June 30, 2015

Dear Friends,
Long term interest rates rose last month. We believe this increase marks the beginning of what
may be several years of rising rates. If we are to preserve and enhance your wealth in such a new
financial environment and this is a goal we want to maintain -- some portfolio adjustments
should be made to your portfolio.
In 2006, nine years ago, the economy was near a peak and the yield on short term 3 month
Treasury bills according to the Presidents Council of Economic Advisors was 4.73 percent.1 The
yields on 3 and 10 year intermediate and long term government bonds were 4.77 and 4.80 percent
respectively. Shortly thereafter economic activity slowed, and the country went into a recession.
Short term interest rates are heavily influenced by Federal Reserve policy; long term rates are set
by supply and demand forces in the open market. To fight the economic slowdown that started
shortly after 2006, the Federal Reserve began to increase the money supply and began its current
policy of driving down short term rates. By January 2015 the Council of Economic Advisors
reported short term 3 month Treasury bills dropped to a fraction of 1 percent, specifically to .003
percent. Intermediate and long term rates also fell. The 3 year intermediate bond rate declined to
.009 percent and the 10 year bond rate to 1.88 percent.
With the stimulating interest rate policy firmly in place and the money supply substantially
greater than it had ever been, the economy continued to recover from the recession. Intermediate
and long term interest rates started to rise. By June 2015, the interest rates on 3 and 10 year
Treasury bonds rose to 1.5 and 2.31 percent, an increase of 16 and 22 percent over their respective
January 2015 rates. Short term rates, however, did not change because the Federal Reserve
authorities repeatedly announced that they wanted to wait until there was still stronger evidence
that a recovery was in place.
Between January and June 2015 the stock prices of smaller and more aggressive companies, as well
as many foreign stocks, experienced a high single digit price increase. However, the market prices
of high dividend paying, larger companies and longer term bonds did not rise as much. In many
cases, the market prices of these securities fell between January and June because of the increase in
long term interest rates.
We believe this pattern of stock and bond price movements is likely to continue in the future: the
returns of growth oriented portfolios should continue to be influenced by the continuing
improvement in macro-economic activity while the market prices of bond and income oriented
portfolios reflect the constraining impact of rising long term interest rates.
To help you get a better understanding of your total portfolio, we are planning to the combine
equity income stocks and bonds into a single Blended Income account. Your reports from us
1

Presidents Council of Economic Advisors , Economic Indicators, June 2015

500 Lake Cook Road | Suite 210 | Deerfield, IL 60015 TEL 847.282.4225 FAX 312.962.3899 hightoweradvisors.com

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will therefore start to show two major holdings, your blended income holdings and your growth
oriented equity holdings. You will be able to quickly identify your holdings, the cash income each
portion generates, your gains and losses and the percentage of total assets you hold in each
category. If you want to increase the funds in any one class, it should also be relatively easy to
transfer funds from one to another.
I also want to tell you about another change that is underway. JP Morgan Clearing Corp (JPMCC),
your present custodian, announced that they would no longer offer custodian services to outside
firms such as HighTower. We were required to find a new custodian. After a careful search we
chose Pershing to become our new custodian.
Pershing is a subsidiary of BNY Mellon, which was founded by Alexander Hamilton in 1784. BNY
Mellon now has over $285 trillion under custody and/or administration. It serves investors in 100
different markets across 35 countries. We believe the prestigious background of Pershing as well
as the enthusiasm, knowledge, and competence of its staff can help us improve our services to you.
Please call if you have any questions about these proposed changes or if you have any other
concerns about your portfolio.
Sincerely,

Eugene Lerner
Managing Director, Partner

The Lerner Group is a group of investment professionals registered with HighTower Securities, LLC, member FINRA, MSRB and SIPC, and with HighTower
Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through
HighTower Advisors, LLC.
This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment
opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment
opportunities referenced herein may not be suitable for all investors.
All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information
contained in this research is provided as general market commentary, it does not constitute investment advice. The Lerner Group and HighTower shall not in
any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other
information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are
provided as of the date referenced. Such data and information are subject to change without notice.
This document was created for informational purposes only; the opinions expressed are solely those of The Lerner Group and do not represent those of
HighTower Advisors, LLC, or any of its affiliates.

500 Lake Cook Road | Suite 210 | Deerfield, IL 60015 TEL 847.282.4225 FAX 312.962.3899 hightoweradvisors.com
Securities offered through HighTower Securities, LLC | Member FINRA/SIPC/MSRB | HighTower Advisors, LLC is a SEC registered investment advisor