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This brochure, most recently updated on October 15, 2008, serves as a replacement to Part II of Form ADV Uniform Application for Investment Adviser Registration, which gives information about an investment adviser and its business for the use of clients and prospective clients. This information has not been approved or verified by any governmental authority. Registration as an investment adviser with the Securities and Exchange Commission (SEC) does not imply that the adviser possesses a certain level of skill or training. Clients and prospective clients may obtain a print version of this brochure via pdf format download or by telephoning or writing P.R. Herzig & Co.
 

Table of Contents

Item No.

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

Educational Standards

6

Education and Business Background

7

Other Business Activities

8

Financial Affiliations

9

Participation of Interest in Client Transactions

10

Conditions for Managing Accounts

11A

Review of Accounts

11B

Reports to Clients

12

Investment or Brokerage Discretion

13

Additional Compensation

 

1. Advisory Services and Fees

P.R. Herzig & Co., Inc. (ďthe FirmĒ), managed since 1957 by its founding family, is a registered investment adviser and a licensed broker-dealer (member FINRA/SIPC) that provides investment supervisory services to individuals, pension plans, charitable foundations, trusts, and funds of funds. The Firmís primary service is managing separate long-only portfolios on behalf of clients who grant the Firm discretionary investment authority. It also provides investment advice and analytical support to individual and institutional clients who manage their own portfolios.

For most clients, the Firmís entire compensation derives from commissions on securities transactions and a rebate up to 0.35% per annum on cash balances and money market funds. (The Firmís compensation does not include various flat fees charged to clients by Pershing LLC, a clearing firm with which the Firm has a financial affiliation discussed below in Item 8.) For accounts over which the Firm has discretionary investment authority, commissions are calculated using a standard schedule that takes into account the number of shares transacted, the price of each share, and other factors. For accounts over which the Firm does not have discretionary investment authority, the Firm occasionally negotiates other methods of calculating commissions.

The Firmís commission rates are significantly higher than those charged by discount brokers. However, unlike arrangements with many investment advisers, clients do not pay the Firm a management fee calculated as a percentage of the market value of an account. As a result, the Firm believes total investment costs paid by its clients are highly competitive, generally between 1% and 1.5% of average invested assets per year for accounts over which the Firm has discretionary investment authority, and, in most cases, significantly less for non-discretionary accounts. In any one year, depending on client objectives and market conditions, the total commissions on an account may be significantly higher or lower than the estimated average range.

For one account, the Firm has negotiated a flat fee payable yearly in advance to manage a portfolio of U.S. treasury bills.

The firm seeks to provide a high degree of transparency with regard to fees and expenses. Clients receive a confirmation of each transaction clearly disclosing the commission, and monthly statements summarizing all activity and charges.

Clients may at any time add funds or securities to their accounts, withdraw funds or securities from their accounts, or close their accounts. There are no lock-up provisions. Any fees paid in advance are refundable pro-rata.

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2. Types of Clients

Most of the Firmís clients are wealthy individuals and families. Many have maintained accounts with the Firm for many years. The Firm also manages portfolios and provides investment advice for pension plans, charitable foundations, trusts, and funds of funds.

3. Types of Investments

Typical investments include common stocks issued by domestic and foreign companies, units of domestic and foreign royalty trusts, U.S. Government securities, bonds issued by domestic companies, and preferred stocks issued by domestic companies.  Some discretionary accounts also hold, or have held, municipal securities, commercial paper, warrants, options, bonds issued by foreign companies, domestic and foreign mutual funds, and hedge funds.

4. Methods of Analysis, Sources of Information, and Investment Strategies

The Firm employs a wide range of methods to evaluate investments and manage portfolios, including fundamental analysis, some aspects of technical analysis and study of price trends, and analysis of economic, market, industry, firm, and product cycles and trends. The Firmís investment philosophy is eclectic and opportunistic, with an emphasis on seeking a margin of safety in price.

Typical sources of information include company SEC filings, press releases, company websites, company earnings calls, financial news and quotation services, financial data providers, financial newspapers and magazines, corporate rating services, analyst research reports, financial weblogs, internet discussion boards, financial websites, and, where practical, inspections of company activities.

