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LLC Document Transcript

  • 1. CERVINO CAPITAL MANAGEMENT LLC REGISTERED INVESTMENT ADVISER DISCLOSURE BROCHURE MARCH 23, 2009 MAILING ADDRESS: P.O. BOX 2366 SANTA BARBARA, CA 93120 TEL: (310) 849-5818 FAX: (818) 874-9897 Cervino Capital Management LLC Registered Investment Adviser Form ADV, Part II (CRD No. 140047) Please retain a copy of Cervino Capital Management’s Disclosure Brochure for your records.
  • 2. Managed Securities Disclosure Brochure 23-March-2009 Table of contents 1. Introduction 3 1.1 Description of Services 3 1.2 Advisory Representatives 3 1.3 Business Background 3 2. Investment Philosophy 3 2.1 Consultative Investment Process 3 2.2 Methodology and Diversification 3 2.3 Active Portfolio Management 3 2.4 Portfolio Construction and Management 3 2.5 Account Size, Discretion and Broker 3 3. Advisory Fees 3 3.1 Fees Charged to the Account 3 3.2 Additional Information Concerning Fees 3 4. Principal Risk Factors 3 4.1 Education and Business Standards 3 4.2 Privacy Statement and Client Data 3 4.3 Code of Ethics/Client Transactions 3 4.4 Risks Regarding Asset Modeling 3 4.5 Balance Sheet and Custody of Assets 3 4.6 Solicitation and Third Party Compensation 3 4.7 Risks Regarding Electronic Trading 3 4.8 Taxation Matters: Consult Tax Adviser 3 5. Conflicts of Interest 3 5.1 Other Business Activities and Affiliations 3 5.2 Resident Insurance Producer Disclosure 3 5.3 Proprietary Account Activities 3 6. Litigation 3 7. Balance Sheet 3 Appendix A - Part II Filing 3 C er v i no Ca p it al M an a g em en t L L C Th e ne xt ste p in t r ad it i ona l inve stm ents . . . 2 of 19
  • 3. Managed Securities Disclosure Brochure 23-March-2009 1. Introduction Cervino Capital Management LLC is a California limited liability company formed in August 2005, and is a state Registered Investment Adviser offering discretionary investment supervisory services to its Clients. This Disclosure Brochure provides prospective clients with information about Cervino Capital Management LLC (herein after referred to as the “Adviser”) that should be considered before or at the time of obtaining advisory services from the Adviser. This information has not been approved or verified by any governmental authority. Prospective investors should review this information and acknowledge receipt of this Disclosure Brochure prior to making an investment. Clients should retain a copy of this Brochure for their records. The Adviser’s administrative services office address, trading operations office address, telephone numbers, website and email address are below. All the records are kept and made available for inspection at the administrative services office, which is also the main business office. ADMINISTRATIVE SERVICES: TRADING OPERATIONS: 929 Santa Barbara Street 219 S. Barrington Ave., Suite #217 Santa Barbara, CA 93101 Los Angeles, CA 90049 Tel: (310) 849-5818 Tel: (310) 874-5871 Website: www.cervinocapital.com Email: info@cervinocapital.com The Adviser is also registered with the Commodity Futures Trading Commission (“CFTC”) as a Commodity Trading Advisor and is a member of the National Futures Association (“NFA”). 1.1 Description of Services The Adviser offers two types of discretionary investment advisory services to its clients: (i) investment supervisory services which comprises of continuous investment advice to a client based on the individual needs of such client; and (ii) portfolio management services in which the Adviser manages investment advisory accounts not involving investment supervisory services. The type of investment advisory service which the Adviser will provide to the account is initially determined by the Adviser and the client upon the engagement for investment advisory services. For either type of service, the Adviser will not receive commissions, front-end sales load or back- end sales load for any transactions it initiates on behalf of its clients’ accounts. Investment Supervisory Services When providing investment supervisory services the Adviser will emphasize continuous and regular account supervision for the purpose of client wealth accumulation, preservation and estate planning. Further, the Adviser will work with its clients to identify their investment goals and timeframe as well as risk tolerance in order to create an initial portfolio allocation designed to complement the clients’ financial priorities and objectives, including goals such as education funding, major purchases, starting a business, retirement planning and wealth transfer, etc. The Adviser may create an investment portfolio consisting of individual foreign and domestic equities; fixed income instruments; exchange traded funds (ETFs); closed-end funds; no-load mutual funds; load-waived mutual funds (front-end and back-end commissions will not be charged); money market instruments; and other securities products. Each portfolio will be initially designed to meet a particular investment goal and timeframe, which the Adviser has determined to be suitable to the client’s circumstances. Nevertheless, each client will have the opportunity to place reasonable restrictions on the types of investments to be held in the portfolio. Once the appropriate portfolio has been determined, the Adviser will review the portfolio at least quarterly and if necessary, rebalance the portfolio based upon changes in the Adviser’s economic outlook and market opinion as well as changes that may have occurred in the client’s stated priorities, goals and objectives. Generally, the Adviser’s strategy when providing investment supervisory services to clients will be to seek to meet client investment objectives while providing clients with access to personal advisory services on at least an annual basis, or more often, depending upon prior agreement. C er v i no Ca p it al M an a g em en t L L C Th e ne xt ste p in t r ad it i ona l inve stm ents . . . 3 of 19
  • 4. Managed Securities Disclosure Brochure 23-March-2009 Portfolio Management Services When providing portfolio management services the Adviser will initially work with the client to identify his/her investment goals and timeframe as well as risk tolerance in order to determine if one or a combination of the Adviser’s standardized portfolio approaches is appropriate in meeting the client’s long-term investment objectives. However, the Adviser does not customize its portfolio management services based on the needs of any individual client, but rather the Adviser will manage client accounts within the selected portfolios’ design parameters and long term investment objectives. Regular rebalancing of the portfolios as well as tactical adjustments due to short or intermediate term market expectations will be based solely upon changes in the Adviser’s economic outlook and market opinion. The Adviser offers the following three portfolio strategies: 1. Cornerstone Diversified Assets—This strategy utilizes Exchange Traded Funds (ETFs) in order to construct a core diversified portfolio exposing investors to U.S. stocks and bonds, international stocks and bonds, and other asset classes such as gold and real estate. The core investment focus is a strategic asset allocation approach establishing target portfolio percentages for each asset class based on long-term capital market assumptions. The secondary investment focus is a tactical overlay in which the Adviser makes adjustments to the portfolio based on shorter-term market expectations. Because of the many different types of ETFs that are available, these instruments provide the means to diversify client accounts in terms of asset class, market capitalization, credit quality, economic sectors, and geographic regions. 