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Individual Investor Portfolio - June 2013 Quarterly Update and Review

As of the second quarter the Individual Investor Fund has been renamed to the "Individual Investor Portfolio"; the portfolio has been split into three separate funds; the Transportation Growth Fund, or TGF, the Media & Advertising Growth Fund, or MAGF, and the Small-Mid Cap Growth Fund, or SMCGF. The logic behind this shift is to better reflect performance based on more clearly defined groupings of holdings. A total aggregation of all holdings will still be monitored as part of the quarterly updates. All funds will continue to be managed through a Roth Individual Retirement Account, or Roth IRA.

Transportation Growth Fund - The holdings of this fund will be transportation-based as they relate to the movement and distribution of goods through freight and delivery; exploration, extraction and distribution of oil and natural gas; and development and building of wholesale parts and materials utilized for major transportation industry vehicles.

Media & Advertising Growth Fund - The holdings of this fund will include media and content companies, as well as digital advertising companies including mobile marketing and advertising.

Small-Mid Cap Growth Fund - The holdings of this fund will include a diversified mix of companies within distinct industries outside of the above funds.

The second quarter for 2013, despite a slight hick-up in June, pushed even higher from the first quarter for the primary market indices including the Dow Jones Industrial Average, S&P 500, and Nasdaq. The Dow has almost doubled in half a year, while both the S&P and Nasdaq have returned just under 13%. Where we go from here, is anybody's guess.

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Detailed information regarding each company's performance is listed below in the Total Return, YTD, and Previous Performance tables and Management Activities section.

CURRENT HOLDINGS AS OF JUNE 28, 2013

All enterprise values are as of the last trading day for the second quarter of 2013.

Transportation Growth Fund - TGF

Company

Ticker Symbol

Enterprise Value

Sector

Industry

CH Robinson Worldwide, Inc.

(NASDAQ:CHRW)

$9.3 billion

Services

Air delivery & freight services

FedEx Corporation

(NYSE:FDX)

$30.1 billion

Services

Air delivery & freight services

Laredo Petroleum Holdings, Inc.

(NYSE:LPI)

$4.0 billion

Basic materials

Independent oil & gas

Precision Castparts Corp.

(NYSE:PCP)

$36.7 billion

Industrial goods

Metal fabrication

SeaDrill Limited

(NYSE:SDRL)

$30.9 billion

Basic materials

Oil & gas drilling & exploration

Textainer Group Holdings Limited

(NYSE:TGH)

$4.5 billion

Services

Rental & leasing services

Media & Advertising Growth Fund - MAGF

Company

Ticker Symbol

Enterprise Value

Sector

Industry

Augme Technologies, Inc.

(AUGT.OB)

$47.5 million

Technology

Telecom services - domestic

Discovery Communications, Inc.

(NASDAQ:DISCA)

$32.5 billion

Services

CATV systems

Millennial Media, Inc.

(NYSE:MM)

$559.3 million

Services

Marketing services

Scripps Networks Interactive, Inc.

(NYSE:SNI)

$11.3 billion

Services

Broadcasting TV

TripAdvisor, Inc.

(NASDAQ:TRIP)

$8.7 billion

Technology

Internet information providers

Velti Plc

(VELT)

$123.6 million

Technology

Business & software services

Youku Tudou, Inc.

(NYSE:YOKU)

$2.9 billion

Technology

Internet information providers

Small & Mid-Cap Growth Fund - SMCGF

Company

Ticker Symbol

Enterprise Value

Sector

Industry

Clean Harbors, Inc.

(NYSE:CLH)

$4.2 billion

Industrial goods

Waste management

LinkedIn Corporation

(NYSE:LNKD)

$19.8 billion

Technology

Internet information providers

Liquidity Services, Inc.

(NASDAQ:LQDT)

$1.1 billion

Services

Catalog & mail order houses

MercadoLibre, Inc.

