Executive Summary

The Bull Marches On: Although small caps and growth stocks have underperformed since their relative strength peaked in March, the overall bullish trend in the market continues.

Don’t Put the Brakes on Too Early: We expect markets to enjoy an up year but with more volatility than in 2013. Once the Fed ends its bond purchases in October, we will be ready to take protective measures if needed.

Equity markets began the second quarter of 2014 in a flattening pattern that turned out to be only a consolidation as markets began to break higher in late May and throughout June. Within equity styles there was more going on below the surface. Small caps and growth stocks have underperformed since their relative strength peaked in March. Nevertheless, the overall bullish trend in the market cannot be said to be broken.

Looking forward to the remainder of 2014, we expect markets to enjoy an up year but with much more volatility than in 2013. We have noted with interest that the traditional seasonal patterns usually seen during the year are so far this year not reliable, presumably due to the Fed’s extreme intervention in the markets. With that in mind, while we have been expecting volatile markets, that volatility has just not appeared. We have (admittedly reluctantly) maintained an overall bullish and aggressive stance towards the markets, and thus we have not put the brakes on too early. We do expect volatility to pick up after the Fed ends its bond purchases in October and will be ready to take protective measures if our indicators flash warning signs.

Sector Opportunity Portfolio

PowerShares QQQ QQQ 16.50%
Energy Select Sector SPDR XLE 12.00%
iShares Transportation Average IYT 11.00%
iShares PHLX Semiconductor ETF SOXX 10.00%
iShares U.S. Technology ETF IYW 10.00%
First Trust ISE-Revere Natural Gas ETF FCG 8.00%
iShares NASDAQ Biotechnology ETF IBB 6.00%
iShares U.S. Basic Materials ETF IYM 5.00%
iShares U.S. Pharmaceuticals ETF IHE 5.00%
S&P Oil & Gas Exploration & Production SPDR XOP 5.00%
Guggenheim Solar ETF TAN 5.00%
iShares U.S. Health Care Providers ETF IHF 3.50%
Cash 3.00%

During the second quarter, many of the biggest headlines came from the Middle East. What had been a relatively peaceful region spiked in violence as events in Iraq and Syria were likely contributors to additional volatility surrounding energy prices. While these events dominated the headlines and probably influenced some portfolio allocations, in our opinion the bigger picture of a slow and steady global economic recovery was more important. Our relative strength driven methodology continues to lead the Sector Opportunity portfolio towards cyclical sectors that would be likely to benefit from global growth returning. The portfolio has maintained a fairly longstanding overweight in the Technology sector, which continues to show relative strength in our rankings. Technology ETF holdings include the NASDAQ 100 (QQQ), broad technology (IYW), and Semiconductors (SOXX). The biggest new addition to the portfolio has been a large weighting to the Energy sector, which appears to have made a major base in relative strength early in 2014. Current Energy ETF holdings include broad Energy (XLE), Oil & Gas Exploration and Production (XOP), Natural Gas (FCG), and Solar Energy (TAN). Solar Energy in particular i the industry struggled with debt and profitability. Semiconductors and Biotechnology (IBB) were the portfolio’s biggest contributors while Health Care (XLV) and Financials (IAI) were the biggest detractors. The portfolio’s current sector weightings are as follows: Technology 36.5%, Energy 30.0%, Health Care 14.5%, Industrials 11.0%, Basic Materials 5.0%, and Cash 3.0%.

International Opportunity Portfolio

SPDR S&P 500 ETF SPY 20.00%
iShares Italy EWI 10.00%
iShares Spain EWP 10.00%
iShares Brazil EWZ 10.00%
iShares Taiwan EWT 9.00%
iShares Turkey TUR 8.00%
iShares Frontier 100 FM 8.00%
WisdomTree India Earnings ETF EPI 7.00%
iShares Canada EWC 5.00%
iShares South Africa EZA 5.00%
Market Vectors India Small Cap ETF SCIF 3.00%
Cash 5.00%

The International Opportunity portfolio shifted away from a multi-quarter emphasis on Europe during the second quarter. While Europe’s relative strength has not particularly fallen, the momentum of that relative strength has faded. Thus the portfolio’s position in Europe has been reduced to 20%, leaving only previously distressed Italy (EWI) and Spain (EWP) as holdings. In an odd dichotomy, both aggressive and volatile emerging markets and the defensive-oriented U.S. and Canada are now the majority of the portfolio’s weight. Emerging markets appear to have made a major relative strength bottom in early March as current account financing concerns and the Ukraine crisis both eased at the same time. A resulting return in confidence in Emerging Markets appears to have caused the sector to quickly rise in our relative strength rankings. Brazil (EWZ), Turkey (TUR), Taiwan (EWT), and South Africa (EZA) have been added to the portfolio alongside the U.S. (SPY) a nd Canada (EWC). Anticipation of the election of a pro-business regime in India — followed by that regime’s big electoral victory — helped make India (EPI) and India Small Cap (SCIF) top contributors. Italy (EWI) and Frontier Markets (FM) were the portfolio’s largest detractors. The portfolio’s current regional weightings are as follows: Emerging Markets 42.0%, United States and Canada 25.0%, Europe 20.0%, Frontier Markets 8.0%, and Cash 5.0%.

