August 30, 2013

Dear Friends, Last April, Apple raised $17.6 billion in a six-part record-breaking debt offering. If tracked closely, a bond issued at this time illustrates the severity of rising interest rates and falling bond prices. The weighted average interest rate of the entire issue was 1.811 percent. One of the six parts was a 30 year $3 billion offering which sold near its par value ($99.418) and paid investors a fixed 3.85 percent coupon. Last week this bond issue traded at $81.65. Investors who bought this 30 year bond on the offering lost $17.75 in market value per $100 of investments for an aggregate total market loss of approximately $540 million. The yield to buyers at the $81.65 price rose to 5.04 percent rather than the 3.85 percent yield the original buyers received. While bond prices fell (clearly demonstrated above), stock prices rose over the past year. The S&P Index stood at 1663 in August 2013. This is approximately 18 percent higher than August 2012. Despite this, not all securities rose by the same amount last year. Some companies saw their earnings potential improve while their prices stayed the same or fell. If the earnings outlook for these companies remains strong, they may represent intriguing investment opportunities. Some international stocks fall into this category, as do companies in specific industries such as potash, which just saw its pricing cartel collapse; chemical companies which are likely to see their costs fall as energy costs decline; or commercial banks which are steadily working their way through DoddFrank regulations. Even with the economys improvement and the rise of the S&P Index over the past year, in the more recent past, the index fell about 1.5 percent in June and 1.7 percent in August. We have to wonder are these moves random events or precursors of a change in the growth rate of stock prices? If an investor wants to preserve and enhance her wealth, what is the appropriate response to the new bond market reality and the recent changes in stock prices? Is this the time to rush in and buy to take advantage of the higher yields and modest weakness in recent stock prices, or should she wait to see if more clarity develops? Before answering these questions, I believe that the investor should first determine how much cash she would like her portfolios to generate on a regular basis. Once we know her income requirement, we can rebalance her portfolio to satisfy both her income needs and growth. We know the importance of understanding your wealth requirements and goals, and we will work diligently towards both. We are continually on the watch for companies that represent good value and have the potential for price appreciation. Thank you for your continued loyalty and support. Sincerely,

Eugene Lerner Managing Director, Partner

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

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