Market Outlook Letter

Transcription

1 September 27, 2012 Market Outlook Letter What s Working Now? Since June 26th, the stock market has rotated to reward predominantly high beta, cyclical stocks. To show the strength of these high beta stocks, we calculated the average beta for stocks in the large cap growth universe by their reward risk deciles. The chart illustrates that these high-beta stocks are also those in the bottom deciles based on reward risk. 1.5% Large Cap Growth Universe Average Beta by Reward Risk Decile Supplemental Information As of 6/26/ % 1.3% 1.2% 1.1% Beta 1.0% 0.9% 0.8% 0.7% 0.6% Deciles Source: Navellier & Associates, FactSet. Graph is for discussion purposes only. Please read important disclosure at end of commentary. There is no doubt that Wall Street is chasing cyclical companies and financial stocks, especially banks that recently raised dividends after passing the Fed s stress test. The only problem with the market rotation into these cyclical companies is the analyst community is estimating that the S&P 500 s third-quarter earnings will decline 1.1% compared to the same quarter a year ago, so we are skeptical of this cyclical rally, since it is rewarding too many stocks with questionable earnings. That is the bad news. The good news is that after the third quarter, the S&P 500 s earnings are expected to grow in excess of 10% or more starting in the fourth quarter and in every quarter in The potential sticking point with the doubledigit earnings forecast beyond the third quarter is the pending November Presidential election. The election is crucial to clarifying the underlying economic outlook and future corporate profits, with questions still swirling about the impact of the Affordable Care Act (commonly called Obamacare); the expiration, extension, or compromise over the Bush tax cuts; required spending cuts under last year s debt ceiling deal; and the impending fiscal cliff. All this uncertainty will likely be resolved after November 6th when we elect the next President. Regardless of who becomes the next President in November, we suspect that the fiscal cliff will be dealt with before Congress goes home for Thanksgiving. Investment in equity securities involves substantial risk and has the potential for partial or complete loss of funds invested. 1 East Liberty Suite 504 Reno Nevada

2 Corporations remain uncertain and reluctant to hire new workers. The Wall Street Journal recently reported that some large U.S. corporations continue to incorporate overseas to avoid relatively high corporate taxes. Furthermore, some U.S. companies continue to keep the vast majority of their cash reserves overseas (e.g., according to MarketWatch, Cisco Systems and Microsoft keep 89% of their cash outside the U.S.), since if they repatriate their cash, they would have to pay U.S. taxes even though they already paid foreign taxes (albeit, sometimes at very low rates). President Obama wants to continue this double taxation, but proposes lowering the federal corporate tax rate to 28%, while Mitt Romney proposes lowering the federal corporate rate to 25% and eliminating the double taxation on corporate profits. Why is Navellier s NEW Defensive Alpha Portfolio strategically designed for today s market? Visit or call us at to find out more. There is one other reason why all the capital outside the U.S. may not be repatriated, regardless of corporate taxes, which is namely a weak U.S. dollar. By keeping cash overseas, corporations benefit from (1) lower corporate taxes, (2) higher interest rates, and (3) stronger currencies. After the Fed hinted that more quantitative easing was coming, and then formally announced QE3, the U.S. dollar has been in a tailspin and is near a 7-month low. With QE3, the Fed announced it would buy $40 billion of mortgage-backed securities per month and continue Operation Twist, which is designed to flatten the Treasury yield curve. The Fed also formally extended its current 0% interest rate policy through at least mid Overall, all this Fed intervention may help the stock market by causing yield-hungry investors to chase high dividend yields, but the Fed s latest round of quantitative easing has already weakened the U.S. dollar and could potentially cause commodity inflation, since all commodities are priced in U.S. dollars. The bright side of a weak U.S. dollar and commodity inflation is that it can help boost corporate profits, which is great news, especially for large, multi-national stocks. The Wall Street Journal recently featured an editorial from senior fellows at Stanford University s Hoover Institution that pointed out that the Fed now owns the highest proportion ever of the $16+ trillion in federal government debt and implied that it must expand its quantitative easing to keep buying more Treasury debt. This editorial explained that in the past fiscal year, the Fed financed three quarters of the $1.3 trillion deficit. The Fed now owns one in six dollars of the national debt, the largest percentage of GDP in history, larger than at the end of World War II. After World War II, the Fed could not raise interest rates for a decade due to the massive debt burden, so investors should be prepared for an ultra-low interest rate environment for a decade or more. As the Fed s proportion of Treasury debt rises, we believe there is no