Style Opportunity Portfolio

iShares Russell Midcap Value IWS 42.00%
PowerShares S&P 500 High Beta SPHB 35.00%
Guggenheim S&P 500 Equal Weight RSP 20.00%
Cash 3.00%

The Style Opportunity portfolio has undergone a shift in emphasis from mid and smaller capitalization growth companies towards stable, larger capitalization and value companies. After peaking in price and relative strength in early March, small cap stocks have fallen to the bottom of our relative strength rankings and hence out of the portfolio. Since then, our matrix that ranks the relative strength of style-box oriented U.S. equity ETFs has not changed much. The portfolio now particularly emphasizes mid and large cap value stocks in its top two holdings, the iShares Russell Mid Cap Value (IWS) and PowerShares S&P 500 High Beta (SPHB). The PowerShares S&P 500 High Beta ETF (SPHB) was the top contributor for the quarter, while the small cap iShares Russell 2000 Growth (IWO) was the biggest detractor. The portfolio remains fully invested, as cash is down to a minimal 3%.

Global Tactical Portfolio

SPDR S&P 500 ETF SPY 40.00%
iShares Russell Midcap IWR 32.00%
Vanguard Emerging Markets ETF VWO 20.00%
iShares All Country Asia ex Japan AAXJ 5.00%
Cash 3.00%

The philosophy of the Global Tactical portfolio is to use our proprietary matrix ranking the relative strength of various asset classes, and then allocate to those asset classes with the highest rankings. Stocks have occupied the top of our Global Tactical portfolio for well over a year now, and they can and have been 100% of the portfolio. Over the past year, U.S. equity has remained at the core of the portfolio with international equity the only other area of focus. Despite strong performance by fixed income so far in 2014, bonds have not been able to earn a place in the Global Tactical portfolio. Risk-on remains the market’s mentality, and only a minor correction in the markets back in January provided any real concerns. Recently Emerging Markets replaced European equities as our international equity allocation because European relative strength has stalled. The U.S. still dominates the portfolio with a 72% weight.

Alternative Opportunity

Neuberger Berman Absolute Return Multi-Manager NABIX 10.00%
Neuberger Berman Long Short Inst'l NLSIX 10.00%
BlackRock Global Credit Long / Short Credit Instl BGCIX 10.00%
iShares S&P 100 Index ETF OEF 7.00%
361 Managed Futures Fund I AMFZX 6.00%
Energy Select Sector SPDR XLE 5.00%
Vanguard Emerging Markets ETF VWO 5.00%
Barclays Convertible Securities SPDR CWB 4.00%
Barclays High Yield Bond SPDR JNK 4.00%
iShares iBoxx $ High Yield Corporate Bond HYG 4.00%
VelocityShares Inverse VIX Short-Term XIV 4.00%
JPMorgan Alerian MLP ETN AMJ 4.00%
iShares DJ U.S. Basic Materials IYM 3.00%
Global X Copper Miners ETF COPX 3.00%
iPath DJ-UBS Livestock ETN COW 2.00%
iPath DJ-UBS Cocoa ETN NIB 2.00%
iPath S&P GSCI Crude Oil ETN OIL 2.00%
ETFS Physical Palladium Shares PALL 2.00%
iPath DJ-UBS Copper ETN JJC 2.00%
Cash 11.00%

The Alternative Opportunity portfolio contains a well-diversified mix of themes which breaks down as follows: Alternative-oriented Mutual Funds 36.0%, Tactical Global Equity 31.0%, Fixed Income 12.0%, Commodities 10.0%, and Cash 11.0%. The portfolio’s mutual fund holdings are longer-term allocations that target experienced and respected managers who have disciplined approaches toward a number of areas: long/short U.S. equities, long/short global fixed income, alternative asset manager selection, and managed futures. Each of these managers are conscious of managing volatility and potential downside in their methodologies. Within the rest of the portfolio, we take a targeted and tactical approach to managing equity, fixed income, and commodity exposure. The portfolio continues to allocate towards equity and fixed income assets that are likely to benefit disproportionally from an economic recovery. Recently that has led us towards U.S. equity, particularly commodity-oriented equity, along with high yield and convertible bonds. Within commodities, we rely on our proprietary relative strength rankings along with others’ technical trading models. Palladium (PALL), Livestock (COW), Cocoa (NIB), and Oil (OIL) highlight current commodity holdings. VelocityShares Inverse VIX Short-Term (XIV) and JPMorgan Alerian MLP ETN (AMJ) were top contributors during the quarter while Market Vectors Agribusiness (MOO) and 361 Capital Managed Futures (AMFZX) were the top detractors.

