written supervisory · pdf filewritten supervisory procedures (capital investment group, inc....

06/30/08

WRITTEN SUPERVISORY PROCEDURES

(Capital Investment Group, Inc. & Capital Investment Brokerage, Inc.)

NOTICE OF CONFIDENTIALITY: THE FOLLOWING WRITTEN SUPERVISORY PROCEDURES AND ITS CONTENTS ARE FOR THE EXCLUSIVE USE OF REGISTERED PERSONS, ADMINISTRATIVE EMPLOYEES OF REGISTERED PERSONS, AND EMPLOYEES OF CAPITAL INVESTMENT COMPANIES. DISTRIBUTION OR REPRODUCTION OF THESE PROCEDURES FOR ANY PERSON OR ENTITY BEYOND THOSE STATED ABOVE IS STRICTLY PROHIBITED UNLESS OTHERWISE APPROVED BY THE COMPLIANCE OFFICER. THE ABOVE STATEMENT DOES NOT APPLY TO REQUESTS BY REGULATORY AGENCIES OR ANY AUTHORITY HAVING JURISDICTION OVER CAPITAL INVESTMENT COMPANIES. AND ANY OF ITS ENTITIES.

06/08 2

TABLE OF CONTENTS 1.0 INTRODUCTION

1.1 FORWARD

1.2 DEFINITIONS

2.0 GENERAL POLICIES OF REGISTERED PERSONS

2.1 DISTRIBUTION OF WRITTEN SUPERVISORY PROCEDURES AND AMENDMENTS

2.2 REQUIREMENT OF WORKING E-MAIL ADDRESS

2.3 PROHIBITED ACTIVITIES

2.4 REGULATORY INQUIRIES, INVESTIGATIONS, AND AUDITS

2.5 OUTSIDE BUSINESS ACTIVITIES

2.6 PRIVATE SECURITIES TRANSACTIONS

2.7 INVESTMENT ADVISORY ACTIVITIES OF REGISTERED PERSONS

2.7.1 REQUEST TO CONDUCT INVESTMENT ADVISORY BUSINESS

2.7.2 REVIEWS OF INVESTMENT ADVISORY TRANSACTIONS

2.7.3 REVIEW OF FORM ADVs

2.7.4 ADDITIONAL POINTS

2.8 REGISTERED PERSON AND REGISTERED PERSON RELATED ACCOUNTS

2.8.1 OUTSIDE SECURITIES ACCOUNTS

2.8.2 ACCOUNTS MAINTAINED AT CAPITAL

2.8.3 SHARING IN ACCOUNTS WITH CLIENTS

2.8.4 PARTICIPATION IN INVESTMENT CLUBS

2.8.5 PARTICIPATION IN INITIAL PUBLIC OFFERINGS (“IPOs”)

2.9 INSIDER TRADING

2.10 DEALING WITH CLIENTS AND NON-MEMBERS

2.10.1 REFERRAL FEES AND SOLICITATION AGREEMENTS

2.10.2 SHARING IN COMMISSIONS AND SERVICE FEES

2.10.3 REBATING OF COMMISSIONS

2.10.4 BORROWING OR LENDING SECURITIES AND MONIES TO/FROM A CLIENT

2.11 CASH AND NON-CASH, IN GENERAL

2.11.1 GIFTS AND GRATUITIES FROM CLIENTS

2.11.2 BONA FIDE TRAINING AND EDUCATIONAL TRIPS/SEMINARS FROM PRODUCT SPONSORS

2.12 DEALING WITH NON-CAPITAL BROKER/DEALERS AND THEIR REGISTERED PERSONS

2.12.1 REFERRAL/SOLICITOR FEES

2.12.2 SHARING IN COMMISSIONS AND SERVICE FEES

2.13 PROHIBITION AGAINST GUARANTEES

2.14 HEIGHTEND SUPERVISION

06/08 3

3.0 HIRING, REGISTRATION AND EDUCATION

3.1 NEW HIRES AND EXISTING REGISTERED PERSONS

3.1.1 BACKGROUND CHECKS

3.1.2 SCREENING FOR STATUATORILY DISQUALIFIED PERSONS

3.1.3 FINGERPRINTING

3.1.4 REVIEW OF REGISTERED PERSONS AND SUPERVISORY PERSONNEL QUALIFICATIONS

3.1.5 FORM U-4 FILINGS

3.1.6 FORM U-5 UPDATES BY PRIOR EMPLOYER

3.1.7 MAINTAINING REGISTRATIONS

3.2 TERMINATIONS/RESIGNATIONS

3.2.1 NOTIFICATION OF TERMINATION

3.2.2 FORM U-5 FILING

3.2.3 FORM U-5 DELIVERY

3.3 FORM BD

3.4 ROLE OF NON-REGISTERED PERSONS

3.5 TRAINING AND EDUCATION

3.5.1 BROKER ORIENTATION TRAINING

3.5.2 SPECIALIZED TRAINING

3.5.3 CONTINUING EDUCATION

3.5.3.1 REGULATORY ELEMENT REQUIRMENTS

3.5.3.2 FIRM ELEMENT REQUIREMENTS

3.5.4 ANNUAL COMPLIANCE MEETING

4.0 COMMUNICATIONS

4.1 CUSTOMER GRIEVANCES

4.1.1 CUSTOMER COMPLAINTS, ARBITRATIONS, LITIGATIONS, CIVIL SUITS, AND CRIMINAL SUITS

4.1.2 SETTLEMENTS WITH CLIENTS

4.1.3 3070 REPORTING

4.2 ADVERTISING AND SALES LITERATURE

4.2.1 GENERIC ADVERTISING PRODUCED BY THE REGISTERED PERSON

4.2.2 ADVERTISING SPECIFIC TO MUTUAL FUNDS, VARIABLE PRODUCTS, MUNICIPALS, CMOs, AND OPTIONS

4.2.3 INTERNET/ELECTRONIC ADVERTISING

4.2.3.1 WEB SITES

4.2.3.2 WEB STREAMERS AND ADWARE (POP-UP ADS)

4.2.4 PRINT AND WEB COLUMNS (NEWSPAPER ARTICLES, MAGAZINE ARTICLES, AND INTERNET COLUMNS)

4.2.5 TELEVISION ADVERTISEMENTS

06/08 4

4.2.6 RADIO SPOT ADS

4.2.7 RESEARCH REPORTS

4.3 PUBLIC SPEAKING

4.3.1 SEMINARS AND PUBLIC PRESENTATIONS

4.3.2 TV APPEARANCES

4.3.3 RADIO APPEARANCES

4.4 BUSINESS AND OFFICE SIGNS

4.5 BUSINESS STATIONARY/LETTERHEAD

4.6 BUSINESS CARDS

4.7 CORRESPONDENCE

4.7.1 WRITTEN CORRESPONDENCE

4.7.2 E-MAIL CORRESPONDENCE WITH CLIENTS

4.7.3 INSTANT MESSAGING

4.7.4 TELEMARKETING

4.7.4.1 COLD-CALLING ACTIVITIES

4.7.4.2 USE OF SALES SCRIPTS

4.7.4.3 DO NOT CALL LISTS

4.7.5 CHAT ROOM/BULLETIN BOARDS

4.8 PRIVACY POLICY NOTIFICATION

4.9 SAFEGUARDING OF CLIENT INFORMATION

5.0 ACCOUNTS

5.1 NEW ACCOUNTS

5.1.1 APPROVAL OF NEW ACCOUNTS

5.1.2 COPIES OF AGREEMENTS TO CUSTOMERS

5.1.3 MARGIN ACCOUNTS

5.1.3.1 MARGIN AGREEMENT

5.1.3.2 MARGIN DISCLOSURE

5.1.4 DISCRETIONARY ACCOUNTS

5.1.4.1 INITIAL CONSENT

5.1.4.2 ANNUAL CONFIRMATION OF DISCRETIONARY AUTHORITY

5.1.5 THIRD PARTY ACCOUNTS

5.1.6 OPTION ACCOUNTS

5.1.6.1 APPROVAL AND DUE DILIGENCE

5.1.6.2 DELIVERY OF OPTIONS DISCLOSURE DOCUMENT

5.2 ACCOUNT MAINTENANCE ITEMS

5.2.1 UPDATING ACCOUNT INFORMATION

06/08 5

5.2.2 REORGANIZATION ITEMS

5.2.3 DIVIDEND CLAIMS

5.2.4 DEBITS

5.3 ACCOUNTS OF FINRA/AMEX EMPLOYEES

5.4 ACCOUNTS OF PERSONS REGISTERED WITH ANOTHER BROKER/DEALER (NON-CAPITAL)

5.5 MONITORING OF ACCOUNTS

5.5.1 REVIEW OF ACCOUNTS

5.5.2 PRODUCING MANAGER REVIEWS

5.5.3 ISSUES TO BE AWARE OF IN REVIEWING ACCOUNTS

6.0 TRANSACTIONS

6.1 REVIEW OF TRANSACTIONS

6.2 GENERAL TRANSACTION TOPICS

6.2.1 BEST EXECUTION

6.2.2 INTERPOSITIONING

6.2.3 FEES AND COMMISSIONS

6.2.3.1 TRADE SHREDDING

6.2.4 SUITABILITY

6.2.5 MISREPRESENTATION/MATERIAL OMMISSIONS

6.2.6 UNAUTHORIZED TRANSACTIONS

6.2.7 CHURNING AND EXCESSIVE ACTIVITY

6.2.8 AFFIRMATIVE DETERMINATION

6.2.9 REFINANCING MORTGAGES/LOANS TO FACILITATE TRANSACTIONS

6.3 EQUITIES

6.3.1 SPECIFIC SUITABILITY ISSUES

6.3.1.1 LOW-PRICED SECURITIES (STOCKS LESS THAN $5)

6.3.2 RESTRICTED STOCK/144/144A TRANSACTIONS

6.4 MUTUAL FUNDS


6.4.1.1 FUND SELECTIONS

6.4.1.2 CLASS SHARE SELECTION (SINGLE AND MULTI-CLASS)

6.4.1.3 SWITCHING

6.4.1.4 SELLING DIVIDENDS

6.4.2 SALES CHARGES

6.4.2.1 LOAD FUNDS

6.4.2.2 NAV TRANSFERS/SALES CHARGE WAIVERS/REINSTATEMENTS

6.4.2.3 LETTERS OF INTENT/RIGHTS OF ACCUMULATION

6.4.3 POINT OF SALE DISCLOSURES

06/08 6

6.4.1 PROSPECTUS DELIVERY

6.4.2 REQUIRED DISCLOSURES

6.4.4 MARKET TIMING

6.4.5 LATE TRADING

6.5 EXCHANGE TRADED FUNDS (ETFs)


6.5.1.1 PERIODIC INVESTING PLANS

6.6 VARIABLE CONTRACTS


6.6.1.1 SALES WITHIN TAX QUALIFIED ACCOUNTS

6.6.1.2 SALES OF RIDERS

6.6.1.3 1035 EXCHANGES AND REPLACEMENTS

6.6.1.4 TWISTING (EXCESSIVE TRADING)

6.6.1.5 MULTIPLE CONTRACT SALES

6.6.2 CONTRACT DELIVERY

6.6.3 MARKET TIMING OF MUTUAL FUNDS IN SUB-ACCOUNTS

6.7 INDEXED ANNUITITIES AND LIFE INSURANCE

6.7.1 SUITABILITY

6.8 FIXED INCOME PRODUCTS (MUNICIPALS, CORPORATES, TREASURIES, AND GOVERNMENT AGENCY DEBT)

6.8.1 SUITABILITY

6.8.2 YIELD BURNING

6.9 529 PLANS/EDUCATION SAVINGS PLANS

6.9.1 SUITABILITY


6.9.3 DISCLOSURE OF POTENTIAL TAX DEDUCTIONS

6.10 REAL ESTATE INVESTMENT TRUSTS (REITS)

6.10.1 SUITABILITY


6.10.3 DISCLOSURES

6.11 OPTIONS


6.11.1.1UNCOVERED SHORT OPTION CONTRACTS

6.11.2 ALLOCATION PROCEDURES

6.11.3 POSITION LIMITS

6.11.4 REPORTING OF OPTIONS POSITIONS

6.11.5 MANIPULATION

6.12 TENANT-IN-COMMON/1031 EXCHANGE PROGRAMS

06/08 7

6.12.1. SUITABILITY

6.12.2 CHOOSING A QUALIFIED CUSTODIAN

6.12.3 PROGRAM DOCUMENTS

6.13 OIL & GAS PARTNERSHIPS

6.13.1. SUITABILITY

6.13.2 PROGRAM DOCUMENTS

7.0 FINANCIAL & OPERATIONAL ISSUES

7.1 BOOKS & RECORDS

7.2 CUSTOMER PROTECTION RULE

7.3 RECEIPT OF CUSTOMER SECURITIES

7.4 RECEIPT OF CUSTOMER CHECKS

7.5 RECEIPT OF CUSTOMER CASH

7.6 PREPARATION OF FINANCIAL RECORDS, INCLUDING NET CAPITAL

7.7 FOCUS FILINGS

7.8 ANNUAL AUDITED REPORT

7.8.1 ACCOUNTANT’S LETTER OF SERVICES TO BE PROVIDED

7.8.2 ANNUAL AUDITED REPORT

7.8.3 ADJUSTMENTS TO FINANCIAL RECORDS AND FOCUS REPORTS FOR ANNUAL AUDIT FINDINGS

7.9 FINRA NOTIFICATIONS

7.10 SUBORDINATED LOANS AND SECURED DEMAND NOTES

7.11 CLEARING ARRANGEMENTS

7.12 FIDELITY BOND

7.13 CREDIT, REGULATION T AND EXTENSIONS OF TIME

7.13.1 REGULATION T

7.13.2 ARRANGING CREDIT AWAY FROM THE CLEARING AGENT

7.14 LOST AND STOLEN SECURITIES

7.15 TRANSMITTAL OF FUNDS AND SECURITIES

8.0 ANTI-MONEY LAUNDERING PROGRAM

8.1 FIRM POLICY

8.2 AML COMPLIANCE OFFICER DESIGNATION AND DUTY

8.2.1 FIRM DESIGNATION

8.2.2 FINRA NOTIFICATION

8.3 PROVIDING AML INFORMATION

8.3.1 FINCEN REQUESTS UNDER PATRIOT ACT SECTION 314

8.3.2 SHARING INFORMATION WITH OTHER FINANCIAL INSTITUTIONS

06/08 8

8.4 CHECKING THE OFFICE OF FOREIGN ASSETS CONTROL (“OFAC”) LIST

8.5 CUSTOMER IDENTIFICATION AND VERIFICATION

8.5.1 GENERAL

8.5.2 REQUIRED CUSTOMER INFORMATION

8.5.3 CUSTOMERS WHO REFUSE TO PROVIDE INFORMATION

8.5.4 VERIFYING INFORMATION

8.5.5 LACK OF VERIFICATION

8.5.6 RECORDKEEPING

8.5.7 COMPARISION WITH GOVERNMENT PROVIDED LISTS OF TERRORISTS AND OTHER CRIMINALS

8.5.8 NOTICE TO CUSTOMERS

8.5.9 RELIANCE ON ANOTHER FINANCIAL INSTITUTION FOR IDENTITY VERIFICATION

8.6 PROHIBITED ACCOUNTS

8.7 MONITORING ACCOUNTS FOR SUSPICOUS ACTIVITY

8.7.1 GENERAL

8.7.2 EMERGENCY NOTIFICATION TO THE GOVERNMENT BY PHONE

8.7.3 RED FLAGS

8.7.4 RESPONDING TO RED FLAGS AND SUSPCIOUS ACTIVITY

8.8 SUSPICIOUS TRANSACTIONS AND BSA REPORTING

8.8.1 FILING A FORM SAR-SF

8.8.2 CURRENCY TRANSACTION REPORTS (CTR)

8.8.3 CURRENCY AND MONETARY INSTRUMENT TRANSPORTATION REPORTS (CMIR)

8.8.4 FOREIGN BANK AND FINANCIAL ACCOUNTS REPORTS (FBAR)

8.8.5 TRANSFERS OF $3,000 OR MORE UNDER THE JOINT AND TRAVEL RULE

8.9 AML RECORDKEEPING

8.9.1 SAR-SF MAINTENANCE AND CONFIDENTIALITY

8.9.2 RESPONSIBILITY FOR AML RECORDS AND SAR FILING

8.9.3 RECORDS REQUIRED

8.10 CLEARING/INTRODUCING RELATIONSHIPS

8.11 TRAINING PROGRAMS

8.12 PROGRAM TO TEST AML PROGRAM

8.12.1 STAFFING

8.12.2 EVALUATION AND REPORTING

8.13 MONITORING EMPLOYEE CONDUCT AND ACCOUNTS

8.14 CONFIDENTIAL REPORTING OF AML NON-COMPLIANCE

8.15 ADDITIONAL AREAS OF RISK

8.16 SENIOR MANAGEMENT APPROVAL

06/08 9

9.0 TRANSACTION REPORTING

9.1 MUNICIPAL BONDS

9.2 OATS

9.3 TRACE

10.0 PERIODIC REVIEW OF THE FIRM

10.1 SUPERVISORY SYSTEM

10.2 ANNUAL REVIEW OF THE FIRM’S BUSINESS AND SUPERVISORY SYSTEM

10.3 MEMBERSHIP AGREEMENT

10.4 BUSINESS CONTINUITY PROGRAM

10.5 BRANCH OFFICE INSPECTIONS

10.6 DUE DILIGENCE REVIEW

11.0 SALES ON THE PREMISES OF FINANCIAL INSTITUTIONS

11.1 APPLICABILITY

11.2 SECURITIES MARKETING AGREEMENT

11.3 OFFICE SETTING/PHYSICAL SEPARATION OF BROKERAGE ACTIVITIES

11.4 DISCLOSURES, ADVERTISING, AND COMMUNICATIONS WITH THE PUBLIC

11.4.1 CUSTOMER DISCLOSURE AND WRITTEN ACKNOWLEDGEMENT

11.4.2 CUSTOMER CONFIRMATIONS AND STATEMENTS

11.4.3 ADVERTISING AND SALES LITERATURE

11.4.4 PUBLIC SPEAKING

11.4.5 DISCUSSION OF INSURANCE

11.5 CONFIDENTIALITY OF CLIENT INFORMATION

11.5.1 ACCESSING BANK CLIENT INFORMATION

11.5.2 BANK ACCESS TO CLIENT INFORMATION OBTAINED BY THE FIRM

11.6 RESTRICTED PRODUCTS

11.7 RESTRICTION ON THE INSTITUTION AND EMPLOYEES NOT REGISTERED WITH THE FIRM

11.8 ROLE OF A REGISTERED PERSON

11.9 DUAL EMPLOYEES

11.10 NOTIFICATION OF TERMINATIONS

11.11 BRANCH AUDIT PROGRAM

11.11.1 BRANCH OFFICE INSPECTIONS

APPENDICES

06/08 10

1.0 INTRODUCTION 1.1 FORWARD The Firm and persons registered with the Firm will conduct business consistent with high standards of commercial honor and just and equitable principles of trade. Keeping customers’ interest foremost is a key to the Firm’s and each registered persons’ success. The trust of customers and the reputation of the Firm and registered persons are of paramount importance. Effective supervision is an integral part of achieving our collective goals in serving customers. This manual details the Firm’s supervisory policies and procedures for the oversight of the Firm’s business. It encompasses a wide array of topics in providing a basic framework for supervisors as well as the responsibilities of registered persons. More so, the procedures include “Perspective” boxes for education, insight, and discussions of Firm policy. The policies should be frequently referred to for guidance and perspective. In creating this manual, it is understood “compliance” is not a static event. It is a process that evolves in tandem with regulations governing our industry, circumstances of particular interactions, and the changing dynamics of the marketplace. As such, consultation with your Designated Principal or the Compliance Department may be necessary for those circumstances outside the scope of this manual. 1.2 DEFINITIONS Throughout the procedures, common terms are used. For clarification purposes, below are definitions of these terms: Designated Principal –This term refers to the person(s) responsible for supervising a particular activity and who possess appropriate licensing qualifications (Series 24, 26, etc.). To find out who is the Designated Principal with respect to a particular topic, review the Section in the Appendices entitled Principal Supervisory Responsibilities. Principals at Offices of Supervisory Jurisdiction should closely review this area. The word Designated Principal may not always refer to you’re the principal who is directly assigned to you as some topics require approval from the Home Office, thus it is important to know the breakdown of responsibilities between the Home Office and an OSJ. Firm – When capitalized, this term refers exclusively to Capital Investment Group, Inc. and Capital Investment Brokerage, Inc. Non-Office of Supervisory Jurisdiction (“non-OSJ”) – A location where no supervisory activities take place. More so, a non-OSJ location is responsible for submitting original applications for all direct securities business (applications for mutual funds, variable annuities, variable life, etc.) to the Main Office for processing. A non-OSJ location should not send such applications directly to the fund company, insurance carrier, etc. If you are not designated as an OSJ location in the Section entitled “Designated Branch Offices”, you are considered a non-OSJ. Office of Supervisory Jurisdiction (“OSJ”) – An office designation for those locations in which a person registered as a principal (Series 24, 26, etc.) are required to directly

