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HomeMy WebLinkAbout2007 01 31 Document Given To Board Members At Meeting For Regular 302 - Lateef Investment Mgmt.Date: January 31, 2007 FOLLOWING DOCUMENT WAS GIVEN TO THE BOARD OF TRUSTEE MEMBERS AT THE MEETING ON JANUARY 31, 2007 REGARDING REGULAR AGENDA ITEM 3 02 . LATEEF I N V E S T M E N T M A N A G E M E N T Ryan Willson Managing Director Client Service & Marketing November , 2006 LATEEF INVESTMENT PHILOSOPHY Our primary goal is to preserve capital for our clients followed by our responsibility to increase capital at a rate superior to market averages on a long-term basis. We do this by buying and holding outstanding businesses with a consistent and sustainable high return on capital that are led by owner-oriented management teams of high integrity. Then we patiently wait to buy these companies when they are trading at a reasonable or bargain price. We further limit risk and maximize return by relying heavily on our own intensive fundamental research. 2 LATEEF BAC KG RO U N D • Founded in 1974 • Experienced Investment Team • 100% Employee Owned • $3.5 Billion Under Management • Bottom-up, Research Driven, Concentrated • Consistent, Superior Long-Term Results 3 LATEEF ORGANIZATIONAL OVERVIEW Portfolio Management • K.A. "AI" Lateef, CFA, Managing Director & Sr. Portfolio Manager • Roland Underhill, Managing Director & Sr. Portfolio Manager • Scott Chapman, CFA, Managing Director & Sr. Portfolio Manager • Quoc Tran, Sr. Portfolio Manager • Dave Tudor, Trader • Brad Uzelac, Trader Operations & Compliance • Justus Leachman, Managing Director • Anna Hysinger, Operations Associate • Matt Schaefer, Operations Associate • Steven Alderson, Operations Associate • Margaret Reynolds, Operations Associate • Kim Haworth, Operations Associate Client Service & Marketing • Ryan Willson, Managing Director • John Shepherd, Director • Jennifer Lavin, CIMA, Director • Emily Eisenbarth, Director 4 LATEEF PORTFOLIO MANAGEMENT PROCESS Company Visits Industry Sources Investment Database and Discussions and Periodicals Conferences and Wall Screening Street Research Source of Ideas All-Cap Growth LMA Due Assess Business Evaluate Company Diligence Process and Financial Management Characteristics Team Appraisal Pyramid of Growth `~ Preserve & Grow Capital ~ Estimate Intrinsic Value and Compare Better Substitute for i to Market Price Existing Holding? ~~. Fully Invested Portfolio 15 - 20 Companies Tax Aware Lead PM Responsible for ; `~15 - 25% Turnover Managing Account 5 ~` .r LATEEF PYRAMID OF GROWTH Grov~th at a Reasonable Price VALUATION . ; ~ Price Below ' Intrinsic Value ~j ~ PE < ROIC MANAGEMENT Owner-Oriented Respected, Candid, Management Willing Accessible and to Buyback Stock Communicative Proven Track Record Consistently High High Margins, Strong of Financial Success ROTC Cash Flow and Zero to Moderate Debt BUSINESS Sustainable High Barrier to Entry Stable Growth A Business We Competitive Leader -prefer "one Business with Open- Understand Advantage of a kind business" ended Opportunity 6 LATEEF SECURITY SELECTIOI`~l McGraw-Hill Companies • McGraw-Hill (MHP) is a global information provider serving the financial (Standard & Poors, Compustat), education (McGraw-Hill textbooks) and business information markets (Business Week, Aviation Week, J.D. Power). Business: - Leading Brands in attractive growing markets: • Standard & Poor's (40% global market share) is a beneficiary of securitization and privatization of debt markets. • Compustat (leading provider of data for financial markets). • McGraw-Hill textbooks will benefit from No Child Left Behind, legislation for mandatory testing and growing worldwide demand for education to compete in a knowledge economy. • Business Week (75 year history), Aviation Week and J.D. Power are leading trade and reference publications. - High Return on Invested Capital of 36%, adjusted for excess cash on the balance sheet. - Proven Track Record of Financial Success with a 5 year CAGR in earnings of 25%. - Generates Free Cash Flow yield of 5.6% (at $55/share) and has a free cash flow margin of 24% of sales. - Strong Balance Sheet with no debt and cash & investments of $2/share. - Above Average Operating and Net Margins of 23% and 14% respectively. Management: - Respected management team that is shareholder oriented. Has repurchased stock in each of last ten years. Announced plans in early 2006 to repurchase 55 million shares or 15% of total shares with almost one-half to be completed in 2006. Repurchased 18.4 million shares in Q 12006 (5% of shares outstanding) for almost $ I billion which exceeds its largest annual repurchase ever. Valuation: - MHP's median PE for last 13 years is 20.6x. 7 LATEEF SECURITY SELECTION Expeditors International • Expeditors (EXPD) is a non-asset based freight-forwarding company also referred to as a third-party logistics company. EXPD buys cargo space in bulk on planes and ships and resells it to over 30,000 customers that need shipping services. EXPD's largest air freight-forwarding's trade lane is between the U.S. and Asia. Business: - Beneficiary of several powerful secular trends. EXPD is a tollgate on international trade, especially with Asia. Asia represents about 27% of revenues but 44% of operating income. EXPD is also a beneficiary of greater foreign sourcing, outsourcing, improving supply chain efficiency, manufacturers moving operations to Asia, and increased security concerns. - Barriers to Scale. EXPD has an extensive global network of over 200 offices and is considered a market leader with 2% share in a fragmented market. EXPD has developed its own proprietary electronic data interface which has been built from within over the past 25 years. High Return on Invested Capital of over 40%. - Proven Track Record of Financial Success with a 5 year CAGR in sales and earnings of 21 % and 25% respectively. - Strong Balance Sheet with no debt and cash & investments of $5/share. - Superior Operating and Net Margins of 29% and 20% respectively. Management: - Strong Employee Empowerment and Performance Driven Culture. The cornerstone of its success from inception is its 25% of pre-tax operating profit bonus plan for its employees monthly. Forbes named EXPD as one of the best managed companies in America in its Jan. 10, 2005 issue. Valuation: - We were last buyers of Expeditors below $50/share where it was less than 25x 2006 estimated EPS. 8 LATEEF TOP 25 HOLDINGS as of October 3 I St, 2006 CONSUMER DISCRETIONARY • Disney • Gentex • Harley Davidson • ITT Educational Services • Lowes • McGraw-Hill • Tiffany CONSUMER STAPLES • Brown Forman • Walgreen ENERGY • Suncor HEALTH CARE • Genentech • Techne *See Footnote #1 on "Disclosure" page. FINANCIALS • American Express • Berkshire Hathaway • Financial Federal • First American Corp • Moodys INDUSTRIALS • 3M Company • CH Robinson • Expeditors • Fastenal • Rockwell Collins TECHNOLOGY • Apple • Intel • Texas Instruments 9 LATEEF SELL DISCIPLINE There are five reasons for a sale • Position increases to 15% we will trim • Overvaluation • Deteriorating Fundamentals • Better Idea With More Conviction • Recogn ize a M istake ~o LATEEF PORTFOLIO CHARACTERISTICS as of June 30T", 2006 Lateef ROE - 5 Year Average 24,7 ROE - I Year 26.2 Debt/Capital 25.9 EPS Growth - 5 Years 17.4 Cash Flow 5 Year Growth 14.7 EPS Variability 27 P/E 5 Year Average 21.9 P/E 23.8 Market Cap Average 11.3 Market Cap Median 9.3 Beta 0.7 Number of Holdings 17 *See Footnote #2 on "Disclosure" page. LATEEF MULTI-STATIC QUARTILE RANKING BAR PSN ALL CAP UNIVERSE December 3 I St, 2000 to December 3 I St, 2005 HIGH (0.95) 1st QUARTILE MEDIAN 3rd QUARTILE LOW (005J MEAN VALID COUNT AI pHe 13.40 6.93 4.04 0 70 -4.42 3.99 251 ALUE RANK Lateef Mgmt All Cap Growth 9.50 10 Standard & Peor's 500 -1.11 91 ®Russe113000 0.00 84 *See General Disclosure on "Disclosure" page. RFTIl 0.02 O.BO 0.95 1.04 1.46 0.91 251 ALUE RANK 0.80 25 0.97 55 1.00 65 V..p7 J V V.. O.C7 _____ O.t 0.7 - 5 ------ 2 ----- 0.71 0.6 10 - -- 0.61 0.4 i - 0.5 15 - -- 0.3 0.4 0 - --- • 0.2 - 0.3 - 20 - -- 1 0 - . 0.2 ------------- -1 ---- ®--------- 0 0 - .-- . ... . ^ 25 _ < -- 0 1 ------------- -0.1 - ~ . 2 - ---------------- 0.0 ---------^-- -0.2 - 30 -0.1 ------------- -0.4 -3 35 -0.2 CHIlRPF CMP 0.73 0.43 0.21 0.01 -0.26 0.22 251 ALUE RANK 0.60 9 -0,09 69 -0.03 62 INFn Re Tln 1.57 O.Bfi 0.49 0.04 -0.75 0.46 251 GLUE RANK 1.40 3 -1.06 99 0.00 79 CTn nFU 7.17 16 06 18.14 ZO 61 29 70 18 28 251 ALUE RANK 15.66 22 17.71 45 18.33 52 ReT evn 0. BO Ofi5 o. so 0.50 0.40 0.58 251 ALUE RANK 0.80 1 0.35 99 0.00 99 A A 1 R_cnl______, i____eGFn 0.99 0.93 0.88 0.80 0.36 0.84 251 ALUE RANK 0.88 52 1.00 1 1.00 1 12 LATEEF LATEEF VS. S&P 500 December 3 I St, 1990 to December 3 I St, 2005 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 *See General Disclosure and Footnote #3 on "Disclosure" page. ~ 3 k Md L ~~ LATEEF Zs~ro Zo~ro 1 s~io 1 o~io s~io o~io LATEEF VS. S&P 500 December 3 I St, 1990 to December 3 I St, 2005 1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS *See General Disclosure and Footnote #4 on "Disclosure" page. 14 LATEEF CAPTURING THE UPSIDE WHILE LIMITING THE DOWNSIDE • Over the last 10 years, Lateef has captured 100+% of the upside and 0% of the downside compared to the S&P 500. *See General Disclosure and Footnote #5 on "Disclosure" page. 15 LATEEF MARKET CAPTURE December 3 I St, 2000 to December 3 I St, 2005 0 Q w a d U W a D©WNSIDE CAPTURE RATIO UPSIDE CAP ROR UPSIDE CAP RATIO DWN CAP RDR DWN CAP RATIO R-SQUARED Lateei Mgmt All Cap Growth 34.78 140.65 -20.93 64.14 0.85 Standard & Poor's 500 24.73 100.00 -32.63 100.00 1.00 Russell 3000 27.12 109.69 -33.02 101.20 1.00 *See General Disclosure on "Disclosure" page. 16 -25 0 25 50 75 100 125 LATEEF 35 QUARTILE RANKING BAR PSN ALL CAP UNIVERSE December 3 I St, 1990 to December 3 I St, 2005 z _: ~ 20 ---- --- - - -- -- ------------- ~ 15 ---- ® --- O 10 ---- - -- --- w ------------------------------------------- -10' HIGH (0.05} i~i~nne_a~~~nn+~ 20.52 ~~r~nn~~i~nn~ 29.67 ~~nnnn~~r~nn5 15.41 ~~~~oaa_~~i~nn+~ 19.08 t~r~oo5_a~r~nn~ 18.33 ~~~~aan~~i~nn~ 20.69 FIRST QUARTILE 11.75 21.41 6.6d 11.16 14,51 15.85 MEDIAN 8.13 18.07 5.68 7.65 1204 1 d.17 THIRD QUARTILE 5.13 15.12 2.25 4.47 9.85 12.37 LOW (0.95} -1.26 6.26 -3.79 0.13 6.32 9.21 MEAN 8.50 18.41 5.53 7.95 12.11 14.16 VALID COUNT 298 286 251 199 146 85 1212004-1212005 12/2002-1212005 1212000-1212005 1211998-1212005 1211995-1212005 12!1 99 0-1 212 0 0 5 VALUE RANK VALUE RANK VALUE RANK VALUE RANK VALUE RANK VALUE RANK Lateef M mt All Ca Growth 15.14 8 21.12 28 11.83 8 15.36 5 18.65 1 16.70 9 Standard & Poor's 500 4.89 78 14.39 81 0.54 88 1.76 94 9.07 86 11.52 87 RuSSe113000 6.15 68 15.91 69 1.58 81 2.76 89 920 85 11.86 81 *See General Disclosure on "Disclosure" page. ~ 7 LATEEF WHY LATEEF? • An experienced investment team • Thirty one year track record • Long term quality/growth approach • Objectives aligned with our clients • Superior long term investment results - Downside protection - Low volatility - Top I % in peer group for absolute & risk adjusted returns .8 LATEEF COMPLETE COMPOSITE PRESENTATION NON-TAXABLE ALL-CAP GROWTH EQUITY COMPOSITE September 30, 2006 191 f zs% loo 90 s9s m lamef Composite 2 ~ fated Canpos0e 3 H P 500 Total 8 0 I lPA . 7 0 . IS% 6 0 . S55 m 5.0 to^/ e I 5 H P 500 Toml Ronan - 20 I l"L Vt ?\LV2~ ~\L: li~ 1~~1'F 1H? It 1" FaRS 10 . . _ 19 91 1991 1995 190] 1999 3001 3103 2W5 300] Composite 5 S P 500 Cpmppaile Awmge Tdel Fnn permd of Anrual Conpocae S B p 5W Compotib 5 8 P 500 Garcmae 5 8 P 500 Tdel S 4 P 500 Canpoeae Total Nrmnar W A Firm Corteeeae Year Ertlig Trial Retun Trial R del Rraun Toml Tr>ml Rrnan Tdel ReNn TNeI Reaan ToW Retvn Ream Aaua6 IS lAfore) (fAe4) (flJ.q AvHS OwMrabn YTD 5.51 8.50 Sep-08 937 10.73 1881 12.2] 14.98 8.95 18.]8 8.57 1997 10]3 4]8 68002 1A3 33]0]5 20.15 3.78 2005 14.23 495 20.38 14.38 10.98 0.53 1].70 0.05 15.]7 11.48 2W 353.77 1.35 2113.84 16.]9 4.25 2004 18.54 10.88 13.51 3.55 10.54 -2.31 18.87 12.00 182 197.25 1.05 1135.84 18.84 4.70 2003 31.03 28.58 8.16 JOB 14.14 -0.58 18.80 11 03 132 135.01 1.02 817.38 18.52 3 81 2002 J.22 -21.09 2.62 -14.50 12.21 -0.59 td.82 9.31 1W 7893 O.]7 548 B2 1462 987 1001 0.83 -11 88 15.57 -1.02 20.28 10.68 15.83 12.80 70 72 3B 1.03 475.73 15.21 5.51 2000 1181 -9.07 22.5] 12.25 24.81 18.30 18.21 1741 55 ]1.60 1.32 431.32 18.83 8.27 1988 38.79 21.03 3084 27.51 28.09 28.49 d0 59.]3 1.19 358.95 18.80 12Bd 1998 20.30 28.52 25.53 28.18 19.52 2399 40 4480 1.12 328.82 13.55 8.89 1997 35.48 33.29 2].87 3107 1].50 20.20 30 34.15 1.14 290.23 11.45 5.85 t 998 21.38 12.88 14.39 10.60 11.17 15.1] 28 24.25 0.93 238.97 10.23 3.98 1985 2].14 3].1] 10.84 15.28 12.01 18.53 20 18.82 0.89 219.18 788 1083 1990 3 01 1 28 3.21 8.25 17 15.50 0 91 189.08 H 20 2.84 1993 10.43 70.00 12.66 1559 15 14.17 0.94 18201 7.78 5.13 1992 2.14 7.62 ~ 16 13 10 0 82 169.93 7 71 260 1991 2'Ot 3033 C62 14]93 667 a90 Leled InwsMent Management (laleef) is n Intlepentlent mwsbnent edNSOry firm esmdisnee in 1974. LaOaef is registered vittr the Securities and Exchange Commission render th Inwsnnen[ AdNSOrs Act d 1910. Lalad i¢ Madgwrbrea in Greendae, Califomie and maintains an oR in Portlentl, l3regm. TM Lated All-Cep Grewlh Equity sbabgy focuses on inwstilg in companies w8h above average pofiLdlity et a reasorede price. The Ind Non-Taaatle All-Cap CrpeiN Epttty WtrrpeNle ixWdes all disaenaury, con-tezade, fee-paying accounts employing mi¢ alretear that hew been ender mangemed f« d lead mrea hall m9nu¢. ResWts presented are nmewdghbd Idol rats d retrvn e~ressetl in U.S. Ddlers. PeAormanm rewlb rdbcl ell mcane, gains em bases eM the remwshnemt d idere¢1 entl otlwr income. All roles d realm ere reported 'NET' d fees. Amitiorel mformehon repaeding Bra pdide¢ for ~culeling end repor809 real sit Is ewilebb upon request. Pest fnrfamarroo is trot indicative of Nlure rewks. the scluel reNm old wlue of an account will euctueM erd d any point in time coultl tie worth more a bas then tlw emcunt inindly invested. The average market cepibkmnon d portfdios in the composite may tli8er 1bm tlx weighbd awrege meM1N reghlinnon d rite index. AddiSOndly, the wlentity d the IMea may be greeter a b¢a then the wlatllity d Bra portfdas in Ne camposib. The composite creation date is Jenwry 2003. A complete Iiaeng antl tlescdption of ell Leleef composites end performance rew8s is wilabk upon request. The a noel compos8e dispersion presentm is m eautwnghtetl Wamertl tleNaBOn for Ifw ecoounts IncWded in Ne composib fa the enure year. Fa Bra period ending 12/Jl/O5, the composib codeined WRAP fee aawnfs representing 1041 % d Bra composite assets. The WRAP lee sxounts pay en eltirciusiw fee based on e romenmx d .