April 30, 2014

Dear Friends, The market value of our diversified portfolio of corporate bonds with an average duration of less than 5.2 years rose by more than 4 percent since January. Many publically traded bond portfolios earned less than 2 percent and some equity indices such as the S&P rose by even smaller amounts over this same period. This recent price pattern, bonds appreciating in value more than equities, has been characterized as a short term flight to safety. While the phrase is accurate, it does not capture what we believe is a basic change now underway in the capital markets, i.e., a consequence of the Federal Reserves policy to fight recession by driving interest rates down to near zero levels. In 2008 Lehman Bros. was closed down and entire sectors of our economy came under the threat of failure. The rate of unemployment started to rise and a major slowdown in economic activity began to unfold. The most important policy program to turn the economy around fell upon the Federal Reserve to implement. This was to expand the money supply at a double digit rate and drive interest rates down to a near zero level. The theory behind the Federal Reserves actions was crystal clear. Both the increase in the money supply and the drop in interest rates were to be a stimulus to both corporate investment and consumer spending. Unfortunately the stimulus program did not impact the economic recovery as quickly as many had hoped. Corporations and consumers alike used the increase in the money supply to improve their balance sheets rather than spending more on goods and services. The low interest rate policy did, however, enable financial markets to recover. Between the bottom of the market slowdown in 2009 and the end of last year, the S&P Index more than doubled. Firms seeking to expand their product offerings took advantage of both the rise in their stock prices and the low rates to step up their merger and acquisition activity. Individual investors also responded to the low borrowing rates. Many refinanced their existing mortgages and locked in lower rates. Others recognized that they could increase their returns by adding to their debt when the spread between the cost of borrowed funds and the rate of return on assets became favorable. For example if the cash return on a building without a mortgage were 7 percent and funds to finance the purchase could be borrowed at a 4 percent rate, the total return on the shareholders equity increases so long as the total risk of the investment does not change.

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

Bond and stock investors also came to realize that when the spread is favorable, they too can raise their current returns. They could ask themselves If a stock or bond has a history of paying a high and steady dividend yield of 5 or 6 percent, and if interest rates on US bonds are likely to remain below 3 or 4 percent for some time, is it reasonable to expect the price of this stock to rise? They could then go on and ask If I can borrow funds at lower rate than the dividend yield of a stock (or interest rate of a bond), would I not be better off buying the security using borrowed money? If these hypothetical investors were to act as if they answered these questions in a positive way and sell lower yielding stocks or borrow money to buy higher yielding securities, the resulting price pattern would be exactly the same as that which took place during the first four months of this year and was characterized as a short term flight to safety. Janet Yellen and the Federal Reserve are committed to keeping interest rates low until the economy recovers. Commentators speculate that this will not take place this until sometime in 2015 or 2016. So long as low interest rates continue to be national policy, we can expect to see investors continue to ask questions about the spread between the high dividend yield of many value stocks and the cost of borrowed funds. If the spread continues to be favorable, the market price of high yielding stocks could increase while the prices of high multiple low yielding stocks could lag behind. If these events come to pass, the current pattern of stock prices could continue for some time. We look forward to your call if you would like to discuss the implications of these remarks for 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