(NASDAQ:MELI)

$4.6 billion

Services

Business services

SAP AG

(NYSE:SAP)

$87.3 billion

Technology

Application software

V.F. Corporation

(NYSE:VFC)

$23.3 billion

Consumer goods

Textile - apparel clothing

The WhiteWave Foods Company

(NYSE:WWAV)

$3.5 billion

Consumer goods

Food - major diversified

TOTL RETURN, YTD, AND PREVIOUS PERFORMANCE AS OF JUNE 28, 2013

All of the information regarding the Fund's performance from quarter to quarter is compared by a percentage point basis. For example, if a stock is up 25% at year end, and then is up 20% in the first quarter of the next year, the stock has increased by 20 percentage points. Total return is based on realized and unrealized gains from the initial date a position was taken and varies for each company for the years between 2012 and 2013. Where gains have been realized, percentages are included to be considered against the total return.

Transportation Growth Fund - TGF

Holding

Total Return

Realized Gain % of Total Return

2012 Return

YTD Return

Sequential Quarterly Performance

% of Fund*

% of Portfolio

Precision Castparts

21.9%

N/A

N/A

21.9%

N/A

9.5%

4.2%

SeaDrill

13.9%

17.3%

N/A

13.9%

N/A

14.0%

6.1%

Laredo Petroleum

7.4%

N/A

(14.4%)

15.8%

+ 12.8

18.3%

8.0%

FedEx

2.8%

N/A

N/A

2.8%

N/A

8.3%

3.6%

Textainer Group

1.3%

92.6%

N/A

1.3%

N/A

9.8%

4.3%

CH Robinson

(6.3%)

N/A

N/A

(6.3%)

N/A

9.5%

4.2%

*Does not total 100% due to Zipcar being acquired. Remaining portion should be assumed as cash.

Transportation holdings have performed well for the first half of the year. CH Robinson has hit a snag with growth and has been stuck trading around the $55 level. Many of the holdings were initially purchased in the second quarter. It should be noted that the TGF has a stronger focus on dividends that will contribute towards realized gains.

Media & Advertising Growth Fund - MAGF

Holding

Total Return

Realized Gain % of Total Return

2012 Return

YTD Return

Sequential Quarterly Performance

% of Fund

% of Portfolio

TripAdvisor

52.8%

50.3%

28.5%

59.1%

+ 12.5

14.5%

3.4%

Discovery Communications

39.2%

N/A

25.4%

21.7%

- 2.3

12.2%

2.9%

Scripps Networks

25.0%

2.6%

8.3%

15.7%

+ 4.4

20.1%

4.7%

Millennial Media

5.5%

N/A

N/A

5.5%

N/A

17.2%

3.9%

Youku Tudou

(3.3%)

N/A

N/A

(3.3%)

N/A

9.1%

2.1%

Augme Technologies

(4.2%)

N/A

N/A

(4.2%)

N/A

3.8%

0.9%

Velti

(59.2%)

N/A

(8.6%)

(55.9%)

- 8.1

23.1%

5.4%

The performance for Media & Advertising holdings is a testament to the risks involved between well-established media companies such as Discovery versus small and micro-cap companies. The fund would be performing quite strongly if not for the exposure to Velti.

Small & Mid-Cap Growth Fund - SMCGF

Holding

Total Return

Realized Gain % of Total Return

2012 Return

YTD Return

Sequential Quarterly Performance

% of Fund

% of Portfolio

LinkedIn

59.3%

87.9%

32.5%*

21.4%

+ 0.6

14.9%

2.0%

MercadoLibre

42.3%

25.9%

20.2%

37.5%

+ 14.6

9.3%

3.2%

V.F. Corporation

25.9%

4.3%

N/A

25.9%

N/A

14.6%

5.0%

SAP

18.6%

68.0%

24.5%

(8.4%)

- 14.0

6.3%

2.2%

Liquidity Services

5.1%

N/A

16.3%

(3.0%)

- 11.9

23.1%

7.1%

WhiteWave

(1.7%)

N/A

(6.0%)

4.6%

- 5.2

10.6%

3.7%

Clean Harbors

(2.4%)

N/A

6.3%

(8.1%)

+ 8.5

21.1%

7.3%

*2-year average

For the remaining Small & Mid-Cap holdings (exception being SAP), performance has been adequate. The charts below will provide illustrative comparisons.