06/08 11

supervise certain activities of individuals, as defined in the Section entitled Principal Supervisory Responsibilities, within their office or at satellite offices. Such designations are determined by the Compliance Department. OSJ branches are indicated in the Section entitled “Designation of Branch Offices”, OSJ Designated Principals are provided in the Section entitled “Designation of Principals”, and a list of individuals reportable to an OSJ Manager is provided under “Assignment of Registered Persons”. Producing Manager – An individual who serves as the Designated Principal at an OSJ who also conducts retail and/or institutional sales activity. Registered Person – This term refers to persons who are registered as representatives with Capital Investment Group, Inc. and Capital Investment Brokerage, Inc. To find out who is your Designated Principal, review the Section in the Appendices entitled Assignment of Registered Persons. 2.0 GENERAL POLICIES OF REGISTERED PERSONS 2.1 DISTRIBUTION OF WRITTEN SUPERVISORY PROCEDURES AND

AMENDMENTS Supervisory Responsibilities The Designated Principal or their designee will be responsible for distributing written supervisory procedures and subsequent amendments to those procedures. Written supervisory procedures will be delivered electronically through the Firm’s web site, www.capital-invest.com. Amendments will be made on an as needed basis. The Firm will evidence receipt and review of the procedures by registered persons via execution of the annual certification form. Registered Person Responsibilities It is the responsibility of all registered persons to become knowledgeable as to the contents of the written supervisory procedures and any subsequent changes. Each registered person must annually review the Firm’s procedures in their entirety and review amendments to the procedures when notice is provided by e-mail. Annually, each registered person will evidence receipt and review of the written supervisory procedures via the annual certification form. 2.2 REQUIREMENT OF WORKING E-MAIL ADDRESS Supervisory Responsibilities No responsibilities. Registered Person Responsibilities Each registered person must have one working e-mail address in which to communicate and receive notices from the Firm. The e-mail address and any changes in e-mail address must be disclosed to the Designated Principal. Failure to establish and review e-mail is considered a serious violation of the Firm’s written supervisory procedures. The failure to review e-mail puts the Firm and you as the registered person at risk of potentially violating securities regulations. The registered person could be subject to a fine up to termination for willfully neglecting to review e-mail. 2.3 PROHIBITED ACTIVITES

06/08 12

Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring registered persons comply with the Firm’s policy regarding prohibited activities. Reviews will take place and be evidenced in accordance to the policies set forth throughout the written supervisory procedures as well as through the review and execution of the annual certification form to be completed by registered persons. Registered Person Responsibilities In addition to any prohibitions stated in the procedures, registered persons are prohibited from the doing the following:

Cause any unreasonable delay in the delivery of securities purchased by any of its investors or in the payment upon request of free credit balances reflecting completed transactions of any of its investors. The Designated Principal will receive and respond appropriately to investor requests in connection with such operations.

Induce investment activity on the part of an investor, which is excessive in size or frequency in view of the financial resources and investment objectives of the investor.

Recommend to an investor the purchase, sale or exchange of any security without reasonable grounds to believe the recommendation is suitable for the investor on the basis of information furnished by the investor after reasonable inquiry concerning the investor’s investment goals, financial situation and needs, and any other information.

Initiate a transaction on behalf of an investor without authority to do so. Initiate a transaction for an investor upon instructions from a third party without

first having obtained written third party authorization from the investor. Extend, arrange for, or participate in arranging credit for an investor in violation of

the Securities Exchange Act of 1934 (“Exchange Act”) or the regulations of the Federal Reserve Board.

Charge an investor an unreasonable commission or service fee in any transaction executed where the registered person acts as agent for the investor.

Misrepresent services, the qualifications of the registered person, or the method of compensation for the services.

Enter into a transaction with or for an investor at a price not reasonably related to the current market price.

Initiate transactions for the purchase by an investor of security not registered or exempted from registration under applicable federal and state securities laws and regulations.

Become involved in a securities offering with another broker/dealer without the express prior written approval of and the other broker/dealer.

Act as a custodian for money, securities, or an executed stock power of a client unless it is a family account (i.e. spouse, children, or parents)

Enter into a transaction for one’s own account with an investor involving an unreasonable mark-up or markdown.

Borrow or lend money or securities to or from an investor, or use investor money or securities for your own benefit.

Share directly or indirectly in profits or losses in the account of any investor. Divide or otherwise share in commission, profits or other compensation

receivable in connection with the purchase or sale of securities with any person not also licensed as an agent. Account sharing by in-house persons is acceptable as long as it has been approved by a registered principal.

Using advertising describing or relating to one’s securities business unless the

06/08 13

advertising clearly identifies the person’s name, address and phone number. Accept cash from a client for a transaction. Execute margin transactions without a written margin agreement. Participate in chat room discussions on the Internet, regarding investment

products. Recommend clients to refinance their mortgages for the sole purpose of investing

in the stock market. Participate, in any way, with the activities of stock promoters and the securities

they represent. Registered persons will communicate their compliance/non-compliance with the Firm’s policy by completing the annual certification form. 2.4 REGULATORY INQUIRES, INVESTIGATIONS, AND AUDITS Supervisory Responsibilities The Designated Principal or their designee is responsible for discussing regulatory inquiries, investigations, and audits with the registered person and conducting any internal investigation into the matter, if necessary. The Designated Principal or their designee will immediately review the matter upon learning of such inquiries, investigations, or audits. Evidence of such reviews will be the maintenance of notes, printouts, and other material used in reviewing the matter. Registered Person Responsibilities The registered person must immediately notify the Designated Principal of any inquiries, investigations, or audits by any regulatory or government authority. This includes, but is not limited to, audits/inquiries by FINRA, the Securities & Exchange Commission, State Securities Commissions, or State Insurance Commissions. Such notification may be by phone, e-mail, letter, or fax. If requested, the registered person must provide any correspondence or any materials requested by the Designated Principal or their designee. For registered persons working in OSJ locations, the registered person must notify their OSJ manager as well. 2.5 OUTSIDE BUSINESS ACTIVITIES Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing all requests to conduct outside business activities. Upon reviewing the request and gaining pertinent facts, the Designated Principal or their designee will approve/deny such outside business activities via written notice. The Designated Principal or their designee will evidence review by maintaining a copy of the outside activity disclosure form(s) in the appropriate file along with any notes or signature of approval. Periodically, or as needed, the Designated Principal or their designee will review the outside business activities of registered persons. The method will be appropriate and flexible to the type of outside business activity done. Documentation of the Designated Principal’s or their designee’s review will be maintained in the appropriate file as evidence of supervisory review.

06/08 14

Registered Person Responsibilities All registered persons must provide notification of outside business activities to the Designated Principal or their designee via the outside activity disclosure form(s) and are required to receive the Designated Principal’s or designee’s approval prior to such activities being conducted, regardless of the infrequency of such activity.. The following activities are considered outside business activities. The list is not exhaustive so additional activities may be considered outside business activities.

1) Employee or agent of a corporation, limited partnership, limited liability corporation, or any other entity;

2) Owner of a corporation, limited partnership, limited liability corporation, or any

other entity;

3) Member of a board or council of a public or private entity, excluding social, civic, and fraternal organizations in which you do not serve in a finance capacity which requires to you to give advice or make decisions on investments in securities;

4) Sole proprietor of an entity; 5) Investment adviser or pension adviser not affiliated with Capital Investment

Companies;

6) Certified Public Accountant, Teacher, Attorney, Consultant, Journalist, Physician, Real Estate Agent, Mortgage Originator/Lender; Franchise Owner; etc.;

7) Insurance agent, unless all business is conducted through Capital Investment

Companies; and

8) Renter or leaser of real estate properties, including condominiums, houses, farms, etc.

More so, should a registered person cease to conduct an outside business activity, the registered person must notify their Designated Principal or their designee within 30 calendar days of ceasing the activity. Such notification must include the type of outside business activity and the date of termination for such activity.

PERSPECTIVE CONCEPT POINTS – The following are some key points regarding outside business activities. 1) Regulations concerning outside business activities DOES NOT make a distinction

between whether or not a person receives compensation for an activity or not nor is a distinction made as to whether an activity involves a security or not. As such, ALL outside business activities must be disclosed and receive the prior approval of the Firm before a registered person commences such activity.

2) With the exception of a few circumstances, nearly all outside business activities must

be disclosed on a registered person’s Form U-4.

06/08 15

3) Individual transactions do not need prior approval as long as the overall outside

business activity has been previously approved (i.e. each transaction through a non-Capital investment advisory firm or an insurance transaction outside Capital Insurance Affiliates must be approved in advance). This does not mean individual transactions will not be reviewed at later dates.

4) Participation in a civic or charitable organization (i.e. Kiwanis Club) is not included in

this definition unless you serve on the board of directors of such organization. . REGULATORY VIEW – Failure to comply with regulations and policies regarding outside business activities has consistently been a main source of disciplinary actions brought by regulatory authorities, particularly FINRA. Dependent upon the nature of the activity, failure to abide regulations and the Firm’s policy may result in fines of $2,500 all the way up to permanent suspensions from the securities industry for registered persons. Beyond disciplinary action being taken against the registered person for conducting outside business activities without proper notification and approval, registered persons are cited for failing to maintain an accurate Form U-4 (which specifically asks about outside business activities) and the firm is cited for failing to have an adequate supervisory system to monitor outside business activities.

2.6 PRIVATE SECURITIES TRANSACTIONS (“SELLING AWAY”) Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring registered persons do not conduct private securities transactions. At a minimum, the Designated Principal or their designee will verify compliance with the regulation by reviewing the annual certification form. The Designated Principal or their designee will evidence such reviews by appropriate means. Registered Person Responsibilities Private securities transactions are prohibited. Annually, the registered person is required to attest they have followed Firm policy by completing the annual certification form.

PERSPECTIVE CONCEPT POINT – As long as the product is defined a security and it is not being sold through the broker/dealer, a private securities transaction has taken place. The Firm will not approve any private securities transactions due to the inherent risks and liabilities posed for the Firm and the registered person. Private securities transactions are often referred to as “selling away”. IMPORTANT POINT – Investment advisory transactions executed away from the broker/dealer are considered private securities transactions for regulatory purposes; however, for the purposes of these procedures, a discussion of investment advisory activities is discussed separately as such activities may be approved. REGULATORY VIEW – Like outside business activities, private securities transactions has long been one of the main sources of disciplinary actions by regulators. This is very

06/08 16

evident based on quarterly disciplinary actions published by FINRA. These cases often result in some of most severe penalties, regardless of the amount or lack of any damage to the public. Per FINRA’s Sanction Guidelines, selling away, without the prior approval of the Designated Principal, could result in a registered person being fined up to $50,000, suspensions of up to one year, or expulsion from the industry. SELLING AWAY EXAMPLES – 1) Promissory notes; 2) Lease buyback agreements offered by registered persons selling payphones; and, 3) Referral of clients to an individual, who ultimately sells what is deemed a security, such as referring a customer to an officer of an issuer to purchase common stock directly from the issuer rather than through the registered person’s employing firm. PRACTICAL POINT – The firm has adopted a stricter definition of a security than that of regulatory authorities to protect registered persons and the Firm for the below reasons: 1) A registered person cannot rely on the fact there is a lack of precedent indicating

a product is a security to feel comfortable you are not selling away, as many disciplinary actions are precedent-setting cases.

2) While a product may not be identified by the Securities & Exchange Commission

as a security, FINRA has jurisdictional rights, without a precedent-setting case, to bring a case on all other aspects of the sale (i.e. communications, etc.) since FINRA has the right to review registered persons’ activities.

3) The level of discussion taking place to give FINRA authority complete

jurisdictional rights to regulate indexed and other products where a variable return is all or a portion of the total benefits to a client have significantly increased. In the Firm’s opinion, it will be a very short time until FINRA has complete jurisdictional rights.

FOR THESE REASONS, THE FIRM PROHIBITS INDIVIDUALS SELLING EQUITY INDEXED ANNUITIES, EQUITY INDEXED LIFE INSURANCE, LIFE SETTLEMENTS, AND SIMILAR PRODUCTS AWAY FROM THE FIRM. WHEN IN DOUBT ABOUT WHETHER A PRODUCT IS A SECURITY, DO NOT SELL IT AWAY FROM THE FIRM. 2.7 INVESTMENT ADVISORY BUSINESS OF REGISTERED PERSONS 2.7.1 REQUEST TO CONDUCT INVESTMENT ADVISORY BUSINESS Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing notices and approving/denying requests to conduct investment advisory services through an outside investment advisory firm, regardless of the fact the transactions may be executed through the Firm. The Designated Principal or their designee will review the outside activity disclosure form(s) upon receipt. After reviewing pertinent information, the Designated Principal or their designee will communicate approval/denial. The Designated Principal or their designee will evidence review by maintaining notes and approval signatures, if applicable, or by appropriate means in effect at the time.

06/08 17

Registered Person Responsibilities Prior to engaging in investment advisory services, the registered person must provide notification of their intent to conduct such activity by completing the outside activity disclosure form(s) and receive the Designated Principal’s or designee’s approval.

PERSPECTIVE FIRM POLICY – The below points describes the Firm’s policy. 1) For investment advisory services conducted through one of the Firm’s affiliated

investment advisory firms, the registered person is still required to provide adequate notice via the outside activity disclosure form or, if a new hire, in any initial rep packets, of their intent to provide such service. The registered person must receive approval from the Designated Principal prior to conducting such activity. The Firm requires such notification in order to protect the registered person from the possible argument by regulatory authorities that a person is conducting an unapproved outside business activity although the activity is very much known and seen by the Firm, since such company is not registered with FINRA.

2) The Firm will review individuals’ desire to do investment advisory services conducted

away from the Firm going forward on a case-by-case basis. All investment advisory activities as of 6/30/05 conducted away from the Firm that have been previously approved and will be allowed to continue, unless such activity, after extensive review, is determined to not be in the best interest of the Firm or clients.

2.7.2 REVIEWS OF INVESTMENT ADVISORY TRANSACTIONS Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing transaction activity conducted by registered persons serving in the capacity of an investment advisor. For activity conducted away from the Firm, whether with a Firm-affiliated investment advisor or not, the Designated Principal or designee will monthly review account statements or its equivalent. The Designated Principal or their designee will evidence review by maintenance of a supervisory log, statements, or similar documents. Registered Person Responsibilities Each registered person or their office is required to provide on a monthly basis transaction data for all investment advisory transactions executed away from the Firm. Transaction data must be provided in the following month after activity was conducted. 2.7.3 REVIEW OF FORM ADVs Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing Form ADVs of each office serving as an investment advisory firm. No less than annually, the

06/08 18

Designated Principal or their designee will review such information. The Designated Principal or their designee will evidence such reviews by maintenance of a review log. Registered Person Responsibilities Each registered person’s office is required to submit to the Designated Principal or their designee a copy of the Form ADV. 2.7.4 ADDITIONAL POINTS Registered persons agree to the following:

Maintain all books and records required by investment advisory regulations in addition to those required by Firm policy.

Complete necessary new account forms as required by the Firm, if accounts are maintained at the Firm, or by the firm who custodies assets (i.e. Schwab)

Use proper care in using the Firm’s name. Avoid any conflicts. Avoid conflicts of interests in dealing with clients. The only times when the Firm is permitted to be used in connection with one’s

investment advisory business is when accounts are established and trades are executed through the Firm via our clearing agent. In these cases, it is appropriate to indicate that securities are offered through Capital Investment Group or Capital Investment Brokerage, depending on the broker/dealer utilized.

