August 22, 2015

Dear Friends,
I would first like to share with you our thinking about the economy and the market. I then want
to discuss the implications of these thoughts for your portfolio, and finally conclude on a
personal note of thanks.
1. The economy. The housing industry is a primary driver of total economic activity and it
continues to be strong. The percentage of new homes purchased by millennial and other first
time buyers is increasing. One benefit of this is that the demand for appliances, furniture and
other housing expenditures continues to improve.
Changes are also taking place within industries that produce capital goods. Commodity prices,
such as coal, iron ore, copper and oil fell over the past several months. One reason for this is that
the slowdown in the Chinese economy lowered the world demand for raw materials. The
American companies using these raw materials are a beneficiary of these lower prices because
their profit margin improves as their costs fall. (Think about the way the drop in the cost of
gasoline earlier this year enabled you, me and other American drivers to suddenly enjoy more
spending power.)
In short, the economy is strong and should continue to improve in the future even though the
rate of economic growth may be at a slower rate than many of us would prefer.
2. The market. In 2013, the S&P index of 500 companies rose approximately 30 percent, and the
largest companies within the index increased by even a higher percentage. In 2014, the S&P
increased by approximately 12 percent, and once again the larger companies reported higher
total returns than index as a whole. In sharp contrast the S&P 500 index has declined by over 3%
between the first of the year and the 20th of August, 2015.
The distinction between the market during the past two years and the first nine months of 2015 is
even sharper than the S&P averages indicate. A change in the structure of the market took place
during the first nine months of 2015. Corporate and municipal bonds as well as many large and
high dividend paying stocks fell in price while many non-dividend paying smaller companies
held their own.

3. Implications for your portfolio. In light of our belief that the economy is going to continue to
expand and that interest rates are likely to rise, we believe that a change should be made in
structure of your portfolio. Over the coming months, we plan to reduce on the proportion of
total assets you hold in fixed income assets and raise the proportion committed to growth
equities.
We recognize that many of our clients want both a steady stream of income and a portfolio that
increases in total value over time. We believe that both of these goals can be achieved by
following the change we recommend. By reducing on fixed income assets, we should avoid the
capital losses that arise when interest rates increase. By constructive additions to your growth
portfolio, we should be able to increase the dividends that the growth portfolio generates while
still preserving its potential for capital appreciation.
4. A personal note. Let me close on a personal note. We believe the economy will continue to be
strong and that interest rates will rise. We also believe that now is the time to lengthen our
investment time horizon. Some investors are panicking and want to sell because commodity
prices are falling; others because China is slowing down and the Middle East is unstable; and
still others because Janet Yellen says she would like to raise interest rates by a quarter of one
percent sometime in the future. Rather than reacting to short term change in market prices, we
believe we should take advantage of the many, many buying opportunities that are now
becoming available. To do this, we believe we have to adopt a longer run view of the market
and urge you to do the same.
You should know that we do not make this proposed change in portfolio allocation lightly. We
want your portfolio to increase in value not only for your sake but because my partners and I
personally own almost every stock we recommend to our clients. We treat your portfolio as if it
were ours, because we own the same securities as you.
In closing, I want to thank you for entrusting your assets with us to manage as well as for your
continued support.
Sincerely,

Eugene Lerner
Managing Director, Partner