¢aet¢ ender m.n.gement In .micron m tamer m.negement fans, tnia tee m.y repre¢ent ¢ommi¢¢¢ion¢. pr.troup modmdn9. opnwinng aaen¢a¢ .ntl caabdial eeruae¢ charged by Ne WRAP sponsor. Laleefs Stendartl Fee Sdwdub. Few Msdret Vdw Annual Fee % First 315,000,000+ 10% Nero ft5,009,999• 3I1% NeN St S.000.I%q+ Sl8% Oter $05,000,000 1896 Leteef nos preperetl entl presened tMa report In complianm with tlw Global Inwannent Performance Standards (GIPS®). The CFA InaBMe not been Inwlwd in the prepsrenon a rewew of Ihis report. Soo Uanaus Lnnnrn<: Hn. Sxe too Gaeen'nene, CA 94909 rno~ 4rJ-44r-3tlcc ens irt-44r-c934 vvs.ewicr.r r..... I . . LATEEF DISCLOSURE GENERAL DISCLOSURE a) Lateef Investment Management (Lateef) is an independent investment advisory firm established in 1974. Lateef is registered with the Securities and Exchange Commission under the Investment Advisors Act of 1940. Lateef is headquartered in Greenbrae, California and maintains an office in Portland, Oregon. b) Past performance is not indicative of future results. The actual return and value of an account will fluctuate and at any point in time could be worth more or less than the amount initially invested. c) The average market capitalization of portfolios in the composite may differ from the weighted average market capitalization of the index. d) The volatility of the index may be greater or less than the volatility of the portfolios in the composite. e) Results presented are time-weighted total rates of return expressed in U.S. Dollars. Performance results reflect all income, gains and losses and the reinvestment of interest and other income. All rates of return are reported "NET" of fees. Additional information regarding the policies for calculating and reporting returns is available upon request. f) A complete listing and description of all Lateef composites and performance results is available upon request. FOOTNOTE DISCLOSURE I) The top 25 holdings presented represent the 25 largest aggregate positions held across all accounts included in the Lateef Non- Taxable All-Cap Growth Equity Composite. 2) The portfolio characteristics presented are derived from a actual account (representative account) in the Lateef Non-Taxable All-Cap Growth Equity Composite. The characteristics of the entire composite or other accounts in the composite may deviate from the characteristics of this representative account 3) The "Growth of $1,000,000" chart represents the hypothetical compounded growth of $1,000,000 invested in the Lateef Non- Taxable Growth Equity composite from 1/1/1991 through 12/31/2005. The growth is calculated using the returns of the entire composite and does not represent the returns of an actual account in the composite. 4) The "Annualized Return" bar chart represents the I, 3, 5, 10 and 15 year annualized returns for the Lateef Non-Taxable All-Cap Growth Equity Composite from I / I / 199 I through 12/3 I /2005. The returns presented are calculated using the returns of the entire composite and does not represent the returns of an actual account in the composite. 5) The Upside/Downside bar charts represent the calendar year returns for the Lateef Non-Taxable All-Cap Growth Equity Composite and the S&P 500 Total Return Index. The Annualized Returns in each chart represent the linking of up year and down year returns and does not represent the actual returns of the composite or the index. 20 Date: January 31, 2007 THE FOLLOWING DOCUMENT WAS GIVEN TO THE BOARD OF TRUSTEE MEMBERS AT THE MEETING ON JANUARY 31, 2007 REGARDING REGULAR AGENDA ITEM 3 02 . I N T R O D U C T I O N Founded in 1974 by Khateeb A. Lateef, Lateef Investment Management, LP, provides professional portfolio management to individuals for taxable and retirement accounts, and to corporate pension plans, charitable foundations, and academic endowments through separately managed accounts THERE ARE SEVEN PRIMARY WAYS IN WHICH LATEEF DIFFERS FROM OTHER INVESTMENT MANAGEMENT FIRMS: ^ We focus on absolute returns, and have an excellent track record of preserving capital and outperforming the S&P 500 with less risk.. ^ Our investment process is research intensive, clearly defined, and has been consistently applied for over 30 years. ^ Our investment team has over 100 years of portfolio management experience. ^ Our opportunistic investment approach provides flexibility to take advantage of ever changing market conditions. ^ Our portfolios are concentrated. ^ We focus on the long term. ^ Lateef is 100% employee owned, and our team members are invested heavily in the firm. We prosper only if our clients prosper. The cornerstone of our investment philosophy is to first preserve capital for our clients followed by our responsibility to increase capital in excess of the market average on a long-term basis. We do this by buying and holding outstanding businesses with a sustainable competitive advantage led by an owner-oriented management team of high integrity. Then we patiently wait to buy these companies when they are at a price below their intrinsic value. We limit risk by relying heavily on our own intensive research and collective experience. OUR GOAL IS TO PROVIDE FINANCIAL PEACE OF MIND FOR OUR CLIENTS BY GENERATING SUPERIOR INVESTMENT RETURNS WHILE MINIMIZING RISK THROUGH OUR INTENSIVE DUE DILIGENCE, UNWAVERING METHODOLOGY AND STEADFAST DEDICATION TO QUALITY AND INTEGRITY. THE L A T E E F TEA M We are dedicated to providing our clients with superior investment results, timely and compliant reports, and responsive and professional client service. We are organized into three areas: portfolio management, operations and compliance, and client service and marketing. PORTFOLIO MANAGEMENT TEAM Our Portfolio Management Team has over 100 years of collective investment experience. All members have been Research Directors for various organizations and share a passion for direct, insightful research. All research and portfolio management decisions are ~' ~. made by the team, then implemented across all client accounts. Together, they decide which stocks are owned in client portfolios. ~ ~.. ' Our team-based structure is built on the foundation of a clearly defined investment process which includes 25 distinct investment ,. '? criteria and a strict pricing discipline. The team consists of four ~~,•~ 4~~<- ~~A~ ~~~~ ~E6 Managing Directors: Khateeb Lateef, CFA, Roland Underhill, ~A1 ~ s'~"or ~ PMA~ Scott Chapman, CFA, and Quoc Tran. Khateeb Lateef, CFA, founded Lateef Investment Management in 1974. Prior to forming Lateef Investment Management, he was a General Partner at Hambrecht & Quist as Research Director since 1970. In 1964, Mr. Lateef joined Glore Forgan, Wm. R. Staats, Inc., which later merged with FI Dupont. At the time of the merger, Mr. Lateef was Vice President and voting stockholder in charge of West Coast research. In 1959, he joined the Trust Investment Department of the Bank of America as a securities analyst. He received his BS degree from Fordham University. Roland Underhill joined Lateef Investment Management in 1994. He has been in the securities investment business since 1961, as a Senior Vice President and research analyst at Van Kasper & Co., and as Director of Research and a partner at Crowell, Weedon & Co. He was a portfolio manager and principal at both Dillon Read & Co. and Wilkinson & Underhill. He received his BS degree from UCLA and played basketball for legendary Coach John Wooden. Scott Chapman, CFA, MBA, joined Lateef Investment Management in March, 2002. Previous positions included Senior Portfolio Manager, Director of Large-Cap Growth Strategy, and Research Director at Dreyfus Founders Asset Management, and Senior Portfolio Manager and Director of Growth Strategy at HighMark Capital Management. He received his BS degree from Santa Clara University and his MBA, Finance, from Golden Gate University. Scott taught investment principles to CFA candidates in San Francisco for seven years. Quoc Tran, MBA, joined Lateef Investment Management in November 2005. In 2002, Quoc joined Wallace R. Weitz & Co. as Head of Private Client Services, Portfolio Manager, and Research Coordinator/Analyst. There, he contributed to the management of over S8 billion in client assets, personally managing and generating superior returns for institutional and high-net-worth family accounts. Previously, he spent five years at Goldman Sachs and Co. as an institutional sales professional, leaving the company as Vice President and Director in the Equities Division. He received his BA degree from Bates College and his MBA in Finance from the University of Chicago. OPERATIONS AND COMPLIANCE TEAM Led by Justus Leachman, Managing Director, the Operations and Compliance Team includes the following Operations Associates: Anna Hysinger, Matt Schaefer, Steven Alderson, Margaret Reynolds, and Kim Haworth, as well as our Traders, David Tudor and Brad Uzelac. The Traders work closely with the Portfolio Management Team to implement and execute investment decisions across our clients' portfolios. The Operations Team ensures that our books and records are maintained in compliance with federal and state regulations and that our clients' portfolios are reconciled with the custodians' records. CLIENT SERVICE AND MARKETING TEAM Led by Ryan Willson, Managing Director, the Client Service and Marketing Team includes Directors John Shepherd, Jennifer Lavin, CIMA, and Emily Eisenbarth. Our goal is to provide financial peace of mind for our clients. We educate prospective clients about our process and philosophy to help them evaluate whether the Lateef investment style is appropriate for their individual objectives. Our approach to investing is focused on the long term, and we take a similar approach to our client relationships. We make ourselves accessible and responsive -whether a client has been with us for three months or thirty years. Our clients receive quarterly letters discussing our investment strategy and the general market environment, along with a statement of individual portfolio holdings. ~r OUR FIRM HAS BEEN STRUCTURED IN SUCH A WAY THAT OUR INTERESTS ARE DIRECTLY IN LINE WITH THOSE OF OUR CLIENTS, AND WE DO OUR UTMOST TO ASSURE THAT EVERY RELATIONSHIP IS A LONG AND PROSPEROUS ONE. ' OPERATIONS AND COMPLIANCE TEAM. TOP ROW FROM LEFT: MATT SCHAE FER. DAVID TUDOR, KIM HAWORTH. STEVEN ALDERSON, ANNA HYSINGER: BOTTOM ROW FROM LEFT: MARGARET REYNOLDS. JUSTUS LEACH MAN. BRAD UZELAC. CLIENT SERVICE AND MARKETING TEAM. LEFT TO RIGHT: .JOHN SHEPHERD. RYAN WILLSO N, JENNIFER LAVIN, EMILY EISEN BART H. INVESTMENT P H I L O S O P H Y There are 7 pillars of our investment philosophy which form the foundation of our investment process. Long-term perspective. We view investing as a marathon, not a series of sprints. We prefer to be measured over a five year horizon but believe that three years is a minimum for judging our performance. The great-grandfather of investing and Warren Buffett's mentor, Benjamin Graham, observed, "In the short run, the market is a voting machine (influenced by popularity) , but in the long run, it is a weighing machine." Stock prices in the short run may react to world news, rumors, analyst recommendations, forced selling by institutional holders facing redemptions, or speculative buying by momentum-driven investors -all of which has little to do with the underlying ability of the company to continue generating cash flow or its related underlying value. In the long run, however, stock prices track closely with earnings and cash flow. For example, McGraw Hill stock has returned 1 1.6% per year for the 30 years ended April 2006, compared to the 1 1.7% compound return for its earnings. Stocks represent an ownership interest in a business. Because stocks can be so easily bought and sold in computer-generated trades, many are tempted to treat them as faceless trends on a chart. At Lateef, we view stocks for what they are: an ownership interest in a business led by managers who view us as co-owners. We do not sell a company just because news headlines trumpet amacro-economic or political concern. We do not use market timing tactics. We do not move to cash, use derivatives, short stocks, hedge, or use arbitrage. We focus on the business fundamentals that dictate the ability of the company to generate higher cash flow and a related higher intrinsic value. IT HAS BEEN SAID THAT THERE ARE MANY WAYS UP THE INVESTMENT MOUNTAIN. WE WOULD LIKE TO BE CLEAR AS TO WHY WE HAVE CHOSEN THE INVESTMENT PATH THAT IS SUITABLE FOR US IN ORDER FOR YOU TO DETERMINE IF THE JOURNEY IS COMPATIBLE WITH YOUR OWN GOALS. Focus on absolute returns. We believe the best way to make money is: first, not to lose money. Risk, in our view, is defined as losing money. Period. Risk is not monthly variability of performance versus an index. We know that to recover from a 50% loss, an investor must double his money just to break even. There are two risks that we try to minimize: price risk and business risk. Price risk is the risk of paying too much even for a terrific company. For example, investors who bought General Electric in 2000 were still underwater by almost 50% in 2006, even though earnings almost doubled during that six-year period. Business risk is the risk that the competitive advantage a company once enjoyed will erode or crumble altogether, resulting in a permanent loss of capital. We invest a great deal of time in order to assure ourselves that competitive barriers surrounding the businesses we invest in are high, and that the prices we pay include a margin of safety to minimize downside risk. Stock prices do not always equal value. We are sometimes asked if we employ a stop-loss limit on our investments. Astop-loss rule has been used by some investors as an insurance policy. For example, if a stock drops by 20% from cost, they automatically sell so they still have 80% of their capital. They sell for fear that the stock might drop much further, but panic selling locks in losses. At Lateef, we try to understand what is causing a stock to drop in price. Intrinsic value is a relatively stable estimate of what a business is worth based on its discounted future cash flows. It is not uncommon for a stock to vary by as much as 50% from its high and low