other choice than to conduct wave after wave of quantitative easing and maintain the Fed s 0% interest rate policy for a decade or more. But as the U.S. dollar decays and continues to create commodity inflation, the stock market remains a great oasis in an inflationary environment. Speaking of inflation, the Labor Department recently reported that wholesale inflation surged in August to the highest level in three years. Specifically, the Producer Price (PPI) rose 1.7% in August, due largely to a 6.4% increase in energy prices, including a 13.6% increase in wholesale gasoline prices. Naturally, this inflation showed that since August, at the consumer level, consumer prices posted their biggest monthly rise since March The Labor Department announced that the Consumer Price (CPI) rose 0.6% in August, due predominantly to a 5.6% increase in energy prices, including a 9% increase in gasoline prices. Clearly, the unfolding events in the Middle East are alarming and may continue to keep energy prices unseasonably high, even though worldwide demand typically declines in the fall due to lower seasonal demand. Thanks to high prices at the pump, the Commerce Department recently announced that retail sales rose an impressive 0.9% in August. However, excluding strong vehicle and gasoline sales, overall retail sales rose only 0.1%, which was dramatically lower than economists consensus expectation of 0.4%. With consumers spending more money at the pump, it is impacting their consumption behavior. Despite this, sales at bars and restaurants rose 0.5. Also notable is that July s retail sales gain was revised to 0.6%, down from 0.8% previously reported. Overall, consumer spending remains crucial to overall economic growth, and although consumers continue to spend freely, much of it is attributable to high gasoline prices. Interestingly, consumer credit card purchases declined 7% in July, so it is clear that many consumers are being more frugal. Investment in equity securities involves substantial risk and has the potential for partial or complete loss of funds invested.

3 One reason not to hit the panic button button is that the University of Michigan/Reuters preliminary survey of consumer confidence for September surged to 79.2, up from 74.3 in August. This is the highest consumer confidence reading since May illustrating that despite high gasoline prices, a challenging job market, unrest in the Middle East, and other problems, consumers remain upbeat. This optimism is not that surprising since just before a Presidential election, consumer sentiment tends to rise as the respective candidates campaign across the country with positive rhetoric and promises. The Conference Board confirmed that consumer confidence is on the rise after announcing that its index soared to 70.2 in September, up from 61.3 in August. Interestingly, consumer expectations for the next six months surged to 83.7 in September, up from a revised 71.1 in August. So overall, it appears that consumers are becoming more upbeat and that the holiday shopping season may be shaping up to be the best in the past several years! The job market remains troubling, since if the labor force had not shrunk in the past four years, unemployment could be well over 11%. Labor force participation is at a 30+ year low and male participation in the workforce at a 60-year low. The Fed made a shocking comment in its recent Federal Open Market Committee (FOMC) statement, namely that the Fed s aggressive intervention is designed to help stimulate job growth and economic growth might not be strong enough to generate sustained improvement in labor market conditions. At his press conference, Fed Chairman Ben Bernanke said, A weak job market should concern every American. Bernanke also stated the Fed would not rush to tighten monetary policy: Even after the economy starts to recover more quickly, even after the unemployment rate begins to move down more sizably, we are not going to rush to tighten policy. We are going to give it time to make sure the recovery is well established. Translated from Fedspeak, Bernanke essentially admitted he cannot fix the labor problem, but he is trying. Major defense firms recently confirmed they will send tens of thousands of employee layoff notices by November 2. By law, they must give 60-days notice of any potential layoffs due to the mandatory defense cuts in early 2013 that resulted from the failure of the Congressional Super Committee to agree on a budget compromise. Specifically, under the terms of last year s deal to raise the U.S. debt ceiling, Congress mandated that $500 billion in defense budget growth over the coming decade would automatically be sequestered starting on January 2. Lawmakers, industry leaders, and Pentagon officials have all said these sequestration cuts must be undone, but Democrats and Republicans have been deadlocked over how to resolve the standoff. So the layoff notices must go out. Regardless of all the problems in the U.S., the U.S. economy remains the primary engine of global GDP growth, since Europe is in a recession and growth in Asia and Latin America has slowed dramatically in the past year. Interestingly, orders for Apple s iphone 5 are already sold out for the fourth quarter. Some experts predict that the iphone 5 could boost overall GDP growth by 0.5% in the fourth