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1 Gore%Capital%Management% Our%only%client%is%you. The Quarter in Review In reflecting on this past quarter, Peter and I briefly remarked on how frequently the Dow Jones Industrial Average has crossed its opening value for the year 2015 (i.e., how many times it dipped below that value, then rose above it, then dipped below it again, so on and so forth), a bit of a rudimentary volatility measurement. Over the first half of the year, the Dow has done this more than 30 times, which is on pace for a new record. Yes, it s been a bumpy ride. The start of April showed some signs of a Spring Thaw (trademark pending), with the S&P 500 reaching 2,118 on April 24 th, and a new all-time high of 2,131 in mid-may. However, worries in Greece caused us to give back most of our gains for the year by the end of June, with the S&P closing out the quarter at 2,063 (an anemic 0.20% gain year-to-date). If we were on the set of Looney Tunes, the market would be playing the ACME Corporation and investors would be Wile E. Coyote. There is still an open casting call for the role of Road Runner. Fundamentally speaking, the facts tell us that the economy is improving, albeit slowly. GDP growth, a common measurement of economic performance, was reasonably good at 2.3% for the second quarter, driven largely by strong durable goods orders (+7.3%), and consumer spending (2.9%). As a further boost, GDP growth in the first quarter of 2015 was revised from -0.2% to +0.6% thanks to a new calculation method. Second quarter earnings releases have also shown mild progress. Of the 500 constituents of the S&P 500, 354 of them (71%) beat earnings estimates. This is slightly higher than the 5-year average. However, just 52% of S&P 500 companies have beaten revenues, which is slightly below the 5-year average. At the industry level, we have found that 95% of the Health Care sector has beaten earnings estimates, while just over half of Energy and Utility industries have beaten their targets (see Figure 1 on the next page). Overall, we agree with Factset: The market will likely continue to watch for comments from companies regarding the impact of slower global economic growth, lower oil and gas prices, and the strong US dollar on earnings and revenues, but we continue to be cautiously optimistic that earnings and revenues will improve throughout the rest of the year. Market Statistics YTD (as of 6/30/15) Year 3-Year Annl. 5-Year Annl. S&P % 13.69% 5.25% 14.84% 14.89% Dow Jones Ind. Avg. 0.03% 10.04% 7.21% 13.77% 15.41% Russell 2000 (Small Cap) 4.75% 4.89% 6.49% 17.81% 17.08% MSCI EAFE (Foreign) 5.88% -4.48% -3.82% 12.45% 10.03% MSCI ACWI (Global) 2.97% 4.71% 1.23% 13.61% 12.52% BarCap US Agg Bond -0.10% 5.97% 1.86% 1.83% 3.35% IA SBBI US 30 Day TBill 0.01% 0.02% 0.01% 0.03% 0.04% S&P GSCI Gold (Spot) -1.04% -1.51% % -9.94% -1.22%

2 Figure 1: S&P 500 Earnings by Sector/Industry On the other hand, the continued credit crunch has acted as a headwind to further growth, as have a strong dollar and low oil prices. In particular, oil s rise over the past two years was a key driver of employment and revenue growth across the economy, and as a result, this recent dip has not been pleasant. Crude Oil has fallen from roughly $55 per barrel at the beginning of April to $46 per barrel as of this writing (a 19% drop). Although we see oil prices stabilizing and increasing at some point in the future, we are not naïve enough to attempt a prediction as to when this will occur. Looking Forward As stated previously, we believe the US will continue the slow, elephant-like plodding of economic growth despite the news media s best efforts to convince us that disaster looms around every corner. Rod Smyth of Riverfront Investment Group put it best in his article titled Wall of Worry: Why We Remain Bulls: Earlier this month, Greece was the scary headline du jour, now it s China. For much of 2014, the fear was centered on Ukraine and the early part of 2013 was Figure 2: US Domestic Earnings vs. Europe and Emerging Markets dominated by the US fiscal cliff. Throw in the Presidential election in 2012, North Korea s continued irrational behavior, and the Ebola scare last year, and you have a recipe that would make even the most stoic fund manager tug at his collar. But, as Mr. Smyth s piece is titled, he says, Bull markets climb a wall of worry. Domestically, we see a low probability of recession, positive price trends, and improving corporate earnings. At a Priceto-Earnings ratio (how much an investor is willing to pay for $1 of earnings) of 16, valuations are not excessive, and are actually trending slightly below the long-term average. That said, mid-cap equities continue to present a challenge. This is not due to sector performance (the mid-cap index is up roughly 4% year to date), but the fact that good mid-cap mutual funds are an elusive species. In response, we are reducing our positions in Artisan Mid-Cap and American Beacon Mid-Cap Value, and deploying those funds into a low-cost alternative S&P 400 Mid-Cap ETF. Some clients own John Hancock s Mid Cap fund, which we plan on continuing to hold.

