INVESTMENT MANAGEMENT SERVICES DISCLOSURE BROCHURE

Transcription

1 INVESTMENT MANAGEMENT SERVICES DISCLOSURE BROCHURE

2 PREFACE My advice to investors (who cannot give full time to a study of investments) is to seek out some trusted investment counselor. The emergence of this new profession of disinterested investment analysts, who have no allegiances and whose only job is to judge a security on its merits, is one of the most constructive and healthy developments of the last half century. Bernard Baruch OVERVIEW IQ Trends Private Client Asset Management (Private Client) is a California corporation registered as an Investment Advisor with the U.S. Securities and Exchange Commission pursuant to the provisions of the Investment Advisers Act of This document is a summary of Form ADV Part II, and details the services offered, to whom these services are offered, and the fees and expenses associated with those services. This document accompanies the Investment Management Services Agreement, which details the responsibilities of the parties to the agreement, and, how Private Client will conduct the activities for which it is being retained. INVESTMENT PHILOSOPHY AND METHODS Private Client serves an international base of clients that includes Foundations and Endowments, Pension and Benefit Plans, Trusts, and high-net-worth individuals. Private Client provides both constantly supervised discretionary investment management and non-discretionary investment consulting based on the investment philosophy and methods developed by Geraldine Weiss. Our investment management philosophy at Private Client is the practical application of the concepts found in the Investment Quality Trends newsletter, which is owned and published by Private Client s officers and shareholders. Since the inception of Investment Quality Trends over forty one years ago, we have been devoted to a specific concept of identifying basic investment value. The dictionary tells us that value is proper price; the quantity of money which an article is likely to command in the long run, as distinct from its price in an individual instance.

3 This wisdom often escapes investors in relating their holdings to price. In fact, the very essence of successful investing involves an identification of value, the most fundamental representation of which is the receipt of dividends. In general our philosophy is to buy and sell securities according to historic dividend yields of Undervalue and Overvalue. Based on an original concept of Valueidentification, investment considerations are confined to only the highest quality stocks. These stocks offer a wide selection from low-yield rapid growth to high-yield, income type securities. These quality stocks best lend themselves to interpretation of Undervalue and Overvalue limits, to afford us the greatest opportunities for profitable and intelligent investment management and advice. The Concept is keyed to the basic fundamental of getting a return on the investment dollar. In practice, it reduces much of the mystery and anxiety which so often accompanies stock market investing. As an aid in the timing of purchases and sales, the Concept helps us to build our clients capital and income. The Concept can be demonstrated in stock after stock that when all other factors which rate analytical consideration have been digested, the underlying value of dividends, which determine yield, will in the long run determine price. The key to value, therefore, lies in yield as reflected by the dividend trend. It has been observed that dividend-paying stocks repeatedly fluctuate in price between generally specific high and low levels of yield. These high and low yield limits form a step-up channel which can be identified and charted. Each dividend increase steps up the price of both the high and low yield levels. Each stock has its own individual limits of Undervalue and Overvalue, determined by dividend yield. Values, when applied to stocks, are determined, in the end, by the return to the investor, and nothing is more certain than that the investor established the price of stocks. --- Charles Dow When the price of a security is at or near the bottom of the channel, the yield is high. Historically, this is the Undervalued price area. It represents basic investment value. When the price rises to the upper channel line, producing low yield, the stock has reached the area of Overvalue. The price likely will reverse from the upper channel line and return to the lower channel line unless the dividend is increased. A dividend increase will raise the price level of the Overvalue yield limits. This allows for more price rise potential to the new level of Undervalue and Overvalue. Thus, it is possible to identify reasonable levels of Undervalue and Overvalue. The prices designating Undervalue and Overvalue levels are neither exact nor inviolate. These prices reflect the historic repetitive limits of high yield at depressed Undervalue levels and low yield at inflated Overvalue levels. Actually, the specific prices mark areas of extremes in yield which Private Client uses to assist in identifying degrees of value.

4 There are many times when prices violate the price limits by a few points. There are also times when a stock will move an extraordinary distance beyond the confines of Undervalue and Overvalue. Nothing restricts price movement within precise frontiers, as all investors know. There are logical and psychological factors which motivate investors to buy and sell in sufficient numbers to move prices, sometimes to extremes. However, in the vast majority of instances, Overvalue and Undervalue designations come within 10% of the high or low in a major price move. Therefore, Private Client has determined that prices are Undervalued or Overvalued when they are within a 10% range of their historic levels of high or low dividend yield. Capital shrinkage normally is minimized at Undervalue because a price decline usually stops where a distinctively historic and repetitive high yield is generated. A decline in stock prices reflects the pressures of low yield and overrated earning prospects. Suddenly, almost, value becomes the watchword. Ultimately, stock value most surely is determined by adequate dividend yield. It is important to recognize the potential downside risk which exists at the Overvalue level. Unless dividends are raised, it may be anticipated that overpriced stocks will decline toward Undervalue. Selling at Overvalue levels, therefore, in most cases will preserve profits and capital. For the reasons above, investment decisions are based on specific values for each individual stock as each stock has its own level of unusually low yield. Each stock has its own personality of Value, subsequently there is no one yield pattern applicable to every stock. Accordingly, Private Client judges, studies and evaluates each stock in our universe on its own merits and history. In the process of distilling pertinent facts and figures, Private Client reviewed every type of investment security. Research proved that high quality stocks provide the best vehicles for our clients that desire Growth of Capital and Growth of Income. These stocks consistently command investment support and sponsorship from powerful money forces. The companies behind these stocks seem to resist adversity best. In good times they usually outrun both the economy and their lesser competitors. The range of price fluctuation between Undervalue and Overvalue offers considerable price appreciation potentials. As it would take rugged economic conditions to halt or lower dividend increases among the Select Blue Chips, these stocks provide extremely valid interpretations of Undervalue and Overvalue according to our dividend-yield concept. Again and again the evidence shows.. There is no profitable substitute for quality. Investment Quality Trends has established rigorous standards for its Select Blue Chip list of stocks. Accordingly Private Client has adopted these standards for determining securities worthy of consideration in clients portfolios. The qualifications weigh: lengthy profitable progress, growth of income and capital, professional management interest, marketability and Standard & Poor s widely accepted long term earnings-dividend formula ranking. These are the components of blue chip quality. A past history of