2. Energy Income Advantage—This investment strategy utilizes Master Limited Partnerships (MLPs) and oil tanker stocks in order to construct a portfolio which combines the potential for appreciation plus high current yield and low correlation with other asset classes. MLPs are publicly traded interests in businesses organized as limited partnerships but traded like stocks. Most MLPs are involved in some form of energy distribution or transportation. MLPs typically distribute cash generated by the business and report taxable income annually on Form K-1. The Adviser conducts fundamental analysis of individual MLPs and oil tankers and then compares the mixture of expected growth and income in order to determine portfolio selection. After the portfolio has been established, the Adviser closely monitors each MLP and oil tanker stock for company specific risks and reduces or removes such positions when prudent. 3. Enhanced Yield Opportunities—This strategy utilizes both leveraged and non-leveraged Closed-End Funds (CEFs) in order to construct a portfolio which combines attractive investment income plus potential for capital appreciation. Closed-end funds (CEFs) are professionally managed investment companies that offer an array of benefits unique in the investment world. While often compared to open-end mutual funds, CEF shares are listed on exchanges and bought and sold in the open market. Accordingly, they trade in relation to, but independent of, their underlying net asset values (NAVs). The Adviser conducts fundamental analysis of individual CEFs, and then compares historical discount/ premium pricing, as well as dividends and distributions for prospective total return potential in order to determine relative value and the portfolio selection. After the portfolio has been established, the Adviser closely monitors each CEF for specific risks and reduces or removes such positions when it deems prudent. 1.2 Advisory Representatives The Adviser’s investment advisory representatives are Davide Accomazzo, Managing Director and Head of Trading, and Michael W. Frankfurter, Managing Director, Chief of Operations, and Chief Compliance Officer. As investment advisory representatives, they may do some or all of the following: make recommendations regarding securities; manage accounts or portfolios of clients; determine what advice should be given; solicit the sale of or sells of investment advisory services; and supervise employees who perform any of the foregoing. C er v i no Ca p it al M an a g em en t L L C Th e ne xt ste p in t r ad it i ona l inve stm ents . . . 4 of 19
  • 5. Managed Securities Disclosure Brochure 23-March-2009 1.3 Business Background DAVIDE ACCOMAZZO—MANAGING DIRECTOR, HEAD OF TRADING. Davide Accomazzo has been trading professionally since 1996. From July 1996 through December 1997 he was employed as a Euro-convertible bond/international equities sales trader for Jefferies and Company, Inc. in their New York office. In this position, he covered many international funds, including: Arca, La Generali, Hansberger, New Africa Fund/NCM, Cranberry Rock, Pontaray, The Weston Group, Oppenheimer retail international desk. In January 1998 he left to trade his own capital and in November 1999 he started Kensington Offshore Limited, a speculative hedge fund which outperformed the S&P 500 market benchmark during the 1999 through 2002 equity markets’ boom and bust cycles. In February 2001 he launched Kensington Capital Management LLC, a commodity trading Adviser that focused on trading options on futures and currency futures. Mr. Accomazzo was signed on by UBS Wealth Management USA in October 2004 to manage the portfolios of high net worth investors, and withdrew as principal and associated person of Kensington Capital Management LLC in November 2004. In October 2005, Mr. Accomazzo resigned from UBS having co-founded Cervino Capital Management LLC with Michael Frankfurter. Mr. Accomazzo was born in 1967 and received a Laurea in Political Sciences and International Relations at Universita' degli Studi Genova in 1990, a Masters in Arts in Mass Communication from California State University Northridge in 1992, and his MBA in Finance at the School of Business and Management at Pepperdine University in June 1996. During his academic career he worked in collaboration with Investment Technology Group (“ITG”) on projects that focused on automated portfolio management through Quantex, ITG’s electronic execution system. Since that time he as been a guest lecturer speaking on the dynamics of international finance and global derivative trading. Since August 2007 Mr. Accomazzo has also served as an adjunct professor at Pepperdine University, Graziadio School of Business and Management, where he teaches courses on global capital markets and portfolio investment management. MICHAEL FRANKFURTER—MANAGING DIRECTOR, CHIEF OF OPERATIONS. Michael “Mack” Frankfurter started his career in the financial services industry in 1989 with Bank of America’s Business Services Division. In July 1991 he was recruited by The Echelon Group, Inc. as Vice President in charge of operations of Echelon’s managed futures business. As an Associated Person, Mr. Frankfurter was involved with the startup, accounting, client services, compliance, backoffice and marketing of multiple Echelon-related joint venture Commodity Trading Advisers including Dreiss Research Corporation, Jackson Grain Management, Range Wise and Royal Petroleum Group. Mr. Frankfurter was also involved in activities related to the establishment of other Echelon-related ventures including Dignity Partners, Inc., a viatical settlement business. Dignity Partners institutionalized the viatical settlement industry by successfully completing a private placement of $50 million in securitized notes (voted “1995 Private Deal of the Year” by Investment Dealers Digest), and a subsequent initial public offering in 1996. Later renamed Point West Capital Corporation, the company launched a venture capital subsidiary, a correspondent broker subsidiary and a specialty business-lender subsidiary. During this time Mr. Frankfurter was responsible for implementing and maintaining both Echelon’s and Point West’s information systems while continuing to administer to Echelon’s managed futures business. Mr. Frankfurter left Echelon and Point West in January 1999. After spending some time off sailing and traveling, he worked as a consultant on projects for FleetBoston Robertson Stephens from May 1999 to April 2000. In July 2000 Mr. Frankfurter was recruited by The Capital Markets Company (Capco) as Senior Consultant to work as Project Manager for an private banking startup and joint venture between Scudder Kemper and Thomas Weisel Partners. That long-term project was followed by an international inter-company trading systems implementation for Commerzbank involving Royalblue fidessa, and a T+1/STP readiness assessment for Bank of Montreal (BMO Financial Group). He left Capco in April 2002 and in May 2002 founded NextStep Strategies, LLC which focused on consulting and headhunting for financial services companies. NextStep Strategies was also registered as a commodity trading Adviser and commodity pool operator from March 2003 to July 2004. Mr. Frankfurter joined UBS Financial Services, Inc. in May 2004 in their Beverly Hills office and provided financial Advisery services to clients until June 2005. He rejoined NextStep Strategies, C er v i no Ca p it al M an a g em en t L L C Th e ne xt ste p in t r ad it i ona l inve stm ents . . . 5 of 19