Fixed Income Total Return

Barclays High Yield Bond SPDR JNK 23.50%
iShares iBoxx $ High Yield Corporate Bond HYG 23.50%
BlackRock High Yield Bond BRHYX 10.00%
Pioneer High Yield Bond Y TYHYX 10.00%
JPMorgan High Yield Fund Select OHYFX 10.00%
Eaton Vance Income Fund of Boston EIBIX 10.00%
Neuberger Berman High Income Inst'l NHILX 10.00%
Cash 3.00%

The credit markets appear to have given investors a clear signal as to what to think about the report of first quarter GDP falling 2.9%: don’t worry about it! One would think that such a negative report would perhaps foreshadow recession and cause investors to flee risky assets, but that has not been the case in stocks or in fixed income. High yield bonds continue to perform well, and in our view their positive price action may indicate that investors as a group are simply not very concerned about the global economy for the near term. Spikes of violence in Iraq and Syria and higher oil prices do not seem to have been a deterrent so far, either. It is amazing what can happen when central banks around the globe coordinate to keep interest rates and volatility low. The Fixed Income Total Return (FITR) portfolio moved to a 100% fully invested position in High Yield Bonds nearly a year ago on July 18, 2013. The portfolio’s primary evaluation regarding which asset class to own involves comparing the relative strength of High Yield Bonds versus Treasuries. By that measure, High Yield Bonds remain very strong. From July 18, 2013 until June 30th of this year, High Yield Bonds as measured by the Barclays High Yield Bond SPDR (JNK) gained 8.13% while the iShares 7-10 Year U.S. Treasury ETF (IEF) gained 3.20%. The FITR model remains very close to new all-time highs. Our best forecast for the markets’ path this year predicts a more volatile and turbulent third and early fourth quarter — but nothing close to a full blown bear market. As much as we believe in that forecast, the Fixed Income Total Return portfolio is not influenced by any forecast. It is only influenced by its model, which has been undeterred and very bullish. While we are always watchful for deterioration in credit conditions that might force us to become defensive, we see no evidence of any need to become cautious at this time.

Sentry Managed Volatility Portfolio

Navigator Sentry Managed Volatility Fund NVXIX 95.00%
Cash 5.00%

To pay an “insurance” premium for the comfort of knowing that you have at least some protection from the worst happening in the markets can have a brutal effect on one’s finances– particularly when the much feared “worst event” simply doesn’t develop. The S&P 500 has not seen a 10% correction since 2011 – nearly a three year period now. Hedging one’s equity exposure during such a bull market is difficult and ultimately a losing endeavor – all one can do is responsibly manage the cost of hedging while maintaining a minimal hedge required to safeguard client assets. Under these circumstances, the Sentry fund is a net loser in client portfolios, waiting for its day when protection will shine. Despite our forecast that the market might undergo weakness in the second quarter, when the seasonally rough period of May came our broad market indicators did not point towards any real weakness. As a result, we have not increased the size and scope of our hedge and we have kept the hedge losses as low as possible – which is not to say that they still were not there.

Within the Sentry Managed Volatility Fund, 15% of the portfolio remains invested in S&P 500 December 2014 puts with a strike of 1750. These puts have absorbed substantial losses and were the portfolio’s biggest detractor by far. 10% of the portfolio owns the iPath S&P 500 Dynamic VIX ETN (XVZ), which is a cost effective way to hedge the S&P 500 that can go up to 30% short the VIX. Another 15% of the portfolio owns a combination of the VelocityShares Inverse VIX Short-Term (XIV) and the VelocityShares 2x VIX Short-Term (TVIX). For these two holdings we apply a strategy that gradually shifts the weights between the two positions according to the short-term trend of the VIX. This strategy has been net short volatility during the second quarter and has been a net contributor. The remaining roughly 60% of the portfolio is in cash. As the third quarter begins, the S&P 500 is surging towards 2000 — the top end of our target range for 2014. As we approach those price levels, we very much expect to increase our hedge position because in our view downside risk is becoming greater than upside potential.

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. 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 Part 2A Appendix 1 Wrap Fee Brochure which is available upon request.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada.