2.8 REGISTERED PERSON AND REGISTERED PERSON RELATED ACCOUNTS 2.8.1 OUTSIDE SECURITIES ACCOUNTS Supervisory Responsibilities The Designated Principal or their designee is responsible for approving/denying accounts of registered persons having a direct or indirect beneficial ownership in, whether family (children, spouse, parents) or not, to be established at non-Firm broker/dealers. The Designated Principal or their designee will evidence their approval/denial by initialing the broker’s written notification, providing a 407 letter, or similar correspondence prior to such account being established or traded. After the account has been established, the Designated Principal or their designee will review such accounts monthly, unless no activity occurs, at which time accounts must be reviewed no less than quarterly via account statements. Initialing account statements will evidence reviews. Registered Person Responsibilities Registered persons must immediately notify the Designated Principal or their designee via notice and receive written approval from the Designated Principal or their designee for opening any account maintained at a non-Firm broker/dealer in which they have direct or indirect beneficial ownership in at the time of establishment. Such notifications, at a minimum, should include account number, title, and the registered person’s relationship to the account.

06/08 19

PERSPECTIVE FIRM POLICY - The Firm does not require registered persons establish or transfer existing accounts in which they have a direct or indirect beneficial relationship to the Firm; however, the Firm recommends such accounts be established or transferred to the Firm. REGULATORY REQUIREMENTS – FINRA regulations require registered persons provide written notification and receive approval of all accounts maintained at other broker/dealers 2.8.2 ACCOUNTS MAINTAINED AT CAPITAL Supervisory Responsibilities The Designated Principal or their designee is responsible for monitoring accounts of registered persons having a direct or indirect beneficial ownership in to be established at the Firm. The Designated Principal or their designee will review sample accounts no less than quarterly via clearing firm reports and/or account activity. The Designated Principal or their designee will evidence their review by maintenance of an account review log, blotters, account activity worksheets, and/or exception reports. Registered Person Responsibilities Provide all information required at the time of opening of an account, including beneficial owners. 2.8.3 SHARING IN ACCOUNTS WITH CLIENTS Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing registered persons’ compliance with the below discussed Firm policy. Should sharing be suspected, an appropriate investigation will be commenced by the Designated Principal or their designee. Registered Person Responsibilities Registered persons are prohibited from sharing in client accounts unless 1) The client is family (spouse, children, or parents); and 2) An account is under an investment advisory contract. 2.8.4 PARTICIPATION IN INVESTMENT CLUBS Supervisory Responsibilities The Designated Principal or their designee is responsible for approving/denying a registered person’s intent to participate in an investment club prior to such account being established, whether maintained at the Firm or not. The Designated Principal or their designee will evidence their approval/denial by initialing/signing any written notifications, 407 letters, or similar documents of or pertaining to the registered person prior to such account being established.

06/08 20

Registered Person Responsibilities The registered person is required to send notification to the Designated Principal or their designee for an investment club account in which they will have direct or indirect beneficial ownership in is being established. The Designated Principal or their designee must provide written approval/denial of such account.

PERSPECTIVE

FIRM POLICY – The Firm does not overall prohibit registered persons from participating in investment clubs; however, the Firm will not approve the establishment of investment club accounts with clients. The Firm views the establishment of investment clubs with clients as creating unnecessary conflicts of interests, creating potential problematic situations should investments not perform as well as expected, and potential regulatory violations regarding sharing in client accounts. 2.8.5 PARTICIPATION IN INITIAL PUBLIC OFFERINGS (“IPOs”) Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring registered persons do not participate in IPOs. The Designated Principal or their designee will verify compliance with the regulation through the review of the trade blotter for potential purchases of IPOs. Registered Person Responsibilities Registered persons are prohibited from participating in an IPO for their account or an account in which they have a direct or indirect interest.

PERSPECTIVE FIRM POLICY – There is only one exception to above statements. If you serve in the capacity of an investment advisor and are purchasing an IPO for a client account, you are permitted to sale such IPO to such client although you may receive fee income per an investment advisory contract. CONCEPT POINT – As long as you are a registered person with any firm, you are prohibited from participating in an initial public offering of securities for accounts in which you a direct or indirect beneficial ownership/interest. This prohibition stems from the thought the offering of securities is not a bona fide distribution to the public, if firms or registered persons with broker/dealers participating in an offering purchases such securities for their own capital gain/loss. REGULATORY VIEW - Regulatory authorities take serious offense to this issue as violations of regulations governing this area are viewed as undermining market integrity. By participating in an IPO, in which you have a direct or indirect beneficial ownership/interest, you may face expulsion from the securities industry.

06/08 21

2.9 INSIDER TRADING Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring registered persons comply with insider trading prohibitions. The Designated Principal or their designee will conduct such reviews through the monitoring of accounts directly or indirectly beneficially owned by registered persons. The frequency and the evidencing of such reviews is indicated above with respect to Reviews of Investment Advisory Transactions, Outside Securities Accounts, Accounts Maintained at Capital, Sharing in Accounts with Clients, and Participation in Investment Clubs. The Designated Principal or their designee is also responsible for reviewing clients are not conducting insider trading. The Designated Principal or their designee reviewing daily trade blotters is required to review for suspicious activity. As noted later, the Designated Principal or their designee will evidence their review of the daily trade blotter by initialing the document. In the event activity reveals potential insider trading, the Designated Principal or their designee must immediately contact the Compliance Department. Registered Person Responsibilities Registered persons are prohibited from trading on material, non-public information or enabling anyone to trade on material, non-public information. In the event a registered person comes in possession of material, non-public information about a publicly traded company or issue, the registered person must immediately report such knowledge to the Designated Principal or their designee for Insider Trading. Such notification can be done orally or in writing via e-mail, letter, or fax.

PERSPECTIVE CONCEPT POINTS – The following are key points and definitions pertaining to insider trading: 1) SEC Rule 10b-5 makes it unlawful for any person to misuse, either directly or

indirectly, any material, nonpublic information. Partners and registered persons who are in possession of any such information are prohibited from:

a) Purchasing or selling such securities for their own accounts or for accounts in

which they have a beneficial interest or over which they have the power, directly or indirectly, to make investment decisions.

b) Soliciting customers’ orders to purchase or sell the orders.

c) Issuing research reports, recommendations, or comments which could be

construed as recommendations; and d) Disclosing such information or any conclusions based thereon to any other

person in or outside the Firm, except to the Compliance Department.

2) Material, non-public information is defined as any information which has not been publicly disseminated and which a reasonable investor might consider important in

06/08 22

making an investment decision. Examples of such information include but are not limited to:

a) Dividend increases or decreases; b) Earnings info/estimates or changes in previously released earnings estimates;

c) Liquidation and acquisition of major assets, companies, and divisions; d) Significant business development and expansion; e) Major management developments and changes; f) Major litigation; g) Liquidity problems; and

h) Pending news by the firm, analysts, government/regulators, etc. 3) Information relating to pending customer transactions that could affect the market for

the security in question, such as a large block trade or instructions to begin liquidating a Schedule 13D position, may be deemed to constitute “material, nonpublic information”. Partners and registered persons who are in possession of such information are prohibited from “front-running” on the information and must abide by the prohibition.

4) Insider trading covers all securities, not just equities. Particular awareness should be

paid to derivative securities. REGULATORY VIEW – If an individual is found to have traded on insider information or facilitated another in their insider trading, an individual will be subject to civil fines as well as criminal punishment in the form of prison and/or probation as well as permanent expulsion from the securities industry. 2.10 DEALING WITH CLIENTS AND NON-MEMBERS 2.10.1 REFERRAL FEES Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring no registered person offers referral or solicitation fees to non-registered entities or person. Registered Person Responsibilities Registered persons are prohibited from offering referral fees and solicitation fees to non-registered entities or persons, unless it is a referral fee programs established with banks approved in advance by the Compliance Department. Registered Person Responsibilities Registered persons are prohibited from sharing any commissions or service fees with any person or entity not registered as a registered person or broker/dealer, respectively, including clients.

06/08 23

PERSPECTIVE CONCEPT POINT – Sharing in commissions or service fees is strictly prohibited for the same reasons stated in the above concept point. 2.10.3 REBATING OF COMMISSIONS Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring no registered person rebates brokerage commissions to any non-registered person or entity, including clients. Registered Person Responsibilities Registered persons are prohibited from rebating commissions to clients. . The Designated Principal or their designee will evidence review by appropriate means. Registered Person Responsibilities Registered persons are prohibited from borrowing or lending securities and monies to/from a client. The registered person must complete the annual certification form attesting they have complied with the rule.

PERSPECTIVE CONCEPT POINT – Borrowing personal money, securities, or any assets to be pledged presents conflicts of interest, undue liability, and potential risk for the Firm and its registered persons. As such, the Firm strongly prohibits borrowing or lending securities and monies to/from a client. This does not include accounts in which a client requests a margin account be established for themselves at our Firm’s clearing agent(s). REGULATORY ACTIONS – Recently, regulatory authorities have been fining and suspending registered persons for borrowing monies from clients against a brokerage firm’s policies. Listed below are two examples: 1) In March 2004, FINRA suspended a registered person in all capacities for 90 days

and fined him $10,000 for borrowing more than $30,000 from a customer in direct contravention of his employer firm's policies, persuading the customer to loan him the money by offering a nine percent return on the loan, and recommending the customer liquidate two mutual funds in order to loan the money to the registered person.

2) In June 2003, FINRA concluded a registered person violated his firm's policy against

borrowing from customers and misrepresented to his firm he had not borrowed from customers. FINRA concluded the registered person's conduct contravened high standards of commercial honor and just and equitable principles of trade, fined the person $10,000, suspended him in all capacities for nine months, and ordered him to pay appeal costs.

06/08 24

2.10.4 BORROWING OR LENDING SECURITIES AND MONIES TO/FROM A CLIENT

Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring no registered person borrows or lends any securities and monies to / from a client. Registered Person Responsibilities Registered persons are prohibited from borrowing or lending securities and monies to / from a client. 2.11 CASH AND NON-CASH COMPENSATION, GENERAL 2.11.1 GIFTS AND GRATUITIES TO AND FROM CLIENTS Supervisory Responsibilities The Designated Principal or their designee is responsible for annually reviewing Firm compliance with gifts and gratuities rules. Annually, the Designated Principal or their designee will check registered person compliance by reviewing the annual certification form . The Designated Principal will evidence review by appropriate means. Registered Person Responsibilities Registered persons can only provide or accept gifts and gratuities annually totaling $100 or less for any one client, the registered person must complete the annual certification form attesting they have not received gifts and gratuities in excess of $100. For gifts provided or received less than $100, each registered person must keep, at their office, a log of gifts and gratuities or, depending on firm policy at the time, file such gifts and gratuities in accordance to policies in effect at the time. The log must include the date of such gift, the approximate value, the item, if applicable, to whom or from whom the gift or gratuity was received or given, and whether the gift was given or received. 2.11.2 BONA FIDE TRAINING AND EDUCATIONAL TRIPS/SEMINARS FROM

PRODUCT SPONSORS Supervisory Responsibilities The Designated Principal is responsible for reviewing all requests for attending a seminar/education trip sponsored by product sponsors. The Designated Principal will review all disclosure forms and invitation details submitted by a registered person or vendor. Thereafter, the Designated Principal or their designee will give approval/denial of attendance at such educational seminars prior to the registered person’s attendance. The Designated Principal or their designee will evidence review by appropriate means. Registered Person Responsibilities Registered persons are permitted to attend educational seminars presented by product sponsors (i.e. Wells Forums, etc.) upon the prior approval of the Designated Principal. The registered person can only accept reimbursement for reasonable travel expenses, such as transportation, hotels, dinners, etc. associated with attending such seminar for themselves (no reimbursements for family or non-family members are permitted). All other items are considered gifts and gratuities and subject to rules/prohibitions stated in the above section. Registered persons requesting to attend such forums must submit a disclosure form in advance of such seminar and receive approval from the Designated Principal prior to attending, with the exception being approval given first by the Designated Principal or their designee to the vendor. Registered persons are not required to obtain prior approval to attend events such as a luncheon provided by a

06/08 25

vendor that would have a value of less than $100. Registered persons are required to keep a log of such events, including the approximate value.

PERSPECTIVE CONCEPT POINT – It is critical a registered person receives prior approval from their Designated Principal prior to attending such educational forums. Numerous regulatory actions have previously been taken against registered persons for attending “educational forums”, when in fact, the seminars were little more than a free vacation for the registered person selling the offeror’s product. In the 1990’s, regulatory actions were often taken against product sponsors and registered persons attending such events by mutual fund and insurance companies. REGULATORY ACTION – In the below case, registered persons were not cited by regulatory authorities for attending an “educational seminar”, the offeror was. This example is being provided to highlight the fact that regulatory authorities may view an event as not reasonable in terms of expenses or not sufficient in nature to be deemed an educational seminar, despite assertions by an offeror. 1) In October 2003, Wells Investment Securities, Inc. was sanctioned for rewarding

broker/dealer persons who sell their REITs with lavish entertainment and travel perquisites, in violation of FINRA rules. FINRA censured Wells Investment and its President, Leo Wells, and fined them $150,000. FINRA also suspended Leo Wells from acting in a principal capacity for one year. In 2001 and 2002, Wells Investment sponsored conferences in Scottsdale, Arizona, and Amelia Island, Florida, which were attended by registered persons from other firms who sold its REIT products. Although Wells Investment represented to FINRA that these conferences were "strictly educational," FINRA claimed the conferences constituted lavish affairs that did not meet the standards of FINRA rules. Wells Investment provided less than 13 hours of training and education during the three full days of each conference. FINRA said REIT sponsors are prohibited from rewarding registered persons from other firms with entertainment, gifts or other non-cash compensation. FINRA argued these practices create point-of-sale incentives that may undermine a registered person’s ability to objectively recommend suitable investments to customers. These payments directly from the REIT sponsor also could interfere with the ability of the registered person’s own firms to supervise their sales activities

2.12 DEALING WITH NON-CAPITAL BROKER/DEALERS AND THEIR

REGISTERED PERSONS 2.12.1 REFERRAL FEES Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing registered persons’ compliance with the Firm’s policy on referral fees. Prior to entering into any referral arrangement, the Designated Principal or their designee will review the registered person’s notice and provide approval/denial of such arrangement. The Designated Principal or their designee will evidence review and approval/denial by executing such notice and/or subsequent executed contract.

06/08 26

Registered Person Responsibilities Registered persons are prohibited from accepting or giving referral fees for directing any customer or accounts to another broker/dealer or their registered person. The only exception is in the event a broker is accepting a referral fee for accounts established at another broker/dealer firm in which the Designated Principal or their designee agrees to. 2.12.2 SHARING IN COMMISSIONS AND SERVICE FEES Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing registered persons’ compliance with the Firm’s policy on sharing commissions and fees. Prior to entering into any such arrangement, the Designated Principal or their designee will review the registered person’s notice and provide approval/denial of such arrangement. The Designated Principal or their designee will evidence review and approval/denial by annotating such notice and/or any executed contracts. Registered Person Responsibilities Registered persons are prohibited from accepting or giving any commissions and fees for directing any customer or accounts to another broker/dealer or their registered person without first receiving approval by the Designated Principal or their designee. 2.13 PROHIBITION AGAINST GUARANTEES Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring registered persons make no guarantees, unless per the below practical point. To do this, the Designated Principal or their designee will review correspondence and all other forms of communications and document such as described in later sections. In addition, the Designated Principal or their designee will review the annual certification form. The Designated Principal will evidence review by appropriate means. Registered Person Responsibilities Registered persons are prohibited from making any guarantees about performance or any other aspect regarding a security product, unless per the below practical point. Annually, the registered person will attest they have complied with Firm policy via the annual certification form.

PERSPECTIVE PRACTICAL POINT – The only time guaranteed may be permitted is in connection with the sale of variable products with riders providing minimum guarantees. REGULATORY ACTION – In the second quarter of 2003, FINRA found a registered person entered into a written agreement with a client in which he guaranteed on a certain date that he would personally purchase from the customer any 9 identified securities at a predetermined price if the public price of any one of the securities did not exceed the predetermined price. Consequently, the registered person was suspended for 20 days from serving in any capacity with a broker/dealer and was fined $5,000. 2.14 HEIGHTENED SUPERVISION

06/08 27

Supervisory Responsibilities The Compliance Department in connection with senior management is responsible for making a determination of when and what registered person will be placed under heightened supervision and the subsequent review of all of their activities. Upon determination a person needs to be placed on heightened supervision, the Compliance Department will develop a supervisory plan, in which the Designated Principal is responsible for execution. In determining whom to place on heightened supervision, the Compliance Department will consider the number of complaints, arbitrations, and settlements during a given time period as well as sales practice trends. In developing a plan, the Compliance Department will customize the plan to the circumstances. At a minimum, the Designated Principal should consider closely scrutinizing transactions, establish guidelines/prohibitions on the use of certain products, establish guidelines/prohibitions on the use of communications, conduct monthly reviews of accounts, and hold monthly interviews with the registered person under heightened supervision. The Designated Principal is responsible for maintaining a file dedicated to heightened supervisory reviews of a given registered person. Such files shall include notes on reviews. Registered Person Responsibilities Registered persons placed under heightened supervision must follow all terms and conditions placed on them by the Designated Principal.

PERSPECTIVE

REGULATORY VIEW – As described in FINRA Notice to Members 03-49, FINRA considers the establishment and the effective implementation of heightened supervisory procedures critical to investor protection and prevention of future sales practice abuses. More so, FINRA has recently conducted targeted examinations focusing on the supervision of individuals they believe should be under heightened supervision. 2.15 HEIGHTENED OFFICE INSPECTIONS Supervisor Responsibilities The Designated Principal is responsible for making a determination as to which offices and registered persons meet criteria for conducting heightened office inspections, scheduling appropriate reviews of such offices for heightened inspection, and making a determination of who will inspect the office. First, the Designated Principal will determine instances where 1) the person conducting the inspection reports to the branch office manager’s supervisor or works in an office supervised by the branch manager’s supervisor; and where 2) the branch office manager generates 20 percent or more of the revenue over the course of a rolling, twelve-month period of the business units supervised by the branch office manager’s supervisor. For purposes of determining the 20 percent threshold, the firm will take into consideration all revenue generated by or credited to the producing manager or the

06/08 28

producing manager’s office, and that amount shall be included as part of the overall revenues of the business units supervised by the producing manager’s supervisor irrespective of a member’s internal allocation of revenues. Calculations will based on rolling 12 months periods and should take place periodically throughout the year. Two, upon determination that heightened inspections are necessary for producing manager/offices, the firm will put in place the following procedures:

Inspections are conducted no less than twice a year using the branch audit report that is in place at the time. Additional inspections will be deemed appropriate due to concerns such as complaints, operational and compliance issues, etc. Reviews will be conducted unannounced.