  • 6. Managed Securities Disclosure Brochure 23-March-2009 LLC in July 2005 and co-founded Cervino Capital Management LLC with Davide Accomazzo in August 2005. In September 2007, Mr. Frankfurter became an associated person of Managed Account Research, Inc. (“MARI”), an introducing broker, where he functions in an operational and administrative capacity. Mr. Frankfurter was born in 1964 and graduated in 1985 from Moorpark College with an Associate in Arts degree and attended California State University Northridge from 1986 to 1988. 2. Investment Philosophy 2.1 Consultative Investment Process The Adviser’s investment process comprises of four steps: (i) identifying and assessing the client’s financial needs, investment objectives and risk tolerance; (ii) creating an investment proposal and proposing long-term strategic asset allocation guidelines; (iii) agreeing upon and implementing investment recommendations; and (iv) periodic portfolio reviews and rebalancing of investments including tactical adjustments in response to shorter-term market expectations for different asset classes. The Adviser views this investment process as a continuum with each step revisited as the client’s financial needs and investment objectives evolve during his or her lifetime. The Adviser offers two types of discretionary investment advisory services to its clients: (i) investment supervisory services which comprises of continuous investment advice to a client based on the individual needs of such client; and (ii) portfolio management services in which the Adviser manages investment advisory accounts not involving investment supervisory services. The type of discretionary investment advisory service which the Adviser will provide to the account is initially determined by the Adviser and the client upon the engagement for investment advisory services. For either type of service, the Adviser will not receive commissions, front-end sales load or back-end sales load for any transactions it initiates on behalf of its clients’ accounts. When creating an investment proposal, regardless of whether such proposal fits within the scope of investment supervisory services or portfolio management services, the Adviser’s proposal first considers each client’s circumstances as it relates to the various stages of an investor’s life cycle: wealth accumulation, preservation and transfer. During the wealth accumulation stage, investors seek financial security and manage liabilities, save for major expenditures, begin to fund retirement, provide for children’s education and begin creating a legacy. Wealth preservation emphasizes conserving income and assets, management of cash flow, income taxes and retirement plan distributions as well as protection of assets in the event of disability, long-term care or death. Wealth transfer encompasses distribution of the investor’s estate to designated beneficiaries at the appropriate time and in the appropriate manner, and may include the transfer of wealth during the investor’s lifetime. 2.2 Methodology and Diversification The Adviser believes that adopting the proper asset allocation suited to each client’s needs is a key determinant of success in reaching the client’s financial goals. Portfolio recommendations are designed around four investor profiles: current income, income and growth, moderate growth, aggressive growth. Generally, these investor profiles are described as follows: • The primary objective of the ‘current income’ profile is to secure a stable income stream from reliable investments with an emphasis on principal protection. Current income investors are usually conservative in terms of risk. • The ‘income and growth’ investor primarily seeks a balance between fixed income for current income and equities for growth of capital and dividends. In terms of risk tolerance, an income and growth investor tends to be conservative-to-moderate. C er v i no Ca p it al M an a g em en t L L C Th e ne xt ste p in t r ad it i ona l inve stm ents . . . 6 of 19
  • 7. Managed Securities Disclosure Brochure 23-March-2009 • ‘Moderate growth’ investors target wealth accumulation, rather than current income over a long time horizon. Moderate growth investors tend to be willing to tolerate a moderate-to-high amount of principal risk. • The ‘aggressive growth’ client seeks above average capital growth over a long time horizon with little or no concern for income. Aggressive growth investors are more speculative and willing to accept a high degree of risk or volatility of returns. Portfolio diversification is a widely embraced investment strategy that helps counteract the unpredictability of the markets. A diversified portfolio helps reduce investment risk because the portfolios overall return is not limited to the performance of one specific security but is open to the performance represented by a collection of securities. In this way a single poorly performing investment is unlikely to compromise the entire portfolio. Additionally, investing in a selection of securities with differing investment characteristics and degrees of market sensitivity can help limit volatility in turbulent markets. A well-diversified portfolio can provide investors with the opportunity for growth with less overall portfolio volatility. Asset allocation is the strategic combination of securities from different asset classes, such as cash equivalents, fixed income, and equities to create a diversified investment portfolio. The term “asset class” describes a group of securities or type of investment that share similar risk and return characteristics. Blending different categories of securities within each asset class adds another layer of diversification to a portfolio. It is possible to diversify a portfolio beyond the traditional cash, fixed income and equity investments to include more focused sources of risk and return, such as market capitalization (e.g., small-capitalization stocks), credit quality (e.g., high- yield bonds), economic sectors (e.g., transportation, technology, healthcare), geographic regions (e.g., Europe, Asia, South America), and investment styles (e.g., growth versus value). Since all these asset classes have different risk and return characteristics, they are less correlated with each other, and there are potential benefits to be derived from combining such assets in a portfolio. 2.3 Active Portfolio Management There are several approaches to asset allocation, which differ in their required levels of active management and assumptions about investors’ risk tolerances, and about changes in economic and market expectations. Below are descriptions of some of the most popular forms: • Buy and hold – The most basic approach to asset allocation is a buy-and-hold strategy, in which an investor determines an initial allocation—for example 40% cash equivalents and 60% stocks—and then holds this portfolio throughout market fluctuations, without making adjustments. In the buy-and-hold approach, an investor will hold a greater percentage of stocks as stocks appreciate and a smaller percentage of stocks as stocks depreciate. Thus, the buy-and-hold approach to asset allocation implicitly assumes that the investor’s risk tolerance, defined as the willingness to hold stocks, changes with the level of wealth. • Strategic – Another approach is strategic asset allocation or constant-mix allocation. In strategic asset allocation, the investor establishes target portfolio percentages for each asset class, based on long-term capital market assumptions and the investor’s long-term attitude toward risk. Periodic adjustments are made to restore this targeted portfolio mix as the relative values of the asset classes change with respect to each other. Accordingly, asset classes that have grown at a faster rate are sold and those that have grown at a slower rate are purchased. Implicitly, strategic asset allocation assumes that the investor’s risk tolerance does not change with short-term fluctuations in the level of wealth. Nevertheless, in practice a constant mix target allocation can be reviewed periodically and revised to reflect changes in the investor’s circumstances. • Tactical – In tactical asset allocation, the portfolio’s target asset allocation is adjusted to reflect changes in the investor’s own shorter-term market expectations for the different C er v i no Ca p it al M an a g em en t L L C Th e ne xt ste p in t r ad it i ona l inve stm ents . . . 7 of 19