BENCHMARK COMPARISON AND PERFORMANCE

The portfolio in its entirety has returned 4.3% YTD. This is an increase of 1.9 percentage points over the first quarter. Comparatively, the S&P 500 has returned 12.6%, a 2.6 percentage increase and the Russell 2500 has returned 14.6%, a 2.1 percentage point increase. The VMGMX fund has returned 13.9%, a 1.6 percentage increase and the FMCSX fund has returned 15.3% a 2.2 percentage point increase.

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When considering the performance of the individual funds within the portfolio, the TGF is outperforming all benchmarks; however, the MAGR all but eliminates this, heavily influenced by Velti's performance. The SMCGF is up 5.8% YTD as compared to 13.0% overall for 2012; the MAGF is down 16.7% as compared to a 11.3% return for 2012; while the TGF is up 18.5% compared to an overall negative 6.2% performance for 2012.

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Management Activities

All charts in this section are used from Yahoo! Finance.

Recent transactions where positions were sold included only Velti:

Thirty-six percent of the Velti position was sold in May for a 64% loss. The primary reason for selling this portion was to diversify into Millennial Media and Augme Technologies. Both companies are exhibiting stronger growth than Velti at the moment, and are in much better financial positions.

Velti is currently in a transitional phase, which includes moving away from the relationship-intensive marketing side of the mobile business. Velti's issues with doing business in Eastern Europe are derived mainly from performance-based revenue collection cycles. Through Velti Media, the company will look to bolster and grow its advertising model offering network and exchange products and services for brands and advertisers to connect with publishers.

The company is in current negotiations with HSBC for a debt obligation (roughly $50 million), which is due in 2015. The trigger for the bank's reassessment is the fact that based on Velti's revised revenue guidance; the company has been in violation of its debt covenant since the first quarter 2013. The bank is seeking assurance that Velti will be able to operate its business in a sustainable manner. This is important to monitor as Velti only has roughly $14 million in cash on hand as of the first quarter.

Investors should consider Velti a highly speculative company as it undergoes this transition. Ironically the industry is experiencing robust growth including Velti's direct peers Millennial and Augme. The logic for investing in such a risky company is that when Velti bottoms operationally, there may be significant upside based on the industry trends. Please refer to Mobile Marketing And Advertising: Explosive Growth And The Companies Driving It and Key Items To Consider For Velti s May 13, 2013 Earnings Report for additional related information.

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Positions were not added to any existing holdings during the quarter.

All existing positions that had no buying or selling activity included Clean Harbors, Discovery, LinkedIn, Laredo Petroleum, Liquidity Services, MercadoLibre, SAP, Scripps Networks, TripAdvisor, V.F. Corporation, and WhiteWave:

Similar to the first quarter, Clean Harbors has displayed some volatility with its stock price. During this period, the Safety-Kleen acquisition definitely impacted financials. Developments for the quarter included robust 50% revenue growth, however, the company's profits, operating cash flow, and free cash flow performed poorly; some of it due to seasonality.

Moving forward the company is estimated to grow revenues for the upcoming second and third quarters over 70%. This is estimated to transition to earnings growth of 40% and 300% respectively. This should greatly improve the company's cash flows depending upon management's capital expenditures.

The current price level provides a fair entry point. Any further weakness below $50 would merit stronger consideration.

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Discovery's recent acquisitions are estimated to grow the next two quarters of revenue by 30%. With Discovery's profit margins hovering near 20%, it will be interesting to see whether the growth trickles down or not based on estimates.