Inspections will cover all items included as part of the normal branch audit. As part of the review, the firm requires that a judgment be made by the inspector as to whether the activities of the producing manager are compromising the producing manager’s activities as supervisor due to economic or commercial gain, time management, or any other reason pertinent to the situation at hand. In addition, the Designated Principal will obtain valuable insight from the inspector on their suggestions for improvement, future action, and any findings.

Inspections will be conducted by a person independent of the producing manager and their supervisory chain to be in accordance to regulatory requirements.

Registered Person Responsibilities Registered person must comply and adhere to any requests for information requested as part of heightened office inspections. 2.16 INTERNAL USE MATERIAL Supervisor Responsibilities The Designate Principal is responsible for ensuring the office and registered persons comply with the firm’s internal communications policy. The Designated Principal or their designee will review compliance as needed but no less than annually through annual inspections of the firm. All internal communications must be kept via firm-approved email retention communication systems and within appropriate files. No internal material shall be shared with the public and shall only be limited to those registered persons, office personnel, and those individuals who have a right and need to such information. All information regarding customers, the firm’s business, or otherwise sensitive information disseminated outside the home office to registered persons shall be marked as “Internal Use Only” Registered Person Responsibilities Registered person shall not share any information marked as “Internal Use Only” with the public, customers, or any other party. Registered persons must comply with the firm’s email retention system for internal communications and maintain internally generated information in appropriate correspondence or client files. 2.17 SIGNATURE GUARANTEE STAMPS Supervisory Responsibilities

06/08 29

The Designated Principal is responsible for ensuring registered persons and their offices maintain strict compliance with firm guidelines on the use of signature guarantee stamps. The Designated Principal will review the use of signature guarantee stamps during branch office audits and through an annual inspection of the home office. Registered Person Responsibilities Registered persons and offices, in possession of a signature medallion guarantee, are required to comply with the following policies:

Signature guarantee stamps, must, at all times, be kept in a secure location to prevent the unauthorized use of such stamp. The stamp should be kept in a locked location at all times, except when in use.

Only individuals recorded by the firm as having a signature medallion stamp are permitted to use signature guarantee stamps.

Prior to utilizing a signature guarantee stamp, the individual must have made an affirmative determination as to identity of the client or individual on whose behalf the signature guarantee stamp is being utilized.

Records of using the signature guarantee stamp must be maintained at all times in the form of maintaining documents with signature guarantee stamps or a blotter reflecting the date of use, the client involved, the document used, and the identity of the person executing the stamp.

3.0 HIRING, REGISTRATION AND EDUCATION 3.1 NEW HIRES AND EXISTING REGISTERED PERSONS 3.1.1 BACKGROUND CHECKS Supervisory Responsibilities The Designated Principal or their designee is responsible for conducting preliminary background checks of each person applying for registration with the Firm. Background checks will include a review of CRD, the person’s credit history, a completed Form U-4 by the person, retrieving a copy of the person’s Form U-5, prior production reports or tax forms, or equivalent records. Such background checks will take place prior to the Firm hiring the person, with the exception of the Form U-5, which may be filed after the person is registered. The Designated Principal or their designee will evidence such background checks by maintaining review records in the appropriate person’s file. Registered Person Responsibilities A potential registered person must present accurate and truthful representations of their background in a timely manner. In the event the Firm subsequently deems the registered person or potential registered person made material omissions or misrepresentations, the Firm will terminate the person’s registration. 3.1.1 BACKGROUND CHECKS – REGULATION S-P Supervisory Responsibilities The Designated Principal or their designee is responsible for conducting preliminary background checks of each person applying for registration with the Firm. Background checks will include a review of CRD, the person’s credit history, a completed Form U-4 by the person, retrieving a copy of the person’s Form U-5, prior production reports or tax forms, or equivalent records. Such background checks will take place prior to the Firm hiring the person, with the exception of the Form U-5, which may be filed after the

06/08 30

person is registered. The Designated Principal or their designee will evidence such background checks by maintaining review records in the appropriate person’s file. In using consumer report information for background checks, the firm will maintain such information for hired registered persons for the life of their tenure with the firm in their personnel file. For individuals denied registration, all information, including consumer report information, will be maintained for three years in their file to evidence background checks were properly conduct. At the end of three years, consumer report information is to be promptly shredded by the Designated Principal or their designee to prevent identity theft and the misappropriate use of such information. All such information will remain in a locked area only accessible to those individuals given clearance by the Designated Principal. Registered Person Responsibilities A potential registered person must present accurate and truthful representations of their background in a timely manner. In the event the Firm subsequently deems the registered person or potential registered person made material omissions or misrepresentations, the Firm will terminate the person’s registration. 3.1.2 SCREENING FOR STATUTORILY DISQUALIFIED PERSONS Supervisory Responsibilities The Designated Principal or their designee is responsible for conducting preliminary background checks, including the screening for statutory disqualification of all registered and non-registered persons. Such screening will include a review of CRD report, the person’s credit and criminal history, a completed Form U-4 by the person (if a registered person), retrieving a copy of the person’s Form U-5, if a registered person, requesting references, and/or equivalent records. Evidence of review will be maintained in appropriate files. Registered/Non-registered Person Responsibilities The person is required to disclose if they have ever been statutorily disqualified by a regulatory authority or have been subject to any felony. In the event a person is found to have been disqualified or subject to a felony offense, the person will not be registered with the Firm.

PERSPECTIVE FIRM POLICY – The Firm does not hire individuals who have been statutorily disqualified nor is a Branch Office permitted to hire a non-registered person who has been statutorily disqualified. The rationale behind this decision is that there is unnecessary potential liability to the Firm, additional regulatory requirements and costs, and the thought, if such certain persons are hired; the Firm and registered persons are potentially jeopardizing their reputation and the trust of customers. CONCEPT POINT – A statutorily disqualified person is defined as any person subject to such disqualifying events as: 1) certain misdemeanors and all felony criminal convictions for a period of 10 years from the date of conviction; 2) temporary and permanent injunctions issued by a court of competent jurisdiction involving a broad range of unlawful investment activities; 3) expulsions and current suspensions from membership or participation in a self-regulatory organization; 4) bars and current

06/08 31

suspensions ordered by the SEC or self-regulatory organizations; 5) denials or revocations of registration by the SEC or Commodity Futures Trading Commission; and 6) findings a member or person has made certain false statements in applications or reports made to, or in proceedings before, self-regulatory organizations. 3.1.3 FINGERPRINTING Supervisory Responsibilities The Designated Principal or their designee is responsible for making sure all appropriate persons, both registered and non-registered, are fingerprinted and copies of such fingerprints are timely submitted to FINRA. The Designated Principal or their designee will verify all registered persons are fingerprinted via receipt of fingerprint cards and timely submission (within 30 days of hire) of such cards to FINRA. The Firm will evidence compliance with fingerprinting requirements through CRD records and/or maintenance of fingerprint cards. Registered Person Responsibilities Registered persons must be fingerprinted prior to registration. The registered person, upon hire or request, must submit two copies of fingerprint cards to the Compliance Department.

PERSPECTIVE FIRM POLICY – All persons who will serve in the capacity of a registered person must be fingerprinted. Persons not serving in the capacity of a registered person are required to be fingerprinted if they handle customer checks and securities. As such, the Firm encourages all individuals who will be handling mail be fingerprinted. At the time of fingerprinting, the person must receive two fingerprint cards. The two fingerprint cards should be mailed to the Compliance Department, who will keep one copy in the Firm’s files and the second copy will be sent to FINRA for processing. NOTE, A PERSON WILL NOT BE ABLE TO ENGAGE IN THE SALE OF SECURITIES UNTIL SUCH FINGERPRINT CARDS ARE RECEIVED BY FINRA FROM THE COMPLIANCE DEPARTMENT. PRACTICAL POINT – To be fingerprinted, the best location to go to is the local Sheriff’s Office or Police Station. 3.1.4 REVIEW OF REGISTERED PERSONS AND SUPERVISORY PERSONNEL

QUALIFICATIONS Supervisory Responsibilities The Designated Principal or their designee is responsible for evaluating the qualifications, including licensing, state registration, and experience, of all registered persons and supervisory personnel relative to supervision responsibilities, product offerings, and experience. If the person is to conduct supervisory activities, the Designated Principal or their designee will review the person’s qualifications via their Form U-4 before assigning supervisory responsibilities. Maintaining appropriate files of the registered person will evidence review.

06/08 32

For non-supervisory activities of registered persons, the Designated Principal or their designee should review for potential qualification violations via review of daily trade activity and/or exception reports. Registered Person Responsibilities All registered persons are prohibited from conducting any activity in which they do not possess appropriate licensing. Prior to selling any product or supervising any product, person, or activity requiring a given qualification in which they do not possess appropriate qualifications, the registered person must contact the Compliance Department to either request registration in a given state and/or request to take a qualification examination.

PERSPECTIVE FIRM POLICY ON STATE REGISTRATIONS – If you wish to conduct securities activity with a client who is located in a state in which you are not registered, you should contact the Compliance Department to request registration. Most states require you to be registered in a state, regardless of how little activity you may conduct. As such, the Compliance Department will not research individual state requirements to see if a “deminimus activity” exemption exists. SECURITIES LICENSING – Listed below are some licensing options and what activities are permitted with the given licenses:

REGISTERED PERSON LICENSING CATEGORIES

License # License Title Pre-

Requisites Activities

3 National Commodity Futures (CR)

None Sale of Options;

6

Investment Company Products/Variable Contracts Representative (IR)

None Sale of open-end mutual funds; variable life; variable annuities; unit investment trusts; 529 plans

7 General Securities Representative (GS)

None

Sale of public offerings and/or private placements of corporate securities (stocks and bonds); rights; warrants; mutual funds; money market funds; unit investment trusts; REITS; asset-backed securities; mortgage-backed securities; options; options on mortgage-backed securities; municipal securities; direct participation programs; ETFs; hedge funds

11

Assistant Representative-Order Processing (AR)

None

Accept unsolicited securities orders (all securities except municipal securities and direct participation programs) only from the firm's clients

06/08 33

22

Direct Participation Programs Representative (DR)

None

Sale of direct participation programs (real estate; oil and gas; equipment leasing); limited partnerships; limited liability companies; S corporations; REITs; tenant-in-common/1031 programs;

52 Municipal Securities Representative (MR)

None

Sale of municipal securities and municipal fund securities (e.g., 529 College Savings Plans, Local Government Investment Pools (LGIPs), Coverdell Education Savings Accounts)

62

Corporate Securities Limited Representative (CS)

None

Sale of corporate securities (stocks and bonds); rights; warrants; closed-end funds; money market funds; REITS; asset-backed securities; mortgage-backed securities; ETFs; hedge funds

63 Uniform Securities Agent State Law Exam (AG)

None Required to conduct any securities or investment advisory activity within any state

65 NASAA-Investment Advisors Law Exam (RA)

None Provide investment advisory services

66

NASAA-Uniform Combined State Law Exam (AG and/or RA)

S7

Provide investment advisory services and conduct any securities or investment advisory activity within any state, combines the Series 63 and 65 into one examination.

72

Government Securities Representative (RG)

None

Government securities; government agency securities; mortgage-backed securities

SUPERVISORY LICENSING CATEGORIES

License # License Title Pre-

Requisites Products that can be Supervised with the

License

4 Registered Options Principal (OP)

S7 or S62 with S42, S17, S37 or S38

Supervise equity options; foreign currency options; interest rate options; index options; options on government and mortgage-backed securities

9

General Securities Sales Supervisor (Options Module (FINRA-SU)

S7

Supervise sales of corporate securities; rights; warrants; closed-end funds; money market funds; REITS; asset-backed securities; mortgage-backed securities (corporate); equity options; options on (corporate) mortgage-backed securities; mutual funds; variable annuities and variable life insurance; government securities; municipal securities and

06/08 34

municipal fund securities; direct participation programs

10

General Securities Sales Supervisor General Module (FINRA-SU)

S7

Supervise sales of corporate securities; rights; warrants; closed-end funds; money market funds; REITS; asset-backed securities; mortgage-backed securities (corporate); equity options; options on (corporate) mortgage-backed securities; mutual funds; variable annuities and variable life insurance; government securities; municipal securities and municipal fund securities; direct participation programs

24 General Securities Principal (GP)

S7, S17, S37, S38, S62, or S82

Supervise corporate securities; rights; warrants; closed-end funds; money market funds; REITS; asset-backed securities; (corporate) mortgage-backed securities; mutual funds; variable annuities and variable life insurance; direct participation programs;

26

Investment Company Products/Variable Contracts (IP)

S6 or S7

Supervise mutual funds; variable annuities and variable life insurance

28

Introducing Broker/Dealer Financial and Operations Principal (FI)

None

Supervise back office operations; preparation and maintenance of member's books and records; compliance with financial responsibility rules applicable to fully disclosed broker/dealers who do not hold customer funds and securities and do not carry customer accounts

39 Direct Participation Programs Principal (DP)

S22 or S7

Supervise direct participation programs (real estate; oil and gas; equipment leasing) limited partnerships; limited liability companies; S corporations

42 Registered Options Representative (OR)

S62 or S7 Supervise options

51 Municipal Fund Securities Limited Principal (FP)

S24 or S26

Supervise municipal fund securities (e.g., 529 College Savings Plans, Local Government Investment Pools (LGIPs), Coverdell Education Savings Accounts)

06/08 35

53 Municipal Securities Principal (MP) S52 or S7

Supervise municipal securities, including municipal fund securities (e.g., 529 College Savings Plans, Local Government Investment Pools (LGIPs), Coverdell Education Savings Accounts)

3.1.5 FORM U-4 FILING Supervisory Responsibilities The Designated Principal or their designee is responsible for verifying the accuracy of and timely submission of Form U-4s, both initial and amended filings, in accordance to regulatory requirements. Notifications of grievances, outside business activities, etc. will all be reviewed to determine if an amended filing is necessary and, if so, the registered person’s Form U-4 will be amended within FINRA time requirements. Where possible, the Designated Principal or their designee wills cross-check information from background checks to Form U-4s. U-4 filings will be maintained in FINRA’s CRD system as evidence of such filings. Registered Person Responsibilities Registered persons are responsible for keeping a Form U-4 accurate at all times. In the event of a disclosable event occurring, the registered person must immediately notify the Designated Principal or their designee with appropriate details within 5 calendar days of receipt.

PERSPECTIVE CONCEPT POINT – It is critical a registered person immediately notifies the Firm of disclosable events, i.e. complaints, settlements, civil or criminal charges, bankruptcy proceedings, etc. as a registered person may be fined and potentially suspended for failing to maintain an accurate Form U-4. More so, the registered person needs to provide notification of any changes to a Form U-5 by a previous employer, outside business activities, etc., as amendments to their current Form U-4 may be required. REGULATORY ACTIONS – The following are some recent regulatory actions regarding Form U-4s: 1) In December 2004, FINRA settled a matter involving a registered person who

willfully failed to amend his Form U-4 to disclose that he had been charged with two misdemeanors counts involving insurance fraud. FINRA fined the registered person $5,000 and suspended him in all capacities for three months.

2) In December 2004, FINRA settled a matter in which a registered person willfully

failed to disclose on his Form U-4 that he had been charged with a criminal felony offense. The registered person was not convicted of a felony and pled guilty to a reduced misdemeanor charge. Five years after the misdemeanor conviction, the registered person failed to disclose that he had been charged with a felony on a Form U-4. FINRA found that the registered person’s actions violated FINRA rules,

06/08 36

fined the registered person $5,000, and suspended him in all capacities for six months.

3) In July 2004, FINRA censured and fined Morgan Stanley DW Inc. $2.2 million for

more than 1,800 late disclosures of reportable information about its registered persons. From January 2002 to March 2004, Morgan Stanley failed to file in a timely manner approximately 67 percent of the required Form U-4 and Form U-5 updates that was the subject of FINRA's review.

3.1.6 FORM U-5 UPDATES BY PRIOR EMPLOYER Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing any notices provided by registered persons indicating a Form U-5 amendment by a prior employer. If applicable, the Designated Principal or their designee will follow-up with the registered person to gain an understanding of the situation. Any notes of follow-up and the notices will be maintained in the registered person’s file. Any amendments to a registered person’s Form U-4 in light of these updates will be maintained on the CRD system. Registered Person Responsibilities Within 5 calendar days of receipt, registered persons must immediately notify the Designated Principal or their designee in the event a Form U-5 submitted by a prior employer is amended to reflect a “Yes” answer or any change in the cause of termination. 3.1.7 MAINTAINING REGISTRATIONS Supervisory Responsibilities The Designated Principal is responsible for making a determination to maintain a securities registration of an individual or not. Close attention should be paid to parking of licenses, which is prohibited. Registered Person Responsibilities A registered person shall not park a license. 3.2 TERMINATIONS/RESIGNATIONS 3.2.1 NOTIFICATION OF TERMINATION Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing all termination notifications immediately upon receipt. The Designated Principal or their designee will initial such notification and prepare to file a Form U-5. Copies of such notifications will be maintained in the appropriate person’s file. Registered Person Responsibilities Prior to leaving the Firm, the registered person should provide 2-week advance written notice via letter to the Designated Principal or their designee of their future departure. The notice must include date of departure and their plan for the return of any information or items that belong to the Firm. 3.2.2 FORM U-5 FILING

06/08 37

Supervisory Responsibilities The Designated Principal or their designee is responsible for the submission of timely and accurate Form U-5s and any subsequent updates. Form U-5 filings upon termination or amendments must be made within 30 days of such event taking place. Copies of Form U-5s will be maintained in the terminated person’s file. Registered Person Responsibilities No responsibilities. 3.2.3 FORM U-5 DELIVERY Supervisory Responsibilities The Designated Principal or their designee is responsible for delivering a previously registered person with a copy of their Form U-5 within 30 days of the termination date and/or 30 days within a subsequent amendment. The Designated Principal or their designee will evidence such delivery by maintenance of a cover letter and a copy of the Form U-5 indicating delivery of the Form U-5. Copies of such notifications will be maintained in the terminated person’s file as evidence of delivery. Registered Person Responsibilities No responsibilities. 3.3 FORM BD Supervisory Responsibilities The Designated Principal or their designee is responsible for maintaining an accurate Form BD and the timely submission of any subsequent amendments. At a minimum, Form BD amendments must be made within 30 days of the event giving rise to such amendment. Evidence of such amendments will be maintained on the CRD system. Registered Person Responsibilities No responsibilities. 3.4 ROLE OF NON-REGISTERED PERSONS Supervisory Responsibilities The Designated Principal or their designee is responsible for activities of non-registered persons associated with the Firm. Annually, the Designated Principal or their designee will check compliance via requesting registered persons complete the annual certification form through asking questions about individuals in their office. The Designated Principal will evidence review as appropriate. Registered Person Responsibilities Registered persons shall not permit non-registered persons to conduct any activities requiring registration. Annually, registered persons will attest to the best of their knowledge that no non-registered person in their office conducted any activity requiring registration per the annual certification form.