quarter. Clearly, the iphone 5 will be the hottest holiday item and help boost both China s GDP and U.S. retail sales, but we suspect the GDP predictions are over-the-top. So in the end, the upcoming November Presidential election will help remove much of the uncertainty that is plaguing the overall economic environment. We suspect that after the November election, Congress will raise the deficit ceiling and avert the impending fiscal cliff, but the U.S. economy must brace for the tax speed bumps caused by Obamacare and the potential repeal of some Bush tax cuts in the event that President Obama is re-elected. If Mitt Romney is elected there should be less of a tax speed bump since he wants to eliminate Obamacare, dramatically change the tax code by cutting rates, but also eliminate many popular deductions. In the meantime, the Fed has come to the rescue. After QE1, the S&P 500 rose 36.4%; after QE2, the S&P 500 rallied 24.1%; so we are now in the midst of QE3 and another quantitative easing market rally. But the downside of all this quantitative easing is that it undermines the value of the U.S. dollar and sparks inflation, especially in food and energy. Fortunately, many multinational stocks are poised to profit from a weak U.S. dollar and commodity inflation, so we believe that our fundamentally superior stocks will emerge as an oasis. CONCLUSION In summary, the upcoming third-quarter earnings announcement season will be challenging, since the analyst community is expecting the S&P 500 s earnings to decline 1.1%. Despite many cyclical stocks with sloppy sales and earnings rallying, we expect the stock market will revert to quality stocks and that our fundamentally superior portfolios will reassert their leadership. (While the S&P 500 is now characterized by lackluster sales and earnings, our average growth portfolio continues to be characterized by superior sales and earnings:) Investment in equity securities involves substantial risk and has the potential for partial or complete loss of funds invested.

4 Portfolio Fundamentals as of 8/24/2012 Supplemental Information Average Sales Change Quarter/Qtr. 1 Year Ago Average Operating Earnings Change Year/Year Average on Equity Trailing 4 Qtrs. Average Forward P/E FY2 Average Earnings Surprise % Latest Qtr. Average Operating Margin % Change Trailing Year Nav. Fundamental A Russell (0.12) Nav. Small-Mid Growth Russell 2000 Growth (15.04) Nav. Large Cap Growth Russell 1000 Growth (0.49) Source: FactSet Average Sales Change: Last fully reported quarter divided by same quarter one year ago minus one. Average Earnings Change: Last fully reported year divided by one year ago minus one. Average on Equity: Trailing four quarters from last fully reported quarter. Net income divided by stockholder equity. Average Forward P/E FY 2: Price divided by average analysts estimate for fiscal year two. Average Earnings Surprise %: As of last fully reported quarter, actual earnings divided by mean or consensus minus 1. Average Operating Margin % Change: Trailing four quarters percent change in operating margin from last fully reported quarter. Please read important disclosure at end of commentary. Regardless of the outcome of the November Presidential election, our best defense remains a strong offense of fundamentally superior stocks. Now that the U.S. dollar has resumed weakening and inflation is brewing as a result of QE3, we expect that our fundamentally superior stocks will resume leading the overall stock market. In the meantime, the Fed is flooding the economy with money in an attempt to put a Band-Aid on some of America s economic problems. The Fed has chosen to do this with (1) more quantitative easing, (2) continuing Operation Twist to flatten the Treasury yield curve, and (3) formally extending its 0% interest rate policy. Heading into what is expected to be the worst quarterly earnings announcement season since the fourth quarter of 2008, the overall stock market has rallied impressively. But not just any stock has rallied, specifically, many financial and cyclical stocks that have previously lagged have soared, even some companies with questionable sales and earnings prospects. In October, we will be focused on the three Presidential debates and the one Vice Presidential debate, which should be entertaining and informative. Even though both sides will accuse each other of stretching the truth and distorting each other s record, in the end, Americans tend to vote for the most positive, happy candidate with an upbeat view of the future. As a result, if history repeats, the stock market will continue to rally leading into the November election as the candidates proffer optimistic rhetoric of how they can lead the country. The bottom line is no matter who is elected, we suspect the stock market will adapt and life will go on. Regardless, a weak U.S. dollar and low interest rates are here to stay due to the Fed s quantitative easing and 0% interest rate policy. The stock market is doing a great job of ignoring (1) the growing unrest in North Africa and the Middle East after our Libyan ambassador was killed, (2) the escalating deaths as our troops withdraw from Afghanistan, (3) Iran s nuclear threat, and (4) Israel s demand that the U.S. cooperate and draw a red line that Iran must not cross so a potential military intervention can