  • 8. Managed Securities Disclosure Brochure 23-March-2009 asset classes. Often, such adjustments reflect views about future market developments that are contrary to mainstream thinking. Exposure to asset classes that have appreciated beyond estimated fair value are reduced and the proceeds are reinvested in asset classes that are undervalued. Like strategic asset allocation tactical asset allocation implicitly assumes that an investor’s risk tolerance is stable over the investment horizon, regardless of the level of wealth. Unlike strategic asset allocation, tactical asset allocation anticipates changes in the relative value of different asset classes and seeks to benefit from adjusting the portfolio mix before these changes occur. Rebalancing portfolios is an important part of the process and involves the periodic review of the current asset allocation to identify and correct any deviation from the original asset allocation strategy and investor’s longer-term risk tolerance. Rebalancing potentially helps realize profits in an outperforming asset class before it begins to underperform, and increase the weight to an underperforming asset class before it begins to improve. Thus, within strategic asset allocation, rebalancing can increase an investor’s chances of selling high and buying low. 2.4 Portfolio Construction and Management When implementing the client’s asset allocation and investment plan, the Adviser will utilize a mix of exchange traded funds (ETFs); closed-end funds; no-load mutual funds; load-waived mutual funds (front-end and back-end commissions will not be charged); money market instruments; individual domestic and foreign equities; fixed income instruments; and other securities products such as Master Limited Partnerships (MLPs), convertibles, and options. When providing investment supervisory services the Adviser will work with its clients to identify their investment goals and timeframe as well as risk tolerance. Each portfolio will be initially designed to meet a particular investment goal and timeframe, which the Adviser has determined to be suitable to the client’s circumstances. Once the appropriate portfolio has been determined, the Adviser will review the portfolio at least quarterly and if necessary, rebalance the portfolio based upon changes in the Adviser’s economic outlook and market opinion as well as changes that may have occurred in the client’s stated priorities, goals and objectives. Generally, the Adviser’s strategy when providing investment supervisory services to clients will be to seek to meet client investment objectives customizing the client’s portfolio construction as may be needed, while providing clients with access to personal advisory services on at least an annual basis, or more often, depending upon prior agreement. When providing portfolio management services the Adviser will initially work with the client to identify his/her investment goals and timeframe as well as risk tolerance in order to determine if one or a combination of the Adviser’s standardized portfolio approaches is appropriate in meeting the client’s long-term investment objectives. However, the Adviser does not customize its portfolio management services based on the needs of any individual client, but rather the Adviser will manage client accounts within the selected portfolios’ design parameters and long term investment objectives. The Adviser currently offers the following three standardized portfolio strategies: Cornerstone Diversified Assets, Energy Income Advantage and Enhanced Yield Opportunities. Regular rebalancing of these portfolios as well as tactical adjustments due to short or intermediate term market expectations will be based solely upon changes in the Adviser’s economic outlook and market opinion. The Adviser does not vote proxies for clients. Additionally, in accordance with Section 204A of the Investment Advisers Act of 1940, the Adviser also maintains and enforces written policies reasonably designed to prevent the misuse of material non-public information by the Adviser. 2.5 Account Size, Discretion and Broker The minimum account size is $100,000, provided however, that under certain circumstances the Adviser may in its sole discretion accept smaller accounts. C er v i no Ca p it al M an a g em en t L L C Th e ne xt ste p in t r ad it i ona l inve stm ents . . . 8 of 19
  • 9. Managed Securities Disclosure Brochure 23-March-2009 The Adviser generally has discretion to purchase and sell client’s securities positions and determine the amount of securities to be purchased or sold. The Adviser does not maintain custody of client assets. The Adviser may execute or recommend that clients execute their securities transactions through various firms including, but not limited to broker- dealers such as the Fidelity Brokerage Services LLC (“Fidelity”), National Financial Services LLC (“NFS”), or Interactive Brokers LLC (“IAB”). These firms may charge commissions (ticket charges) for executing the Adviser’s transactions. The Adviser does not receive any part of these separate charges which are assessed directly to clients. It is important to note that Fidelity, NFS and IAB do not maintain supervisory relationships with respect to the Adviser or its representatives. 3. Advisory Fees 3.1 Fees Charged to the Account The client shall pay the Adviser a quarterly management fee in arrears for its services. The management fee will be based on the Account asset value (i.e., fair market value of the portfolio under management as reflected on the client’s brokerage statements) as of the last business day of each calendar quarter, and will become due the following business day. All fees that have not been paid shall accrue to the benefit of the Adviser. The management fee will be paid whether or not the Account has earned a profit for the quarter. For new Accounts the management fee shall be calculated on a pro rata basis as of the date of the Agreement. Although fees may vary depending on individual circumstances, the following annualized negotiable fee schedule will apply unless otherwise indicated: Account Asset Value Management Fee On the first $500,000 1.50% Annually (0.375% Quarterly) Between $500,001 and $1,000,000 1.25% Annually (0.3125% Quarterly) Over $1,000,000 1.00% Annually (0.25% Quarterly) The Adviser's fee will be debited from client's Account upon the custodian’s receipt of an invoice from the Adviser. Client may also pay the Adviser directly. If there is not adequate cash in the Account to pay the Adviser its fees, then it may be necessary to liquidate Account assets to cover those expenses, which may result in a loss to client. To the extent that there are any additions or withdrawals during the quarter, the management fee shall be adjusted on a pro rata basis for such additions or withdrawals as of the date such additions