06/08 38

PERSPECTIVE FIRM POLICY – Non-registered persons shall not: 1) Make recommendations to a client relating to the purchase or sale of securities; 2) Provide any form of investment advice; 3) Deliver prospectuses to clients; 4) Open a customer securities account for the Firm; 5) Complete or assist the client in completing New Account Forms or any other

securities-related document; 6) Take orders from a client for the Firm; 7) Solicit a client; 8) Answer client questions about the advisability of purchasing or selling securities; 9) Make representations to a client about securities; 10) Discuss the merits of any security with a client; 11) Handle any questions which might require a securities license; and 12) Accept customer cash, checks, and securities, unless fingerprinted. 3.5 TRAINING AND EDUCATION 3.5.1 BROKER ORIENTATION TRAINING All new registered persons with the Firm should attend broker orientation training at the Firm’s Main Office. The registered person or their OSJ manager should schedule the orientation at least one week in advance of such orientation occurring. The Broker Orientation Training is designed to enhance a new registered person’s ability to successfully serve their clients, increase their awareness of what the Firm offers, as well as ease any transition issues coming from another broker/dealer. Such orientation will typically include meeting of Firm personnel, the processing of product sales, cashiering, registration issues, and compliance topics. The Firm will attempt to tailor the training as much as possible to those areas of most importance to the anticipated type of business to be conducted. The Firm will offer training to non-registered personnel as need arises and requests are made. 3.5.2 SPECIALIZED TRAINING

06/08 39

The registered person is not required to request specialized training. However, the registered person has the opportunity to request such training. Such training will be provided after a judgment is made on the merits and feasibility on such training. The Firm seeks to enhance each registered person’s experience and ability to service clients. As such, the Firm will offer additional training of products, etc. where needed on an individual or branch office basis. 3.5.3 CONTINUING EDUCATION 3.5.3.1 REGULATORY ELEMENT REQUIREMENTS Supervisory Responsibilities The Designated Principal or their designee will be responsible for periodically reviewing Firm compliance with the Regulatory Element requirements. The Designated Principal or their designee will monitor the status of registered persons via e-mails from FINRA or similar means. Notices of needing to complete Regulatory Element requirements will delivered via e-mail on a periodic cycle. Should a broker fail to successfully complete their Regulatory Element requirements within the 120 days, the Designated Principal or their designee will notify the registered person to cease conducting a securities activity. More so, the Designated Principal or their designee will notify appropriate persons and departments (i.e. Cashiering, Payroll, Trading, etc.) the person is deficient. With regards to each, the Designated Principal or their designee will mandate no activity of any sort be permitted, including the payment of commissions. Registered Person Responsibilities All registered persons must successfully complete an exam for Continuing Education within 120 calendar days of their second anniversary date and every third year thereafter. Upon notification by the Designated Principal or their designee, registered persons are responsible for scheduling an exam at a local testing center. In the event a person fails to complete an exam within the required time, the registered person will be deemed to have an inactive license and will need to immediately cease all activities requiring registration, including but not limited to, account openings, securities transactions, and client contact, until such exam is successfully completed.

PERSPECTIVE 1) WHAT IS THE REGULATORY ELEMENT OF CONTINUING EDUCATION? -

Registered persons are required to successfully complete the Regulatory Element requirements every 3 years after their initial 2-year anniversary date. Your anniversary date is determined by the date you successfully pass your first licensing examination.

2) REGULATORY VIEW - FINRA has always had a strict policy against registered

persons conducting activity while possessing an inactive license. FINRA has required registered persons to disgorge any commissions earned while inactive, pay punitive fines, and/or serve multi-day suspensions.

06/08 40

3) NOTIFICATION BY THE FIRM - As stated above, you will be notified by e-mail. Such notification will state the purpose of the notification, the required examination, the date by which you must complete the requirements, contact information for the testing center where you will take the examination, and a Firm contact person and number should you have questions.

4) PRACTICAL POINT - It is imperative you do not wait until the final days of your 120

day window to schedule an examination. Due to availability issues, it is not uncommon you will have to wait 2 weeks from the scheduling to take an examination. Also, any fines assessed can add up to a substantial amount of money.

5) REGULATORY ACTION – In the second quarter of 2003, a registered person was

fined $5,000 by FINRA for failing to timely comply with the Regulatory Element requirements of Continuing Education.

3.5.3.2 FIRM ELEMENT REQUIREMENTS Supervisory Responsibilities The Designated Principal or their designee is responsible for annually conducting a needs analysis, preparing a training plan, reviewing implementation of the training plan, and maintaining required records associated with the Firm Element requirements. Supervisory review will be evidenced by maintenance of files for the Firm Element requirements of Continuing Education. Such files shall include a list of covered persons, evidence of qualifying credits (classes, seminars, etc.), and a copy of the Firm’s needs analysis and training plan. Registered Person Responsibilities Registered persons must complete all training assigned by the Designated Principal or their designee as part of the Firm Element requirements of Continuing Education within the timeframes requested by the Designated Principal or their designee.

PERSPECTIVE FIRM POLICY - Each calendar year, the Designated Principal will announce requirements and the time frames for completing such requirements. 3.5.4 ANNUAL COMPLIANCE MEETING Supervisory Responsibilities The Designated Principal or their designee is responsible for developing, executing, and verifying registered person attendance at the Annual Compliance Meeting or the Make-Up Compliance Conference. The Designated Principal or their designee will evidence such meetings and attendance by maintenance of an attendance lists with topical information. At the Designated Principal’s or designee’s discretion, a questionnaire may be used in conjunction with or in lieu of such lists as evidence of attendance.

06/08 41

Registered Person Responsibilities Registered persons are required to attend the Annual Compliance Meeting or Make-Up Compliance Conference and completing any attendance lists/questionnaires provided during the meetings.

PERSPECTIVE HOW WILL I LEARN ABOUT THE ACM AND RSVP A SPOT? – Each year, at the beginning of January approximately, the Firm will send out reservation notices via mail about attending the Annual Compliance Conference in Myrtle Beach. You will need to return the reservation as soon as possible to the designated person at the Firm. WHEN DOES THE CONFERENCE TAKE PLACE ANNUALLY? - The Annual Compliance Conference takes place for a few days at the end of April or within the first couple weeks in May. WHY DO WE HAVE AN ANNUAL COMPLIANCE CONFERENCE? - From a regulatory standpoint, FINRA rules specifically require annual compliance meetings for which all registered persons must participate. From a practical standpoint, the meetings serve the following purposes: 1) Address compliance/regulatory issues facing you and the industry; 2) Introduce and communicate initiatives; 3) Provide educational experiences on product and compliance topics; 4) Receive and provide feedback on topics and Q & As; and 5) Allow individuals an opportunity to network. MAKE-UP COMPLIANCE CONFERENCE –The Make-Up Compliance Conference is an alternative to the Annual Compliance Conference date. 4.0 COMMUNICATIONS 4.1 CUSTOMER GRIEVANCES 4.1.1. CUSTOMER COMPLAINTS, ARBITRATIONS, LITIGATIONS, CIVIL SUITS,

AND CRIMINAL SUITS Supervisory Responsibilities The Designated Principal or their designee will review all written customer grievances and conduct an inquiry as to the allegations. All reviews and inquiries of grievances will be commenced immediately upon receipt. The Designated Principal or their designee will evidence the review of such grievances by maintaining a file with applicable information concerning the complaint. Registered Person Responsibilities Within one day of receipt, registered persons must notify the Designated Principal or their designee of any customer grievance. A copy of the grievance must be mailed, faxed, or emailed at this time. Any inquires of the registered person by the Designated Principal or designee requires full cooperation.

06/08 42

4.1.2 SETTLEMENTS WITH CLIENTS Supervisory Responsibilities The Designated Principal or their designee is responsible for drafting all written settlement agreements with clients prior to submission to a client. Copies of settlement agreements will be maintained in the appropriate customer grievance files. Registered Person Responsibilities Registered persons must notify the Designated Principal or their designee if they intend to enter into any written settlement agreement with a client. Specifically, the registered person must provide preliminary details of such settlement so that the Designated Principal or their designee can provide the appropriate language as required by regulatory requirements.

PERSPECTIVE REGULATORY VIEW – Historically, FINRA has brought several cases on the language of settlement agreements, both from a disclosure and restrictive language standpoint. In such cases, firms and registered persons have been cited, fined, and have had their registration forms marked for settlement agreements not in compliance with regulations. As such, it is important for the Designated Principal or their designee to draft such agreement so appropriate language can be included. 4.1.3 3070 REPORTING Supervisory Responsibilities The Designated Principal or their designee is responsible for filing timely and accurate 3070 Reports regarding customer grievances requiring such report be made. In general, the Designated Principal or their designee will file 3070 reports within 15 days of the month following the quarter in which such grievance took place, unless the event is one of the events outlined in FINRA Rule 3070 requiring filing within 10 days of becoming aware of such event. The Designated Principal or their designee will printout such 3070 report and place it in the appropriate complaint file as evidence of filing. Registered Person Responsibilities No responsibilities.

PERSPECTIVE CONCEPT POINT – The 10 events referred to above involve the following whenever such broker/dealer or registered person: 1) has been found to have violated any provision of any securities law or regulation, any rule or standards of conduct of any governmental agency, self-regulatory organization, or financial business or professional organization, or engaged in conduct which is

06/08 43

inconsistent with just and equitable principles of trade; and the member knows or should have known that any of the aforementioned events have occurred; 2) is the subject of any written customer complaint involving allegations of theft or misappropriation of funds or securities or of forgery; 3) is named as a defendant or respondent in any proceeding brought by a regulatory or self-regulatory body alleging the violation of any provision of the Act, or of any other federal or state securities, insurance, or commodities statute, or of any rule or regulation hereunder, or of any provision of the By-laws, rules or similar governing instruments of any securities, insurance or commodities regulatory or self-regulatory organization; 4) is denied registration or is expelled, enjoined, directed to cease and desist, suspended or otherwise disciplined by any securities, insurance or commodities industry regulatory or self-regulatory organization or is denied membership or continued membership in any such self-regulatory organization; or is barred from becoming associated with any member of any such self-regulatory organization; 5) is indicted, or convicted of, or pleads guilty to, or pleads no contest to, any felony; or any misdemeanor that involves the purchase or sale of any security, the taking of a false oath, the making of a false report, bribery, perjury, burglary, larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds, or securities, or a conspiracy to commit any of these offenses, or substantially equivalent activity in a domestic, military, or foreign court; 6) is a director, controlling stockholder, partner, officer or sole proprietor of, or an associated person with, a broker, dealer, investment company, investment advisor, underwriter or insurance company which was suspended, expelled or had its registration denied or revoked by any agency, jurisdiction or organization or is associated in such a capacity with a bank, trust company or other financial institution which was convicted of or pleaded no contest to, any felony or misdemeanor; 7) is a defendant or respondent in any securities or commodities-related civil litigation or arbitration, which has been disposed of by judgment, award or settlement for an amount exceeding $15,000. However, when the member is the defendant or respondent, then the reporting to the Association shall be required only when such judgment, award, or settlement is for an amount exceeding $25,000; 8) is the subject of any claim for damages by a customer, broker, or dealer, which is settled for an amount exceeding $15,000. However, when the claim for damages is against a member, then the reporting to the Association shall be required only when such claim is settled for an amount exceeding $25,000; 9) is associated in any business or financial activity with any person who is subject to a "statutory disqualification" as that term is defined in the Act, and the member knows or should have known of the association. The report shall include the name of the person subject to the statutory disqualification and details concerning the disqualification 10) is the subject of any disciplinary action taken by the member against any person associated with the member involving suspension, termination, the withholding of commissions or imposition of fines in excess of $2,500, or otherwise disciplined in any

06/08 44

manner which would have significant limitation on the individual's activities on a temporary or permanent basis. 4.2 ADVERTISING AND SALES LITERATURE 4.2.1 GENERIC ADVERTISING PRODUCED BY THE REGISTERED PERSON Supervisory Responsibilities The Designated Principal or their designee is required to review each piece of advertising upon receipt but prior to use by a registered person. The only exception is when advertising has received pre-approval. If an advertising piece is acceptable and compliant with applicable regulations, the Designated Principal or their designee will evidence such approval by initialing such piece or by approval methods in effect at the time. If an advertising piece is deemed unacceptable or not compliant with applicable regulations, the Designated Principal or their designee must: 1) promptly notify the registered person that such piece cannot be distributed; 2) indicate any corrective measures needed to be made to the advertising piece; and 3) indicate to the registered person a revised copy of the advertising piece must be resubmitted and approved prior to the registered person using such piece. Registered Person Responsibilities Registered persons must submit non-pre-approved generic advertising to their Designated Principal or their designee as far in advance of intended first use as possible (minimum 5 calendar day advance notice recommended). A registered person must not use any advertising that has not been previously approved by their Designated Principal or their designee. In submitting advertising for approval, the registered person must include a copy of the piece, intended date of first use, how such piece will be distributed (i.e. newspaper, mail, etc.), and to whom it was sent (i.e. mailing list and an overall, general description of why these people are chose – i.e. over 65 in zip code 30210, etc.) The registered person must place approvals in the appropriate advertising file as evidence of approval along with the advertising piece.

PERSPECTIVE WHAT IS GENERIC ADVERTISING? - Generic advertising is defined as any advertising that refers to general description of your business and/or does not refer to mutual funds, variable products, municipal securities, CMO’s, and options other than as a laundry list of products offered by your office. 4.2.2 ADVERTISING SPECIFIC TO MUTUAL FUNDS, VARIABLE PRODUCTS,

MUNICIPALS, CMOs, AND OPTIONS Supervisory Responsibilities The Designated Principal or their designee will, upon receipt, review such pieces for compliance with applicable regulations. The only exception is when form advertising or advertising produced by insurance and mutual fund companies have been previously

06/08 45

approved. If the advertising piece appears acceptable and compliant with applicable regulations, the Designated Principal or their designee will evidence such approval by initialing such document or by approval means in effect at the time. For pieces created by registered persons, the Designated Principal will, as required by FINRA, immediately submit such pieces to FINRA and await their response. Upon receiving any FINRA response letter, the Designated Principal or their designee will communicate to the registered person the following: 1) whether or not the piece is OK to distribute; 2) indicate any corrective measures needed to be made to the advertising piece; and 3) indicate to the registered persons that a revised copy of the advertising piece, if applicable, must be resubmitted and approved by the Designated Principal or their designee prior to the registered person using such piece. Registered Person Responsibilities Registered persons should submit non-pre-approved advertising specific to the above products to the Designated Principal or their designee at least 30 days in advance of intended first use. A registered person must not use any advertising specific to these products that have not been previously approved by the Designated Principal or their designee.

PERSPECTIVE CONCEPT POINT – FINRA requires all advertising pertaining to mutual funds, options, variable products, CMO’s, and municipal securities be submitted for review by FINRA prior to distribution. There are no exceptions, unless the advertising only mentions the above products as a laundry list of products offered. For this reason, the Firm has established the 30 day advance rule in the hopes this will give FINRA adequate time to review a piece. Given FINRA’s Advertising Regulation assesses a fee for filings, the Firm reserves the right to debit registered person’s commissions or bill registered persons as reimbursement. REGULATORY ACTION – In May 2004, Nationwide Investment Services Corporation and Nationwide Securities, Inc. distributed variable products advertising that contained deficiencies previously identified by FINRA's Advertising Regulation Department. Among those deficiencies were failures to: 1) prominently disclose the charges and fees associated with the product; 2) explain that dollar cost averaging does not insure profit or protect against loss; 3) clearly identify the product as a variable annuity and/or variable universal life insurance product, and 4) provide a balanced presentation of the risks and benefits associated with investing in a variable annuity. 4.2.3 INTERNET/ELECTRONIC ADVERTISING 4.2.3.1 WEB SITES Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing web sites of such registered persons and their office before the sites go “live” and whenever additions are planned to be made to such web site. The Designated Principal or their designee will evidence review of such sites by printing out the web site and initialing a copy of a printout of the home page for new sites or by approval means in effect at the time.

06/08 46

Registered Person Responsibilities The registered person must notify the Designated Principal or their designee as far in advance of intended first use of any web site created or any subsequent amendments made to such site (minimum 5 calendar day advance notice recommended). The registered person must receive approval from the Designated Principal or their designee prior to such web site or amendments going “live”.

PERSPECTIVE CONCEPT POINT – As the Internet continues to grow in popularity and as a primary means of communication, many companies and web sites offer investment analysis tools for clients. As a general rule of thumb, such investment analysis tools and related reports can be offered, upon approval of FINRA and the Designated Principal or their designee, if: 1) The tool presents a range of probabilities that various investment outcomes might

occur and does not state that a particular investment outcome will in fact, occur; 2) The tool uses a mathematical process that can be audited and reviewed; 3) The criteria and methodology used, including the tool’s limitations and key

assumptions; 4) Disclosure that results may vary with each use and over time; 5) The universe of investments considered and states that other investments not

considered might have characteristics similar or superior to those that the tool analyzes; and

6) Disclosure of whether the tool searches, analyzes, or in any way favors certain

securities and, if so, the reasons for such selectivity. 4.2.3.2 WEB STREAMERS AND ADWARE (POP-UP ADS) Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing web streamers or pop-up ads prior to use by a registered person. The Designated Principal or their designee will evidence review of such web streamers and pop-up ads by initialing a paper copy of the streamer or pop-up ad to be used or by approval methods in effect at the time. Registered Person Responsibilities The registered person must provide the Designated Principal or their designee in advance of intended first use templates of any web streamers or pop-up ads (minimum 5 calendar day advance notice recommended). The registered person must receive approval from the Designated Principal or their designee prior to such web streamers/ads being used.