ensue. In the meantime, major defense firms will be sending tens of thousands of employee layoff notices due to the mandatory defense cuts in early However, in the end, as long as the Fed is pumping $85 billion a month into the U.S. economy ($40 billion to buy mortgage-backed securities and $45 billion to flatten the Treasury yield curve in conjunction with Operation Twist), money will continue to pour into the stock market seeking higher yields. All this aggressive Fed intervention undermines the value of the U.S. dollar as the Treasury sells new debt and the Fed buys up to 75% of the debt, but a weak U.S. dollar helps boost the earnings of the multinational companies that dominate the S&P 500. Investment in equity securities involves substantial risk and has the potential for partial or complete loss of funds invested.

5 In the end, while all this uncertainty persists, we expect that our best defense will remain a strong offense of our fundamentally superior stocks, like those in our Navellier portfolios. The seasonally strong time of year is also fast approaching, so we believe investors should remain diversified. LOUIS G. NAVELLIER SHAWN PRICE MICHAEL J. BORGEN CEO/CIO Senior Portfolio Manager Senior Portfolio Manager MICHAEL GARAVENTA JAMES O LEARY, CFA PHILLIP MITTELDORF Portfolio Consultant Senior Portfolio Manager Portfolio Manager P.S. Please visit our stock rating system on over 5,000 stocks at The enhanced version of our stock rating system allows you to save portfolios, so that you can check the stock ratings on separate portfolios every week. We update our stock database every Monday following our weekend research. Important Disclosures: Investment in equity securities involves substantial risk and has the potential for partial or complete loss of funds invested. Graphs are for illustrative and discussion purposes only. As a matter of normal and important disclosures to you, as a potential investor, please consider the following: The performances presented in the accompanying Reward/Risk Ratio Analysis chart and graph is not based on any actual securities trading, portfolio, or accounts, and should be considered mere paper or proforma performance results based on Navellier s research. The model portfolios, charts and other information presented do not represent actual funded trades and are not actual funded portfolios. There are material differences between Navellier Investment Products portfolios and the model portfolios, research, and performance figures presented here. The model portfolios and the research results (1) may contain stocks that are illiquid and difficult to trade; (2) may contain stock holdings materially different from actual funded Navellier Investment Product portfolios; (3) do not include trading costs, commissions, or management fees; and, (4) may not reflect prices obtained in an actual funded Navellier Investment Product portfolio. In most cases, Navellier s Investment Products have materially lower performance results than the performances of the model portfolios presented. As a matter of important disclosure regarding the Reward/Risk Ratio Analysis and Fundamental Factor charts and graphs, the following factors must be considered when evaluating the performance figures presented: 1. Historical or illustrated results presented herein do not necessarily indicate future performance; Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. 2. The results presented were generated during a period of mixed (improving and deteriorating) economic conditions in the U.S. and positive market performance. There can be no assurance that these favorable market conditions will occur again in the future. Navellier has no data regarding actual performance in different economic or market cycles or conditions. 3. The results portrayed reflect the reinvestment of dividends and other income. 4. The results portrayed do not include any investment advisory fees, administrative fees, or transaction expenses, or other expenses that a client would have paid or actually paid. 5. LIMITATIONS INHERENT IN MODEL RESULTS: The performance results presented are from a model portfolio, not an actually funded portfolio, and may not reflect the impact that material economic and market factors might have had on the adviser s decision making if the adviser were actually managing clients money, and thus present returns which are greater than what a potential investor would have experienced for the time period. The results are presented for informational purposes only. No real money has been invested in this model portfolio. The model performance results should be considered mere paper or pro forma performance results. The model results do not represent actual funded trades and may not reflect actual prices paid or received for actual funded trades. 