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2013-10-31-TIA-PIP-Initial Preferred Income Portfolio Memo

Preferred Income Portfolio, Inaugural Quarterly letter

This inaugural quarterly letter is exclusively for our Preferred Income Portfolio (PIP) clients. We are completing our fifth year of PIP. It was developed as the only attractive fixed income alternative to common stocks. We have been bullish on the stock market and bearish on bonds for the past decade. One of your exhibits is our quarterly allocation of stocks versus bonds. Since our bullish stock recommendation 10 years ago, stocks have a +158.55% cumulative return and bonds on +58.36% (almost 100% better cumulative return for stocks).

TIA expects the next generational cycle in fixed income to be increasing interest rates and declining bond prices. The great 30-year bull market in bonds ended this spring. It may be several years before rates rise due to the Federal Reserve monetary policy, but rise they will to normal levels. Our primary research sources expect interest rates to normalize over the next ten years with rates rising and bond prices declining during the decade. We believe our PIP is a "Bridge to Higther Interest Rates."

As of Septebmer 30, 2013, TIA's Preferred Income Portfolio (PIP) provides our clients a unique yield alternative to other fixed income securities. The 7.42% current yield is an "equity-like" annual return on NYSE listed preferreds. The strengths of PIP are its current yield, a 3.74% interest spread over the 30year U.S. Treasury Bond and 45 months of call protection. Prior to the "Credit Crisis" in 2007, there was no interest spread between preferreds and the 30-year U.S. Treasury (2% had been the historical interest rate spread). We expect PIP to maintain current levels in both yield and price as other fixed income investments decline in value with the forecasted increase in interest rates. Our Preferred Income Portfolio is providing our clients an outstanding income return during a period of historically lwo bond interest rates versus the stock dividend yield of only 2.1% for the S&P 500.

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