price within a year. We try to capitalize on the inevitable disconnect between a company's intrinsic value and its stock price. Opportunistic investment approach. We believe in investing in the most outstanding businesses led by terrific managers at attractive prices -regardless of the size of the company. Many other money managers are locked into a "style-box," such as large-cap growth or small-cap value, and must remain invested in this box even when there are few or no compelling values in that segment of the investing universe. Our ability to preserve capital during the challenging years of 2000-2002 was a direct result of our flexibility to invest where it made sense to do so. In March of 2000, the Value Line index of 1,500 equally weighted companies (more representative of mid-cap companies) was trading at 13x earnings, compared to the S&P 500 index (market-cap weighted and dominated by large-cap companies) , which was trading at 3 Ox earnings. Clearly, the opportunities were in mid- to smaller sized-companies, and we made the switch. Concentrated Portfolios. We are conservative without necessarily being conventional. Our portfolios typically have between 15-20 companies. This focused approach has three clear advantages. The first advantage is that our winners make a real difference in performance. If a stock doubles in a portfolio of 50-100 companies, the impact on performance will be small. While concentration can be a double-edged sword, our track record has proven that carefully selected companies bought at prudent prices with limited downside risk can result in sound portfolio performance with less volatility than the market. Although our portfolios are relatively concentrated, we rarely own more than two stocks in the same business. The second advantage is that our focused approach allows us to leverage our intensive research into our very best ideas. Warren Buffett has said, "Diversification is a hedge for ignorance." The third advantage is that our long holding period generally results in a good relationship with management, which is important to us as we prefer managements that think of investors as business partners. Low portfolio turnover. Our annual turnover averages about 25%, which means that we hold stocks for about four years. This turnover reflects the ongoing process of trimming oversized weights and selling certain stocks in favor of more compelling ones availed by normal market volatility. A 25% turnover in a 15-20 stock portfolio means that all we need are three to four new ideas per year. This allows us to wait patiently for the most attractive opportunities. Furthermore, taxes can be one of the greatest obstacles to building capital, and our low turnover produces attractive after-tax returns. PORTFOLIO MANAGEMENT P R O C E S S Our objective is to discover outstanding companies with sustainable, high returns on capital and open-ended growth, then to buy them at a "value" price. Although our investment process is relatively uncommon, it is the same process practiced by all of the portfolio managers at Lateef throughout their careers, and now polished by our collective experience. OUR SOURCE OF IDEAS: "MANY ARE CALLED BUT FEW ARE CHOSEN." We actively monitor a Lateef universe of about 60 companies that have met our quality criteria, and we assess them daily for attractively priced entry points. A company is purchased only after each portfolio manager agrees that the company has met at least two-thirds (or 17) of our 25 investment criteria. Our investment candidates come from a variety of sources, including discussions with company executives about their respected competitors, suppliers, distributors, and customers. They may come from industry periodicals, industry trade shows, Wall Street investment conferences, Wall Street research, and our colleagues in the industry. We also frequently check the new low lists, and we review data-rich publications such as Value Line. We don't use a "black box" computer to screen for ideas, as our experience has shown this to be a "rearview mirror" method of discovering companies that are often at their cyclical peak. We have mentally screened hundreds of companies in our careers and have ruled out those which have cutthroat competition, are heavily regulated, have a principal product subject to commodity pricing, are capital intensive, or have a short product life cycle. In today's world, where data is only a few clicks away, the challenge is not in obtaining information, but in transforming information into insights and knowledge that meet our criteria. OUR INVESTMENT PROCESS IS RESEARCH INTENSIVE, CLEARLY DEFINED, AND HAS BEEN CONSISTENTLY APPLIED FOR OVER 3O YEARS. THIS PROCESS IS FOCUSED ON ONE CAREFULLY CRAFTED INVESTMENT PROCESS. OUR INVESTMENT STYLE, «GROWTH AT A REASONABLE PRICE,' EMBRACES ELEMENTS OF BOTH THE TRADITIONAL`GROWTH" AND ~~VALUE'~ APPROACHES TO INVESTING. OUR PROCESS FOR EVALUATING A COMPANY The heart of our investment process is the initial evaluation and ongoing monitoring process of investments. It is the lifeblood of what we do. The following Pyramid of Growth illustrates the essence of our core criteria. Although we have 25 specific investment criteria, they boil down to finding a company with a sustainable competitive advantage and high return on invested capital (ROIC) , led by an owner-oriented management team of high integrity, and a track record of success, whose stock is trading at a reasonable or bargain price. VALUAT~<)N - BUSINESS THE PYRAMID OF GROWTH We rely heavily on our own intensive fundamental research. We visit with the management of the companies in which we invest on their home turf and build relationships with them over the years. We enjoy the "tire kicking" process, and believe the time and effort is worth the reward of a better understanding and deeper conviction in the company and its people. Once managements meet us and realize that we are interested in longer-term strategic and competitive positioning issues, they are often open, responsive and communicative with us. We prefer managements that are accessible, especially when the inevitable rumors or specious analyst downgrades affect the stock price. We need a direct and expedient line of communication to discern truth from misconception to be most effective for our clients. THE PROCESS OF GETTING INVESTED: "WE TREAT YOUR MONEY AS IF IT WERE OUR OWN." Our accounts are separately managed and our focus is on absolute returns. Consequently, we will only invest when we believe the company's market price is attractive compared to its intrinsic value. For new clients, this process may take just a few days - if there are many opportunities in a bear market - or several months, in a bull market. We would rather take our time in making the right choices to limit downside risk than have to apologize later for losses because we responded to an urge to get invested right away. Risk, in our view, is the risk of losing money. We do not define risk as potentially falling behind a bull market benchmark for a few months while the cash is getting invested. We invest each account individually and do not manage on a "model." Managing accounts on a model means that every account is fully invested on the first day and holds the same stocks. Lateef does not manage accounts in this way because we feel that it is imperative to not only buy outstanding companies, but it is equally important to buy those companies at the right price. Therefore, we invest accounts one stock at a time, and we will only purchase when a company is trading at or below our buy target price. When a company drops into our buy range, it is added to each portfolio with cash at approximately a 6% weight. Due to this strict purchase criteria, each account under Lateef's management may not hold all of the same securities, depending on the inception date of each account. While this process creates a higher dispersion between accounts, we think it makes the most investment sense, ultimately resulting in better performance. WHEN AND HOW WE BUY The businesses that interest us are those that have a sustainable high return on invested capital (ROIC). With all else being equal, the most valuable businesses are those that deliver more cash flow and income with fewer assets. Return on invested capital is a financial measure that quantifies how much income a business earns relative to the capital contributed by both equity shareholders and lenders. Our composite top 25 holdings have a return on invested capital in excess of 20% -nearly double what the average company earns on capital, and more than double the cost of capital for most companies. For companies with no debt, return on invested capital is simply return on equity, which is defined simply as net income divided by net worth (or equity) . Most investors define a company's growth rate as the rate at which it increases its earnings per share (EPS). We think this is not only overly simplistic, but sometimes wrong. EPS is a result of many accrual assumptions, which may not correlate to the actual cash generated by the business. The true growth of a business is measured by its return on capital. For example, a business that is funded with $1,000 on January 1st and earns $200 in cash for the year has a 20% return on its $1,000 original capital. At the end of the first year, it has $1,200 of retained capital, assuming no dividend payouts. If it earns another 20% on its $1,200 retained capital in year two, it will have earned $240, making its capital at the end of year two $1,440. Extending this 20% compounding forward for 3.8 years will result in total capital of $2,000, or double its original investment. We have observed that over time, a company usually trades at aPrice-Earnings ratio (PE) in line with its sustainable return on capital. Assume, for instance, that we invest in a company with a sustainable return on capital of 20%, whose stock is depressed for some temporary, nonstructural reason, and has a PE ratio of 15x. The investment should benefit from a "double play" effect. The stock should benefit from a rebound to its normalized PE of 20 as the cloud overhanging the stock evaporates, and then, the stock should benefit from the compounding of the company's return on capital, thereby increasing its intrinsic value. We limit price risk by patiently waiting for terrific companies (those with sustainably high ROICs) whose stock prices are temporarily out of favor, offering an opportunity for us to pay a PE at a discount to its intrinsic value along with a "double play" opportunity. Well executed "double plays" in a portfolio of 15-20 investments can contribute significantly to investment performance with minimal business and price risk. We also measure a company's return on capital exclusive of any excess cash it may have on its balance sheet, indicating a more robust business profitability. Many of our companies have little or no debt on the balance sheet and have significant cash not needed to run the business. Our portfolio companies generate excess cash over and above needed capital spending. We use other valuation metrics as a "sanity check," such as comparing a company's cash flow yield to the 10 year treasury bond. We also value companies by comparing a company's PE ratio relative to its historic ROIC for clues to better estimate the intrinsic value of the company. We might also incorporate asum-of--the-parts analysis to value companies. After estimating the intrinsic value using these methods, we apply at least a 10% discount to the value to derive our "buy point," there- by enhancing our margin of safety. For example, if we believe a company is fairly priced at $ 5 0, we will not buy it until it drops below $45. We believe we are unique in our emphasis on ROIC and, in particular, in using the ratio of PE to ROIC as a guide to valuing companies. Combining this approach with our due diligence to give us the conviction that a company's competitive advantage is sustainable, along with the discipline to wait for the right market price, gives us the edge to outperform. WHEN WE SELL Our bias is not to sell. If we must, we reinvest the proceeds only when it makes sense to do so. There are, however, five conditions under which we feel that selling a stock is necessary: ^ When a position exceeds 15 % of a portfolio. If an investment that typically starts with a 6% weight appreciates to 15% of the portfolio, we will consider gradually trimming the position for the sake of prudence. ^ Overvaluation. If the stock price is egregiously overvalued and discounts earnings excessively into the future, we will sell. This was key to our success in preserving capital in the years 2000-2002. We are content to hold a modestly overvalued stock if we are confident that future years' earnings growth will justify the valuation. ^ Deteriorating fundamentals. For each company we buy, we document our rationale for investing in the company. If subsequent events erode its competitive advantage and violate our original rationale, we will sell. ^ When there's a better idea with more conviction. If we find a much better business that is attractively priced, we will sell to generate cash for the new purchase. ^ When we recognize a mistake. Despite our rigorous due diligence process, we do occasionally make mistakes in assessing the management or competitive dynamics of a company. When this happens, we immediately sell to limit losses and move on to a better opportunity. WE TAKE A PRACTICAL BUSINESS APPROACH TO INVESTING. THIS APPROACH APPLIES EQUALLY WHETHER WERE VALUING A NEIGHBORHOOD LEMONADE STAND, THE CORNER GROCERY STORE, OR GENERAL ELECTRIC. WHY LATEEF? ^ Superior long term results with an absolute return focus ^ Experienced team who are owners of the company ^ Unique combined growth and value approach ^ Opportunistic investment approach ^ Concentrated portfolios ^ Low turnover that is tax-efficient ^ Over 30 years of one investment style CONTACT INFORMATION Lateef Investment Management 300 Drakes Landing Road Suite 100 Greenbrae, CA 94904 www.lateef.com Phone: (415) 461-3800 Fax: (415) 461-0436 Ryan Willson John Shepherd Jennifer Lavin, CIMA 112 t Year Ending 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 LATEEF NON-TAXABLE ALL-CAP GROWTH EQUITY COMPOSITE December 31, 2006 UNRECONCILED 25% Composite S & P 500 Composite S & P 500 Total Total Total Total Return Return Return Return 8.96 15.72 13.20 10.42 14.23 4.95 20.38 14.36 16.54 10.86 13.51 3.55 31.03 28.56 ~'~ 8.16 -4.08 -4.22 -22.09 2.62 -14.54 0.83 -11.88 15.57 -1.02 11.91 -9.07 22.57 12.25 36.79 21.03 30.64 27.51 20.30 28.52 25.53 28.16 35.48 33.29 I 27.87 31.07 21.38 22.88 14.39 19.60 27.14 37.47 10.84 15.28 -3.01 1.28 3.24 6.25 10.43 10.04 12.66 15.56 2.74 7.62 26.01 30.33 Composite S 8 P 500 Composite Total Total Total Return Return Return 12.73 6.16 16.43 10.99 0.53 I 17.70 10.54 -2.31 I 18.97 14.14 -0.58 16.80 12.21 -0.59 ! 