Recently, there have been two market currents on Seeking Alpha for investors to consider. They relate to Discovery's initiatives to test the waters for streaming products for cable subscribers, as well as potential non-cable subscribers. Discovery arguably has one of the best global media products to eventually shift to a subscriber-based streaming service, so this is some exciting stuff, and a strong indicator of the potential for streaming. I actually invested in Discovery over Netflix for this reason.

Interesting developments from the first quarter include the following; long-term debt totaling $6.4 billion has doubled since 2008 (debt to equity is at 103%) and free cash flow continues to decline from the company's high in 2011 (down 13.6% YTD). We should see free cash flow improvement for 2013.

Depending on the macro environment and Discovery's near-term performance, the stock may provide solid buying opportunities in the $65-73 range.

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LinkedIn, while still arguably overvalued, is continuing to grow strongly. Growth is slowing a little, as advertising revenues declined significantly in 2013 as compared to 2012. Premium subscriber revenues are slowing as well. The talent solutions segment continues to be the primary revenue driver.

Key trends for the first quarter include the following; eight consecutive quarters of increased registered membership growth (over 218 million), eight consecutive quarters of increased talent solutions customers (over 18,000), and solid growth in page views (11.6 billion) and significant growth in unique monthly visitors (170 million).

The company is estimated to generate $1.5 billion in annual revenue for the year. The company has been growing free cash flow per share at a rate of 63% per year; LinkedIn has no debt. LinkedIn would become interesting in the event it pulls back to the $150 level.

The company does trade at steep premiums with respect to price/book (20.76) and enterprise value to sales (17.81). In the event the company was to drop to the $150 level, these metrics would still be lofty.

Please refer to LinkedIn Is A Part Of The Individual Investor Fund Portfolio, Should It Be A Part Of Yours? for an overview of the company's prospects.

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Laredo Petroleum has climbed to its highest level in the first half of the year, near $21. The company announced in May that it would exit its Anadarko Basin properties via an asset sale providing more resources towards the Permian Basin properties. While Laredo is losing a valuable producing property, the potential for the Permian is what the company is ultimately focusing on.

Laredo spent roughly $920 million on capital expenditures during 2012. For 2013 the capital program is estimated at $725 million. The biggest impact to profitability and cash flows has been the capital investment program. Debt to equity increased from 146% to 162% in the first quarter, driven by increases in long-term debt to just over $1.3 billion. Interest expenses are growing at a 125% compound annual growth rate or CAGR as a result. The trend in operating cash flows has declined from $377-348 million in the first quarter.

Laredo's potential value lies in the company's methodical and conservative approach towards a strong technically driven plan to take advantage of the Permian property's resources. The company is currently generating over $600 million in revenues; based on 2012 estimated proved reserves (189 million barrels of oil equivalent), the company is working towards developing an eight times amount (1,415 million barrels of oil equivalent) of de-risked resource potential.

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The more I look at the chart for Liquidity Services, the more I feel like I am on a roller coaster ride. It has become commonplace for Liquidity to announce that gross merchandise volumes, or GMV, are growing slower than anticipated, resulting in a steep sell-off.

Growth for the company is definitely slowing based on the historical CAGR 26% revenue trend, however, earnings are expected to grow near 25%, higher than the historical CAGR of 23% trend. It is understandable that the market is skeptical for Liquidity, but in the event the company is able to deliver near estimated profits, the company may find itself rocketing back up into the low $40s.

The company is debt free after paying off its remaining obligations. Goodwill and intangible assets have crept up above 60% of total assets. Free cash flow continues to be erratic. This year will be an opportunity for Liquidity to potentially generate over $10 million in earnings each quarter for the year, something the company has never accomplished.

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MercadoLibre continues to display solid growth and performance despite concerns with Brazil's slowing economy. The company is estimated to grow revenues 25% per year the next two years and earnings 23% per year over the same period.