or withdrawals are made. In the event this Agreement is terminated by either party, the management fee shall be calculated on a pro rata basis as of the date termination occurred. Over the term of this Agreement, total fees paid for execution and supervision may result in payment of amounts in excess of trading costs that might have been paid on a per transaction basis. In addition to the Adviser’s annual investment management fee, the client may also incur certain charges imposed by unaffiliated third parties. Such charges include, but are not limited to, custodial fees, brokerage commissions, transaction fees, charges imposed directly by a mutual fund, index fund, or exchange traded fund purchased for the account which shall be disclosed in the funds prospectus (i.e., fund management fees and other fund expenses), wire transfer fees and other fees and taxes on brokerage accounts and securities transactions. Client acknowledges and agrees that the Adviser may charge the custodian account for certain additional assets managed for client by the Adviser but not held by the custodian (i.e. variable annuities, mutual funds, 401-K). No portion of the Adviser’s compensation shall be based on capital gains or capital appreciation of the Assets except as provided for under the Investment Advisers Act of 1940. C er v i no Ca p it al M an a g em en t L L C Th e ne xt ste p in t r ad it i ona l inve stm ents . . . 9 of 19
  • 10. Managed Securities Disclosure Brochure 23-March-2009 3.2 Additional Information Concerning Fees In certain circumstances, advisory fees and account minimums may be negotiable based upon prior relationships as well as related account holdings. The fees charged are calculated as described above and are not charged on the basis of a share of capital gains or capital appreciation of the client’s assets managed by the Adviser or any portion of the client’s assets managed by the Adviser. Clients can terminate, without penalty, Adviser’s Agreement within five business days. The client shall remain responsible for the payment of all accrued management fees that have not been paid to the Adviser. The Adviser provides advice to various types of clients, which may include, but not be limited to, hedge funds and non-U.S. persons. 4. Principal Risk Factors This section does not disclose all of the risks and other significant aspects of the Adviser’s investment program. Investors should carefully consider all of the risk factors described in this section and elsewhere in this Disclosure Brochure before engaging the Adviser’s advisory services. 4.1 Education and Business Standards The Adviser requires those involved in determining or providing investment advice to clients to meet certain general standards of education and several years of experience in the financial services industry. In addition, the Adviser requires successful completion of certain applicable industry examinations. 4.2 Privacy Statement and Client Data The Adviser is committed to safeguarding the confidential information of its clients and holds all personal information provided to it in the strictest confidence. These records include all personal information that the Adviser collects from its clients or receives from other firms in connection with any of the financial services they provide. The Adviser also requires other firms with whom they deal to restrict the use of clients’ information. The Adviser’s Privacy Policy is available upon client’s engagement of the firm’s services or by prior request of the clients. 4.3 Code of Ethics/Client Transactions The Adviser and/or its representatives may buy or sell for their personal account(s) investment products identical to those recommended to clients. It is the expressed policy of the Adviser that neither the Adviser, nor its representatives may purchase or sell any individual security prior to a transaction(s) being implemented for an advisory account. This policy is meant to prevent the Adviser and/or its representatives from benefiting as a result of transactions placed on behalf of advisory accounts. The Adviser has established the following restrictions in order to ensure its fiduciary responsibilities to clients are met: 1) The Advisers’ representatives shall not buy or sell securities for their personal portfolio(s) where their decision is substantially derived, in whole or in part, by their role as an Investment Advisory Representative of the Adviser, unless the information is also available to the investing public on reasonable inquiry. In no case, shall Adviser’s representatives prefer their own interest to that of their advisory clients.1 2 1 This investment policy has been established recognizing that some securities being considered for purchase and sale on behalf of the Adviser’s clients trade in sufficiently broad markets to permit transactions by clients to be completed without an appreciable impact on the markets of the securities. Under certain circumstances, exceptions may be made to the policies stated above. Records of these trades, including the reasons for the exceptions, will be maintained with Adviser’s records in the manner set forth above. C er v i no Ca p it al M an a g em en t L L C Th e ne xt ste p in t r ad it i ona l inve stm ents . . . 10 of 19
  • 11. Managed Securities Disclosure Brochure 23-March-2009 2) The Adviser emphasizes the unrestricted right of its clients to decline to implement any advice rendered. 3) The Adviser recognizes it must act in accordance with all applicable Federal and State regulations governing registered investment advisory practices 4.4 Risks Regarding Asset Modeling The Adviser’s investment advisory services and asset allocation recommendations have been developed based on historical performance of the standard asset classes (stocks, bonds and cash) and of representative index fund products, including ETFs, CEFs and index funds, as well as concepts of modern portfolio theory. Performance from such investment models are hypothetical and do not reflect actual investment results and does not guarantee future results. The Adviser’s analysis primarily focuses on index ETFs and CEFs that track to broad indexes, including foreign equity, domestic equity and bond indexes. Equity-based ETFs and CEFs are subject to risks similar to those of stocks, and fixed income-based ETFs and CEFs are subject to risks similar to those of bonds. Investment returns will fluctuate and are subject to market volatility, including the risk that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost. Foreign-based ETFs have unique and greater risks than domestic-based ETFs. Past performance is no guarantee of future results. 4.5 Balance Sheet and Custody of Assets The Adviser has not attached a balance sheet for its most recent fiscal year because it does not have custody of client funds or securities or require prepayment of more than $500 in fees per client and six or more months in advance. Clients must open and maintain a securities brokerage account with a Broker-Dealer with whom the client’s assets will be custodied and maintained. The Adviser is not permitted to accept or hold customers’ funds. Clients will receive trade confirmations and monthly account statements from their brokerage firm reflecting all transactions entered into by the Adviser on the client’s behalf. These records should be reviewed immediately upon receipt in order to monitor the status of the client’s account and should be retained for future reference. 