14.82 20.26 10.68 i 15.63 24.81 18.30 '! 18.24 28.04 28.49 ~, 19.52 23.99 it 17.50 20.20 11.17 15.17 12.01 16.53 S&P500 Total Reluri 8.40 9.05 12.04 11.03 9.31 12.90 17.41 Composite S & P 500 Composite Average Total Total Number of MV Acct Size Return Return Accounts ($ Millions) ($MM) 14.65 10.61 497 737.86 1.48 15.77 11.49 263 353.77 1.35 Total Finn Percent of Annual '~.. Assets Flrm Composite ($MM) Assets Dispersion ~I 182 191.25 1.05 132 135.01 1.02 104 79.93 0.77 70 72.38 1.03 55 72.60 1.32 40 59.73 1.49 40 44.60 1.12 30 34.15 1.14 26 24.25 0.93 20 16.82 0.84 17 15.50 0.91 15 14.17 0.94 16 13.10 0.82 16 13.13 0.82 3609.83 20.44 2.73 2145.39 16.49 4.25 1161.31 16.47 4.70 835.82 16.15 3.61 553.98 14.43 4.67 475.73 15.21 5.51 431.32 16.83 8.27 358.95 16.64 12.84 328.82 13.56 6.89 298.23 11.45 5.65 236.97 10.23 3.96 219.16 7.68 10.83 189.06 8.20 2.84 182.04 7.78 5.13 169.93 7.71 2.60 147.93 8.87 4.90 Lateef Investment Management (Lateef) is an independent investment advisory firm established in 1974. Lateef is registered with the Securities and Exchange Commission under the Investment Advisors Act of 1940. Lateef is headquartered in Greenbrae, California and maintains an office in Portland, Oregon. The Lateef All-Cap Growth Equity strategy focuses on investing in companies with above average profitability at a reasonable price. The Lateef Non-Taxable All-Cap Growth Equity Composite includes all discretionary, non-taxable, fee-paying accounts employing this strategy that have been under management for at least three full months. Results presented are time-weighted total rates of return expressed in U.S. Dollars. Performance results reflect all income, gains and losses and the reinvestment of interest and other income. All rates of return are reported "NET' of fees. Additional information regarding the policies for calculating and reporting returns is available upon request. Past performance is not indicative of future results. The actual return and value of an account will Fluctuate and at any point in time could be worth more or less than the amount initially invested. The average market capitalization of portfolios in the composite may differ from the weighted average market capitalization of the index. Additionally, the volatility of the index may be greater or less than the volatility of the portfolios in the composite. 90^ 17mnwla LnNnrvc Ru. S~n: rt~n Gur~:lrw+unc, CA ~.Ignq The composite creation date is January 2003. A complete listing and description of all Lateef composites and performance results is available upon request. The annual composite dispersion presented is an asset-weighted standard deviation for the accounts inGuded in the composite for the entire year. For the period ending 12/31/05, the composite contained WRAP fee accounts representing 13.41% of the composite assets. The WRAP fee accounts pay an all-inclusive fee based on a percentage of assets under management. In addition to Lateef management fees, this fee may represent commisssions, portfolio monitoring, consulting services and custodial services charged by the WRAP sponsor. Lateefs Standard Fee Schedule: Fair Market Value Annual Fee First $15,000,000 + 1.0% Next $15,000,000 + 3/4% Next $15,000,000 + 5/8% Over $45,000,000 1/2% Lateef has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS®). The CFA Institute not been involved in the preparation or review of this report. rnovl: .try-.iGr-;No.^, rnx .try-.IbT-n.t;(r ~~uwc. r.nrncr.ccrer r ~ FORM ADV Part II -Page 1 Uniform Application for Investment Adviser Registration Name of Investment Adviser: Lateef Investment Management Address: (Number and Street) (City) (State) (Zip Code) Arca Code: Telephone; Number. 300 Drakes Landing Road, Suite 100 Greenbrae CA 94904-3123 (415) 461-3800 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 governmental authority. Table of Contents Item Number Item 1 Advisory Services and Fees ......................................... 2 Types of Clients ................................................. . 3 Types of Investments .............................................. 4 Methods of Analysis, Sources of Information and Investment Strategies ..... . 5 Education and Business Standards ................................... . 6 Education and Business Background ................................. . 7 Other Business Activities .......................................... . 8 Other Financial Industry Activities or Affiliations ....................... . 9 Participation or Interest in Client Transactions ......................... . 10 Conditions for Managing Accounts .................................. . 11 Review of Accounts .............................................. . 12 Investment or Brokerage Discretion .................................. . 13 Additional Compensation .......................................... . 14 Balance Sheet .................................................... Continuation Sheet .................... ............................ Balance Sheet, if required ........................................... . Pat=.e 2 2 3 3 4 4 4 4 5 5 5 6 6 6 Schedule F Schedule G (Schedules A, B, C, D, and E are included with Part 1 of this Form, Tor the use of regulatory bodies, and are not distributed to clients.) Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. ©2000 National Compliance Services 800-800-3204 FORM ADV AppGeant: Part II -Page 2 Lateef Investment SEC Filc Number: ao I -09747 Date: January 19, 2006 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. 100% App licant: (See instruction below.) ® (1) Provides investment supervisory services ....................................................... 1(l(l°r, ^ (2) Manages investment advisory accounts not involving investment supervisory services ................... % ^ (3) Furnishes investment advice through consultations not included in either service described above .......... °/n ^ (4) Issues periodicals about securities by subscription ....................... ......................... ~°,~, ^ (5) Issues special reports about securities not included in any service described above ..................... ^ (6) Issues, not as part of any service described above, any charts, graphs, formulas, or other devices which clients may use to evaluate securities ................................................................ % ^ (7) On more than an occasional basis, furnishes advice to clients on matters not involving securities ........... % ^ (8) Provides a timing service .................................................................... ~~ ^ (9) Furnishes advice about securities in any manner not described above ................................. ~„ (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 applicant call any of the services it checked above financial planning or some similar term? .................. ^ C. Appl icant 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 tee 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 cl ients -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 Answer all items. Complete amended pages in full, circle amended items and file with execution page (page 1). ©2000 National Compliance Services 800-800-3204 F~RM A~V Applicant: SEC Filc Number: Date: Part II - Page 3 Lateef Investment Management sot- 09747 January 19, 2006 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 L 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. Met hods o f Analysis, Sources of Information, and Investment Strategies. A. Appl icant'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 Answer all items. Complete amended pages in Tull, circle amended items and fle with execution page (page 1). ©2000 National Compliance Services 800-800-3204 FORM ADV ~ Applicant: SEC Filc Number: I Date: Part II -Page 4 ~ Lateef Investment Management ~ ao1-09747 ~ January 19, 2006 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 Schcdulc 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 S chedule 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. Othe r 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 ^ (]0) 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 Schcdulc F identify the related person and describe the relationship and the arrangements. ) Yes No D. Is applicant or a related person a general partner in any partnership in which clients are solicited to invest?........ ^ (If yes, describe on Schcdulc F the partnerships and what they invest in.) Answer all items. Complete amended pages in full, circle amended items and file with execution page (page 1). ©2000 National Compliance Services 800-800-3204 FORM ADV Applicant: SEC Filc Number: Date: Part II -Page 5 Lateef Investment Management sol- 097474 January 19, 2006 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. See Item 11. A . on Schedule F B. Describe below the nature and frequency of regular reports to clients on their accounts. See Item 11. B. on Schedule F Answer all items. Complete amended pages in full, circle amended items and file with execution page (page 1). ©2000 National Compliance Services 800-800-3204 FORM ADV (Applicant: Part II - Paae 6 Lateef Investment SEC Filc Number: I Datc: Sot-09747 19, 2006 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 commis- sions. 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? ........................... ® ^ Answer all items. Complete amended pages in full, circle amended items and file with execution page (page 1). ©2000 National Compliance Services 800-800-3204 Schedule F of Applicant: SEC File Number: Date: Form ADV Continuation Sheet for Form Lateef Investment ADV Part II Management soy.- 09747 November ii, zoos Do not use this Schedule as a continuation sheet for Form ADV Part I ar an other schedules. 1. Full name of applicant exacNy as stated in Item lA of Part I of Form ADV: IRS Empl. Ident. No.: Lateef Investment Mana ement 94-6330378 Item of Form 1.A, i.C, 1.D ADVISORY SERVICES AND FEES Lateef Investment Management ("LATEEF") has been in operation since 1974. LATEEF is act"rvely engaged in providing investment management and investment advisory services to institutions and individual clients. Such services may include one of the following: 1. Assisting the client in the development and subsequent modification of appropriate investment objectives, guidelines, and restrictions; 2. Determining an appropriate investment strategy, consistent with the investment objectives, guidelines, and restrictions established by the client and reviewing and modifying such strategy through meetings and consultations with the client or its agents from time to time; 3. Implementing the investment strategy through purchase and sale of securities and/or other financial instruments and the investment and re- investment of cash balances for the client's account; 4. Providing information and instructions to the custodian {or trustee) of the client's account so that transactions for the account are settled in an accurate and timely manner, anal reconciling its records with those of the custodian {or trustee) on a periodic basis; 5. Monitoring the individual instruments held in the account so that the individual instruments and the overall portfolio remain consistent with the investment strategy for the account as well as the client's investment objectives, guidelines, and restrictions; 6. Valuing securities and other financial instruments held in the portfolio; 7. Evaluating proxy statements and proposed corporate actions, providing advice related to proxy voting and voting proxies; and 8. Furnishing reports to the client on a periodic basis concerning account activity and performance. LATEEF does not provide all of the services listed above to all clients. LATEEF offers investment management and investment advisory services for equity, fixed income and balanced accounts. In most instances, accounts are managed on a fully discretionary basis. LATEEF is typically compensated for such services on the basis of fees calculated as a percentage of assets under management, although alternative fee arrangements may be agreed upon in appropriate circumstances. LATEEF currently maintains two separate investment platforms. The California Team Platform consists of products managed by Khateeb A. Lateef, Roland Underhill, Scott Chapman and Quoc Tran. The Oregon Team Platform consists of products managed by Larry Frager. Payment Frequency/Calculation Method: For accounts opened before 12/31/04, LATEEF's fees are generally payable annually in advance. The annual fee is calculated by multiplying the fair market value of cash and securities in the portfolio as of the close of business on the date proceeding the first day of the annual period by the applicable annual fee rates}, For accounts opened after 12/31/04, LATEEF's fees are generally payable quarterly in arrears. The quarterly fee is calculated by multiplying the Pegs t Schedule F of Applicant: SEC File Number; Date: Form ADV Continuation Sheet for Form Lateef Investment ADV Part II Management 801- 09747 November 21, 2006 (r)n not nca Chic CrhaAi~la ~e ~ rnnl-in.,~+7.... .~4..,..N t.... r_.._... nrw n-.i r _ - - - --~---~-__._.. _..-_..... .... ....,..