6. The model results may or may not relate, or only partially relate, to the type of advisory services currently offered by Navellier & Associates, Inc. 7. In most cases, the adviser s clients had investment results materially lower than the results portrayed in the model. Although the information in this communication is believed to be materially correct, no representation or warranty is given as to the accuracy of any of the information provided. Certain information included in this communication is based on information obtained from sources considered to be reliable. However, any projections or analysis provided to assist the recipient of this communication in evaluating the matters described herein may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results. Accordingly, any projections or analysis should not be viewed as factual and should not be relied upon as an accurate prediction of future results. Furthermore, to the extent permitted by law, neither Navellier nor any of its affiliates, agents, or service providers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this communication or for any decision based on it. This communication has been provided to you for informational purposes only and may not be relied upon by you in evaluating the merits of investing in any Navellier investment strategy or composites. Past performance is not indicative of future results, and there can be no guarantee as to the accuracy of market forecasts. Opinions, estimates, and forecasts may be changed without notice. This material is not an offer, or a solicitation of an offer, to purchase any securities, including shares of any investment company. The views and opinions expressed are provided for general information only. The Navellier stock ratings, Grades, data, company information and portfolio grades are general information that do not take into account your individual circumstances, financial situation or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for you. One cannot invest directly in an index. The S&P 500 measures the performance of 500 stocks that are considered to be widely held by Standard & Poors, a division of The McGraw-Hill Companies, Inc., and comprises approximately three-quarters of the total capitalization of companies publicly traded in the United States. The S&P 500 is weighted by market value and its performance is thought to be representative of the stock market as a whole. It is reported that over 70% of all U.S. equity funds are tracked by the S&P 500. The index selects its companies based upon their market size, liquidity, and sector. Most of the companies in the index are mid cap or large corporations. This index is composed of 400 industrial, 20 transportation, 40 utility, and 40 financial companies. Many experts consider the S&P 500 one of the most important benchmarks available to judge overall U.S. market performance. Presentation of index data does not reflect a belief by the Advisor that any stock index constitutes an investment alternative to any Navellier equity strategy, or is necessarily comparable to such strategies. Among the most important differences between the indices and Navellier strategies are that the Navellier equity strategies may (1) incur material management fees, (2) concentrate investments in relatively few stocks, industries, or sectors, (3) have significantly greater trading activity and related costs, and (4) be significantly more or less volatile than the indices. All information contained in this material is provided in good faith and is believed to be accurate and reliable at the time of compilation. The information in this material is subject to applicable statutes and regulations and is provided as is and on an as available basis without warranties of any kind. Navellier does not warrant that the information will be error free. No Financial Advice: The views and opinions expressed do not constitute specific tax, legal, or investment or financial advice to, or recommendations for, any person, and the material is not intended to provide financial or investment advice and does not take into account the particular financial circumstances of individual investors. Before investing in any investment product, investors should consult their financial or tax advisor, accountant, or attorney with regard to their specific situation. 1 East Liberty Suite 504 Reno Nevada

6 DISCLoSURe Year Firm Percentage of Firm NAveLLIeR FUNDAMeNtAL A WRAP CoMPoSIte Reporting Currency U.S. Dollar Number of Accounts Pure Gross Net Russell 3000 S&P 500 Dispersion Dev Russell 3000 Dev S&P 500 Dev , <1% , <1% , <1% , <1% , <1% , <1% , <1% , <1% N/A 2 1 Performance calculations for the period ended December 31, 2004 only includes 7 months of history. 2 N/A information is not statistically meaningful due to an insufficient number of portfolios in the composite for the entire year. 1. Compliance Statement Navellier & Associates, Inc. claims compliance with the Global Investment Performance Standards (GIPS ) and has prepared and presented this report in compliance with GIPS standards. Navellier & Associates, Inc. has been independently verified for the periods January 1, 1995 through December 31, 2011 by Ashland Partners & Company LLP. A copy of the verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation. 2. Definition of Firm Navellier & Associates, Inc. is a registered investment adviser established in Navellier & Associates, Inc. manages a variety of equity assets for primarily U.S. and Canadian institutional and retail clients. The firm s list of composite descriptions as well as information regarding the firm s policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. 