4.6 Solicitation and Third Party Compensation The Adviser plans to directly or indirectly compensate persons for client referrals, but currently does not have any such arrangements. If the Adviser enters into such agreements, the client will be informed in writing about the terms of compensation paid by the Adviser to solicitors and will be provided with a solicitation disclosure statement and Part II of Advisers Form ADV. The Adviser may also refer clients to third party money managers and receive a portion of the advisory fee charged to the client by money managers within their programs. The amount of the Adviser’s portion of the fee will be disclosed to clients at the time of the referral. 4.7 Risks Regarding Electronic Trading The Adviser will undertake on behalf of clients transactions on electronic trading systems and clients will be exposed to risks associated with the system(s) including the failure of hardware and software. The result of any system failure may be that the Adviser’s order is either not executed according to instructions or is not executed at all. 2 Open-end mutual funds and/or the investment sub-accounts which may comprise a variable insurance product are purchased or redeemed at a fixed net asset value price per share specific to the date of purchase of redemption. As such, transactions in mutual funds and/or variable insurance products by the Adviser are not likely to have an impact on the prices of the fund shares in which clients invest, and are therefore not prohibited by the Adviser’s Investment Policies and Procedures C er v i no Ca p it al M an a g em en t L L C Th e ne xt ste p in t r ad it i ona l inve stm ents . . . 11 of 19
  • 12. Managed Securities Disclosure Brochure 23-March-2009 4.8 Taxation Matters: Consult Tax Adviser The relevant tax laws related to investment in the securities markets are complex. Furthermore, different considerations apply to each investor depending on his or her particular circumstances. The Adviser does not provide or purport to provide tax advice to any prospective investor or existing client. Each prospective investor or existing client should consult his or her tax adviser as to the tax consequences of an investment in the Adviser’s investment program. 5. Conflicts of Interest 5.1 Other Business Activities and Affiliations The Adviser is also registered with the Commodity Futures Trading Commission and is a member of the National Futures Association. Futures and options on futures trading account for about seventy (70%) percent of the Adviser’s time, which is currently conducted primarily through MF Global, Inc., PFG, Inc., Rosenthal Collins Group LLC and optionsXpress, Inc. Additionally, Messrs. Frankfurter and Accomazzo are licensed as Life Agents with the California Department of Insurance and are authorized to transact in the sale of commissionable life insurance products and variable contracts. This activity currently accounts for less than one- percent (1%) of their time. Mr. Frankfurter is also licensed as a Fire and Casualty Broker-Agent with the California Department of Insurance. The sale of commissionable property and casualty insurance products by Mr. Frankfurter currently accounts for less than one-percent (1%) of his time. In addition Mr. Frankfurter is a Member and Manager of NextStep Strategies, LLC which is also located at 747 Arrowood Lane, Suite 198, Oak Park, CA 91377. The main business of NextStep Strategies, LLC is to provide permanent and temporary employee recruitment services for companies in the financial services industry. On occasion NextStep Strategies, LLC also provides strategy consulting services to non-affiliated businesses including financial services- related companies. Mr. Frankfurter devotes approximately thirty percent (30%) of his time to the business activities of NextStep Strategies, LLC, which includes consulting services to Managed Account Research, Inc., a futures broker of which Mr. Frankfurter is registered as an Associated Person. In addition, Mr. Accomazzo, as adjunct professor of Pepperdine University, Graziadio School of Business and Management, devotes approximately twenty percent (20%) of his time to teaching. Finally, Messrs. Frankfurter and Accomazzo may act as finders for private equity investments. This activity would be conducted separately from the Adviser and would account for less than one-percent (1%) of their time. 5.2 Resident Insurance Producer Disclosure Pursuant to California Code of Regulations, 10 CCR Section 260.235.2 and Section 260.238(k), the Adviser hereby discloses that the Adviser is not, but certain of the Adviser’s representatives are licensed in the State of California as Resident Insurance Producers are appointed with various insurance companies as well as authorized to transact insurance on behalf of various insurance agencies/brokers. Such firms pay insurance producers a broker fee and/or commission for the sale of their insurance products. As such, a potential conflict of interest may exist between the Adviser’s interest and the clients. In certain cases, the Adviser may recommend that clients execute transactions through unaffiliated insurance companies. In any event, client is under no obligation to act upon the Adviser’s recommendations and if the client elects to act on any of the recommendations, the client is under no obligation to effect the transaction through the Adviser or any particular insurance company 5.3 Proprietary Account Activities The principals of the Adviser as well as the Adviser’s investment advisory representatives have in the past and will continue in the future to trade securities for their own accounts, and that the trading activity in their individual accounts may differ from the investment activity in any client account managed by the Adviser. In fact, it is possible that the positions taken by the Adviser’s representatives for their individual accounts may not be held for the same period of time as, and C er v i no Ca p it al M an a g em en t L L C Th e ne xt ste p in t r ad it i ona l inve stm ents . . . 12 of 19
  • 13. Managed Securities Disclosure Brochure 23-March-2009 may even be opposite to, those positions taken by the Adviser on behalf of its client accounts. No assurance may be given that the investment results in the accounts of the Adviser’s principals, Adviser’s investment representatives, or the Adviser’s proprietary account will be the same as the performance in any client account managed by the Adviser. Because of the proprietary nature of the principals’ and investment representatives’ trading records, prospective and existing clients will not be permitted to inspect such records. However, the Adviser will review this policy on a case by case basis. 6. Litigation THERE HAVE BEEN NO MATERIAL ADMINISTRATIVE, CIVIL OR CRIMINAL ACTIONS AGAINST THE ADVISER OR ANY OF ITS PRINCIPALS WITHIN THE PAST FIVE YEARS. 7. Balance Sheet The Adviser has not attached a balance sheet for its most recent fiscal year because it does not have custody of client funds or securities or require prepayment of more than $500 in fees per client and six (6) or more months in advance. C er v i no Ca p it al M an a g em en t L L C Th e ne xt ste p in t r ad it i ona l inve stm ents . . . 13 of 19