-. ... ...... ...., vu,c, 1. Fu31 name of applicant exactly as stated in Item 1A of Part I of Form ADV: Lateef Investment Mana ement a~.ncuu~ca. IRS Empl. Ident. No.: 94-6330378 Item of Form Identif Answer fair market value of cash and securities in the portfolio as of the close of the calendar quarter by the applicable quarterly fee rate(s) prorated for any partial quarter. Alternative frequency of payments and/or methods of calculation may be available, where appropriate or upon a client's request. LATEEF's fees are ordinarily calculated by IATEEF, based on LATEEF's valuation of the assets in the client's portfolio. In certain instances, l~1TEEF and the client may agree that fees should be calculated based upon the custodian's valuation of the assets in the client's portfolio. In the event of a client termination, management fees paid In advance will be prorated as of the date of termination and the unearned portion thereof will be returned to the client. Fee Schedule -California Team Managed Products• LATEEF's standard fee schedule for the California Team managed products is as follows: ON CASH AND SECURITIES TOTALING: 1.00% on the first $15,000,000 plus .75% on the next $15,000,000 plus .625% on the next $15,000,OOD plus .50% on assets over $45,000,000 Fee Schedule -Oregon Managed Products• l.ATEEF's standard fee schedule for the Oregon managed products is as follows: ON CASH AND SECURITIES TOTALING: 1.00% on the first $3,000,000 plus .75% on the next $2,000,000 plus .625010 on the next $5,000,000 plus Different fee schedules may be available for accounts with higher amounts of assets under management. It is LATEEF's general policy to charge fees to clients in accordance with the fee schedule in effect at the time the client first entered into an investment management or investment advisory relationship with IATEEF. However, in certain circumstances, fees may be subject to negotiation, and fees may be modified for particular clients. The reasons for such modifications may include, without limitation, the type of product provided, the complexity and level of service provided, the number of different accounts and the total assets under management for that client and related clients, other services provided by the advisor, other administrative services provided, or other circumstances or factors that LATEEF deems relevant. A different fee schedule may apply if an account receives services that are more limited than full discretionary investment management, or if an account has specialized investment objectives, guidelines and restrictions. Certain accounts of persons affiliated with LATEEF may be managed without Fees or at reduced fees. rage 1 Schedule P ofi Applicant: SEC File Number: Date: Form ADV Continuation Sheet for Form Lateef Investment ADV Part II Management 801- 09747 November 21, 2006 i'Do not use this Schedule as a continuation sheet for Fnrrn AbV Part I ar anv nthar cchr~riiilac 1 1. Full name of applicant exactly as stated in Item 1A of Part I of Form ADV: IRS Empl. Ident. No.: Lateef Investment Mana ement 94-6330378 Item of Form identif Answer When IATEEF manages accounts for a particular client, or for a related group of clients, fee calculation may be based on the total assets under management or a relationship fee discount may be available. Investment management and investment advisory contracts between LATEEF and its clients generally are terminable at any time by either party by thirty days written notice. In the event of termination, advisory fees will be prorated over the period during which investment management or investment advisory services were provided. 4.A METHODS OP SECURITIES ANALYSIS tATEEF's security analysis methods vary by type of account (equity, fixed income or balanced), and are dependent upon each individual account's investment objectives, guidelines, and restrictions. In general, LATEEF seeks for its clients the most favorable returns available an arisk-adjusted basis. For taxable clients, LATEEF evaluates investment returns and investment alternatives on a pre-tax and after-tax basis. This may lead to holding securities with large unrealized gains where the near-term prospects appear to be less favorable than alternative investments but where longer-term prospects appear favorable. For balanced accounts, LATEEF evaluates the trade-offs between equity and fixed income securities on a regular basis and adjusts asset mixes in balanced portfolios accordingly. LATEEF currently maintains two separate investment platforms. The California Team Platform consists of products managed by Khateeb A. Lateef, Roland Underhill, Scott Chapman and Quoc Tran. The Oregon Team Platform consists of products managed by Larry Frager. 5. EDUCATION AND BUSINESS STANDARDS LATEEF requires investment professionals to have an appropriate business and educational background. Although there are no set credentials that investment professionals must possess, LATEEF generally expects that investment professionals will possess, at a minimum, a college degree and have experience in investment analysis and/ar portfolio management. A Master of Business Administration ar other advanced degree is desirable, but not required. Investment personnel are also encouraged to became Chartered Financial Analysts ("CFA"} and to take other examinations and earn other professional designations that may be relevant to their positions. Appropriate work experience may be substituted for educational degrees or a CFA designation. 6• EDUCATION AND BUSINESS BACKGROUND Khateeb A. Lateef, Senior Portfolio Manager (barn in 1931), is a Managing Director of Lateef Investment Management. Mr. Lateef is a Chartered Financial Analyst and received his B.S. degree from Fordham University in 1959. In 1959, he joined the Trust Investment Department of the Bank of America as a Page 3 Schedule F of Form ADV Continuation Sheet for Form Applicant: Lateef Investment SEC File Number: I Date: t;Do not use this Schedule as a continuation sheet for Form ADV Part I or any other schedules.) 1. Full name of applicant exactly as stated in Item 1A of Part I of Form ADV: Lateef Investment Mana ement IRS Empl. Ident. No.: 94-633037$ Item of Form identif Answer securities analyst. In 1964, Mr. Lateef joined Glore Forgan, Wm. R. Stoats, Inc., which later merged with F.I. Dupont. At the time of the merger, Mr. Lateef was Vice President and voting stockholder in charge of West Coast research. He joined Hambrecht & Quist, in 1970, as General Partner in charge of research. In 1974, after fifteen years devoted to investment research in the securities business, he formed the investment advisory firm of Lateef Investment Management. Roland D. Underhill, Senior Portfolio Manager (born in 1937), is a Managing Director of Lateef Investment Management. Mr. Underhill received his B.S. degree in Finance from UCLA in 1960. He has been in the securities investment business since 1961, as a Senior Vice President and research analyst at Van Kasper & Co., and as Director of Research and Partner at Crowell, Weedon & Co.; In investment management, he was a portfolio manager and principal at both Dillon Read & Co. and Wilkinson & Underhill. In 1994, Mr. Underhill joined Lateef Investment Management as a Senior Portfolio Manager. Scott A. Chapman, Senior Portfolio Manager (bom in 1958), is a Managing Director of Lateef Investment Management. Mr. Chapman is a Chartered Financial Analyst and received his B.S. degree in Accounting from Santa Clara University in 1980 and his MBA in Finance from Golden Gate University in 1983. In 1991, Mr. Chapman was a Senior Portfolio Manager and Director of Growth Strategy at HighMark Capital Management. In 1998, he joined Founders Asset Management as a Senior Portfolio Manager and Director of Large-Cap Growth Strategy. In 2002, Mr. Chapman joined Lateef Investment Management as a Senior Portfolio Manager. Quoc Tran, Senior Portfolio Manager (born in 1973) participates on the California Managed Products Team as a portfolio manager and research analyst. Mr. Tran received his B.A. degree from Bates College in 1995 and his MBA in Finance and Competitive Strategy from University of Chicago in 1999. In 1996, Mr. Tran joined Kemper Investments as research analyst. In 1998, he joined Goldman Sachs & Company as Vice President and Director of Institutional Sales. In 2002, Mr. Tran returned fia the buy-side and joined Wallace R. Weitz & Company where he was an Investment Analyst, Co-Portfolio Manager and Head of private Client Services. In 2005, Mr. Tran joined Lateef Investment Management as a Senior Portfolio Manager. Larry N. Frager, Senior Portfolio Manager (born in 1944}, heads our Portland, Oregon office and manages the Oregon Team Products. Mr. Frager received his J,D, degree from the School of Law at UCLA. Prior to joining Lateef Investment Management in 1982, Mr. Frager practiced corporate law in Portland, Oregon. Earlier, he had worked at the law firms Dewey, Ballantine, Bushby, Palmer & Wood in New Yark, and Carlsmifih, Carlsmith, Wickman & Case in Honolulu, Hawaii. Ryan F. Willson, director of Marketing and Client Services (born in 1969}, is a Managing Director of Lateef Investment Management. Mr. Willson received his B.A. degree from University of Southern California in 1993. Prior to joining Lateef Investment Management in 20x0, Mr. Willson was the Founder and President of Willson Investment Management, Inc. Prior to that, he held account executive and financial consultant positions at Dean Witter and Merrill Fagfl 4 ~Gh~l~iUi~ ~ O~ Applicant: 5GC File Number: Date: ~®~"tY7 A®V ~O~'1~1@'1i9~t60B1 ~~~~.''~ ~®-' ~Oi'~9'>I Lateef investment d~!®1~ Park IT Management 801- 09747 November zi, zoos Do not use this Schedule as a continuation sheet for Form ADV Part I or an other schedules. 1. Full name of applicant exacCly as stated in Item lA of Part I of Form ADV: IRS Empl. Ident. No.: Lateef Investment Mana ement 94-6330378 Item of Form identif Answer Lynch respectively. Justus H. Leachman, Chief Compliance Officer and Director of Operations (barn in 1969} is a Managing Directar of Lateef Investment Management. Mr. Leachman graduated in 1991 from the University of the Pacific with a B.S. degree in Business Administration. Before joining the firm in 2002, he was Director of Portfolio Operations and Administration at Dresdner RCM Global Investors in San Francisco. Prior to that, he spent six years as a Management Consultant for Pricewaterhause Coopers LLP, in their Investment Management ____ and Securities Operations Consulting Group. 9,E PARTICIPATION OR INTEREST IN CLIENT TRANSACTIONS LATEEF permits its employees to engage in personal securities transactions, and to purchase and sell securities that may be held by or may be suitable for investment by client accounts. Personal securities transactions may raise potential conflicts of interest with the interests of LATEEF clients. Accordingly, LATEEF has adapted poIICeS (Lateef Code of Ethics) designed to mitigate conflicts of interest and the potential appearance of impropriety in an employee's personal action. In order to ensure compliance with the policy, each LATEEF employee is required to instruct each broker-dealer with whom he or she maintains an account to send directly fio LATEEF's Directar of Compliance a duplicate copy of all transaction confirmations generated by that broker-dealer for that employee's account. LATEEF restricts the purchase and sale by its personnel for their own accounts, securities that have been or are being considered for purchase for client accounts. Far across the board trades, personnel are not to engage in a transaction in the same security while an order far a client's account is pending or within a certain period of time before {2 days) and after (same day) execution of the transaction in that security on behalf of the client. However, personnel ARE permitted to engage in transactions in the same security if the client activity is the result of a client cash flow or direction (client directed). LATEEF policy is intended to conform generally to the recommendations of the CFA Institute. LATEEF may, from time to time, buy ar sell securities for its own investment account. In addition, LATEEF is the sponsor of the LATEEF Profit Sharing Plan {the "Plan"), a plan whose participants are limited to employees of LATEEF. The Plan is administered by Pensianalysis, Inc. The Plan may invest in securities that may be recommended to or held by LATEEF clients. Ta obtain a copy of the Code of Ethics, please contact .Justus Leachman {~FiS- 461-3800 or ileachmanCe~lateef.cam). 1D. CONDITIONS FOR Y+HANAGTNG ACCOUNTS LATEEF generally requires a minimum of $1,000,000 in assets for the establishment of an investment management ar advisory account, although exceptions may be made if circumstances warrant on a case-by-case basis. Accounts also may be opened at smaller asset levels if growth is expected within a reasonable time frame, if a relationship exists between that account and an existing account, if the account is one of several accounts referred to Page 5 Schedule F of Applicant: SEC File Number: Date: Form ADV Continuation Sheet for Form Lateef Investment ADV Part II Management 801- 09747 November 21, 2006 tDo not use this Schedule as a continuation sheet for Form ADV Part I or anv other schedules.) 1. Full name of applicant exactly as stated in Item lA of Part I of Form ADV: IRS Empl. Ident. No.: Lateef Investment Mana ement 94-6330378 Item of Form identif Answer LATEEF by the same person or entity, or if tATEEF deems it appropriate. Clients generally are required to enter into a written investment management or investment advisory agreement prior to establishment of an account with LATEEF. LATEEF will not enter into an investment management or investment advisory relationship with any prospective client whose investment objectives, guidelines, and restrictions are deemed to be incompatible with LATEEF's basic investment philosophy or strategies, or if the prospective client's investment objectives, guidelines, and restrictions are deemed to be unduly restrictive. 11.A PROCESS FOR MONITORING INVESTMENT PORTFOLIOS All accounts are reviewed an a regular periodic basis to include: all assets, their weightings in the portfolio, current market prices and the cash position. Accounts are also reviewed: (1) when changes have occurred since the last review which includes the aforementioned items, {2) when a decision has been made regarding a security held in the account, such as the addition, liquidation or the switching of a position, (3} when prompted by client communication, (4} when notified of a contribution or withdrawal of assets, {S) when a decision has been made to alter the asset allocation. 11.B NATURE AND FREQUENCY OF REGULAR REPORTS Reports are furnished to each client an a quarterly basis. Reports generally include a statement of account status, unrealized gains and losses, and account performance. Year end reports also include detailed information for tax purposes, such as dividends, interest and realized gains and losses. 12.A.