These portfolio holdings and weightings reflect portfolio models that may or may not have changes since publication. Actual client holdings and weightings may or may not differ. Performance since position initiated reflects the performance of security from the closing price of the day before the initial purchase date. This performance does not reflect actual performance of any actual client position or account. In addition, performance does not reflect total performance of a specific position as allocations are often reduced or increased. This performance does not reflect the deductions of any fees. For information on fees see the Form ADV Part 2A Appendix 1 Wrap Fee Brochure for Unified Solutions. This research has not been reviewed by FINRA. The S&P 500 Index is an unmanaged market capitalization weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. It represents approximately 75% of the U.S. equities market. Index returns do not reflect fee deductions. Benchmark index performance provided by Bloomberg and includes dividends. It is not possible to make an investment directly in any index.

Non-Reliance and Risk Disclosure: This material has been prepared by Clark Capital Management Group. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of our clients. It does not constitute a recommendation or take into account the particular investment objectives, financial conditions, or needs of individual clients. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. All indices are unmanaged and cannot be invested into directly. 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. High Yield Fixed Income are lower-rated securities, have credit risk, and are especially price sensitive when interest rates rise. Components with international securities may be more susceptible to political, economic, and financial events, or natural disasters than U.S. securities. In the Alternative investments, Real Estate has risks associated with direct ownership; valuations of real estate may be affected by economic or financial conditions or catastrophic events resulting from forces of nature or terrorist acts. Currencies have risk related to political, economic, or financial events, or natural disasters; a country’s debt level and trade deficits; government intervention in the currency market; and currency exchange rates. Energy investments have risk from volatility of global prices, regulation by governments and contractual price fixing, asset class risk, and currency risk. Commodities are affected by global supply and demand; domestic and foreign interest rates; political, economic, financial events, or natural disasters; regulatory and exchange position limits; and concentration within a commodity. Absolute investment strategies may deviate substantially from overall market returns; foreign securities, particularly those of emerging markets, are susceptible to political, economic, and financial events, or natural disasters; the use of derivatives may have a large impact on the segment as may use of investments involving leverage. Global Infrastructure investments include investment in companies that principally engage in management, ownership, and operation of infrastructure and utility assets. Global infrastructure investing includes security, political, and geographical risks, among others. Commodity investments are vehicles used by investors to gain exposure to commodities and commodity futures. There are a number of ways investors can gain exposure to commodities. Transactions in commodities carry a high degree of risk, and a substantial potential for loss. Emerging Markets are typically countries in the process of industrialization, with lower gross domestic product (GDP) per capita than more developed countries. International investments involve special risks such as fluctuations in currency, foreign taxation, economic and political risks, and differences in accounting and financial standards. Emerging market investments are more risky than developed market investments. Returns and principal invested in stocks are not guaranteed. Small stocks are more volatile than large stocks and are subject to significant price fluctuations, business risks, and are thinly traded.

Special Risk Disclosure related to U.S. Registered Exchange-Traded Funds (“ETFs”) and Exchange-Traded Notes (“ETNs”): To the extent this communication contains information pertaining to U.S. registered ETFs or ETNs, consider the investment objectives, risks, and charges and expenses of the ETFs and ETNs carefully before investing. Each ETF and ETN has filed a registration statement (including a prospectus) with the SEC which contains this and other information about the ETF or ETN as applicable. Before you invest in an ETF or ETN, you should obtain and read carefully the prospectus in the registration statement and other documents the issuer has filed with the SEC for more complete information about the product. You may get these documents for free by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, you may obtain a copy of the prospectus for each of the ETFs and ETNs mentioned in these materials by contacting the ETF sponsoring company. ETFs are redeemable only in Creation Unit size aggregations and may not be individually redeemed; are redeemable only though Authorized Participants; and are redeemable on an “in-kind” basis. The public trading price of a redeemable lot of the ETFs may be different from its net asset value. These ETFs can trade at a discount or premium to the net asset value. There is always a fundamental risk of declining stock prices, which can cause losses to your investment. Most leveraged and inverse ETFs “reset” daily, meaning that they are designed to achieve their stated objectives on a daily basis. Due to the effect of compounding, their performance over longer periods of time can differ significantly from the performance (or inverse of the performance) of their underlying index or benchmark during the same period of time and as such are not meant to be held for the long term. This effect can be magnified in volatile markets. Prior to entering into a transaction in leveraged or inverse ETFs, you should be aware of the general risks associated with such transactions. You should not enter into leveraged or inverse ETFs transactions unless you understand the nature and extent of your risk exposure. You should also be satisfied that the leveraged or inverse ETFs transaction is appropriate for you in light of your circumstances and financial condition.

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 caluclation results being impacted by an extreme change in a security price.