For first quarter revenues Venezuela displayed atypical contraction, which was offset by more stabilized growth from Brazil. Argentina and Mexico also showed slowing trends although not as dramatic as Venezuela; despite the slow-down in growth, Venezuela still maintains the highest contribution margin, which continues to expand quarterly. Brazil's contribution margin declined significantly, more so than Argentina and Mexico resulting from increased direct costs; it appears the Brazil geography may be expanding revenues at a cost of margin contribution.

Other key operating metrics of interest for the quarter include confirmed registered users (87.5 million an increase of 6 million from last quarter), GMV ($1.6 billion, 18% YOY increase), number of items sold (18.1 million, 21% increase YOY), and total payments volume ($532 million significant sequential increase compared to last year) and total payment transactions (6.7 million, 37% increase YOY).

MercadoLibre displays solid financials when considering margins, free cash flows, etc., however, the company trades at a premium and in the event guidance is missed or the macro environment changes quickly, the stock may face negative impacts. MercadoLibre is worth considering if it pulls back near the $85-90 level.

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SAP has been trending downward for the first half of the year. The company continues to invest heavily into the cloud via acquisitions and database management (HANA) for its products and services, which range from supply chain, employment management, to customer relations among others.

It will be important to continue to monitor the developments of licensed software products versus subscription and software-as-a-service, or SaaS within SAP's own revenue segments, with conventional competitors such as Oracle Corporation (NYSE:ORCL) and International Business Machines Corporation (NYSE:IBM), and newer cloud-based threats such as Salesforce.com (NYSE:CRM) and Workday, Inc. (NYSE:WDAY), among others.

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After a brief run-up near $70, Scripps Networks has returned back near the $66 level in the second quarter of 2013. Significant lifestyle media properties include Food Network, HGTV, Travel Channel, DIY Network, Cooking Channel, and Foodnetwork.com and Food.com, among others. Recently, Scripps has entered the streaming foray with an agreement with Amazon.com, Inc. (NASDAQ:AMZN). Similar to Discovery, Scripps provides a unique media property for potential direct streaming services.

Interesting developments for the first quarter include the following; despite declines in profit margins, Scripps continues to grow earnings well, long-term debt totaled just under $1.4 billion (69% debt to equity ratio has stayed fairly stable the past two and a half years). The company increased its annual dividend and continues to grow free cash flows, however dividends to non-controlling interests has also increased of late.

The stock seems to be fairly valued; any pullback under the $60 level would necessitate consideration.

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TripAdvisor offers a business model focused on travel user-generated content and is the leading travel site based on travel reviews and opinions. The primary distinguishing factor between TripAdvisor and other travel site operations is that TripAdvisor does not directly receive commissions for merchant bookings, but rather primarily relies upon click-based advertising revenues.

Key trends based on first-quarter results include the following; achievement of over 100 million reviews and opinions and 28% sequential quarterly growth in unique visitors per month via mobile devices (62.5 million). TripAdvisor has generated over $800 million in revenues and over $200 million in profits YTD.

Debt to equity has steadily declined from 150% to below 50% over the past two and a half years. Similar to LinkedIn, free cash flow per share is growing over 70% per year, however, price/book (10.91) and enterprise value to sales (10.77) are at premiums.

Please refer to TripAdvisor: The Future Travel Industry Online Advertising King for an overview of the industry and company's prospects.

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V.F. Corporation, organized in 1899, is a worldwide leader in branded lifestyle apparel, footwear and related products. The company owns a significant amount of well-established brands including The North Face, Timberland, Vans, Kipling, Napapiijri, Reef, Eastpak, JanSport, SmartWool, lucy, Eagle Creek, Wrangler, Lee, Lee Casuals, Riders, Rustler, Timber Creek by Wrangler, Rock & Republic, Red Kap, Bulwark, Horace Small, Majestic, Nautica, 7 For All Mankind, Splendid, and Ella Moss.

Interesting developments for the first quarter include the following; long-term debt totaled roughly $1.4 billion (40% debt-to-equity ratio consistent with historical trends), acquisitions over the past couple years have pushed goodwill and intangibles above 50% of total assets, dividends paid out increased from $333-350 million and dividends per share have continued to increase, and gross margin has improved considerably since December 2011 (+ 2,900 basis points).