3 Figure 3: Economic Headwinds Europe also shows signs of life. Although the United States has enjoyed increased corporate earnings since 2009, Europe has not (see Figure 2). In fact, earnings in Europe suggest that stocks are actually fairly valued at current prices. However, stimulus by the European Central Bank is starting to provide hints that earnings (and thus stock prices) should begin appreciating, (as shown in the chart on the previous page). As such, we are overweight the International Developed markets, and we still believe in hedging out euro currency risk (discussed in the February 2015 and May 2015 newsletters). The bond market is a bit more challenging to navigate at this time. The Federal Reserve has given us indications that it will be raising interest rates before year-end. However, the timing and size of the increase is unknown; we think it will occur in September/October, and it will be in the neighborhood of 0.25%, but neither prediction is guaranteed. As such, the majority of our domestic fixed income exposure fits two themes: short-term and floating rate. Short-term loans tend to have a relatively low sensitivity to changes in interest rates, and floating rate bonds may potentially benefit from a Fed raise. We have also maintained our allocation to global bonds. Although this sector has not provided the returns we were anticipating, our selected positions do provide a higher yield (income) than is currently available domestically, which helps to dampen the lackluster performance. We believe the strong dollar and country-specific risk has impacted the global bond market, but an improving world economy will help to boost returns over the long-term. Across the firm, we have reduced the level of risk in our conservative-tilting portfolios, but still remain constructive on the developed markets. We are watching the emerging markets carefully, but don t have plans to jump in at this point. In sum, the Volatility/Emotional Rollercoaster shows no signs of slowing down. We still expect the year to end on a positive note, but December is a long way away. Top Holdings Within the Firm YTD (as of 6/30/15) Year 3-Year Annl. 5-Year Annl. Thornburg Investment Inc. Builder 3.51% 4.90% 0.80% 10.79% 10.90% FPA Crescent 0.00% 6.64% 1.53% 11.48% 11.04% First Eagle Global 1.94% 3.19% -1.16% 9.36% 10.41% Deutsche MSCI EAFE Hedged Eq 8.15% 5.26% 10.64% 17.28% Litman Gregory Masters 1.68% 3.58% 1.66% 5.66% Wells Fargo Adv. Abs. Return 0.83% 0.61% -2.74% 5.31% Guggenheim S&P 500 Equal Weight 0.51% 14.02% 5.69% 19.05% 17.90% PIMCO Income 2.91% 7.09% 3.57% 9.06% 10.31% PowerShares FTSE RAFI US % % 18.09% 16.98% Ridgeworth Seix Floating Rate 3.27% 0.81% 1.87% 4.70% 5.61%

4 Topic Du Jour: Fiduciary Responsibility Big news within the investment industry: The Department of Labor is spearheading legislation that would require investment professionals to act in a fiduciary capacity with respect to any assets they manage. Currently, only advisors who manage ERISA retirement plans are required to act as fiduciaries. Back up What is a fiduciary? Broadly speaking, a fiduciary is an individual or entity that is legally bound to act in the best interests of his or her client. The term is used in many different industries, and the definition varies slightly depending on the relationship between professional and client. How does it apply to financial services? Currently, investment professionals abide by the suitability standard, which requires that recommendations to buy or sell an investment product must be suitable for the client s objectives. However, oftentimes there are several products or strategies that could be deemed suitable to a client s objectives, and an unscrupulous advisor is free to recommend the most expensive choice, even if it comes with undue restrictions. The proposed fiduciary standard takes things a Late Summer Tips from Keri Budgeting%tune8up%for%college%students:%Go%forth% and%spend%wisely!% As#the#warm#weather#and#summer#months#wind#down# many#folks#out#there#are#due#to#be#empty#nesters#again# when#kids#return#to#or#begin#their#studies#at#college.##now#is# a#good#time#to#go#over#money#issues#with#your#new#or# returning#college#student#if#pertinent#to#your#situation.## Taking#some#time#to#go#over#<inancial#details#with#your# student#before#situations#arise#can#help#make#him#or#her# more#con<ident#with#<inancial#decisions#they#might#have#to# make#while#at#school#such#as,# Can#I#afford#that#concert# ticket?.##where#does#their#income#come#from#and#how# much#is#it?