{3) & {4) INVESTMENT OR BROKERAGE DISCRETION In those cases where Client has selected a particular broker or dealer and/or directs transactions to a particular broker or dealer (directed brokerage arrangement), Client is hereby advised that Adviser might be in a betker position to (i) negotiate commissions and (ii) arrange "best execution" if brokerage was not so selected/directed by the Client. In the cases where Client has negotiated an "asset based" commission structure instead of a "transaction based" commission structure, Client is hereby advised that the reasonableness of this asset based fee is dependent on LATEEF's trading volume over the period and may result in a higher fee than would be paid under a "transaction based" structure. IATEEF participates in a number of Managed Account (aka WRAP) programs that direct accounts to I..ATEEF. tATEEF has a fiduciary obligation to determine whether the wrap-fee arrangements are suitable for clients. IATEEF has delegated this suitability resonsiblity to the wrap-fee program sponsors and relies on the sponsors to determine if the program and its fees are suitable for clients. On an annual basis, LATEEF will obtain a certification letter from each program sponsor confirming that the sponsor has accepted the delegated responsibility and is adequately performing the function. LATEEF has a significant number of brokerage relationships. As a result, LATEEF aggregates pending orders by brokerage firm. The aggregated orders are then Page s Schedule F of Applicant: SEC File Number: Date: Form ADV Continuation Sheet for Form I.ateef Investment ADV Part II Management 801- 09747 November 21, 2006 (Do not use this Schedule as a cantinuatinn sheet fir Frsrm Aw Part t nr anv ~ri,pr ~rhP~~~ip~ ~ 1. Full name of applicant exactly as stated in Item lA of Part I of Form ADV: IRS Empl. Ident. No.: Lateef Investment Mana ement g4_~33n378 Item of Form identif Answer randomly sorted to determine the order in which the trades are placed for execution. 12.B INVESTMENT OR BROKERAGE DISCRETION LATEEF will endeavor to select Chase brokers or dealers, which will provide the best services at the lowest commission rates possible. The reasonableness of commissions is based on the broker's ability to provide professional services, competitive commission rates, research and other services, which will help LATEEF in providing investment management services to clients. LATEEF may, therefore, recommend the use of (ar use) a broker who provides useful research and securities transaction services even though a lower commission may be charged by a broker who offers no research services and minimal securities transaction assistance. Research services may be useful far the account far which the particular transaction was effected. In certain instances, LATEEF receives from broker and/or dealers products or services, which are used both for investment research and for administrative, marketing, or other non-research purposes. In such instances, tATEEF makes a good faith effort to determine the percentage of such products ar services, which may be considered as investment research. The portion of the costs of such products or services attributable to research usage may be defrayed by LATEEF through directing brokerage commissions generated by client transactions, (soft dollars). This may be done without prior agreement or understanding by the client (and done at LATEEF's discretion). In those cases where Client has selected a particular broker or dealer and/or directs transactions to a particular broker or dealer (directed brokerage arrangement), Client is hereby advised that Adviser might be in a better position to (i) negotiate commissions and (ii) arrange "best execution" if brokerage was not so selected/directed by the Client. 13.B ADDITIONAL COMPENSATION If LATEEF obtains a new client as a result of a referral from an employee or other individual, LATEEF may compensate such person and if so enters into a Client Solicitation Agreement and duly informs the client of the nature of the arrangement. In same cases LATEEF will direct brokerage to certain brokers or dealers who have referred clients to tATEEF. Under such circumstances, the client Is not, in all instances, assured of best execution and/or lowest commissions and/or broker/dealer compensation. Adviser will have no liability with respect to the acts, conduct, commissions or omissions of any such broker or dealer. I.ATEEF participates in a number of referral programs that provide qualified leads to LATEEF. Participation in these programs may pose potential conflicts of interest. IATEEF does not directly compensate the program sponsor for these leads. The leads are not required to custody their assets with the program sponsor. If the lead decides to engage the services of the program sponsor, the program sponsor will be the primary broker for the account and, as a result, will receive compensation in the form of brokerage commissions on the trades executed by the sponsor for the account. LATEEF currently participates in the Page 7 Schedule F of Applicant: SEC File Number: Date: Form ADV Continuation Sheet far Form ~ateeP investment ADV Part TI Management 501- 09747 November 21 Zoos tDo not use this Schedule as a continuation sheet for Form ADV Part I or any other schedules.} 1. Full name of applicant exactly as stated in Item 1A of Part I of Form ADV: IRS Empl. Ident. No.: l.ateef investment Mana ement 94-6330378 Item of Form Identi Answer following referral programs: 1. TD Waterhouse -Advisor Direct 2. Fidelity -Advisor Access 3. Smith Barney - CES 4. Merrill Lynch -SPA LATEEF participates in a number of Managed Account (aka WRAP) programs that direct accounts to LATEEF. LATEEF does not compensate the program sponsor for these accounts. The program sponsor charges a bundled fee (in some cases, representing research, execution and reporting services) of which a portion (0.50 basis points) is paid to LATEEF for providing investment advisory services to the account. Client is hereby advised that the services provided far the bundled fee may be less costly if negotiated on an unbundled basis. Client is also hereby advised that Adviser might be in a better position to (i) negotiate commissions and (ii) arrange "best execution" if brokerage was not so selected or directed by the Client. LATEEF currently participates n the following Managed Account programs: 1. CSFB - PEAKSetect 2. Deutsche Bank Alex. Brown -Advisor Select 3. Smith Barney -Fiduciary Services Other General Proxy Voting Policy LATEEF typically does not vote proxies as part of its discretionary authority to manage accounts, unless the client has requested LATEEF to do so either in writing or by directing all proxies to LATEEF. When voting proxies, LATEEF's primary objective is to make voting decisions solely in the best economic interests of its clients. LATEEF wilt act in a manner that it deems prudent and diligent and which is intended to enhance the economic value of the underlying securities held in its clients` accounts. LATEEF has adopted written Proxy Policy Guidelines and Procedures (the "Proxy Guidelines"} that are reasonably designed to ensure that LATEEF is voting in the best interest of its clients. The Proxy Guidelines reflect LATEEF's general voting positions an specific corporate governance issues and corporate actions. Some issues may require a case by case analysis prior to voting and may result in a vote being cast that will deviate from the Proxy Guideline. Upon receipt of a client's written request, LATEEF may also vote proxies for that client's account in a particular manner that may differ from the Proxy Guideline. Deviation from the Proxy Guidelines will be documented and maintained in accordance with Rule 204-~ under the Investment Advisers Act of 1940. In accordance with the proxy Guidelines, LATEEF may review additional criteria associated with voting proxies and evaluate the expected benefit to its clients when making an overall determination on how or whether to vote the proxy. LATEEF may vote proxies individually for an account or aggregate and record votes across a group of accounts, strategy or product. In addition, LATEEF may refrain from voting a proxy on behalf of its clients' accounts due to de-minimis holdings, impact on the portfolio, items relating to foreign issuers, timing issues related to the openingJclosing of accounts and contractual arrangements with clients andJor their authorized delegate. Pape p Schedule F ®f ~CDt"1'di ~dv Con~inuatiaa~ Sheet fc~r F~rr'r~ Applicant: ~ SEC Fiie Number: (Date: Lateef Investment November 21, 2006 UO nOC Ilse Ct115 `aCnetlUle a5 a CQntlnuatlOn Sheet tOr FOrn'1 Al3V NarC 1 Or an atner scnedules. 1. Full name of applicant exactly as stated in Item lA of Part I of Form ADV; IRS Empl. Ident. No.: Lateef Investment Mana ernent 94-6330378 Item of Farm tidentifv) Answer To assist in the proxy voting process, LATEEF may retain an independent third party service provider to assist in providing research, analysis and voting recornrnendations on corporate governance issues and corporate actions as well as assist in the administrative process. Conflicts of Infierest LATEEF may have conflicts of interest that can affect how it votes its clients' proxies. Far example, LATEEF may manage a pension plan whose management is sponsoring a proxy proposal. The Proxy Guidelines are designed to prevent material conflicts of interest from affecting the manner In which LATEEF votes its clients' proxies. In order to ensure that all material conflicts of interest are addressed appropriately while carrying out its obligation to vote proxies, LATEEF has designated a Managing director who is not on the Investment Team to be responsible for addressing how LATEEF resolves such material conflicts of interest with its clients, To obtain a copy of the Policy Guidelines or to obtain information an how your account's securities were voted, please contact Justus Leachman (415-461-38{70 or ileachmanfn~lateef.com. Page B LATEEF MANAGEMENT ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP BALANCE SHEET AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ~~~~~ DECEMBER 31, 2005 O~~ ODENBERG ULLAKKO MURANISHI 8 CO. LLP Certified Public Accountants & Consultants January 18, 2006 To the Partners of Lateef Management Associates 465 California Street, Suite 700 I Telephone: (415) 434.3744 San Francisco, California 94104 Facsimile: (415) 788-2260 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS In our opinion, the accompanying balance sheet presents fairly, in all material respects, the financial position of Lateef Management Associates (a California Limited Partnership) at December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. This financial statement is the responsibility of the Partnership's management; our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit of this statement in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet, assessing the accounting principles used and significant estimates made by management, and evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for the opinion expressed above. LATEEF MANAGEMENT ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEET DECEMBER 31, 2005 ASSETS Current assets: Cash and cash equivalents Accounts receivable LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable and accrued expenses Deferred income Total current liabilities Commitments (Note 3) Partners' capital $ 1,868,796 $ 3,331,910 $ 20,950 537,466 $ 3,331,910 See accompanying notes to balance sheet. LATEEF MANAGEMENT ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO BALANCE SHEET NOTE 1-Organization, operations and summary of significant accounting policies: Organization Lateef Management Associates (`Lateef is a California limited partnership engaged in investment asset management for individuals and institutional investment portfolios. Their main office is in Greenbrae, California with an additional office in Portland, Oregon. A summary of significant accounting policies follows: Method of accounting Lateef maintains its accounts on the cash basis method of accounting but converts to the accrual method for presentation of the balance sheet in conformity with accounting principles generally accepted in the United States of America. Cash and cash equivalents Lateef considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Furniture and equipment Furniture and equipment are depreciated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. Deferred income Deferred income consists of management fees billed in advance. The fees are normally billed either annually or quarterly, at the beginning of the period in which they will be earned. If the billed amount covers a period that extends past the end of the fiscal year, the billed amount is not recorded as income until earned. Tnrnmr~ +axAc No liability for federal or state income taxes is reflected in the accompanying balance sheet, because the partners are individually responsible for income taxes on their respective shares of Lateefs taxable income. Use of estimates The preparation of a financial statement in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates. Fair value of financial instruments The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses are reasonable estimates of the fair value of these financial instruments. Concentration of credit risk Lateef places its cash and temporary cash investments with high credit quality institutions. At December 31, 2005 and periodically throughout the year, such investments were in excess of FDIC insurance limits. NOTE 2 -Profit sharing plan: Lateef has a profit sharing Keogh Plan which is discretionary in nature. No contribution is required unless agreed upon by management. Contributions to the Plan amounted to $363,864 in 2005. All contributions relating to the 2005 plan year were paid as of December 31, 2005. NOTE 3 -Leases: Lateef leases its primary office under a noncancellable operating lease which expires in June 2006. On January 10, 2006, Lateef entered into a new office operating lease agreement which begins in July 2006 and expires in June 2011. Lateefs future minimum payments under the leases for years ending after December 31, 2005 are as follows: $191,196 in 2006; $157,591 in 2007; $163,114 in 2008; $168,827 in 2009; $174,730 in 2010 and $88,864 thereafter. In addition, Lateef reimburses a representative in Oregon $2,500 per month for office rent on a month to month basis. Effective December 20, 2005, Lateef signed an operating lease to rent office equipment for 60 months. The amount of monthly rent is $2,426 plus applicable taxes. Lateefs future minimum payments under the lease for years ending after December 31, 2005 are as follows: $29,115 for 2006 through 2009 and $26,689 for 2010. NOTE 4 -Subsequent event: On January 9, 2006, capital distributions to partners were made totaling $1,733,843. -2- LATEEF INVESTMENT MANAGEMENT June 25, 2001 PRIVACY POLICY AND PRACTICES OF LATEEF INVESTMENT MANAGEMENT, LP We at Lateef value our clients' trust and are committed to the responsible management, use and protection of personal information. All investment advisers, such as Lateef, must collect a certain amount of personal information to service our clients and administer our business. This notice describes our policy regarding the collection and disclosure of personal information. 