V.F. Corporation in its first half year of ownership has met expectations providing both stock price growth (25.3%) and dividend payout (1.1%).

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WhiteWave manufactures and sells products in three categories; plant-based foods and beverages, coffee creamers and beverages, and premium dairy. Many consumers are quite familiar with WhiteWave's products including Silk (57% market share), Alpro in Europe (38% market share), International Delight (30% market share), Land O Lakes half & half (22% market share), and Horizon Organic (43% market share).

Interesting developments for the first quarter include the following; improvements to gross margin, declines in long-term debt totaling roughly $766-729 million (99-89% debt-to-equity ratio), and a decline in goodwill and intangibles near 50%. Growth YOY for America was 11%, Europe was 10%.

WhiteWave has completed its spin-off from Dean Foods Company (NYSE:DF) majority ownership. The company's earnings growth has stalled recently and based on estimates, is poised to grow roughly 16% per year since 2009. Now that WhiteWave can focus on its direct businesses, the company has the potential to diversify its product offerings. Speculation has surfaced regarding WhiteWave now being an acquisition target.

The company seems to be fairly valued at the moment, any revisit to the sub-$15 levels would provide an excellent entry point.

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Positions were taken in eight new companies including Augme Technologies, CH Robinson, FedEx, Millennial Media, Precision Castparts, Seadrill, Textainer Group, and Youku Tudou:

Augme Technologies is a micro-cap company, which provides mobile marketing and advertising services via Hipcricket. The company operates in the same space as Velti and Millennial Media and has established customers including MillerCoors and Lions Gate among others.

In the past Augme was focused on developing intellectual property to be licensed by other companies as a primary source of revenue. Post the Hipcricket acquisition, the company has hired Hipcricket's CEO to lead Augme as a digital-focused mobile company.

The company presents risks such as the fact that goodwill and intangibles represent over 80% of total assets. Augme has never had positive earnings or operating cash flow. The company has sold common stock to provide sufficient funds to operate the business historically.

Revenue growth is expected to significantly pick up over the next couple years (estimated to grow from $28 million to $111 million) through the company's revised focus. The company is expected to produce positive operating cash flow this summer and to be profitable next fiscal year.

Augme was added to the MAGF fund in June. Similar to Velti, industry trends suggest that there may be significant upside.

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CH Robinson has had a hard time since the end of last year. The company made a significant acquisition last year by acquiring Phoenix International, a freight forwarding service provider. Integration of the acquisition may be causing slight issues, and analysts have been especially hard on the company; revenues have been growing adequately, yet profits are estimated to decline from 2012.

The company does not typically use leverage, but based on the acquisition-related debt raise, debt to equity is at roughly 26% ($390 million). YTD, operating cash flow levels are down, with free cash flow near negative territory. Net revenues increased 10% YOY, meanwhile profit margin decreased 800 basis points.

CH Robinson was added to the TGF in April to provide a company with potential for moderate growth and fixed income. CH Robinson will probably continue to gravitate near $55 for the foreseeable future. If markets continue to trend higher, this may push the company's stock higher too. CH Robinson is a stronger candidate for investment if it falls below $50.

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FedEx has been a very successful growth company over the past decade. A primary driver for adding the company to the TGF in April was based on the simple fact that the company is consistently taking market share from United Parcel Services, Inc. (NYSE:UPS). Please refer to FedEx Versus UPS And DHL, A Comparative Analysis Of Global Logistics Giants for an in-depth review.

FedEx continues to selectively acquire international businesses to foster the growth of its international services. Additionally, the company is replacing and overhauling its airplane fleet with greater fuel efficiency, and also improving its ground vehicle fuel efficiency. FedEx has outspent UPS and DHL in capital expenditures over the past five years.