##who#in#the#family#is#responsible#for#what# expenses?#setting#and#sticking#to#a#budget,#whether#by# month,#semester#or#school#year,#can#help#give#everyone# peace#of#mind.### Many#onGline#tools#and#budgeting#apps#are#geared# speci<ically#to#budgeting#for#college#and#can#assist#in# learning#the#basics#when#it#comes#to#money#management,# arguably#as#important#as#that#microeconomic#theory#class.# Two#apps#that#I#like#are#Intuit s#mint.com#and#goodbudget# Budget#Planner#at#goodbudget.com,#both#free,#but#there#are# many#more#available.## Will%and%Power%of%Attorney%review:% Now#is#also#not#a#bad#time#to#ask#yourself:# When#was#the# last#time#i#reviewed#my#will#for#accuracy? ##If#the#answer#is# More#than#5#years#ago #then#now#is#a#great#time#to#review# to#make#sure#instructions#are#still#current.##also,#make#sure# any#powers#of#attorney#re<lect#your#current#intentions.## Periodic#review#of#these#documents#for#continued# effectiveness#will#help#you#and#your#loved#ones#sleep# better#at#night! step further and requires that the advisor only recommend the most suitable option irrespective of his own best interests, i.e. how much he gets paid for recommending it. That sounds like a good thing. Why doesn t everybody already do this? Some do. Many parties believe that practicing the fiduciary standard is, as the kids say, a no-brainer, and groups including the CFA and CFP Boards already require their members to take a fiduciary oath (Peter carries both designations). However, some of the larger investment firms have resisted the shift. Why? First, being a fiduciary adds an additional layer of legal responsibility to do the right thing. Anyone who is found not doing the right thing can be held legally liable. Big companies don t like lying down on the tracks of the legal freight train. Second, acting solely in the best interest of the client could potentially hurt revenues, as the best recommendation is often not the one that generates the largest commission. Where do we go from here? That s a great question. We re not quite sure, but we believe the outcome will be positive. In an ongoing effort to make our business more transparent, pressures from both within the industry and without will push this regulation forward. That said, the regulatory toolbox is filled with blunt instruments, and regulatory bodies like the DoL and Congress have historically been a bit overzealous in enacting new rules and regulations surrounding how the financial services industry conducts business (even if the intention is noble). If and when they do institute fiduciary legislation, it will be important for regulators to retain the spirit of the rule without imposing unnecessary layers of red tape.

5 Disclosure Investing involves risk and you may incur a profit or a loss. Please carefully consider investment objectives, risks, charges, and expenses before investing. Mutual Funds are sold by Prospectus only. Please carefully consider the fund's investment objective, risks, charges and expenses applicable to a continued investment in the fund before investing. For this and other information, call or write to for a free prospectus, or view one online. Read it carefully before you invest or send money. The indexes are unmanaged and an investment cannot be made directly into them. The Dow Jones Industrial Average is an unmanaged index of 30 widely held securities. The NASDAQ Composite Index is an unmanaged index of all stocks traded on the NASDAQ over-the-counter market. Cantella & Co., Inc. does not provide legal or tax advice. For legal or tax advice, please seek the services of a qualified professional. This material is not intended to provide legal, tax or investment advice, or to avoid penalties that may be imposed under U.S. Federal tax laws, nor is it intended as a complete discussion of the tax and legal issues surrounding retirement investing. You should contact your tax advisor to learn more about the rules that may affect individual situations. This was prepared for informational purposes only. It is not an official confirmation of terms. It is based on information generally available to the public from sources believed to be reliable but there is no guarantee that the facts cited in the foregoing material are accurate or complete. Changes to assumptions may have a material impact on returns. Past performance is not indicative of future results. The views and opinions expressed in an article or column are the author's own and not necessarily those of Cantella & Co., Inc.