  • 14. Managed Securities Disclosure Brochure 23-March-2009 Appendix A - Part II Filing FORM ADV Uniform Application for Investment Adviser Registration Part II - Page 1 Name of Investment Adviser: Cervino Capital Management LLC Address: (Number and Street) (City) (State) (Zip Code) Area Code: Telephone Number: 929 Santa Barbara Street Santa Barbara CA 93101 (310) 849-5818 This part of Form ADV gives information about the investment adviser and its business for the use of clients. The information has not been approved or verified by any government authority. Table of Contents Item Number Item Page 1 Advisory Services and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 Types of Clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 Types of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4 Methods of Analysis, Sources of Information and Investment Strategies . . . . . . 3 5 Education and Business Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 6 Education and Business Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 7 Other Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 8 Other Financial Industry Activities or Affiliations . . . . . . . . . . . . . . . . . . . . . . . . 4 9 Participation or Interest in Client Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 5 10 Conditions for Managing Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 11 Review of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 12 Investment or Brokerage Discretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 13 Additional Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 14 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Continuation Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule F Balance Sheet, if required. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . .. . Schedule G C er v i no Ca p it al M an a g em en t L L C Th e ne xt ste p in t r ad it i ona l inve stm ents . . . 14 of 19
  • 15. Managed Securities Disclosure Brochure 23-March-2009 FORM ADV Applicant: SEC File Number: Date: Part II - Page 2 Cervino Capital Management LLC 801- 03/23/2009 Definitions for Part II Related person - Any officer, director or partner of applicant or any person directly or indirectly controlling, controlled by, or under common control with the applicant, including any non-clerical, non-ministerial employee. Investment Supervisory Services - Giving continuous investment advice to a client (or making investments for the client) based on the individual needs of the client. Individual needs include, for example, the nature of other client assets and the client’s per- sonal and family obligations. 1. A. Advisory Services and Fees. (check the applicable boxes) For each type of service provided, state the approximate % of total advisory billings from that service. Approx. Applicant: (See instruction below.) (1) Provides investment supervisory services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 100% (2) Manages investment advisory accounts not involving investment supervisory services . . . . . . . . . . . . . . . . . . . 0% (3) Furnishes investment advice through consultations not included in either service described above . . . . . . . . . . 0% (4) Issues periodicals about securities by subscription . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0% (5) Issues special reports about securities not included in any service described above . . . . . . . . . . . . . . . . . . . . . 0% (6) Issues, not as part of any service described above, any charts, graphs, formulas, or other devices which clients may use to evaluate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 0% (7) On more than an occasional basis, furnishes advice to clients on matters not involving securities . . . . . . . . . . . 0% (8) Provides a timing service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0% (9) Furnishes advice about securities in any manner not described above . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0% (Percentages should be based on applicant’s last fiscal year. If applicant has not completed its first fiscal year, provide estimates of advisory billings for that year and state that the percentages are estimates.) Yes No B. Does the applicant call any of the services it checked above financial planning or some similar term? . . . . . . . . . . . C. Applicant offers investment advisory services for: (check all that apply): (1) A percentage of assets under management (4) Subscription fees (2) Hourly charges (5) Commissions (3) Fixed fees (not including subscription fees) (6) Other D. For each checked box in A above, describe on Schedule F: the services provided, including the name of any publication or report issued by the adviser on a subscription basis or for a fee applicant’s basic fee schedule, how fees are charged and whether its fees are negotiable when compensation is payable, and if compensation is payable before service is provided, how a client may get a refund or may terminate an investment advisory contract before its expiration date 2. Types of Clients - Applicant generally provides investment advice to: (check those that apply) A. Individuals E. Trusts, estates, or charitable organizations B. Banks or thrift institutions F. Corporations or business entities other than those listed above C. Investment companies G. Other (describe on Schedule F) D. Pension and profit sharing plans C er v i no Ca p it al M an a g em en t L L C Th e ne xt ste p in t r ad it i ona l inve stm ents . . . 15 of 19
  • 16. Managed Securities Disclosure Brochure 23-March-2009 FORM ADV Applicant: SEC File Number: Date: Part II - Page 3 Cervino Capital Management LLC 801- 03/23/2009 3. Types of Investments. Applicant offers advice on the following: (check those that apply) A. Equity Securities H. United States government securities (1) exchange-listed securities (2) securities traded over-the-counter I. Options contracts on: (3) foreign issues (1) securities (2) commodities B. Warrants J. Futures contracts on: C. Corporate debt securities (1) tangibles (other than commercial paper) (2) intangibles D. Commercial paper K. Interests in partnerships investing in: (1) real estate E. Certificates of deposit (2) oil and gas interests (3) other (explain on Schedule F) F. Municipal securities L. Other (explain on Schedule F) G. Investment company securities (1) variable life insurance (2) variable annuities (3) mutual fund shares 4. Methods of Analysis, Sources of Information, and Investment Strategies. A. Applicant’s security analysis methods include: (check those that apply) (1) Charting (4) Cyclical (2) Fundamental (5) Other (explain on Schedule F) (3) Technical B. The main sources of information applicant uses include: (check those that apply) (1) Financial newspapers and magazines (5) Timing services (2) Inspections of corporate activities (6) Annual reports, prospectuses, filings with the Securities and Exchange Commission (3) Research materials prepared by others (7) Company press releases (4) Corporate rating services (8) Other (explain on Schedule F) C. The investment strategies used to implement any investment advice given to clients include: (check those that apply) (1) Long term purchases (5) Margin transactions (securities held at least a year) (2) Short term purchases (6) Option writing, including covered options, (securities sold within a year) uncovered options or spreading strategies (3) Trading (securities sold within 30 days) (7) Other (explain on Schedule F) (4) Short sales C er v i no Ca p it al M an a g em en t L L C Th e ne xt ste p in t r ad it i ona l inve stm ents . . . 16 of 19