3. Description The Navellier Fundamental A Wrap includes all discretionary Fundamental A equity accounts that are charged a wrap fee and are managed with similar objectives for a full month, including those accounts no longer with the firm. The strategy is designed for aggressive investors seeking capital appreciation from select group of companies over a broad capitalization range and seeks to achieve the highest possible returns while controlling risk. The strategy invests in U.S. listed securities and holds a mix of value, growth, domestic, and international stocks that receive a fundamental A ranking based on 8 proprietary fundamental criterions in the firm s stock grading system. At any given time, the strategy may hold up to 15% in American Depositary Receipts (ADRs). The strategy typically invests in approximately stocks and has demonstrated a high level of historical turnover, therefore, it should not be considered tax-efficient. It is also unlikely to generate long-term capital gains. Performance is calculated on a timeweighted and asset-weighted basis. Performance figures that are net of fees take into account advisory fees and any brokerage fees or commissions that have been deducted from the account. Pure gross-of-fees returns do not reflect the deduction of any trading costs, fees, or expenses, and are presented only as supplemental information. Performance results are total returns and include the reinvestment of all income, including dividends. The composite was created March 31, Valuations and returns are computed and stated in U.S. Dollars. 4. Management Fees The management fee schedule for accounts is generally 90 basis points; however, some incentive fee, fixed fee, and fulcrum fee accounts may be included. Fees are negotiable, and not all accounts included in the composite are charged the same rate. Bundled fee accounts make up 100% of the composite for all periods shown. Wrap fee schedules are provided by independent wrap sponsors and are available upon request from the respective wrap sponsor. The bundled fees include custody, trading expenses, and other expenses associated with the management of the account. The client is referred to the firm s Form ADV Part 2A for a full disclosure of the fee schedule. 5. Dispersion If applicable, the dispersion of annual returns is measured by the standard deviation across asset-weighted portfolio returns represented within the composite for the full year. 6. Benchmark The primary benchmark for the composite is the Russell The Russell 3000 measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. The secondary benchmark for the composite is the S&P 500, which measures the performance of the 500 leading companies in leading industries of the U.S. economy, focuses on the large cap segment of the market, with approximately 75% coverage of U.S. equities. These indices are considered reasonable measures of the general performance of the broad U.S. equity market. The returns for the Russell 3000 and S&P 500 indices include the reinvestment of any dividends. The asset mix of Fundamental A equity accounts may not be precisely comparable to the presented indices. Presentation of index data does not reflect a belief by the Firm that the Russell 3000 or S&P 500 indices, or any other index, constitutes an investment alternative to any investment strategy presented in these materials or is necessarily comparable to such strategies. 7. General Disclosure The three-year annualized standard deviation measures the variability of the composite and the benchmark returns over the preceding 36-month period. The standard deviation is not presented for 2004 through 2006 because 36 months of history were not available. Actual results may differ from composite results depending upon the size of the account, custodian related costs, the inception date of the account and other factors. Performance results presented herein do not necessarily indicate future performance. Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. Results presented include reinvestment of all dividends and other earnings. The securities identified and described do not represent all of the securities purchased, sold, or recommended for client accounts. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. A list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months is available upon request. Navellier & Associates, Inc. One East Liberty, Suite 504 Reno, Nevada fax

7 DISCLoSURe Year Firm Percentage of Firm NAveLLIeR SMALL-to-MID GRoWth WRAP CoMPoSIte Reporting Currency U.S. Dollar Number of Accounts Pure Gross Net Russell 2000 Growth Russell 2500 Growth Dispersion Dev Russell 2000 Growth Dev Russell 2500 Growth Dev , % , % , % , % , % 1, , % 1, , % 1, , % 1, , % 3, , % 4, Wrap performance beyond 10 years available upon request. 1. Compliance Statement Navellier & Associates, Inc. claims compliance with the Global Investment Performance Standards (GIPS ) and has prepared and presented this report in compliance with GIPS standards. Navellier & Associates, Inc. has been independently verified for the periods January 1, 1995 through December 31, 2011 by Ashland Partners & Company LLP. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The Navellier Small-to-Mid Cap Growth Wrap has been examined for the periods January 1, 1995 through December 31, The verification and performance examination reports are available upon request. 