The Firm continually adapts its investment strategies to market conditions and individual client needs. Decades of experience have shown that no one approach works at all times for all clients.  Generally the Firm holds securities in taxable client accounts for over one year, but, when appropriate, will sell within a year to capture a large gain or realize a tax loss. The Firm at times engages in margin transactions for its own account, but does not make short sales or engage in margin transactions for clients except in special circumstances and at a clientís specific request. It occasionally executes option transactions at the request of clients, but does not employ options or other derivatives in accounts over which it has discretionary investment authority.

The Firmís investment approach is described in more detail elsewhere on this website.

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5. Education Standards

The Firmís full-time investment professionals must have a college degree or better. The firm strongly encourages investment professionals to pursue the Chartered Financial Analyst (CFA) designation awarded by the CFA Institute. All current professionals hold the CFA designation. The Firm also encourages investment professionals to participate in the CFA Instituteís continuing education program.

6. Education and Business Background

M. Thomas Herzig, CFA, born 1954, is the Firmís president and chief portfolio manager. He joined the Firm in 1977 after obtaining a BA in economics and romance languages from Bowdoin College. He left the Firm in 1978 to earn an MBA from the University of Cape Town, South Africa, then rejoined the Firm in 1979. In 1982, he was an early recipient of the Chartered Financial Analyst designation. He is a member of the New York Society of Security Analysts, and a trustee of several trusts.

Sumner Gerard, CFA, born 1953, is the Firmís director of research. He also provides analytical support to select institutional clients and manages portfolios. He graduated from Bowdoin College in 1976 with a BA in economics and French literature. He worked for 18 years at predecessor banks of JP Morgan Chase, including 5 years in Taiwan and 2 years in China, where he was the senior in-country officer.  He was employed by a New York-based fund of funds from 2000-2001, and joined the Firm in 2002. He earned the Chartered Financial Analyst designation in 2000 and is a member of the New York Society of Security Analysts. He is an officer or trustee of several trusts and private charitable foundations.

Arthur S. Pesner, CFA, born 1963, is the Firmís chief financial officer and compliance officer. He graduated from Cornell University in 1985 with a BS in applied economics and management, then earned his MBA from the University of Michigan in 1987. He worked for the Securities and Exchange Commission (SEC) from 1988-1994 as a securities compliance examiner, and joined the Firm in 1994. He received the Chartered Financial Analyst designation in 1994 and is a member of the New York Society of Security Analysts.

Jonathon E. Ciaio, CFA, born 1976, is the Firmís principal trader and an assistant portfolio manager. He graduated from Cornell University in 1999 with a BS in applied economics and management. He was a financial adviser at UBS PaineWebber from 2000-2001 and joined the Firm in 2001. He earned the Chartered Financial Analyst designation in 2006, and is a member of the New York Society of Security Analysts.

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7. Other Business Activities

As described in Item 1, the Firm is a FINRA registered broker/dealer and occasionally executes securities transactions for some clients who do not solicit investment advice.

8. Financial Affiliations

The Firm has arranged with Pershing LLC to provide clearing and custodian services to the Firmís clients. Pershing, a wholly owned subsidiary of The Bank of New York Mellonís holding company and one of the largest and oldest clearing firms in the United States, holds the clientsí securities and cash, issues statements and confirmations, and provides compliance support and other back office services. Pershing is compensated for these services by a flat charge on each securities transaction, which it takes out of the commission received by the Firm. Pershing is further compensated by the spread it earns on clientsí cash balances and by fund processing and revenue sharing fees on money market funds, of which it rebates up to 0.35% per annum to the Firm. This practice is common in the investment industry, and the Firm believes its clients receive competitive money market rates. Pershing is also compensated by other miscellaneous fees charged directly to the Firmís clients, including fees to transfer accounts, transfer funds, deposit securities certificates, store precious metals, and other services. In general, these fees are small relative to a clientís total investment expenses, and are occasionally absorbed by the Firm. Pershingís compensation and other policies are described in a disclosure statement sent each year to all clients.

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9. Participation of Interest in Client Transactions

As described in item 1, the Firm is a FINRA registered broker/dealer whose primary compensation derives from commissions generated by executing securities transactions for clients.