06/08 47

4.2.4 PRINT AND WEB COLUMNS (NEWSPAPER ARTICLES, MAGAZINE ARTICLES, AND INTERNET COLUMNS)

Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing any newspaper columns, magazine columns, or internet columns produced by a registered person prior to use. The Designated Principal or their designee will evidence such review by initialing a paper copy of the article/column or by approval means in effect at the time. Registered Person Responsibilities A registered person must submit any newspaper articles, magazine articles, or Internet columns produced by them in advance of intended use to the Designated Principal or their designee (minimum 5 calendar day advance notice recommended). The registered person must receive the Designated Principal’s or designee’s approval prior to usage. 4.2.5 TELEVISION ADVERTISEMENTS Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing television advertisements by registered persons prior to use. The Designated Principal or their designee will review the script for the ad. The Designated Principal or their designee will evidence their review by initialing the script or by approval methods in effect at the time. Registered Person Responsibilities Registered persons must receive the Designated Principal’s or designee’s approval prior to buying television spot ads (minimum 5 calendar day advance notice recommended). 4.2.6 RADIO SPOT ADS Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing radio advertisements by registered persons. The Designated Principal or their designee will review the script for the ad. The Designated Principal or their designee will evidence their review by initialing the script or by approval methods in effect at the time. Registered Person Responsibilities Registered persons must receive the Designated Principal’s or their designee’s approval prior to buying radio spot ads (minimum 5 calendar day advance notice recommended). In requesting approval, the registered person must submit the spot ad 4.2.7 RESEARCH REPORTS Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring no registered person distributes research reports about specific securities/companies to the public. Registered Person Responsibilities Registered persons are prohibited from producing research reports about specific securities/companies that will be disseminated to the public. Annually, each registered person will attest to maintaining compliance with Firm policy by completing the annual certification form

06/08 48

PERSPECTIVE FIRM POLICY –The Firm prohibits the distribution of self-produced research reports to the public due to inherent additional regulatory requirements and the cost of supervising such activity. In the last few years, the amount of regulatory oversight of research reports and required supervision has increased substantially in light of the corporate scandals between 2001 and 2003. 4.3 PUBLIC SPEAKING 4.3.1 SEMINARS AND PUBLIC PRESENTATIONS Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing the content of topics to be discussed through submitted materials. In reviewing such information, the Designated Principal or their designee is responsible for determining such engagements are in compliance with applicable regulations and appropriate. The Designated Principal or their designee will evidence their review by initialing a copy of the outline provided or by appropriate approval means in place at the time. Registered Person Responsibilities Prior to participating in a seminar, a registered person must receive prior approval from the Designated Principal or their designee (minimum 5 calendar day advance notice recommended).

PERSPECTIVE PRACTICAL POINT – The public presentations only refer to engagements where you will be referring to securities products, the securities industry, financial planning, etc. The above guidelines do not refer to discussions not relating to securities and financial planning. For instance, speaking to the local Kiwanis Club about an upcoming fundraiser, event, sale, etc. does not require you to submit any materials to the Designated Principal. 4.3.2 TV APPEARANCES Supervisory Responsibilities The Designated Principal or their designee is required to review a registered person’s interest in appearing on television, whether it is a talk show or news segment, discussing security products, individual companies, or the financial marketplace or industry. Review should take place immediately upon notification by the registered person. Appropriate materials will be reviewed. Evidence of such reviews will be documented by initialing a copy of any outlines or other documents provided or by approval methods in place at the time.

06/08 49

Registered Person Responsibilities A registered person must receive approval from the Designated Principal or their designee prior to appearing on television, whether a talk show or news segment, discussing security products, individual companies, or the financial marketplace or industry (minimum 5 calendar day advance notice recommended). A registered person is required to notify the Designated Principal or their designee in advance of participating by providing basic details of their appearance. 4.3.3 RADIO APPEARANCES Supervisory Responsibilities The Designated Principal or their designee is required to review a registered person’s interest in appearing on radio, whether it is a talk show or news segment, discussing security products, individual companies, or the financial marketplace or industry. Appropriate materials will be reviewed. Review should take place immediately upon notification by the registered person. Evidence of such reviews will be documented by initialing a copy of any outlines provided or by approval means in place at the time. Registered Person Responsibilities A registered person must receive approval from the Designated Principal or their designee prior to appearing on radio, whether a talk show or news segment, discussing security products, individual companies, or the financial marketplace or industry (minimum 5 calendar day advance notice recommended). A registered person is required to notify the Designated Principal or their designee in advance of participating by providing basic details of their appearance. 4.4 BUSINESS AND OFFICE SIGNS Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing prior to use business signs are compliant with applicable regulations. The Designated Principal or their designee will review a template of such sign upon receipt from a registered person. The Designated Principal will evidence their review by initialing a copy of such template or by approval means in place at the time. Registered Person Responsibilities A registered person must receive prior approval from a Designated Principal or their designee the use of office signage (minimum 5 calendar day advance notice recommended). Specifically, the registered person must submit to the Designated Principal or their designee a template of any office sign to be used in advance of such usage. 4.5 BUSINESS STATIONERY/LETTERHEAD Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing any business stationery and letterhead used to communicate with the public prior to usage. The Designated Principal or their designee will evidence their approval of such pieces by initialing templates of the stationery or letterhead or by approval means in place at the time.

06/08 50

Registered Person Responsibilities Registered persons must submit to the Designated Principal or their designee any business stationery or letterhead used to communicate with the public and receive the Designated Principal’s or their designee’s approval prior to usage.

PERSPECTIVE REGULATORY ACTION – In late 2004, FINRA settled a matter involving a registered person who ordered and used business stationery and business cards that inaccurately listed professional designations the registered person did not possess. FINRA found the registered person's conduct violated Conduct Rule 2110, suspended the registered person in all capacities for 30 business days, and fined the person $5,000. 4.6 BUSINESS CARDS Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing any business cards prior to usage. The Designated Principal or their designee will evidence their approval of such pieces by initialing templates of the business card or by approval means in place at the time. Registered Person Responsibilities Registered persons must submit to the Designated Principal or their designee any templates of business cards and receive the Designated Principal’s or their designee’s approval prior to usage of such business cards. 4.7 CORRESPONDENCE 4.7.1 WRITTEN CORRESPONDENCE Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing outgoing written correspondence with clients or prospective clients on an as needed basis. The Designated Principal or their designee will evidence their review by initialing the correspondence or by approval means in place at the time. Registered Person Responsibilities The registered person must maintain any written correspondence with clients or prospective clients. 4.7.2 EMAIL CORRESPONDENCE WITH CLIENTS Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing incoming and outgoing electronic correspondence with clients or prospective clients monthly. The firm will provide education and training on the proper use of electronic correspondence as a part of the New Rep Orientation. Additionally, as a part of the Annual Compliance Meeting, the Designated Principal will conduct an education and training component on the proper use of e-mail correspondence. The firm will also provide other training opportunities as needed, including offering periodic courses on electronic

06/08 51

communication as part of the firm element of continuing education and providing links to helpful on-line resources regarding e-communication. In deciding which e-mails to sample for review, the Designated Principal or their designee should consider the following factors: 1) Any buzz words (i.e. guarantee, riskless, etc.) in e-mail titles or the body of the e-mail); 2) E-mails of particular registered persons who have numerous cancellations, numerous Regulation T extensions, the subject of any customer grievances, or sales practice concerns have been noted; 3) Any e-mails relating to a new product being offered by registered persons; and 4) E-mails concerning products that have no secondary market trading (i.e. REITS, Private Placements; Limited Partnerships; etc.). Regardless of which method factor(s) are used for review, the designated principal is required to review some correspondence from each Registered Person represented during the period.

Designated Principal or their designee should evidence the review via a report that contains at least the following information:

• Time Period for the review • Approximate number of emails available for review • Number of emails reviewed • Criteria utilized to identify sample • Results of the review • Identification of the Designated Principal or their designee

Additionally, the Firm will maintain records that specifically identify the emails that have been reviewed for each period. Registered Person Responsibilities Registered persons must forward all e-mails with clients or prospective clients to the appropriate Designated Principal. The delivery medium is per instructions provided previously by your Designated Principal. Registered persons should expect to have email reviewed during announced and unannounced branch audits, for adherence to firm policies.

PERSPECTIVE REGULATORY VIEW – While the retention of e-mail correspondence with clients has been a requirement since the mid-1990s, regulators have been more closely monitoring Firm’s recordkeeping of such e-mails and the supervision of e-mails. It is imperative that you comply with Firm policy concerning e-mail. 4.7.3 INSTANT MESSAGING Supervisory Responsibilities Instant messaging is strictly prohibited. Registered Person Responsibilities Registered persons are prohibited from using instant messaging in communicating with clients.

06/08 52

4.7.4 TELEMARKETING 4.7.4.1 COLD CALLING ACTIVITIES Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring all cold-calling activities are in compliance with Telephone Consumer Protections Act of 1991 as well as FINRA regulations regarding misrepresentations and material omissions. The Designated Principal or their designee will annually review the annual certification form to verify registered person compliance with telemarketing requirements. The Designated Principal or their designee will evidence such review by initialing the form or by appropriate approval methods. Registered Person Responsibilities The registered person shall not contact any person on the National Do Not Call Registry or any person identified on the Do Not Call List maintained by the Designated Principal or their designee. In prospecting clients, the registered person must abide by the Telephone Consumer Protection Act of 1991. Annually, each registered person must complete the annual certification form indicating compliance with the rule.

PERSPECTIVE WHAT ARE THE REQUIREMENTS OF THE TELEPHONE CONSUMER ACT OF 1991? 1) No phone calls can be made before 8 A.M. and after 9 P.M. at the called party’s

location; 2) Disclosure of the registered person’s name, the person or organization on behalf the

call is being made, a telephone number and address to contact the registered person is required;

3) State the purpose of the call (solicit the purchase of securities, etc.); and 4) Notify the Designated Principal of any person who requests no further calls be made

by the registered person or anyone associated with the Firm. 4.7.4.2 USE OF SALES SCRIPTS Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing any sales scripts to be used by registered persons prior to use. The Designated Principal or their designee will evidence their review by initialing the sales script or by approval methods in place at the time. Registered Person Responsibilities The registered person must submit sales scripts to and receive approval from their Designated Principal or their designee prior to conducting any telemarketing activities. Sales scripts must include disclosure of the registered person’s name, the person or

06/08 53

organization on behalf the call is being made, a telephone number and address to contact the registered person, and the purpose of the call. 4.7.4.3 DO NOT CALL LISTS Supervisory Responsibilities The Designated Principal or their designee is responsible for periodically verifying a Do Not Call List is being maintained by offices. Registered Person Responsibilities In the event a prospective client indicates they do not wish to be telemarketed by a registered person and/or anyone associated with the Firm, the registered person is required to notify to add such person to a Do Not Call List. Requirements for such Do Not Call List are: 1) Person’s name; 2) Phone Number(s); and 3) Date Added. The firm recommends registered persons utilize the Do Not Call Log. 4.7.5 CHAT ROOMS/BULLETIN BOARDS Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring registered persons do not participate in chat rooms and bulletin boards to discuss securities, companies, or solicit business. The Designated Principal or their designee will verify compliance by reviewing the annual certification form. The Designated Principal or their designee will evidence such reviews by an appropriate method. Registered Person Responsibilities Registered persons are prohibited from discussing securities, companies, or soliciting business via chat rooms and bulletin boards. Annually, each registered person will attest to complying with Firm policy by completing the annual certification form.

PERSPECTIVE REGULATORY ACTION - FINRA recently settled a matter involving a registered person that posted 75 messages on an Internet finance message board in which he failed to disclose the fact that he was a registered person and the name of the member firm with which he was associated. FINRA also found that the person posted 15 messages in which he made statements containing predicted or projected investment results and that, in one message, he made exaggerated, unwarranted, or misleading statements. FINRA found that the registered person violated FINRA rules, fined the person $10,000, and suspended him in all capacities for 40 days. 4.8 PRIVACY POLICY NOTIFICATION Supervisory Responsibilities The Designated Principal or their designee is responsible for development of the Firm’s privacy policy, annually delivering the privacy policy to existing clients annually, and ensuring new clients are provided a copy of the privacy policy upon opening an account with the Firm.

06/08 54

The Designated Principal or their designee will ensure/order the annual delivery of the privacy policy by ordering such policies delivered to existing clients. A copy of the privacy policy will be maintained along with notes. Registered Person Responsibilities No additional responsibilities other than having each new customer complete the New Account Form. 4.9 SAFEGUARDING OF CLIENT INFORMATION The firm places great emphasis on the protection of customer information. Like all firms, our reputation depends on us being a safe, reliable financial institution. Three main tenants of our obligation and desire to safeguard client information are:

Ensuring the security and confidentiality of customer records and information; Protect against any anticipated threats or hazards to the security or integrity of

customer records and information; and Protect against unauthorized access to or use of customer records or information

that could result in substantial harm or inconvenience to any customer. The Designated Principal or their designee is responsible for ensuring the safeguarding of client information. Annual and periodic reviews will be undertaken by the Designated Principal or their designee. Among the aspects that will be reviewed are:

Storage of client information; Destruction and discarding of client information; Technology/server infrastructure of the firm; Access to client information; Firm policy; Current and anticipated threats and hazards; and Communication methods.

The firm has established the following policies to ensure client information is properly safeguarded:

1. Firm servers are to undergo weekly and as-need maintenance checks by the firm’s Technology Personnel;

2. Access to firm servers is limited to firm employees. 3. Remote connectivity to firm servers is limited to only executive officers of the

firm. 4. Sharing of client information with third parties is strictly prohibited unless

necessary to carry out fully and properly the securities business conducted for a client’s account, required by law or legal process, or with client’s consent. All law or legal process forwarded to the firm’s Compliance Department. Client consents must be acknowledged in a written Letter of Authorization.

5. Sharing of computers with sensitive client information with third parties or non-employees is strictly prohibited.

6. Computers must have a unique password that consists of numbers and letters 7. Laptops and all computers must be kept in a location that is safe and secure. No

computer or laptop shall be left unattended unless necessary. If necessary, with appropriate screen saver passwords being installed.

8. Passwords must be kept in a safe, secure location outside the reach of the general public or others who have no right to utilize such passwords.

06/08 55

9. Access to premises where securities business is conducted must be properly locked and where appropriate, alarm systems must be installed to ensure access by unauthorized persons does not occur during working non-working hours.

10. The firm in selecting and maintaining relationships with key vendors, i.e. its clearing agent, will conduct initial analysis of that third parties’ ability to safeguard information. At a minimum, the firm will request the policies the key vendor has to safeguard client information. After an analysis of such information and conducting a review of information the third party has with respect to our firm’s clients, will we follow-up with such entity, where necessary, to ensure our satisfaction that our clients’ information is protected.

11. Destruction of client information must be shredded prior to placing in waste baskets and trash chutes.

12. Should one receive a call from a client, at all times, personnel is required to verify the client’s social security number and address. Where appropriate, the account number should be requested prior to giving information. This prevents identity theft.

13. No client sensitive information shall be transmitted through electronic communications.

SUPERVISOR: RICHARD K. BRYANT 5.0 ACCOUNTS 5.1 NEW ACCOUNTS 5.1.1 APPROVAL OF NEW ACCOUNTS Supervisory Responsibilities The Designated Principal or their designee is responsible for approving new accounts. The Designated Principal or their designee will verify for each new account appropriate documents have been obtained and executed, where applicable, in addition to verifying the New Account Form is complete. Such reviews will take place prior to any transactions being processed or any account being opened. The Designated Principal or their designee will evidence approval and review of accounts by executing the New Account Form. Registered Person Responsibilities Before opening a customer’s account and accepting transactions for the account, it is the registered person’s responsibility to learn pertinent information about the client. The New Account Form includes key information the registered person and Firm should know to open the account and accept transactions on behalf of the customer. In doing so, the registered person must obtain all necessary documents/information and provide all required disclosures prior to submitting an account for approval to the Designated Principal or their designee. This includes a complete New Account Form, obtaining appropriate legal documents (i.e. corporate resolutions, etc.), and providing required disclosures where necessary (i.e. Margin Disclosure Document). The registered person must maintain all client documents in the appropriate client file.

06/08 56

PERSPECTIVE FIRM POLICY - In reviewing the New Account Form and other documents submitted with a new account for approval, the Designated Principal needs to look for the following: 1) Completeness – all applicable and required information has been provided; 2) Customer Signed New Account Form; 3) Unacceptable accounts (accounts in the name of the minor only, fictitious accounts,

etc.); 4) Potential improper addresses (P.O. Boxes without street addresses, Addressed to

registered person or firm, etc.); 5) Consistency of investment objectives with financial status, prior investment

experience, etc.; 6) Initial transaction consistent with investment objectives; 7) Registered person registration in state of customer’s residency; 8) Missing documents for the account type being established; 9) Clarity of who has authority over investment decisions, particularly with joint and third

party accounts. 5.1.2 COPIES OF AGREEMENTS TO CUSTOMERS Supervisory Responsibilities The Designated Principal or their designee will evidence his/her knowledge copies of agreements have been or are in the process of being sent to the client by executing the New Account Form at the time an account is submitted for approval. Registered Person Responsibilities Registered persons are required to provide clients copies of all documents used to establish an account, including the New Account Form. This information should be provided at the time the client executes the New Account Form. In the event the client wants to add margin trading, options trading, or some other ability to their account at a later date, appropriate agreements allowing such activity must be provided at the later date when the client executes such agreements.

PERSPECTIVE FIRM POLICY – The copy of the New Account Form provided to the client does not have to have a Principal signature. This means a registered person does not have to wait to obtain their Designated Principal’s approval prior to providing a copy to the client.

06/08 57

5.1.3 MARGIN ACCOUNTS 5.1.3.1 MARGIN AGREEMENT Supervisory Responsibilities The Designated Principal or their designee is responsible for approving/denying margin accounts. Prior to any approval, the Designated Principal or their designee must review the experience of the client. More so, the Designated Principal or their designee must ensure the client has executed a Margin Agreement and received a Margin Disclosure Statement. The Designated Principal or their designee will evidence acceptance of a margin account by executing the Margin Agreement Registered Person Responsibilities Registered persons must discuss the relevant risks associated with margin transactions. More so, the registered person must have delivered a copy of the Margin Disclosure Statement to the client. The Firm discourages registered persons from encouraging clients to open margin accounts. 5.1.3.2 MARGIN DISCLOSURE STATEMENT Supervisory Responsibilities The Designated Principal or their designee is responsible for verifying clients have received a Margin Disclosure Statement. The Designated Principal or their designee will do so through executing a Margin Agreement. The Margin Agreement indicates an acknowledgement by the client they have received such Margin Disclosure Statement Registered Person Responsibilities Registered persons must provide each new margin account a Margin Disclosure Statement. 5.1.4 DISCRETIONARY ACCOUNTS 5.1.4.1 INITIAL CONSENT Supervisory Responsibilities The Designated Principal or their designee is responsible for approving/denying discretionary accounts. If approved, the Designated Principal or designee is responsible for ensuring registered persons obtain written authorization from clients desiring to give the registered person discretion in conducting transactions. Prior to any discretionary trades being placed, the Designated Principal or designee will review the discretionary agreement and initial the agreement as approval of the discretionary account. Registered Person Responsibilities For clients wishing to provide a registered person discretionary authority, the registered person must obtain a written agreement executed by the client. Upon receipt, the registered person must forward such agreement to the Designated Principal or their designee for review. The registered person must obtain their Designated Principal’s or designee’s approval prior to conducting any discretionary trades.