2. Definition of Firm Navellier & Associates, Inc. is a registered investment adviser established in Navellier & Associates, Inc. manages a variety of equity assets for primarily U.S. and Canadian institutional and retail clients. The firm s list of composite descriptions as well as information regarding the firm s policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. 3. Description The Navellier Smallto-Mid Growth Wrap includes all discretionary Small-to-Mid Growth equity accounts that are charged a wrap fee and are managed with similar objectives for a full month, including those accounts no longer with the firm. The strategy is designed for aggressive investors seeking long-term capital growth appreciation and seeks to achieve the highest possible returns while controlling risk. The strategy invests in U.S. listed securities with market capitalizations between $100 million and $10 billion. At any given time, the strategy may hold up to 15% in American Depositary Receipts (ADRs). The strategy floats between both small and mid capitalization stocks depending on the liquidity and risk associated with individual stocks. Normally, in strong bull markets, the strategy will concentrate on many small capitalization stocks that are benefiting from rising trading volume and institutional accumulation. In more selective stock market environments, the strategy may concentrate on mid capitalization stocks that generally perform more consistently during choppy markets. Typically, the strategy invests in approximately stocks that pass Navellier s stringent quantitative and fundamental criteria. The strategy invests in smaller capitalization stocks that may trade fewer shares than larger capitalization stocks; the liquidity risk among these types of stocks may increase the strategy s risk. After January 1, 1995 the composite includes all discretionary Small-to- Mid Growth Wrap equity accounts managed with similar objectives for a full month, including those accounts no longer with the firm. Performance is calculated on a time-weighted and assetweighted basis. Performance figures that are net of fees take into account advisory fees and any brokerage fees or commissions that have been deducted from the account. Pure gross-of-fees returns do not reflect the deduction of any trading costs, fees, or expenses, and are presented only as supplemental information. Performance results are total returns and include the reinvestment of all income, including dividends. The composite was created March 31, Valuations and returns are computed and stated in U.S. Dollars. 4. Management Fees The management fee schedule for accounts is generally 90 basis points; however, some incentive fee, fixed fee, and fulcrum fee accounts may be included. Fees are negotiable, and not all accounts included in the composite are charged the same rate. Bundled fee accounts make up 100% of the composite for all periods shown. Wrap fee schedules are provided by independent wrap sponsors and are available upon request from the respective wrap sponsor. The bundled fees include custody, trading expenses, and other expenses associated with the management of the account. The client is referred to the firm s Form ADV Part 2A for a full disclosure of the fee schedule. 5. Dispersion If applicable, the dispersion of annual returns is measured by the standard deviation across asset-weighted portfolio returns represented within the composite for the full year. 6. Benchmark The primary benchmark for the composite is the Russell 2000 Growth. The Russell 2000 Growth measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The secondary benchmark for the composite is the Russell 2500 Growth, which measures the performance of those Russell 2500 companies with higher price-to-book ratios and higher forecasted growth values. These indices are considered reasonable measures of the performance of the small cap, growth oriented U.S. companies. The returns for the Russell 2000 Growth and Russell 2500 Growth indices include the reinvestment of any dividends. The asset mix of small to mid cap growth equity accounts may not be precisely comparable to the presented indices. Presentation of index data does not reflect a belief by the Firm that the Russell 2000 Growth or Russell 2500 Growth indices, or any other index, constitutes an investment alternative to any investment strategy presented in these materials or is necessarily comparable to such strategies. 7. General Disclosure The three-year annualized standard deviation measures the variability of the composite and the benchmark returns over the preceding 36-month period. Actual results may differ from composite results depending upon the size of the account, custodian related costs, the inception date of the account and other factors. Performance results presented herein do not necessarily indicate future performance. Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. Results presented include reinvestment of all dividends and other earnings. The securities identified and described do not represent all of the securities purchased, sold, or recommended for client accounts. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. A list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months is available upon request. Navellier & Associates, Inc. One East Liberty, Suite 504 Reno, Nevada fax

