A $100,000 portfolio growing to over $1 million in 3 years, powered by our model portfolio performance and the miracle of compounding.  Is that possible?  Well, you will learn about it as you read further.  The performance of our model portfolios has been strong by all benchmark metrics.  The Model Portfolios have significantly outperformed their respective benchmark indexes, as well as the stated objective of the particular model portfolio.  Stock market performance means rate of return on investment.  However, the numerous ways that the investment returns are calculated can significantly affect the final outcome and lead to inappropriate claims and a distorted picture for investors. Performances of different instruments and products are comparable only if the underlying basis is identical. The investments must be part of a recommended weighted portfolio and not simply appear on a ranking list. Performance is the rate of return on the Initial Portfolio investment made at the beginning of the year. Basically, the difference between what you start the year with and what you end the year with is your Return.  We compute this return on an annual basis, as well as cumulatively since inception of the portfolios.  The performance table below shows our return on a $100,000 Model Portfolio, where the gains from prior year and gains during the year are Not re-invested.  So each year begins with the same $100,000 portfolio, with no benefit from prior capital gains. GRAYCELL MODEL PORTFOLIOS WITHOUT COMPOUNDING 2005 2004 2003 Cumulative * Aggressive Growth Model (AGM) Portfolio (1) +63% +142 +154% +376% Large Cap Growth Model (LGM) Portfolio (2) +43% +22% NA +87% S&P 500 Growth Model (LGM) Portfolio (3) +18% NA NA +33% Index - NASDAQ Composite Calendar Performance +1% +9% +32% (4) NA Index - S&P500 Calendar Performance +3% +9% +19% (4) NA Index - Russell 2000 Calendar Performance +3% +17% +37% (4) NA NA = Not Available ; * Since Inception till Aug 11, 2006 and without Compounding; (1) AGM Portfolio was started on May 9, 2003 ; (2) LGM Portfolio was started on Oct 29, 2004 ; (3) SGM Portfolio was started on Aug 22, 2005 ; (4) The index performance for 2003 is from May 9, 2003, when AGM Portfolio was created, till Dec 31, 2003 Here are some key considerations to keep in mind, as you review our performance. We do NOT use Margin borrowing in our portfolios. We only have cash returns. Use of leverage can significantly enhance performance or vice-versa. Based on our track record thus far, using leverage proportionately within our model portfolios would have further significantly enhanced our total return. Our returns are based on recommendations that we Add to our Model Portfolios. If the investment was part of our high rankings stocks, but never made it into our recommended model portfolio then it is not part of our return calculation. We do NOT annualize returns.  In other words, if an investment generates 5% return in a month, we do not annualize the return by multiplying by 12 months.  That is highly misleading, and investors have to be cautious with investment services that annualize performance.  We do NOT reinvest our capital gains from prior year, and gains accrued during the year into the market.  Investments are made from the initial portfolio capital, in our case of $100,000.  Any gains on these portfolios are secured, or in other words the profit is 'locked' and not reinvested.  We do NOT add any potential interest earned on Cash held in the portfolio to our performance.  Cash is held at 0% return. If our capital appreciation gains from prior years were to be re-invested proportionately in our model portfolios, based on our compounding philosophy, the performance would have further benefited since we have had strong up-years. Consequently, the cumulative performance presented above will be understated as the return on a $100,000 investment is divided by the total portfolio size, which includes gains from prior years that remain uninvested.  We adopt a conservative approach in determining our performance and only invest the initial capital.  Further below, we show the acceleration of returns achieved through Compounding. We may use options occasionally to protect or hedge our existing stock investments.  We do not use options' as an investment or speculation instrument.  The model portfolios can take either Long or Short positions, although predominantly (over 97% of the time), the portfolio will have a Long bias or be in Cash.  The portfolio may go to All or Partial Cash position based on our market assessment. The performance does not take into account transaction costs.  Such transaction cost estimates are provided below in the individual newsletter performance section.  These transactions costs, as you will note, are not material in the context of the performance achieved. All stock additions are assumed to be added at the last closing price. All positions that are closed, without Stop-loss triggers being activated, are assumed to be closed at the last closing price. We have observed that prices available to our subscribers at the first opportunity can be better or worse. As such, this offsetting influence should not have a material impact on the Performance. We have adopted a conservative portfolio-oriented approach to calculate our returns, where we take the value of the entire portfolio as the denominator even when part or most of the portfolio is uninvested and in Cash.  This is in contrast to the approach of many newsletters that calculate the Buy Price and Sell Price difference and multiply by the number of holdings, without identifying the portfolio weightage of each holding, which during times of positive performance has the potential to inflate the total return performance.  This is due to the fact that the Returns are calculated on only the capital invested and not the total size of the portfolio (the investor may not be 100% invested), thus reducing the denominator on which the return is computed.   Our performance figures are unaudited. We do not provide standard deviation or risk adjusted returns of our model portfolios.  The Aggressive Growth Portfolio has the highest standard deviation, followed by the Large Cap Portfolio, and finally the S&P 500 portfolio.  The risk/reward ratio of our model portfolios is higher than major market indexes. Our model portfolio holding period is typically less than a year, and consequently the gains will be mostly taxed at the prevailing short-term capital gains tax rate.  Please note that past performance is not predictive of future performance.