06/08 58

PERSPECTIVE FIRM POLICY – Overall, the Firm prohibits registered persons from receiving discretionary authority, beyond normal time and price discretion, due to inherent additional risks, additional responsibilities, and regulatory scrutiny. There is only 1 exception: 1) Registered persons serving in the capacity of an investment advisor in which they have received written discretion authorization. 5.1.5 THIRD PARTY ACCOUNTS Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring appropriate paperwork has been obtained for all accounts opened in which a third party will direct transaction and account activities. Prior to approving such accounts, the Designated Principal or their designee must make sure not only paperwork is on hand but also determine if the third party is an insider of a publicly-traded company or a registered person of another firm. If they are an insider or registered person, the Designated Principal or their designee must have duplicate statements sent to their employer. It is also important to find out the third parties’ compensation as such accounts may be linked to criminal activities. The Designated Principal or their designee will evidence review and approval of such accounts by signing the New Account Form. Registered Person Responsibilities Registered persons must ensure appropriate documents delineating the responsibility and role of the third party are obtained in addition to normal account paperwork. 5.1.6 OPTION ACCOUNTS 5.1.6.1 APPROVAL AND DUE DILIGENCE Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing all accounts for approval for which option activity is requested to be conducted. The Designated Principal or their designee will review the New Account Form and the Options Account Agreement, both of which must be executed by the client, and any other pertinent information in conducting due diligence. The Designated Principal or their designee will review such information prior to any options activity taking place. The Designated Principal or their designee will evidence review and approval by signing the Options Account Agreement. Should a Designated Principal or designee deny an account, documentation of such denial will be maintained in the appropriate file. Registered Person Responsibilities Prior to effecting any options transactions for a client, the registered person must obtain a signed Options Account Agreement from the client and obtain the Designated Principal’s or designee’s approval of the account.

06/08 59

PERSPECTIVE LEVELS OF OPTIONS TRADING – The following are various approval levels for options trading: 1) Level 1 - Covered Writing 2) Level 2 - Purchase Calls and/or Puts 3) Level 3 - Spreads 4) Level 4 - Naked Puts 5) Level 5 - Naked Writing FIRM POLICY - The approval level for an account will be based on the following: 1) Previous experience - Clients who are requesting approval to trade options should

have prior experience. On occasion, a client with no experience may be approved for Level 1 trading, provided they have at least three years of investment experience

2) Suitability of equity options for investment objectives, as indicated by the client on

the Options Agreement. - The client’s financial worth, option trading experience and age, versus the investment objective indicated and the option trading anticipated, will be considered for suitability reasons.

3) Awareness of the financial risks of equity options - No registered person may

discuss options with a client, prior to the client receiving an Options Clearing Corp. disclosure document (“Characteristics and Risks of Standardized Options”).

4) Annual income/net worth/ liquid net worth - Minimum guidelines: $25,000 income by

the investor and $30,000 net worth exclusive of residence 5) Miscellaneous Factors: number of dependents; whether you own or rent a personal

residence; number of years in a personal residence; market value of residence; employer; occupation; and years employed.

5.1.6.2 DELIVERY OF OPTIONS DISCLOSURE DOCUMENT Supervisory Responsibilities The Designated Principal or their designee is responsible for verifying the registered person has delivered a copy of the “Characteristics and Risks of Options” disclosure document and any supplements (if applicable) to clients wishing to engage in options activity. The Designated Principal or their designee will verify such by checking the client has executed copies of the Options Account Agreement (which discusses the disclosure document). The Designated Principal or their designee will evidence review by signing the above documents.

06/08 60

Registered Person Responsibilities Registered persons are required to provide the options disclosure document to clients wishing to engage in options activity. The disclosure must be provided prior to any options activity taking place. The registered person is able to evidence receipt via client’s execution of Options Account Agreement. 5.1.7 CUSTOMER ACCOUNTS – MUNICIPAL SECURITIES Supervisory Responsibilities The Designated Principal is responsible for ensuring registered persons obtain required documentation and make appropriate disclosures prior to recommending or effecting any transaction in a customer account. Such reviews will take place prior to any transactions being processed or any account being opened. The Designated Principal or their designee will evidence approval and review of accounts by executing the New Account Form. Registered Person Responsibilities Registered persons are not permitted to have discretion over any client account nor recommend or effect any transaction that are excessive in size or frequency in view of information known to such registered person concerning the customer's financial background, tax status, and investment objectives. A registered person must have reasonable grounds to recommend a municipal security in light of information from the issuer, the client, and otherwise known about the client and product that such security is suitable for the client. Prior to recommending or effecting any transaction in a customer account, the registered person must obtain the following information:

Customer’s name and residence or principal place of business; Age (ensure the client is of legal age); Tax identification number of social security number; Occupation; Name and address of employer; Customer’s financial status; Customer’s tax status; Customer’s investment objectives; and Information reasonable and necessary to make a recommendation to a customer name and address of beneficial owner or owners of such account if other than

the customer and transactions are to be confirmed to such owner or owners; whether customer is employed by another broker, dealer or municipal securities

dealer; in connection with the hypothecation of the customer's securities, the written

authorization of, or the notice provided to, the customer in accordance with Commission rules 8c-1 and 15c2-1;

with respect to official communications, customer’s written authorization, if any, that the customer does not object to the disclosure of its name, security position(s) and contact information to a party identified in G-15(g)(iii)(A)(1) for purposes of transmitting official communications under G-15(g); and

Furthermore, the registered person must provide customers Predispute Arbitration Agreements with Customers included as part of the New Account Form.

06/08 61

5.2 ACCOUNT MAINTENANCE ITEMS 5.2.1 UPDATING ACCOUNT INFORMATION Supervisory Responsibilities In their review of customer account activity and on an as needed basis, the Designated Principal or their designee will review client files verifying registered persons have received updated account information from clients or have made a sufficient effort in obtaining such information. In reviewing accounts, the Designated Principal or their designee will verify client information has been updated within the last 3 years via an updated New Account Form or through other documentation through reviews of transactions, with the blotter being evidenced accordingly. Registered Person Responsibilities A registered person is required to make a good faith effort to obtain updated information from clients at least every 3 years. For existing accounts, this means updated information needs to be received, at a minimum, every 3 years and as needed, if less than 3 years, from the last time updated information was last received from the client. Each registered person, in attempting to obtain such information, must send a notification/negative response letter. Such letter is to be accompanied by a blank New Account Form and/or instructions for accessing such information on-line, a copy of which should be maintained in the client’s file. In the event a client does not respond to your initial notification letter, you are required to send out a second notification letter, a copy of which should be maintained in a client file. After sending out a second notification in which you have received no response, you have fulfilled your responsibilities on attempting to obtain updated client information.

PERSPECTIVE CONCEPT POINT – It is always important to keep abreast of client’s financial situation and the changes in their lifecycle so that suitable investments are chosen for such clients. The Firm requires registered persons obtain updated information as individual’s financial situation may significantly vary in a very short time period, as shown by the market increases in the 1990’s and the subsequent stock market fall in the early 2000’s. In light of the stock market fluctuations, FINRA codified regulations requiring brokers to obtain updated account information in 2001. PRACTICAL POINT – The following are some practical points: 1) If a client beneficially owns multiple accounts (i.e. individual, IRA, trust, etc.), you do

not have to obtain separate updated information for every account. You need to only obtain one updated copy of the New Account Form.

2) Having obtained updated information is critical for a registered person to be able to

defend himself or herself in the event of an arbitration, complaint, or litigation. If after the second notification and you have not received a response, you may wish to reconsider serving as the account’s registered person due to potential liability concerns, particularly, if there are solicited transactions. The client, in the event they

06/08 62

make a suitability claim, may very well have a stronger case in that you do not have current information about them.

5.2.2 REORGANIZATION ITEMS Supervisory Responsibilities The Designated Principal or their designee is responsible for communicating any reorganization items to registered persons. Registered Person Responsibilities Registered persons are required to immediately notify each customer as to what action needs to be taken in respect to reorganization items. Registered persons will learn of exchanges, warrants, conversions, etc. via e-mail through the clearing agent or the Trading Department. 5.2.3 DIVIDEND CLAIMS Supervisory Responsibilities The Designated Principal or their designee is responsible for communicating any dividend claim items to registered persons. Registered Person Responsibilities Registered persons must promptly assist in any dividend claim issue that might arise. 5.2.4 DEBITS Supervisory Responsibilities The Designated Principal or their designee is responsible for communicating any debit/error items to registered persons. Registered Person Responsibilities Registered persons must promptly assist in any debit/error issues which might arise. 5.2.5 HOLDING OF CUSTOMER MAIL Supervisory Responsibilities The holding of customer mail is strictly prohibited. Registered Person Responsibilities No registered person shall offer or hold client mails. 5.2.6 CHANGES IN ACCOUNT NAMES/DESIGNATION FOR TRANSACTIONS Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring that no changes in accounts/designations are permitted for transaction orders not yet executed. For transactions that have been executed but were made in error, the Designated Principal is to review the firm’s Trade Error Ticket or similar document providing the essential facts and circumstances giving rise to such error. After review, the Designated Principal or their designee will make a decision on changing the account name or designation based on the facts. The Designated Principal or their designee will review such changes

06/08 63

on as needed basis. The Designated Principal or their designee will document their review by initialing/executing the blotter, initialing/executing the error ticket, and making appropriate notes of why they made such decision on the error ticket. The Designated Principal or their designee will verify such through a review of the firm’s blotters on a daily basis. Evidence of such review will be documented through the initialing/execution of the blotter. Registered Person Responsibilities No registered person is permitted to unilaterally make a change in account name or designation to a transaction. In the event of an error, the registered person must contact the Designated Principal and their department providing an explanation of why such error took place and what should have been done. A consistent pattern of errors is considered a violation of firm policy that poses potential liability. 5.2.7 CHANGE OF ADDRESSES Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring a signed written request for a change in address has been obtained from a client prior to any address change being effected. No change of address requests will be processed without an appropriate letter of authorization. Change of address requests will be maintained in appropriate files as evidence. To confirm the accuracy and validity of such changes, a letter will be sent to the client from the firm or its designee to the address of record, the most recent and current address of record. Registered Person Responsibilities Each registered person is responsible for obtaining a signed written request from a client in order for an address change to be effected.

PERSPECTIVE PRACTICAL POINT – All registered persons should receive written change of address requests. The importance of this is that you may never know if the caller/e-mailer may be practicing identity theft. Inherently, by requiring written requests, this may cause a client to have more confidence in a registered person and the privacy of their information. 5.2.8 CHANGE OF INVESTMENT OBJECTIVES Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring a signed written request in the form of a revised New Account Form for a change in investment objectives has been obtained from a client prior to any change being effected. No change request will be processed without receipt of a revised New Account Form. New Account Forms will be maintained in appropriate client files.

06/08 64

To confirm the accuracy and validity of such changes, a letter will be sent to the client from the firm or its designee to the address of record. Registered Person Responsibilities Each registered person is responsible for obtaining a revised New Account Form for an investment objective change to be effected. SUPERVISOR: JEROLYN NEWTON 5.3 ACCOUNTS OF FINRA/AMEX EMPLOYEES Supervisory Responsibilities The Designated Principal or their designee is required to authorize duplicate confirmations and account statements be sent to FINRA or AMEX upon learning an account is an employee of either organization. The Designated Principal or their designee will document compliance efforts by placing correspondence in the appropriate file. Registered Person Responsibilities For accounts in which employees of FINRA or AMEX own or have a beneficial interest in the registered person must abide by the following:

Notify the Compliance Department upon opening an account for a person employed with FINRA or AMEX. In turn, the Compliance Department will authorize duplicate account statements be sent to FINRA or AMEX.

Never loan any monies or securities, with exception of traditional margin

accounts; and

Never give or receive any gift, gratuity, or any other form of cash or non-cash compensation beyond normal commissions.

5.4 ACCOUNTS OF PERSONS REGISTERED WITH ANOTHER

BROKER/DEALER (NON-CAPITAL) Supervisory Responsibilities The Designated Principal or designee is responsible for immediately notifying the other broker/dealer immediately upon receiving a New Account Form for a registered person not with the Firm. In addition, the Designated Principal or designee is required to authorize duplicate confirmations and account statements be sent to the other broker/dealer. The Designated Principal or their designee will document compliance efforts by placing correspondence in the appropriate file. Registered Person Responsibilities The registered person must notify the Compliance Department prior to opening an account for a registered person of another broker/dealer. 5.5 MONITORING OF ACCOUNTS 5.5.1 REVIEW OF ACCOUNTS

06/08 65

Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing account activity for a sample of accounts on an as needed basis, no less than monthly. The Designated Principal or their designee has discretion in selecting which accounts to review. In determining which accounts to review, particular scrutiny should be paid to active accounts, accounts of reps with merited complaints, etc. The Designated Principal or their designee will evidence review by maintenance of an account review log. Registered Person Responsibilities The registered person is responsible for periodically reviewing client accounts of theirs to verify assets are allocated appropriately in light of the current market environment, their financial objectives, risk tolerance, tax status, and age. More so, registered persons are responsible for answering any questions by the Designated Principal in a timely manner. 5.5.2 PRODUCING MANAGER REVIEWS Supervisory Responsibilities The Designated Principal or their designee is responsible for monitoring the activity of producing OSJ managers. No less than monthly, the Designated Principal will use discretion in selecting accounts for review. Reviews may be undertaken more frequently based on select criteria. The Designated Principal or their designee will evidence review by maintenance of an account review log and/or blotters. 5.5.3 ISSUES TO BE AWARE OF IN REVIEWING ACCOUNTS

PERSPECTIVE

CONCEPT POINTS - In reviewing accounts, there are numerous issues requiring attention to be paid. With all types of transactions, suitability, fees charged, and unauthorized transactions need to be closely scrutinized, in particular, with mutual fund transactions. In addition, the following concerns must be kept in mind in reviewing accounts and reviewing transactions: Miscellaneous 1) Money movements to prevent money laundering 2) Conflicts of interest 3) Trading ahead of client orders (in particular with investment advisers) 4) Discretionary trades 5) Margin trades and the frequency of calls being covered by outside sources Equities 1) Churning 2) Turnover Ratio (Commissions Earned compared to Average Account Balance) 3) Sales of low-priced securities 4) Patterns of sell-outs 5) Patterns of Regulation T extensions 6) Insider Trading Mutual Funds 1) Switching

06/08 66

2) Class Share Selection 3) Breakpoints 4) Market Timing 5) Late Trading 6) Suitability of Fund Selected ETFs 1) Churning 2) Liquidity of the ETF 529 Plans 1) Potential tax deductions for investing in the state-sponsored plan in the client’s state

of residence 2) Suitability of alternative educational savings plan versus a 529 Plan Variable Annuities/Variable Contracts 1) 1035 Exchanges 2) Replacements 3) Multi-Contract Sales 4) Sale of Unnecessary Riders 5) Market Timing in Sub-Accounts 6) Sales within Tax Qualified Accounts 7) Client’s need for liquidity REITS 1) Liquidity relative to client’s need for cash Fixed Income 1) Yield Burning 2) Turnover Ratio 3) Churning 4) Sales of Low Investment Grade Debt Options 1) Type of activity conducted relative the option level approved 2) Churning 3) Losses 4) Insider Trading 5) Naked Put Writing 6.0 TRANSACTIONS 6.1 REVIEW OF TRANSACTIONS Supervisory Responsibilities The Designated Principal or their designee is responsible for daily reviewing all transactions by registered persons under their supervision. Initialing a copy of the daily trade blotter and/or applications will evidence the review of such transactions. In reviewing transactions, topics discussed in Section 5. should be considered. Registered Person Responsibilities Not applicable.

06/08 67

6.2 GENERAL TRANSACTION TOPICS 6.2.1 BEST EXECUTION Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring client orders receive best execution. Best execution will be reviewed by analyzing statistics on a quarterly basis. Evidence of such reviews will be documented by initialing such statistical data and/or by keeping a log. Registered Person Responsibilities Registered persons must ensure all orders received are promptly handled. 6.2.2 INTERPOSITIONING The Firm prohibits interpositioning. All trades are directed to our clearing agents or select market centers for routing and execution. No third party is ever positioned for executions. 6.2.3 FEES AND COMMISSIONS Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring all commissions, markups, markdowns, and fees associated with any transaction is reasonable in nature or, in the case of direct business, is in conformity with sales charges listed in the prospectus. The Designated Principal or their designee will review for such charges in daily reviewing the trade blotter. The Designated Principal or their designee will evidence their review by initialing the daily trade blotter. Registered Person Responsibilities For direct business through a mutual fund company, insurance company, real estate investment trust, etc., the registered person shall not charge a fee higher than that reflected in the product’s prospectus. For business conducted through our clearing agent(s), the sales charge shall not exceed those amounts permitted by Firm policy. This does not include investment advisory fees for investment advisory representatives.

PERSPECTIVE FIRM POLICY – See the below schedule for the Firm’s policy on fees and commissions.

STOCKS UNDER $1 $45.00 plus 3% of principal

STOCKS OVER $1

Principal Amount Per Transaction Commission $ 0 to $ 4,999 $40. + 1.4% of principal

06/08 68

$ 5,000 to $ 14,999 $45. + 1.3% of principal $ 15,000 to $ 49,999 $50. + 1.2% of principal $ 50,000 to $ 99,999 $55. + .9% of principal $100,000 to $249,999 $60. + .7% of principal $250,000 + Negotiable Minimum: $45.00 Maximum: None

OPTIONS

Principal Amount Per Transaction Commission $ 100.00 to $ 2,499.99 1.5% + $20.00 $ 2,500.00 to $19,999.99 1.1% + $30.00 $20,000.00 + 0.8% + $90.00 If two lots or more, on lots 1-10: $7.50 per lot on lots 11+: $5.25 per Minimum: $45.00 Maximum: None

BONDS Municipals are executed on a net basis Corporates are quantity of transaction:

1 to 20 Bonds $35 + $9.00 per bond 21 + Bonds Additional $7.00 per bond Minimum: $45.00 Maximum: None

As a matter of policy, the Firm will, under normal circumstances, consider a 3.01% + markup to be excessive on corporate and municipal securities and 2.51% + to be excessive on government securities. Minimum commission guidelines may cause these ratios to be higher and will be excepted. 6.2.3.1 TRADE SHREDDING Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring that no representative splits any order into multiple smaller orders for execution, or any execution into multiple smaller executions for transaction reporting for the primary purpose of maximizing a monetary or in-kind payment to the representative or our firm. The Designated Principal or their designee will review for such charges in daily reviewing the trade blotter. The Designated Principal or their designee will evidence their review by initialing the daily trade blotter. Registered Person Responsibilities No representative shall split any order into multiple smaller orders for execution, or any execution into multiple smaller executions for transaction reporting for the primary purpose of maximizing a monetary or in-kind payment to the representative or our firm. All dealings with clients should be fair and in the best interest of the client.