8 DISCLoSURe Year Firm Percentage of Firm NAveLLIeR LARGe CAP GRoWth WRAP CoMPoSIte Reporting Currency U.S. Dollar Number of Accounts Pure Gross Net Russell 1000 Growth S&P 500 Dispersion Dev Russell 1000 Growth Dev S&P Yr Std Dev , % 2, , % 2, , % 3, , % 4, , % 4, , % 2, , % 1, , % , % , % Wrap performance beyond 10 years available upon request. 1. Compliance Statement Navellier & Associates, Inc. claims compliance with the Global Investment Performance Standards (GIPS ) and has prepared and presented this report in compliance with GIPS standards. Navellier & Associates, Inc. has been independently verified for the periods January 1, 1995 through December 31, 2011 by Ashland Partners & Company LLP. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The Navellier Large Cap Growth Wrap has been examined for the periods September 1, 1998 through December 31, The verification and performance examination reports are available upon request. 2. Definition of Firm Navellier & Associates, Inc. is a registered investment adviser established in Navellier & Associates, Inc. manages a variety of equity assets for primarily U.S. and Canadian institutional and retail clients. The firm s list of composite descriptions as well as information regarding the firm s policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. 3. Description The Navellier Large Cap Growth Wrap includes all discretionary Large Cap Growth equity accounts that are charged a wrap fee and are managed with similar objectives for a full month, including those accounts no longer with the firm. The strategy is designed for aggressive investors seeking capital appreciation from well-established companies and seeks to achieve the highest possible returns while controlling risk. The strategy invests in U.S. listed securities with market capitalizations greater than $5 billion. At any given time, the strategy may hold up to 15% in American Depositary Receipts (ADRs). Typically, the strategy invests in approximately stocks that pass Navellier s stringent quantitative and fundamental criteria. Performance is calculated on a time-weighted and asset-weighted basis. Performance figures that are net of fees take into account advisory fees and any brokerage fees or commissions that have been deducted from the account. Pure gross-of-fees returns do not reflect the deduction of any trading costs, fees, or expenses, and are presented only as supplemental information. Performance results are total returns and include the reinvestment of all income, including dividends. The composite was created March 31, Valuations and returns are computed and stated in U.S. Dollars. 4. Management Fees The management fee schedule for accounts is generally 90 basis points; however, some incentive fee, fixed fee, and fulcrum fee accounts may be included. Fees are negotiable, and not all accounts included in the composite are charged the same rate. Bundled fee accounts make up 100% of the composite for all periods shown. Wrap fee schedules are provided by independent wrap sponsors and are available upon request from the respective wrap sponsor. The bundled fees include custody, trading expenses, and other expenses associated with the management of the account. The client is referred to the firm s Form ADV Part 2A for a full disclosure of the fee schedule. 5. Dispersion If applicable, the dispersion of annual returns is measured by the standard deviation across asset-weighted portfolio returns represented within the composite for the full year. 6. Benchmark The primary benchmark for the composite is the Russell 1000 Growth. The Russell 1000 Growth measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The secondary benchmark for the composite is the S&P 500, which measures the performance of the 500 leading companies in leading industries of the U.S. economy, focuses on the large cap segment of the market, with approximately 75% coverage of U.S. equities. These indices are considered reasonable measures of the performance of the large cap, growth oriented U.S. companies. The returns for the Russell 1000 Growth and S&P 500 indices include the reinvestment of any dividends. The asset mix of large cap growth equity accounts may not be precisely comparable to the presented indices. Presentation of index data does not reflect a belief by the Firm that the Russell 1000 Growth or S&P 500 indices, or any other index, constitutes an investment alternative to any investment strategy presented in these materials or is necessarily comparable to such strategies. 7. General Disclosure The three-year annualized standard deviation measures the variability of the composite and the benchmark returns over the preceding 36-month period. Actual results may differ from composite results depending upon the size of the account, custodian related costs, the inception date of the account and other factors. Performance results presented herein do not necessarily indicate future performance. Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. Results presented include reinvestment of all dividends and other earnings. The securities identified and described do not represent all of the securities purchased, sold, or recommended for client accounts. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. A list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months is available upon request. Navellier & Associates, Inc. One East Liberty, Suite 504 Reno, Nevada fax