1. Categories of Personal Information Collected. Personal information, as used in this notice, means information that identifies an individual personally and is not otherwise available to the public. It includes, but may not be limited to, personal financial information such as assets, liabilities, income, net worth and other similar financial information. We collect personal information from you in agreements, applications or other forms; and, we collect personal information about yoar transactions with us and others (e.g., the broker- dealer or broker-dealers used by you in connection with your utilization of our investment advisory services). 2. Disclosure of Personal Information. We do not disclose any of the personal information that we collect to anyone, except as permitted by law. 3. Access to Personal Information. Lateefs partners and employees have access to personal information, on a "need to know" basis in the course of performing their services, which includes advising clients and administering client accounts with respect to matters relating to or arising out of performance of Lateefs investment advisory services. 4. Security Measures. We use physical and procedural security measures to maintain the confidentiality and integrity of personal information in our possession and guard against unauthorized access to it. Some techniques we employ to protect personal information include locked files and user authentication. We are responsible for identifying information that must be protected, providing an adequate level of protection for that information and granting access to protected information only to persons who must use it in the performance of their job or service related duties. Partners or employees who violate our Privacy Policy will be subject to disciplinary action, which may include termination or expulsion, as the case may be. 5. Continuation of Privacy Policy. We will continue to follow this Privacy Policy regarding personal information even where a client or customer relationship between us no longer exists. 6. Notifications. Lateef will notify its clients/customers of its Privacy Policy at the inception of its client/customer relationship with a given client and annually thereafter. 7. Changes to Privacy Policy. This Privacy Policy is subject to change at any time. We will notify our clients/customers of any modifications at least annually. Lateef Privacy Policy Notification Rev 6/30/01 LATEEF INVESTMENT MANAGEMENT INVESTMENT GUIDELINES ^ New Account ^, Revision to Existing Account (Lateef Acct #:_____ Submission Date: Account Name: CLIENT INFORMATION Client Contact: Client Address: Home: Age: Bus: SSN/Tax ID: Fax: Tax Bracket: Mobile: Annual Income: Email: Net Worth: ACCOUNT/FUNDING INFORMATION Estimated Funding Amount: $ Broker/Custodian Firm: ^ Cash Only Broker/Custodian Contact: ^ Securities In-Kind Only* in-kindxaniach positiontintormationd Broker/Custodian Phone #: ^ Cash & Securities including: original purchase date, price and shares. Broker/Custodian Account #: LATEEF MANAGED PRODUCTS INVESTMENT KNOWLEDGE PORTFOLIO OBJECTIVES PORTFOLIO TAX STATUS ^ Limited ^ Growth ^ Lateef All-Cap Equity ^ Taxable ^ Moderate ^ Growth & Income ^ Lateef Large-Cap Equity ^ Non-Taxable ^ Extensive ^ Income '` For balanced accounts, indicate EITHER a desired asset mix OR indicate that the asset mix has been lefr to the discretion of the manager. ADDITIONAL INFORMATION Investment Restrictions: ^ No ^ Yes (provide c~cker(S)) Do you plan to withdraw money from this account? ^ No ^ YeS (how much and how often?) Current /Future needs or circumstances that will affect the management of this account: I will notify Lateef Investment Management if there are any changes in my investment objectives. Account Owner Date Account Owner Date LATEEF INVESTMENT MANAGEMENT, LP. INVESTMENT MANAGEMENT AGREEMENT DISCRETIONARY PERCENTAGE OF ASSETS UNDER MANAGEMENT - NO PERFORMANCE FEE The undersigned ("Client") hereby employs Lateef Investment Management, L.P., a California limited partnership ("Adviser"), and Adviser agrees to serve, as investment advisor for the Account, on the following terms and subject to the following conditions: 1. DEFINITIONS. For purposes of this Investment Advisory Contract, the following terms shall have the following meanings ascribed to them: (i) "Account" shall mean and refer to that certain account created and/or maintained by this Investment Advisory Contract and consisting of (a) any and all Securities and (b) other assets of Client made the subject of this Investment Advisory Contract as part of the Account; (ii) "Adviser" shall mean and refer to Lateef Investment Management, LP., a California limited partnership; (iii) "Advisers Act" shall mean and refer to the Investment Advisers Act of 1940, as amended; (iv) "Anniversary Date" shall mean and refer to (a) the last day of that calendar month immediately preceding that month in which this Investment Advisory Contract is duly and fully executed and delivered, if such execution and delivery occurs on or before the fifteenth (]5th) day of a calendar month or (b) the first day of that calendar month immediately succeeding that month in which this Investment Advisory Contract is duly and fully executed and delivered, if such execution and delivery occurs on or after the sixteenth (16th) day of a calendar month; (v) "Assets" shall mean and refer to the Securities and cash or cash equivalents constituting the Account in the aggregate; (vi) "Client" shall mean and refer to that person, firm or entity, other than Adviser, whose name is subscribed to this Investment Advisory Contract; (vii) "ERISA" shall mean and refer to the Employee Retirement Income Security Act of 1974, as amended; and, (viii) "Securities" shall mean and refer, generally, to any one or more of those items listed and described in Section 202(a)(18) of the Advisers Act. 2. DISCRETIONARY AUTHORITY. Upon execution and delivery of this Investment Advisory Contract, Adviser will have full power and authority to supervise and direct the investment of Assets in the Account, including the power and authority to buy, sell, exchange, convert and otherwise effect transactions in any stocks, bonds, and other Securities, all without prior consultation with Client. Client hereby appoints Adviser as Client's attorney-in-fact for purposes of exercising the foregoing power and authority and discharging Adviser's other obligations under this Investment Advisory Contract. If and in the event that Client wishes to have the Account managed by Adviser subject to certain investment objectives and/or restrictions, it will be Client's responsibility to notify Adviser, in writing, of the investment objectives of the Account and of any changes or modifications thereto as well as any specific investment restrictions applicable thereto and to give Adviser prompt written notice thereof if Client deems any investment recommendation or action made or taken by Adviser for the Account to be in violation of such objectives or restrictions. Any and all such Client imposed objectives and/or restrictions, to be effective, must be acknowledged by the Adviser in writing. Unless Client so notifies the Adviser of specific restrictions and/or investment objectives, the investments recommended for, or actions taken on behalf of the Account, shall be deemed not to be restricted (and to be in accord with Client's investment objectives) under the current or future laws of the federal government or of any state or by virtue of this or any other contract or instrument purporting to bind the Adviser or the Client. 2.1. Margin. Adviser shall not have the power and authority to invest in, trade, buy and sell Securities on margin unless authorized in writing by Client. 2.2. Short Sales. Adviser shall not have the power and authority to sell Securities short and cover such sales unless authorized in writing by Client. 2.3. Securities Limitation. Notwithstanding any other term or provision set forth in this Investment Advisory Contract, any Security (other than evidences of indebtedness) as to which Adviser exercises its power and authority shall be limited to those Securities which are traded on a national securities exchange or in interstate or national over-the-counter markets and/or for which market quotations are readily available. CUSTODY; TRANSACTION PROCEDURES; WITHDRAWALS. 3.1. Custody. Client has appointed or will appoint a custodian (the "Custodian") to take and maintain possession of all of the assets of the Account. Neither Adviser nor any "affiliate" (as defined in the rules and regulations under the Securities Act of 1933, as amended) will be the Custodian. Adviser will have no liability with respect to custodial arrangements or the acts, conduct, commissions or omissions of the Custodian. - 1 of 6- Initials LATEEF INVESTMENT MANAGEMENT, LP. 3.2. Transaction Procedures. Adviser may issue such instructions to the Custodian as may be appropriate in connection with the settlement of transactions initiated by the Adviser pursuant to Paragraph 2., above. 33. Withdrawals. Adviser will be under no duty to supervise or direct the investment of any Assets that are not in the Account in the custody of the Custodian or readily available for delivery to the Custodian by the settlement date of any proposed transaction. Nothing in this Investment Advisory Contract shall be deemed or construed to require Adviser, nor shall Adviser have any duty or responsibility, to render its investment advisory services with respect to (and to the extent of) any assets withdrawn from the Account at any time or from time to time (either physically from the Custodian, or by Client and/or Adviser book entry indicating that Adviser is not charging or has ceased charging Client compensation therefore), for any reason whatsoever, by either Adviser or Client. As, with respect to, and to the extent of any such assets so withdrawn from the Account, Adviser shall thereafter cease being, and shall not thereafter be deemed or construed to be, an investment adviser (even though it may continue being an investment adviser with respect to the balance of Assets in the Account). If and to the extent that Client gives his/her/its written or oral instructions to Adviser with respect to the purchase and/or sale of Securities not recommended by Adviser, such instructions shall be deemed and construed to supersede and relieve Adviser of its duties, obligations, liabilities and responsibilities to Client with respect to those Assets constituting the Account as to which such instructions are given. On the other hand, Adviser, in the rendition of its duties to Client and the Account hereunder, shall be entitled and have the right and obligation to ignore (i) any instructions given by or on behalf of Client which are not reduced to writing and (ii) any written or oral statements of Client's desires and wishes which do not rise to the level of a clear and specific investment instruction or restriction. 4. BROKERAGE. Adviser will enter orders for securities transactions in the Account with such brokers, dealers, or issuers as Adviser may select (unless the Client directs the brokerage as described below). Orders will be entered for execution on such markets, at such prices, and at such rates of broker-dealer compensation as Adviser deems appropriate. In selecting brokers or dealers, and in determining appropriate levels of broker-dealer compensation, Adviser will take into consideration not only the available prices and rates of broker-dealer compensation, but also other relevant factors, including execution capabilities and the range and quality of research and other services provided by such brokers or dealers that are expected to provide Adviser with lawful and appropriate assistance in Adviser's investment decision making process, without Adviser having to demonstrate that any such broker/dealer selection is for the direct benefit of Client or the Account. Client understands that under some circumstances the broker-dealer compensation it pays may exceed the compensation that could be obtained from another broker or dealer, particularly if such other broker or dealer were not providing research or other services. In those cases where Client directs transactions to a particular broker or dealer (directed brokerage arrangement), Client is hereby advised that Adviser might be in a better position to (i) negotiate commissions and (ii) arrange "best execution" if brokerage was not so directed by the Client. Client is hereby apprised of the fact that Adviser has, in the past, and anticipates that it will, in the future, direct brokerage to certain brokers or dealers who have referred clients to Adviser; and, under such circumstances, Client is not, in all instances, assured of best execution and/or lowest commissions and/or broker/dealer compensation. Adviser will have no liability with respect to the acts, conduct, commissions or omissions of any such broker or dealer. 