The Firm does not buy securities from, or sell securities to, any investment advisory client. The Firm, and its officers, employees, and family members generally hold the same securities the Firm buys for client accounts over which it has discretionary investment authority. However, to accommodate diverse individual circumstances and investment goals, the Firm and its associated persons may at times buy for themselves and for certain clients the same securities that are being sold for other clients, and vice versa.

The Firm prohibits itself and its associated persons from benefiting from the short-term market effects of transactions for clients. The prices for transactions in a given security on a given day typically are averaged so that no one account or client receives preference. When prices are not averaged, the Firm gives preference to clients over itself. The compliance officer reviews all transactions executed by the Firm daily, and conducts an additional review of all securities transactions by officers and employees quarterly.

The Firm has adopted the CFA Instituteís Asset Manager Code of Professional Conduct and the Code of Ethics and the Code of Ethics and Standards of Professional Practice. It has also adopted detailed policies and procedures to implement these codes. A client or prospective client may request a copies of the codes by calling 800-275-2920, by writing to P.R. Herzig & Co, Inc., 1 Expressway Plaza Ė Suite 200, Roslyn Heights, NY 11577, or by downloading or viewing them at the links highlighted above.

 

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10. Conditions for Managing Accounts 

The Firm generally requires a minimum of $500,000 to open an advisory account. It believes that this is the minimum amount required to successfully execute its investment strategies for an individual portfolio. However, smaller accounts may be accepted at the discretion of management.

11A. Review of Accounts

The Firmís portfolio managers and compliance officer continuously monitor accounts to identify and correct any transaction or valuation errors, and to implement investment strategies that serve each clientís investment objectives.  At a minimum, a review is conducted the day of and the day after any securities transaction in an account and after the end of each month. After the end of each month, the compliance officer reviews account statements and all investment professionals review investment performance, which is tracked monthly for each advisory account with a market value over $100,000. More frequent account reviews are triggered by such factors as: a) awareness of a material change in a clientís circumstances or investment objectives, b) significant changes in market conditions, c) changes in the portfolio managerís assessment of a security held in an account, and d) divergence of an accountís investment performance from managementís expectations.

The Firm holds approximately 150 accounts for which it provides investment supervisory services. Four investment professionals have review responsibility for these accounts.

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11B. Reports to Clients

The Firm arranges for its clearing firm, Pershing LLC, to furnish clients with confirmations of trades or debit/credit advice promptly after completion of any portfolio transaction for which the Firm has placed an order. The confirmations detail the principal amount, any commissions, and any SEC fees for each transaction. In addition, the Firm arranges for each client and/or clientí designated representative to receive monthly account statements showing the activity in each of the clientís accounts and the market value of each security in the accounts.

The Firm, upon request, may provide additional reports showing the industry and sector diversification of a portfolio, the cost basis of securities held, realized capital gains and losses, and other portfolio information. In addition, through meetings, telephone calls, and letters, the Firm regularly keeps clients informed of the investment policy and strategy for achieving clientsí investment objectives. The nature and frequency of these reports and other communications are determined primarily by the particular needs of each client.

The Firm posts its privacy policy, proxy policy, business disruption recovery plan, this information pamphlet, and other disclosures on its website at http://www.prherzig.com and offers at least annually to send them to clients.

12. Investment or Brokerage Discretion

As described in Item 1, the Firm is a licensed broker-dealer whose primary business is managing portfolios on behalf of clients who grant the Firm discretionary investment authority. This authority gives the firm the power to decide which securities to buy and sell, in what quantities, and at what commission rates.  The Firm typically has the power to select another broker/dealer when necessary to complete an international or other transaction that it cannot execute itself through its clearing firm, Pershing LLC. In selecting such broker/dealers, the Firm considers primarily the ability to execute a trade promptly at a competitive price. Without specific client instructions, the Firm typically does not have the power to transfer funds or securities to or from a clientís account.

13. Additional Compensation

The Firm occasionally shares in fees charged by investment companies, as disclosed in their prospectuses, on certain classes of mutual funds, typically legacy holdings in accounts transferred from other institutions. The Firm currently does not have an arrangement for receiving compensation for referring clients to other advisers, but may, with full disclosure, adopt such an arrangement in the future to serve the interest of clients.

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Form ADV Part I on SEC Website