continue to expect U.S. markets to follow a generally upward path. We expect news regarding the U.S. and international economies to improve during the second half of the year. International markets in particular could enjoy a strong second half of the year. We continue to note that is has been since 2011 that markets have endured a 10% correction; however, this long period of low volatility does not mean a correction is imminent. Either way, we would view a correction during 2015 as an opportunity to add exposure to risk assets. While we are constantly watchful for deteriorating conditions and are ready to take a more defensive stance, we remain cautiously optimistic about the next few months.

Strategist Portfolios

Navigator Fixed Income Total Return

For the first quarter of 2015 the Navigator Fixed Income Total Return portfolio returned 2.40% (net of fees*) compared to a 2.52% return for the Barclays U.S. Corporate High Yield Index. Coming into 2015 the Fixed Income Total Return portfolio was in a neutral position with regard to High Yield Bonds, cash, and U.S. Treasuries, owning roughly one third each. However, early in 2015 confidence in high yield credit surged, and on January 12th the portfolio allocated 100% towards high yield bonds, using a combination of high yield mutual funds and ETFs. The relative performance strength of high yield bonds was coincident with at least an end to the waterfall decline in U.S. energy stocks. While Energy stocks (and the high yield bonds in the sector, which at 16% are the largest sector in the high yield bond universe) have yet to become performance leaders, their relative decline appears to have ended, and they are now simply trading within an admittedly volatile range. While we are allocated 100% towards high yield bonds and believe that their extra yield will lead to strong performance, particularly in a steady economic environment, we are also aware of the strong downward pressure on U.S. interest rates. This pressure is not at all attributable to the U.S. economy, but to the low and negative interest rates in Europe and Japan. Foreign investors see U.S. bonds as extremely safe, and as one of their few sources of yield. As a result, the massive size of foreign inflows has boosted U.S. Treasuries in particular and U.S. fixed income overall. The relative strength moves between high yield bonds and U.S. Treasuries have been muted, and while our models favor high yield, there is not a particularly strong trend towards either sector at this time. The top two contributors to return for the quarter were a strange pair indeed. First, Blackrock High Yield Bond (BRHYX) was our largest high yield bond holding, and it continues to fare well within the category. Second, even though we only held U.S. Treasuries until January 12th, their performance was strong and our positions were so large that the iShares Barclays 7-10 Year Treasury ETF (IEF) was also a top performer. AllianceBernstein High Income (AGDYX) and the Barclays Short-Term High Yield Bond SDPR (SJNK), were the top detractors.

Navigator Global Equity ETF

For the first quarter of 2015 the Navigator Global Equity ETF portfolio returned 3.69% (net of fees*) compared to a 2.31% return for the MSCI World Index. The portfolio uses relative strength analysis to allocate to equities within the U.S. Style, U.S. Sector, and International equity spheres. Within U.S. equity styles, the portfolio shifted its focus away from large cap stocks to mid and small cap stocks, emphasizing growth stocks in particular. Within the U.S. sector sphere, the portfolio emphasized Health Care, Consumer Discretionary, and Technology in particular, and our relative strength rankings have kept us out of energy in particular. Among international equities, our relative strength rankings pushed the portfolio towards Japan, China, small cap Europe. For the first time, the portfolio added currency hedged ETFs to its universe, and we thus established positions in hedged Europe and hedged Japan ETFs.

Looking forward to the rest of 2015, we continue to expect U.S. markets to follow a generally upward path. We expect news regarding the U.S. and international economies to improve during the second half of the year. International markets in particular could enjoy a strong second half of the year. We continue to note that is has been since 2011 that markets have endured a 10% correction; however, this long period of low volatility does not mean a correction is imminent. Either way, we would view a correction during 2015 as an opportunity to add exposure to risk assets. While we are constantly watchful for deteriorating conditions and are ready to take a more defensive stance, we remain cautiously optimistic about the next few months.

High Dividend Equity Portfolio

The first quarter was marked by increased market volatility, a rising dollar and lower energy prices.

The strong dollar has been a catalyst for the recent weakness in large cap multinationals. While many of the larger S&P 500 companies are somewhat hedged with revenues and expenses in foreign currencies, the translation can affect U.S. Dollar results. Consensus calls for a 4.6% drop in S&P 500 earnings from last year which marks the first year-over-year decline since the third quarter of 2012. Despite this data the S&P 500 index posted a record amount of cash dividends paid to shareholders — up 14% from the first quarter of 2014. This is the fourth consecutive quarter that dividends have hit an all-time high and the 16th consecutive quarter dividends have grown at double digit rates. Despite this good news, the amount of dividend cuts also increased more than in any other quarter since 2009.

Sectors
For the quarter, the strongest sectors were Healthcare (+6.16%) and Consumer Discretionary (+4.38%) while the weakest returns were found in Utilities (-6.02%) and Energy (-3.55%). All ten sectors reported dividend per share growth in the prior 12 months. This was the second consecutive quarter that the Consumer Discretionary sector reported the highest dividend per share growth of all ten sectors.