5. FEES. The initial term of this Investment Advisory Contract shall be for a period of one (1) year commencing on that date that this Investment Advisory Contract is duly and fully executed and delivered and shall be automatically extended for successive periods of one (1) year each, except that: Client may rescind this Investment Advisory Contract at any time within five (5) days of its execution and delivery, by written notice delivered to Adviser. Adviser's compensation for services hereunder will be calculated and paid, in accordance with that certain fee schedule marked "Exhibit A" attached hereto and made a part hereof by this reference. Without limiting the generality of the foregoing, it is understood and agreed that: 5.1. Client shall pay to Adviser an amount, per quarter ("Asset Based Fee") based on Adviser Adviser's fee schedule (Exhibit A hereto) stated as a percentage of the "fair market value" of the Account as of the relevant calculation date. The Asset Based Fee shall be paid quarterly in arrears at the end of each calendar quarter based on the fair market value of the Account being managed/advised by Adviser at the close of trading on the last business day of the quarter. Accounts to which additional contributions are made during a calendar quarter shall have such contributions treated for purposes of calculating the Asset Based Fee as if such contribution was made on the first day of the calendar quarter in which actually made. 5.2. If an Account is taken in and accepted by Adviser on other than the first day of a calendar quarter, an adjustment to the Asset Based Fee will be made by prorating that portion of the Asset Based - 2 of 6- Initials LATEEF INVESTMENT MANAGEMENT, LP. Fee for that calendar quarter with respect to such Account. The prorating shall be based on the number of days remaining in such calendar quarter in which such initial contribution is made by/for such Account. 5.3. Client hereby authorizes Adviser to bill the Custodian/Broker directly for, and has authorized or will authorize the Custodian/Broker to pay to Adviser directly the fees described above. Adviser's bill, which Adviser will send to Client and the Custodian simultaneously, will state the amount of the fee for the period in question, the value of the Client's assets on which the fee is based, and the manner in which the fee was calculated. The Custodian has agreed (or Client will obtain such agreement from the Custodian) to send to Client at least quarterly a statement indicating all amounts disbursed from the Account, including the amount of fees paid directly to the Adviser. The schedule of fees (Exhibit "A" hereto) may be amended from time to time by Adviser upon thirty (30) days' prior written notice thereof to Client. 6. Reports. As soon as practicable after the end of each calendar quarter, and in no event less than semiannually, Adviser will send to Client a statement reflecting cash and market values of securities in the Account computed as of the last business day of that quarter. Values will be based on quotations Adviser believes to most accurately indicate market values or, if no quotations are available, they will reflect the Adviser's good faith estimates. Adviser wills end these reports to the address set forth below or such other address to which Client may request in writing that they be sent. Client will provide, or instruct the Custodian to provide, Adviser with such reports as to the status of the Account as Adviser may reasonably request. Client acknowledges that Adviser will not be responsible for the accuracy of any information disclosed in any such report provided to the Adviser by any third party. 7. Voting of Securities. Adviser will not be required to take any action or render any advice with respect to the voting of securities in the Account, and Adviser is specifically and by Client's instruction, hereby given, precluded from doing so. 8. Confidential Relationship. All information and advice furnished by either of the parties to the other will be treated as confidential and will not be disclosed to third parties except as required by law, permitted or contemplated by this Investment Advisory Contract, or as necessary or desirable to enable or assist Adviser in rendering its services to Client hereunder. 9. Non-exclusive Relationship. Client recognizes and acknowledges that Adviser performs investment management services for various clients. To the extent practicable, Adviser will attempt to allocate investment opportunities among its various clients, including Client, on a basis that is, over time, fair and equitable to all clients. Client agrees that Adviser may give advice and take action with respect to its other clients that may differ from advice given or the timing or nature of action taken with respect to the Account. Adviser will have no obligation to purchase or sell for the Account, or to recommend for purchase or sale by the Account, any security that Adviser, its principals, its affiliates, or its employees may purchase for themselves or for other clients. Client further recognizes that transactions in a specific security may not be accomplished for all of Adviser's clients' accounts at the same time or at the same price. Client understands and agrees that nothing in this Investment Advisory Contract or in the relationship thereby created precludes Adviser or any partner, principal or employee thereof from acting, alone or in conjunction with others, as a director, officer, employee, or creditor of any corporation, trustee of any trust, partner of any partnership, or administrative official of any other business entity, from receiving any compensation for services as an investment advisor with respect to, or participating in the profits derived from, the investments of any such corporation, trust, partnership or business entity, or from investing in securities for his/its own account, extent that: (i) Adviser shall not, as principal, buy Securities from or sell Securities to Client without, first, fully disclosing to Client such proposed transaction or activity and acquiring from Client, Client's informed written consent thereto; and, (ii) with respect to Adviser's (or its affiliates, principals, partners or employees) purchase or sale of Securities for its own account, such securities being held or to be held, substantially concurrently, by the Account, LMA shall adhere to those routines and procedures set forth in Part II, Schedule F, of Form ADV which it has filed with the Securities Exchange Commission ("SEC"). l0. AGREEMENT NOT ASSIGNABLE; NOTICE OF CHANGE IN MEMBERSHIP. This Investment Advisory Contract will inure to the benefit of the parties and their respective successors and assigns; provided that Adviser may not assign (as that term is defined in the Advisers Act) this Investment Advisory Contract without the written consent of Client. Adviser shall notify Client of any change in its membership if, as and to the extent required by the Adviser's Act. 11. TERMINATION. The parties may terminate this Investment Advisory Contract as follows: - 3 of 6- Initials LATEEF INVESTMENT MANAGEMENT, LP. 11.1. Upon inception of the investment advisory relationship created by this Contract, Client may terminate the Contract within five (5) business days of the later to occur of (i) Client's execution of this Contract or (ii) Client's delivery of the executed (by Client) Contract to Adviser; and, in the event of any such termination by Client, any advisory fees prepaid by Client to Adviser shall be immediately refunded, in full, by Adviser to Client; and, 11.2. At any time during the investment advisory relationship created by this Contract, and providing that section 11.1., hereinabove, is inapplicable, this Contract may be terminated by either party hereto (Adviser and/or Client) upon the giving, at any time, of thirty (30) days' prior written notice thereof; and, in the event of such termination, Adviser will owe Client a pro rata portion of the fees prepaid by Client pursuant to the "Fees" provision of this Investment Advisory Contract, above, calculated to the effective date of termination. 12. Standard of Care. The parties agree that the sole standard of care imposed on Adviser by this Investment Advisory Contract is to act with the care, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims; provided, however, that the federal securities laws impose liabilities under certain circumstances on persons who act in good faith, and, therefore, nothing herein shall in any way constitute a waiver or limitation of any rights which Client may have under any federal securities laws. 13. Arbitration. Client agrees that any controversy or claim, including but not limited to claims arising out of alleged errors and omissions relating to Adviser's obligations and duties under this Investment Advisory Contract, will be settled by arbitration in accordance with the Code of Commercial Arbitration of the American Arbitration Association. Judgment on any award rendered by the arbitrator(s) in any such arbitration may be entered in any court having jurisdiction thereof. Any such arbitration will be held in the County of Marin, California. Notwithstanding the foregoing, nothing in this paragraph will constitute a waiver of any right Client may have to choose a judicial forum to the extent such a waiver would violate applicable law. 14. Other Representations and Agreements. 14.1. ERISA. If the Account is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (i) Adviser acknowledges that Adviser is a "fiduciary" within the meaning of that Act; (Client acknowledges that Client is a "named fiduciary" with respect to the control or management of the assets in the Account, (iii) Client agrees to obtain and maintain a bond satisfying the requirements of Section 412 of ERISA and to include Adviser and Adviser's principal's agents and employees among those insured under that bond, and (iv) Client will deliver to Adviser the governing plan documents. In no event shall Adviser be deemed or construed to be an "investment manager" within the meaning of ERISA. 14.2. Form ADV1. Client acknowledges that it has received and read a current copy of Part II of Adviser's Form ADV, as filed with the Securities Exchange Commission. 143. Registration. Adviser represents that it is registered as an investment adviser under the Advisers Act and that such registration will be kept effective during the term of this Investment Advisory Contract. 14.4. Client's Authorization. Client represents that employment Adviser is authorized by all, and that Adviser's hiring hereunder, has been undertaken in accordance with and is not inconsistent with any documents and applicable procedures governing or relating to the Account. Client will furnish Adviser with true and compete copies of any and all such documents. 14.5. Title to Assets. Except to the extent Client has notified, or in the future notifies, Adviser in writing, Client represents that the assets in the Account belong to Client, free and clear of any and all liens and encumbrances. 15. Miscellaneous. 15.1. Communications. All notices, requests, demands, and other communications required or permitted to be given under this Investment Advisory Contract shall be in writing and shall be conclusively deemed to have been duly given (i) when hand delivered to the other party; or (ii) when received when sent by telex or facsimile at the address and number set forth below; provided, however, that notices given by facsimile shall not be ~ By initialing this page, client acknowledges receipt of current copy of Advisor's ADV Part II. - 4 of 6- Initials LATEEF INVESTMENT MANAGEMENT, LP. effective unless wither (a) a duplicate copy of such facsimile notice is promptly given by depositing same in a United States Post Office with first-class postage prepaid and addressed to the parties as set forth below, or (b) the receiving party delivers a written confirmation of receipt for such notice either by facsimile or any other method permitted under this paragraph. Additionally, any notice given by telex or facsimile shall be deemed received on the next business day if such notice is received after 5:00 p.m. (recipient's time) or on a nonbusiness day]; or (iii) three (3) business days after the same have been deposited in a United State Post Office with first class or certified mail return receipt requested postage prepaid and addressed to the parties set forth below; or (iv) the next business day after same have been deposited with a national overnight delivery service reasonably approved by the parties (Federal Express and DHL Worldwide Express being deemed approved by the parties), postage prepaid, addressed to the parties as set forth below with next-business-day delivery guaranteed, provided that the sending party receives a confirmation of delivery from the delivery service provider. A party may change or supplement the addresses given above, or designate additional addresses, for purposes of this Section by giving the other party written notice thereof in the manner set forth above. 15.2. Entire Agreement. This Investment Advisory Contract, together with its exhibits, which are incorporated into this Investment Advisory Contract, constitutes the entire agreement of the parties as to the management of the Account, and may be amended only by a written document signed by both parties. 15.3. Governing Law. This Investment Advisory Contract will be governed by and construed in accordance with the laws of the State of California, other than as preempted by applicable Federal law and other than its laws governing conflicts of laws. ] 5.4. Counterparts. This Investment Advisory Contract may be executed in one or more counterparts, and all counterparts, taken together, shall constitute one agreement, binding upon all the parties thereto. This Investment Advisory Contract is duly and fully executed and delivered effective this day of , 20_. LATEEF INVESTMENT MANAGEMENT, L.P. Signature of Client Typed Name of Client Signature of Client Typed Name of Client Signature of Client Typed Name of Client By Managing Member of Lateef Capital Partners, LLC., the General Partner 300 Drakes Landing Road, Suite 100 Greenbrae, California 94904 415-461-3800 phone 415-461-0436 fax - 5 of 6- Initials LATEEF INVESTMENT MANAGEMENT, LP. FEE SCHEDULE (Exhibit A) FAIR MARKET VALUEZ OF ASSETS UNDER MANAGEMENT FEE (THE "ACCOUNT") Minimum Fee $10,000 (1) $0.00 - $15,000,000 1 % of fair market value in excess of $0.00 (minimum fee of $10,000). (2) $15,000,001 - $30,000,000 Fee of category (1), plus .75% of fair market value in excess of $15,000,000. (3) $30,000,001 - $45,000,000 Fee of category (2), plus .625% of fair market value in excess of $30,000,000. (4) $45,000,000 and above Fee of category (3), plus .50% of fair market value in excess of $45,000,000. Fees are billed quarterly in arrears and are billed directly to CustodianBroker unless stated otherwise in the section below. Special Billing Instructions: z Fair market value to be determined by appropriate means as the close of trading on the last business day of the calendar quarter and, if and as applicable, on any anniversary date thereof and thereafter. - 6 of 6- Initials