I like to consider FedEx's revenue growth as a percentage of UPS revenue. In 2000, FedEx's revenue represented 61% of UPS; currently it represents 81%. Both companies have experienced slower growth, and estimates are not bucking this trend. However, if FedEx is able to continue to maintain faster growth despite trends, in the next 10 years we may find that FedEx has surpassed UPS. The interesting part is that UPS currently is valued over $55 billion more as an enterprise.

During the period, FedEx reported its fiscal year-end results. Earnings numbers were down YOY, mostly due to one-time charges associated with the retirement of airplanes. Despite raising debt, FedEx maintains a much lower debt-to-equity ratio (26%, long-term debt of $2.7 billion) versus its peers. The company has steadily improved its free cash flow from 2009.

One item to consider is FedEx's acquisitions and their impacts to package volumes versus yields. While volumes are growing well, it may be at the expense of lower yields.

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Millennial Media represents the third mobile advertising company within the MAGF. As the chart below indicates, the company is well off of its highs. Concerns over the company's growth and competition from larger players such as Facebook, Inc. (NASDAQ:FB) are primary drivers for the price decline. Post April, the stock seems to have possibly recovered from this low.

Millennial Media is in the strongest position when compared to its peers Velti and Augme. The company is estimated to generate a profit this year, and its TTM operating cash flows are already positive. The company's balance sheet is substantially strong as receivables are able cover all current liabilities, and are even greater than total liabilities. Millennial's cash is three and half times its total liabilities; of late speculation has surfaced that the company may be looking for acquisition targets, specifically in Latin America.

While slowing growth is a factor, the company is experiencing YOY growth over 125% internationally versus near 40% in the U.S. Millennial has strong connections with developers and advertisers of all sizes including working with the top 100 advertisers as ranked by Ad Age; these are typically the largest brand advertisers, and many of them have multiple brands for which they run campaigns throughout the year.

With significant shifts occurring from mobile device proliferation and consumer-driven streaming preferences, the future of mobile advertising appears to be bright. Millennial was added to the MAGF in May.

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Precision Castparts is a manufacturer of complex metal components and products within the following segments; investment cast products, forged products, and airframe products. The majority of components and products are developed for transportation-related vehicles, especially airplanes.

The company has consistently made acquisitions over the years as part of its growth strategy, with Titanium Metals Corporation being one of the largest of late. Just this past week Precision announced that it would acquire Permaswage SAS, a French-based airframe application manufacturer. Since 2000, Precision has spent nearly $10.5 billion for all of its acquisitions.

These acquisitions have successfully paid off over this period as there have been significant correlations in reduced debt levels and increased operating cash flows (record free cash flow of $1.2 billion in 2013). The company is estimated to continue to grow revenues and earnings at strong rates over the next couple of years, 17% and 20% averages respectively.

Post 2009, the company has generally traded near a P/E ratio of 20. This has allowed for average stock price growth around 14.5% per year; assuming the company is able to come close to estimates, this trend should continue. Precision was added to the TGF in April.

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SeaDrill Limited is an offshore drilling contractor providing global drilling services to the oil and gas industry. The types of drilling units in SeaDrill's fleet are semi-submersible drilling rigs, drillships, jack-up rigs, and tender rigs. As SeaDrill is a complex company, anyone interested in understanding the business and structure should refer to the recently filed 20-F report.

SeaDrill has been aggressively modernizing its fleet for deep sea drilling. Over the past six years, the company has spent over $11 billion for its new buildings program. Backlog for SeaDrill is near $21 billion so the company is having much success contracting these new builds once they come online.

The company has increased its operating cash flow by an average of 26% per year over the past five years (YTD $1.6 billion), and has relied upon significant leverage to fund its capital expenditure needs. SeaDrill is not without risk as the company operates with a myriad of business entities via different forms of interest and ownership. Debt-to-equity ratios have historically been above 150% (YTD 178% with debt totaling $11.6 billion).

SeaDrill offers a current 8.6% dividend yield. SeaDrill was added to the TGF in May.