THE MIRACLE OF COMPOUNDING How our Model Portfolio took $100,000 and grew it to over $1 million in 3 years...let the numbers speak for themselves When we take our Model Portfolio performance and calculate our Return on a Compounded basis, then we begin to appreciate the power of compounding, particularly when Annual Performances are exceptionally strong.  Now kindly view the performance if we leave those Returns or gains in our portfolio and Re-invest them.  In other words, at the end of the year we take the sum of the Gains and our Principal and begin the new investment year with the total amount.  This is simple annual compounding, and not even monthly compounding that is possible.  Remember, all we first started with was $100,000.   You can read more about compounding in Our Philosophy section. GRAYCELL MODEL PORTFOLIOS OF $100,000 CUMULATIVE PERFORMANCE SINCE INCEPTION TILL AUGUST 11, 2006 With Compounding (Return / $ size) (1)(3) Without Compounding (Return / $ Size) (2)(3) Aggressive Growth Model Portfolio FROM May 9, 2003 1075% / $1,174,910 376% / $476,189 * Large Cap Growth Model FROM October 29, 2004 112% / $212,299 87% / $186,651 S&P 500 Growth Model FROM August 22, 2005 36% / $135,610 33% / 132,916 (1) The gains during a year were re-invested. (2)  The gains during a year were not re-invested.  Gains were locked and secured. (3)  These are calculation of Returns or Gains on the $100,000 initial investment.  The Aggressive Growth Model Portoflio has been in existence the longest compared to our other portfolios.  Over this time frame, we have successfully used the miracle of compounding to grow a $100,000 portfolio to over a $1 million in 3 years.  Even the Large Cap portfolio in existence for Less than two years has delivered a compounded rate of return of 112%.  We are confident the S&P 500 will have no less an outstanding performance once it has a couple of years under its belt.  As we noted earlier, compounded return means that any gains on our portfolio are simply re-invested.  Performance is greatly influenced by the stage of economic cycle.  The opportunities earlier in a new economic cycle are significantly more than in the later stages.  However, we believe that the opportunity to significantly outperform the market indexes are present in all stages of the economic cycle.  Furthermore, one has to keep in mind that larger the portfolio size, more the number of stocks that will be required in order to achieve prudent diversification.  The breadth of diversification is a matter of personal risk profile.

Aggressive Growth Model Portfolio Since its inception in 2003, the Aggressive Growth Model (AGM) Portfolio has outperformed the S&P 600 and the NASDAQ COMPOSITE by a wide margin. This can be viewed in the chart below. Since inception in May 9, 2003 till December 31, 2005, a period of a little over 2 1/2 years, the AGM portfolio delivered a cumulative return of 359%.  A more current picture is in the Chart below.  As is the case with all our model portfolios, the performance was achieved without using any margin or leverage.

For the calendar year 2005, the AGM portfolio was up 63%, significantly exceeding its objective. During 2004, the Aggressive Growth Portfolio was up 142% on our $100,000 investment.  As you will note from the charts, the performance of our model portfolio significantly outperformed the major market indexes, including small-cap Russell 2000 and S&P 600 indexes.

In 2003, the 8 months since inception, the AGM portfolio returned 154%, compared to 31% for S&P 600 over the same period. As we have indicated earlier, when we compute our cumulative returns we use the total portfolio size at the beginning of the year, to compute the returns even though previous year gains are not re-invested. This has the effect of understating the total return.  For instance, at the end of 2003 and the beginning of 2004 our $100,000 portfolio was worth $254,175 for a gain of $154,175 achieved during 2003. Since we do not re-invest our gains, consequently during 2004 we did not re-invest the total portfolio of $254,175 but only invested our initial $100,000 capital. By end of 2004, our total portfolio had grown to $395,768 for an annual gain of $141,593 ($395,768 less $254,175) on only $100,000 invested.  Our cumulative return for 2004 of 55.7% was calculated using the 2004 gain of $141,593 over the total available portfolio size of $254,175. There were approximately 42 completed transactions in the model portfolio during 2004.  During 2005, there were 104 completed transactions or about 2 transactions a week.  These transaction costs constitute less than approximately 1% of the total return ($25 per completed transaction).

Large Cap Growth Model Portfolio Since its inception in October 2004, the Large-cap Growth Model (LGM) portfolio has outperformed the S&P 500 quite handily, as can be studied from the chart. From inception till end of 2005, the LGM portfolio delivered a return of 65%, a period of approximately 14 months. During the same period, the S&P 500 and the NASDAQ Composite were up 10% and 12%, respectively.  A more current picture is provided in the Chart below.

For the calendar 2005, the LGM portfolio was up 43%, significantly outperforming the NASDAQ and S&P 500 performance of 1% and 3%,respectively. During 2004, the LGM portfolio was up 22% for the two months since it was created in October 2004. The performance surpassed the 7% return for S&P 500 and the 10% return for the NASDAQ Composite.  There were 97 completed transactions in the model portfolio during 2005.  These transaction costs constitute approximately 1% of the total return ($25 per completed transaction).

S&P 500 Model Growth Portfolio The S&P 500 Model Growth (SMG) Portfolio was created in August 2005. For the less than 5 months in 2005, the SGM Portfolio delivered a return of 18%. For the same period the S&P 500 index had a 2% return.  A more current cumulative return since inception is provided below.