5 earnings, dividends, growth rates, institutional interest, financial strength, research and development, plus an appraisal of the future all bear on the valuation results. From our perspective a stock will rate the designation of Select Blue Chip when it meets our Criteria for Select Blue Chips, found at the top of page two of each issue of Investment Quality Trends. The criterions are as follows: 1. Dividend increases five times in the last twelve years 2. S&P Earnings and Dividend Quality ranking of A. 3. At least 5,000,000 shares outstanding 4. At least 80 institutional investors 5. At least 25 years of uninterrupted dividends 6. Earnings improved in at least 7 of the last 12 years In summary, Private Client constructs diversified portfolios of Select Blue Chip securities selected from Investment Quality Trends. Our investment management objectives are in order of importance: avoid real capital loss, realize a tangible return on investment via dividends, and capture long-term capital appreciation. From an allocation perspective it is our intention to be fully invested in Select Blue Chip securities at all times. From a tactical perspective we may, during times of extreme valuations, exceptionally low credit quality, or excessive volatility, defer equity security purchases and utilize cash alternatives and short-term fixed income instruments in an abundance of caution to both protect the portfolio capital and to keep it productive. Under normal market conditions security selections will be made from the Undervalue level. On occasion, based on our experience, a security may be selected from the Rising Trend or Declining Trend levels. Positions are liquidated upon reaching the Overvalue level. Proceeds from liquidated positions will be directed toward new purchase positions in securities which represent current historic value. As a matter of investment policy Private Client prefers not to utilize margin, short sales and options. FEE SCHEDULE The minimum account value that will be considered for constant supervision and discretionary investment management is $1,000,000 in cash or securities. Multiple accounts from the same household may be aggregated to satisfy the minimum account value requirement. Private Client is compensated for its service solely on a fee basis. This annual fee is calculated on a percentage of the assets, billed quarterly, in arrears, as follows:

6 $1,000,000 to per quarter or 1.0% per annum. $5,000,001 to per quarter or.75% per annum. $10,000,001 and above is negotiable. Should an engagement commence prior to the end of a calendar quarter the fee will be pro-rated based on the number of days the assets are under management. Capital additions will be treated as being deposited on the first day of the billing period. REVIEWS AND REPORTS Private Client recommends an annual review. Additional review sessions can be scheduled upon request. It is the responsibility of the account holder to inform Private Client of any material change which would trigger a change in the Portfolio(s) or how it/they is managed. A review would examine the beginning and ending account values for the period, contributions to and withdrawals from the portfolio(s), interest and dividends received, dollar amount of gain/(loss) for period, rates of return for the period and since inception. Reports are provided by Custodian on a monthly basis and include: Beginning value, deposits and withdrawals, dividends and interest, the cost of all purchases and the proceeds of all sells, securities purchased and/or sold, and the ending value. Private Client will furnish a performance report at the time of the review to include: the information above, a rate of return since inception, a comparison to an appropriate index. PARTICIPATION or INTEREST in CLIENT TRANSACTIONS Prudence dictates that Private Client invests any capital reserves or excess earnings as they become available. As Private Client is in the business of identifying securities for investment purposes, we would be remiss in not utilizing this information for our own capital. We stipulate that on the surface a conflict of interest would appear to exist, however, we receive no special pricing or services for the management of our own capital and do not solicit or accept offers for services not available to any of our clients. INVESTMENT AND BROKERAGE DISCRETION Private Client has the power and authority as the account holder s agent and attorney-infact to supervise, manage and direct the Portfolio(s) on a discretionary basis, to purchase,

7 sell, invest, exchange, convert and trade any securities and instruments and any other transaction unless specifically directed otherwise in writing by the account holder. Except to the extent the account holder directs otherwise, Private Client will use its discretion in selecting the broker, dealer or other counterpart to be used to execute transaction for the portfolio(s). In selecting a broker or dealer Private Client will comply with its fiduciary duty to obtain best execution. Private Client is not a Custodian and will not take delivery of cash or securities for the benefit of the account holder. It is the responsibility of the account holder to designate a Custodian to hold and report on the activity within the portfolio(s). Upon request Private Client will recommend a Custodian. For ease of use Private Client prefers Charles Schwab and Company s Institutional Service for Registered Investment Advisors due strictly to its systems. Private Client receives no economic benefit from Schwab for using its service.