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Textainer Group is the world's largest lessor of intermodal containers based on fleet size. The company operates in the following core segments, container ownership, container management, and container resale. Textainer has a long track record in the industry operating since 1979; the company's top 25 customers, as measured by revenues, have leased containers from Textainer for an average of over 25 years.

Textainer has invested roughly $3.3 billion over the past eight years to expand its container business operations. Over that same time period the company has generated $1.3 billion in operating cash flow. This has necessitated the company to use leverage with an average increase of 24% per year (YTD $2.4 billion total debt obligations).

Similar to Seadrill, Textainer has a debt-to-equity ratio above 200%. The company currently pays a 4.8% dividend yield. Textainer was added to the TGF in late April.

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Youku Tudou represents the first Chinese-based company to be added to the portfolio. The company offers a unique opportunity to own a leading Internet television company. The company is engaged in the development of professionally produced content (similar to Hulu), user-generated content (similar to YouTube), and in-house productions (new emerging trend for digital produced content).

Through these core products Youku Tudou also provides online video search, localized Youku Tudou community, and Youku Premium (similar to Netflix, commercial free) among others. The company is experiencing strong growth in mobile engagement. Youku Tudou generates most of its revenue from advertising through these different product platforms. Please refer to Youku Tudou: An Investment Opportunity That Won't Last For Long for a review of the company.

Youku like Netflix, Hulu, and Amazon purchases professionally developed content. The company is estimated to grow revenues just under 60% over the next two years (over $700 million by 2014), however, Youku has never earned a profit for a given year, nor has the company been able to produce positive free cash flows. Youku has consistently generated positive operating cash flow, and the company has over two times cash versus total liabilities and no debt.

Whether or not the company will be able to become profitable is a legitimate concern. It is still speculative as to whether YouTube is profitable. Youku does have a more diversified business model, and with the company's alignments with Sina Corporation's (NASDAQ:SINA) Weibo and other major Chinese social networks, and technology application partnership with Qualcomm, among other items; Youku may be poised for future upside. Youku Tudou was added to the MAGF in May.

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HOLDINGS THAT HAVE BEEN ACQUIRED

Since the portfolio's inception last year, three of the 23 holdings or 13% of the portfolio have been acquired. This trend has decreased from the last quarter based on the portfolio's increase in holdings. The table below provides an overview of the realized gains as a result of these acquisitions.

Holding

Date Purchased

Date Acquired

Acquiring Entity

Total Return

Portfolio Fund

Ancestry.com

Fall 2011

December 2012

Permira

(0.4%)

SMCGF

Kayak Software Corp.

October 2012

March 2013

Priceline.com

21.6%

MAGF

Zipcar

2011, 2012, & 2013

March 2013

Avis Budget Group

34.3%

TGF

Over the course of the remainder of the year and based on recent speculation, companies where a buyout would most likely occur include Augme Technologies, Millennial Media, Velti and WhiteWave.

RADAR SCREEN

In past updates the radar screen section has listed companies with brief explanations as to some merits for investment consideration. From now on the following Instablog, Radar Screen will be provided for viewers to consider if interested.

For each quarterly update, the top company being considered will be expanded upon. For this quarter, the top company being considered is Integrys Energy Group, Inc. (NYSE:TEG). The company offers exposure into the utilities sector as well as added fixed income.

Integrys is a diversified energy holding company providing products and services in both the regulated and nonregulated energy markets. Operating segments include regulated natural gas operations, regulated electric utility operations, Integrys energy services, electric transmission investment, and holding company and other segments.

The company's natural gas operations are continuing to expand as the company plans to add another 100 compressed natural gas, or CNG, fueling stations. The company has a strong financial position and is free cash flow positive.

NEXT UPDATE

The next IIF portfolio update and review will occur at the end of the third quarter, September for 2013.

Source: Individual Investor Portfolio Update: Transportation-Related Stocks Are Beating Market Indices