Two top performing stocks for the quarter in the High Dividend Equity portfolio included Apple Computer which increased 14% and was added to the Dow Jones Industrial Average Index. The mega merger between Kraft and Heinz prompted Kraft shares to rise 44%. Kraft shareholders will also receive a special onetime dividend of $16.50 per share. The weakest performers in the portfolio were Hewlett Packard (-21.9%) after announcing poorer than expected earnings and Intel (-13.2%) due to a weaker revenue outlook.

Past performance is not indicative of future results. This is not a recommendation to buy or sell a particular security. Please see attached disclosures.

*The net performance shown is based on the CL 5 shares.  Your investment may have higher or lower fees than the CL 5 shares.  Please contact your representative for additional information about the performance of other classes of shares available for investment.

The opinions expressed are those of the Clark Capital Management Group Investment Team. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. There are no guarantee of the future performance of any Clark Capital Investments portfolio. Material presented has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. Nothing herein should be construed as a solicitation, recommendation or an offer to buy, sell or hold any securities, other investments or to adopt any investment strategy or strategies. For educational use only. This information is not intended to serve as investment advice. This material is not intended to be relied upon as a forecast or research. The Investment or strategy discussed may not be suitable for all investors. Investors must make their own decisions based on their specific investment objectives and financial circumstances. Past performance does not guarantee future results.

The Dow Jones Industrial Average is a stock market index that shows how 30 large publicly owned companies based in the U.S. have traded during a standard trading session in the stock market.

The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performers of developed markets outside the U.S. and Canada.

The MSCI Emerging Markets Index is a freefloat-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.

The Barclays U.S. Government and Credit Bond Index measures the performance of U.S. dollar denominated U.S. Treasuries, government-related, and investment grade U.S. corporate securities that have a remaining maturity of greater than 1 year. In addition, the securities have $250 million or more of outstanding face value, and must be fixed rate and non-convertible.

The Barclays U.S. Corporate High-Yield Index covers the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.

The Dow Jones Aggressive Portfolio Index measures aggressive stocks, bonds, and cash which are represented by multiple subindexes and is quoted in U.S. dollars.

The Dow Jones Moderately Aggressive Portfolio Index measures moderately aggressive stocks, bonds, and cash which are represented by multiple subindexes and is quoted in U.S. dollars.

The Dow Jones Moderate Portfolio Index measures stocks with moderate risk, bonds, and cash which are represented by multiple subindexes and is quoted in U.S. dollars.

The Dow Jones Moderately Conservative Portfolio Index measures moderately conservative stocks, bonds, and cash which are represented by multiple subindexes and is quoted in U.S. dollars.

The Dow Jones Conservative Portfolio Index measures conservative stocks, bonds, and cash which are represented by multiple subindexes and is quoted in U.S. dollars.

MSCI World Index measures large and mid cap representation across 23 developed markets countries and covers approximately 85% of the free float-adjusted market capitalization in each country.

Index returns include the reinvestment of income and dividends. The returns for these unmanaged indexes do not include any transaction costs, management fees or other costs. It is not possible to make an investment directly in any index.

Morningstar is the largest independent research organization serving more than 5.2 million individual investors, 210,000 Financial Advisors, and 1,700 institutional clients around the world.

For each separate account with at least a three-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a separate account’s monthly performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of separate accounts in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. The Overall Morningstar Rating for a separate account is derived from a weighted average of the performance figures associated with its three-, five- and ten-year Morningstar Rating metrics.

The relative strength measure is based on historical information and should not be considered a guaranteed prediction of market activity. It is one of many indicators that may be used to analyze market data for investing purposes. The relative strength measure has certain limitations such as the calculation results being impacted by an extreme change in a security price.

© 2012 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. Not every client’s account will have these exact characteristics. The actual characteristics with respect to any particular client account will vary based on a number of factors including but not limited to: (i) the size of the account; (ii) investment restrictions applicable to the account, if any; and (iii) market exigencies at the time of investment.

Clark Capital Management Group, Inc. reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. The information provided in this report should not be considered a recommendation to purchase or sell any particular security, sector or industry. There is no assurance that any securities, sectors or industries discussed herein will be included in an account’s portfolio. Asset allocation will vary and the samples shown may not represent an account’s entire portfolio and in the aggregate may represent only a small percentage of an account’s portfolio holdings. It should not be assumed that any of the securities transactions, holdings or sectors discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein.

The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices and which shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk. The S&P 500 measures the performance of the 500 leading companies in leading industries of the U.S. economy, capturing 75% of U.S. equities. The Barclays Capital U.S. Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented. Municipal bonds, and Treasury Inflation-Protected Securities are excluded, due to tax treatment issues. The index includes Treasury securities, Government agency bonds, Mortgage-backed bonds, Corporate bonds, and a small amount of foreign bonds traded in U.S. The Barclays Capital Aggregate Bond Index is an intermediate term index.

The volatility (beta) of a client’s portfolio may be greater or less than its respective benchmark. It is not possible to invest in these indices.

Clark Capital Management Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Clark Capital’s advisory services and fees can be found in its Form ADV which is available upon request.

CCM-676

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