  • 17. Managed Securities Disclosure Brochure 23-March-2009 FORM ADV Applicant: SEC File Number: Date: Part II - Page 4 Cervino Capital Management LLC 801- 03/23/2009 5. Education and Business Standards. Are there any general standards of education or business experience that applicant requires of those involved in Yes No determining or giving investment advice to clients? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (If yes, describe these standards on Schedule F.) 6. Education and Business Background. For: each member of the investment committee or group that determines general investment advice to be given to clients, or if the applicant has no investment committee or group, each individual who determines general investment advice given to clients (if more than five, respond only for their supervisors) each principal executive officer of applicant or each person with similar status or performing similar functions. On Schedule F, give the: name formal education after high school year of birth business background for the preceding five years 7. Other Business Activities. (check those that apply) A. Applicant is actively engaged in a business other than giving investment advice. B. Applicant sells products or services other than investment advice to clients. C. The principal business of applicant or its principal executive officers involves something other than providing investment advice. (For each checked box describe the other activities, including the time spent on them, on Schedule F.) 8. Other Financial Industry Activities or Affiliations. (check those that apply) A. Applicant is registered (or has an application pending) as a securities broker-dealer. B. Applicant is registered (or has an application pending) as a futures commission merchant, commodity pool operator or commodity trading adviser. C. Applicant has arrangements that are material to its advisory business or its clients with a related person who is a: (1) broker-dealer (7) accounting firm (2) investment company (8) law firm (3) other investment adviser (9) insurance company or agency (4) financial planning firm (10) pension consultant (5) commodity pool operator, commodity trading (11) real estate broker or dealer adviser or futures commission merchant (12) entity that creates or packages limited partnerships (6) banking or thrift institution (For each checked box in C, on Schedule F identify the related person and describe the relationship and the arrangements.) D. Is applicant or a related person a general partner in any partnership in which clients are solicited to Yes No invest? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (If yes, describe on Schedule F the partnerships and what they invest in.) C er v i no Ca p it al M an a g em en t L L C Th e ne xt ste p in t r ad it i ona l inve stm ents . . . 17 of 19
  • 18. Managed Securities Disclosure Brochure 23-March-2009 FORM ADV Applicant: SEC File Number: Date: Part II - Page 5 Cervino Capital Management LLC 801- 03/23/2009 9. Participation or Interest in Client Transactions. Applicant or a related person: (check those that apply) A. As principal, buys securities for itself from or sells securities it owns to any client. B. As broker or agent effects securities transactions for compensation for any client. C. As broker or agent for any person other than a client effects transactions in which client securities are sold to or bought from a brokerage customer. D. Recommends to clients that they buy or sell securities or investment products in which the applicant or a related person has some financial interest. E. Buys or sells for itself securities that it also recommends to clients. (For each box checked, describe on Schedule F when the applicant or a related person engages in these transactions and what restrictions, internal procedures, or disclosures are used for conflicts of interest in those transactions.) 10. Conditions for Managing Accounts. Does the applicant provide investment supervisory services, manage investment advisory accounts or hold itself out as providing financial planning or some similarly termed services and impose a minimum dollar value of Yes No assets or other conditions for starting or maintaining an account? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (If yes, describe on Schedule F.) 11. Review of Accounts. If applicant provides investment supervisory services, manages investment advisory accounts, or holds itself out as providing financial planning or some similarly termed services: A. Describe below the reviews and reviewers of the accounts. For reviews, include their frequency, different levels, and triggering factors. For reviewers, include the number of reviewers, their titles and functions, instructions they receive from applicant on performing reviews, and number of accounts assigned each. Michael "Mack" Frankfurter, Managing Member, Managing Director, Chief of Operations and Chief Compliance Officer and Davide Accomazzo, Managing Member, Managing Director and Chief Investment Officer review all accounts on at least a quarterly basis. More frequent reviews may be necessary due to the client's individual circumstances, and/or economic conditions, general factors affecting the stock market, etc. B. Describe below the nature and frequency of regular reports to clients on their accounts. Clients will receive transaction confirmations and monthly or quarterly statements from their account custodians. C er v i no Ca p it al M an a g em en t L L C Th e ne xt ste p in t r ad it i ona l inve stm ents . . . 18 of 19
  • 19. Managed Securities Disclosure Brochure 23-March-2009 FORM ADV Applicant: SEC File Number: Date: Part II - Page 6 Cervino Capital Management LLC 801- 03/23/2009 12. Investment or Brokerage Discretion. A. Does applicant or any related person have authority to determine, without obtaining specific client consent, the: Yes No (1) securities to be bought or sold? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes No (2) amount of the securities to be bought or sold ? . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes No (3) broker or dealer to be used ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes No (4) commission rates paid? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes No B. Does applicant or a related person suggest brokers to clients? . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . For each yes answer to A describe on Schedule F any limitations on the authority. For each yes to A(3), A(4) or B, describe on Schedule F the factors considered in selecting brokers and determining the reasonableness of their commissions. If the value of products, research and services given to the applicant or a related person is a factor, describe: the products, research and services whether clients may pay commissions higher than those obtainable from other brokers in return for those products and services whether research is used to service all of applicant’s accounts or just those accounts paying for it; and any procedures the applicant used during the last fiscal year to direct client transactions to a particular broker in return for products and research services received. 13. Additional Compensation. Does the applicant or a related person have any arrangements, oral or in writing, where it: A. Is paid cash by or receives some economic benefit (including commissions, equipment or non-research services) from a Yes No non-client in connection with giving advice to clients? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes No B. Directly or indirectly compensates any person for client referrals? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (For each yes, describe the arrangements on Schedule F.) 14. Balance Sheet. Applicant must provide a balance sheet for the most recent fiscal year on Schedule G if applicant: has custody of client funds or securities; or requires prepayment of more than $500 in fees per client and 6 or more months in advance Yes No Has applicant provided a Schedule G balance sheet? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C er v i no Ca p it al M an a g em en t L L C Th e ne xt ste p in t r ad it i ona l inve stm ents . . . 19 of 19