06/08 69

6.2.4 SUITABILITY Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring client transactions are suitable in light of their age, investment objectives, investment experience, tax situation, financial status, and time horizons. The Designated Principal or their designee will review for suitability by reviewing the daily trade blotter or application in conjunction with the New Account Form, any pertinent information, and any disclosure forms. The review of transactions is to occur daily and evidenced by initialing the daily trade blotter and/or applications. Registered Person Responsibilities At all times, a registered person must use prudent judgment in recommendations to clients. All recommendations must be in line with the client’s age, investment objectives, investment experience, tax situation, financial status, and time horizons, keeping in mind issues affecting the market and the individual. Registered persons are prohibited from making unsuitable recommendations to clients.

PERSPECTIVE CONCEPT POINT - It is critical to have obtained all pertinent information of the client before recommending any security, including equities, to a client. REGULATORY ACTION – The below case is included as an example of how over-concentration in a position was deemed to be unsuitable regardless of the knowledge and objectives of the client. This underlies the fact the registered person has to consider to the total profile of the client before recommending a security to a client In the fourth quarter of 2003, the SEC affirmed FINRA's findings and the sanctions imposed by FINRA in a case in which a registered person recommended the purchase of a concentrated position in one speculative security, partially on margin. The customer was a young, unmarried college student with no income. Except for a co-ownership interest in a condominium with her mother, her equity account constituted her sole assets. The SEC held that, while investing a certain amount of money in speculative investments might have been justified, concentration of the entire amount in one speculative security created a substantial risk that the customer would lose all or most of the assets in her account. The SEC rejected the person's defenses: 1) that the customer was young and had a lifetime of earning potential ahead of her; 2) that she was fully informed of the risks inherent in the strategy that he recommended; 3) that, because she was studying economics in college, she had sufficient knowledge to evaluate the suitability of the investments; 4) that the registered person had notified the customer's mother, accountant, and attorney of the investments that he made; and 5) that the customer had changed her investment objectives from income to growth and speculation. The SEC upheld the FINRA’s imposition of a $25,000 fine, one-year suspension in all capacities, and requirement to requalify. 6.2.5 MISREPRESENTATION/MATERIAL OMMISSIONS

06/08 70

Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing potential instances of misrepresentation/omissions. The Designated Principal or their designee will do so by reviewing the daily trade blotter for unusual activity, monitoring correspondence, and complaints of assigned registered persons. The Designated Principal or their designee will evidence review for such by initialing the daily trade blotter and/or applications as well through evidencing correspondence and complaints in accordance to policies set forth earlier in the procedures. Registered Person Responsibilities No registered person shall make any false claim or omit any fact their client may deem important in making an investment decision.

PERSPECTIVE REGULATORY ACTION – In the fourth quarter of 2004, FINRA sanctioned Morgan Stanley for failing to disclose to purchasers of municipal bonds the bonds could be called prior their stated maturity dates, which could result in losses to the investors. Morgan Stanley’s failure to disclose the call features violated MSRB Rule G-15. 6.2.6 UNAUTHORIZED TRANSACTIONS Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing potential instances of unauthorized trading. The Designated Principal or their designee will do so by reviewing the daily trade blotter, monitoring correspondence and complaints of assigned registered persons. (Patterns of cancellations and Regulation T extensions should be closely monitored as potential indicators of unauthorized transactions.) The Designated Principal or their designee will evidence review for unauthorized trading by initialing the daily trade blotter as well through evidencing correspondence and complaints in accordance to policies discussed earlier. Registered Person Responsibilities No registered person shall conduct any transaction without the prior consent of the client unless the registered person has received written discretion for transactions in the account.

PERSPECTIVE CONCEPT POINT – It is very common in unauthorized trading cases for a registered person to indicate they had an oral understanding with a client for the purchase and sale of securities, beyond the customary time and price discretion. Despite what may have been said, the registered person is still at fault since they did not have a written discretionary account arrangement with the client. Oral discretion is not adequate and against regulations. REGULATORY ACTION – The following two instances are examples of unauthorized trade cases.

06/08 71

1) In the second quarter of 2003, FINRA found a registered person had conducted 2

trades in a client account without the customer’s knowledge or authorization. The registered person was suspended from ever working as a registered person or at a broker/dealer.

2) In the second quarter of 2004, FINRA settled a matter involving a registered person

who exercised discretion by executing trades in the accounts of 3 customers without having obtained prior written acceptance of the accounts as discretionary by his employer member firm. FINRA found the registered person's conduct violated FINRA's rules, suspended the registered person for 30 business days from associating with any member firm in any capacity, and fined the registered person $5,000.

6.2.7 CHURNING AND EXCESSIVE ACTIVITY Supervisory Responsibilities In monitoring activity, the Designated Principal or their designee is responsible for ensuring assigned persons are not churning client’s accounts. The Designated Principal or their designee will conduct their review by reviewing the daily trade blotter as well as monthly reviewing client accounts and rep commission totals. The Designated Principal or their designee will evidence their daily review through initialing the daily trade blotter. Registered Person Responsibilities No registered person shall churn a client’s account. All transactions conducted by a client must be suitable in light of the client’s age, investment objectives, investment experience, tax situation, financial status, and time horizon.

PERSPECTIVE FIRM POLICY – Any accounts which have a monthly aggregate commission to the average daily account balance ratio of 3 will immediately be deemed to have been churned, barring highly unusual circumstances (i.e. collapse of a stock like Enron, WorldCom, etc.). For accounts with a ratio of less than 3, these accounts may too be deemed to have been churned if such activity is deemed not consistent with the client objectives and unusually high based on the products sold. 6.2.8 AFFIRMATIVE DETERMINATION Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring an affirmative determination has been made with respect to any short sale placed in an account. For short sales, the Designated Principal or their designee will check registered person’s blotters and/or other notes to verify a stock could be borrowed to sale. The Designated Principal will evidence such reviews by initialing the daily trade blotter. Registered Person Responsibilities Registered persons should check with the Trading Department if a stock can be borrowed for a short sale.

06/08 72

6.2.9 REFINANCING MORTGAGES/LOANS TO FACILITATE TRANSACTIONS Supervisory Responsibilities The Designated Principal or their designee, in their review of correspondence, should review for whether or not registered persons are recommending clients refinance mortgages and loans to purchase additional securities. Such review will be conducted in accordance to procedures set forth earlier. Registered Person Responsibilities Registered persons are prohibited for encouraging clients to refinance homes, cars, or other loans for the primarily purchasing additional securities. Such activity presents serious suitability concerns and risk which can be easily averted. 6.3 EQUITIES 6.3.1 SPECIFIC SUITABILITY ISSUES 6.3.1.1 LOW-PRICED SECURITIES (STOCKS LESS THAN $2) Supervisory Responsibilities The Designated Principal or their designee is responsible for closely monitoring transactions in low-priced securities. The Designated Principal or their designee will review for such buys by reviewing the daily trade blotter. In the event, the buy is of a security less than $2 that is not listed/traded on the NYSE or FINRAAQ National Market, the Designated Principal must ensure the registered person is obtaining an executed Low Priced Securities Disclosure from the client. The Designated Principal or their designee will evidence their review by initialing the daily trade blotter and executing the Low Priced Securities Disclosure received from clients. Registered Person Responsibilities The registered person must exercise extreme care in handling client buys of low-priced securities. A registered person must obtain a Low Priced Securities Disclosure for all stocks less than $2 not listed/traded on the NYSE or FINRAAQ National Market. The Firm prohibits the solicitation of stocks less than $2 not traded on the NYSE or NASDAQ National Market.

PERSPECTIVE REGULATORY ACTION - In the fourth quarter of 2004, FINRA settled a matter involving a registered person who improperly signed the names of three customers on non-solicitation letters required by the brokerage firm with which the person worked in connection with sales of low-priced securities. The registered person signed the customers' names without the customers' prior knowledge. FINRA found the registered person's actions violated Rule 2110, suspended the registered person in all capacities for 10 business days, and imposed a fine of $5,000. 6.3.2 RESTRICTED STOCK/144/144A TRANSACTIONS

06/08 73

Supervisory Responsibilities The Designated Principal or their designee must approve all orders to sell control or “restricted stock” prior to such orders being accepted. After learning pertinent details from the registered person, such approval will be provided in writing. The Designated Principal or their designee will assist the registered person in providing instruction. Registered Person Responsibilities Registered persons must obtain prior approval before accepting orders for the sale of resale of restricted stock (restricted stock is below defined). Upon approval, the registered person is required to gather all necessary paperwork.

PERSPECTIVE FIRM POLICY - Orders to sell “control” or restricted stock may not be accepted without the approval of the Compliance Department, and approval shall be noted on the record. The sale MUST NOT BE EFFECTED until the stock clears the transfer agent. THIS MUST BE COMMUNICATED TO CLIENTS AT THE TIME THE SECURITIES ARE ACCEPTED. Registered persons are advised to work closely with the home office and clearing broker to ensure the proper clearance of the transaction. CONCEPT POINTS – The following are concept points for 144 and 144A sales. 1) The following sales are subject to SEC Rule 144: 1) “CONTROL STOCK” - All sales

made by an affiliate or insider of a publicly held company in that company’s stock, regardless of whether the certificates bear a restrictive legend or not, and regardless of how the shares were originally acquired. 2) “RESTRICTED STOCK” -All sales by a person whether an affiliate or not, if the certificates bear a legend stating that the shares were not registered under the Securities Act of 1933, or indicate that transfer of the certificate is restricted in any manner. Any certificate bearing any legend whatsoever should be closely examined and reviewed with the Compliance Department if there is some doubt as to its meaning.

2) Rule 144A allows the resale of certain unregistered or restricted securities (“eligible

securities”) to “qualified institutional buyers” (“QIBs”) who meet specified criteria relating to their financial wherewithal and securities ownership. Broker/dealers may be QIBs. The Rule permits the sale of eligible securities without regard to the usual resale restrictions (i.e., holding periods, investment intent letter and opinions of counsel). Rule 144A is not available for the sale of any security that is of the same class as a security listed on a United States stock exchange or quoted on the FINRAAQ system.

IMPORTANT POINTS - Remember the following: 1) The Registered Person should obtain the following documents in making a 144 sale: - 3 prepared copies of Form 144 signed by the seller(s). - 3 prepared copies of the “Seller’s Rule 144 Letter”. 2) In conducting a 144A transaction, the registered person must: - Verify the eligibility of the securities

06/08 74

- Verify all offerees and purchasers satisfy the conditions for QIB status. 6.4 MUTUAL FUNDS 6.4.1 SPECIFIC SUITABILITY ISSUES 6.4.1.1 FUND SELECTIONS Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing funds selected for a client are consistent with the client’s age, investment objectives, financial status, investment experience, tax situation, and time horizons. The Designated Principal or their designee will review such selections daily in a review of daily trade blotters and mutual fund applications. The Designated Principal will evidence such reviews through initialing daily trade blotters and/or applications. Registered Person Responsibilities The registered person must obtain all pertinent client information prior to selecting a mutual fund to buy. More so, the selection of a fund must be consistent with a client’s age, investment objectives, financial status, investment experience, tax situation, and time horizons. In considering funds among different families, additional criteria such as the portfolio manager, sales loads and annual expenses, redemption policies, etc. should be considered.

PERSPECTIVE REGULATORY ACTION – In the second quarter of 2004, FINRA settled a matter involving a registered person who violated FINRA rules when he purchased and sold mutual funds in one customer account without the customer's knowledge or authorization and recommended unsuitable mutual fund purchases and sales in another customer's account. FINRA suspended the registered person in all capacities for 18 months and fined him $33,500. 6.4.1.2 CLASS SHARE SELECTION (SINGLE AND MULTI-CLASS) Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing fund classes chosen are consistent with the client’s investment objectives and time horizons. In addition, the Designated Principal or their designee must take into consideration the amount currently invested, the client’s intent to add additional money to current investments, family-related/linked accounts, and whether or not the client is an investment advisory client, as the client may be eligible for reduced sales charges with certain mutual fund classes. The Designated Principal or their designee will evidence such reviews through initialing daily trade blotters or applications. Registered Person Responsibilities At all times, registered persons must choose fund classes most appropriate with the client’s investment objectives and time horizons. In addition, the registered person

06/08 75

needs to consider amounts currently invested, the client’s intent to add additional money to current investments, family-related/linked accounts, and whether or not the client is an investment advisory client, as the client may be eligible for reduced sales charges with certain mutual fund classes. A registered person should never consider solely the differentials in compensation they might receive by selling one fund class versus another.

PERSPECTIVE FIRM POLICY – 1) The Firm strictly prohibits recommending cumulative Class B mutual fund sales of the same fund family to the same client and related accounts that are $100,000 or greater. This prohibition extends to situations where a client and/or their family invest a dollar amount less than $100,000 but indicates interest in purchasing additional mutual fund shares at a future date of an amount, when combined with the initial investment(s), exceeds $100,000. REGULATORY ACTION – In the fourth quarter of 2004, the SEC affirmed FINRA's findings and the sanctions imposed in a suitability case in which a registered person recommended that the customer invest $2.1 million of his retirement savings in Class B shares of five different mutual funds. The customer was a retired pilot whose investment objectives were safety of principal and long-term growth. The SEC held that the person's purchases of Class B shares rather than Class A shares were unsuitable because: 1) they resulted in significantly higher commission costs; 2) they included the payment of contingent deferred sales charges; 3) Class A shares with similar investment objectives and performance were available in the same mutual fund families; and 4) the registered person could have taken advantage of breakpoint discounts if he had purchased Class A shares. The SEC reiterated the FINRA's findings that a registered person’s suitability obligation encompasses the requirement to minimize the sales loads that a customer pays for mutual fund shares, when consistent with the customer's investment objectives. The SEC upheld the FINRA's imposition of a $40,000 fine, one-year suspension in all capacities, order to pay $55,567 in restitution, and requirement to requalify as a principal. 6.4.1.3 SWITCHING Supervisory Responsibilities It is the responsibility of the Designated Principal or their designee to review mutual fund switches are suitable in light of the client’s age, investment objectives, financial status, etc. The Designated Principal or their designee will review the daily trade blotter to detect instances of switching. In reviewing the daily trade blotter, the Designated Principal or their designee will verify the registered person has received executed copies of the Mutual Fund Switch Disclosure from the client, if applicable. The Designated Principal or their designee will evidence such reviews by initialing the daily trade blotter or applications and the Mutual Fund Switch Disclosure. Registered Person Responsibilities Registered person shall recommend only those mutual fund switches in the best interest of the client. Registered person must disclose sales charges incurred, etc. Registered persons must obtain an executed Mutual Fund Switch Disclosure from the client, if the

06/08 76

purchase was funded by the liquidation of a mutual fund(s) within the last 90 calendar days. 6.4.1.4 SELLING DIVIDENDS Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing mutual fund transactions shortly before an ex-dividend date. The Designated Principal or their designee will review the daily trade blotter to detect any funds sold nearing an ex-dividend date. For those transactions sold near an ex-dividend date, the Designated Principal shall verify such purchases are advantageous by reviewing the declared dividend, the prospectus, and the account of the client. If such purchases are deemed advantageous, the Designated Principal or their designee will complete their review by initialing the daily trade blotter. If there appears to be potential suitability concerns, the Designated Principal or their designee should follow-up with the registered person and possibly bust the trade. Registered Person Responsibilities In recommending the purchase of a mutual fund, no registered person can state or imply the purchase of such securities shortly before an ex-dividend date is advantageous to the purchasing client, unless there are specific, clearly described tax or other advantages to the client. Also, no registered person shall represent distributions of long-term capital gains by a mutual fund are or should be viewed as part of the income yield from an investment in such fund. 6.4.2 SALES CHARGES 6.4.2.1 LOAD FUNDS Supervisory Responsibilities The Designated Principal or their designee is responsible for verifying clients received appropriate sales charge for any buy or sale of a mutual fund. The Designated Principal or their designee will begin their review for such through the daily review of the daily trade blotter. For buy transactions of front-end loaded funds, the Designated Principal or their designee is to utilize the New Account Form or any disclosures utilized by the registered person in ascertaining holdings through other firms, back-office systems and applications for any LOI/ROAs on file, and account histories for any other holdings whether direct with the fund or networked through the Firm’s clearing agent. More so, the Designated Principal or their designee is to review a current prospectus for sales charge schedules. For sales of funds with a contingent deferred sales load, the Designated Principal or their designee will review the length of time the position has been held relative to the prospectus to verify the appropriate contingent deferred sales charge was applied and whether a charge was to be applied. Such review will utilize back-office systems and blotters for reviewing history and where necessary, contacting the appropriate mutual fund company to determine length of holding period. The Designated Principal or their designee will evidence such through initialing the daily trade blotter.

06/08 77

Registered Person Responsibilities In dealing with customer buys of mutual funds, the registered person is obligated to ensure clients are receiving appropriate sales charges per the fund’s prospectus, whether or not they are subject to discounts. This includes knowing their customer well and verifying front-end sales charges are applied accurately given the client’s current investment, historical investments, investments by family or other linked accounts, and any letters of intent or rights or accumulation on file. To accomplish this, the registered person is required to undertake the following steps:

1. Request from client names and amounts of mutual funds held at other financial institutions or direct with the fund, including any funds as part of the client’s or “linked” accounts 401k, 403b, or other retirement holdings. The Firm requests such information be reflected on the client’s New Account Form.

2. Identify all other mutual fund assets of the client and their household held at our

Firm. This can be done by reviewing our clearing system, DST Vision, or by contacting the funds directly for positions held at that location. The Firm requests such information be reflected on the client’s New Account Form if maintained in another account.

3. Identify potential same-day transactions. More so, request information about

mutual fund transactions within the last 13 months.

4. Ask the client about future investments and those of “linked” accounts. By doing so, the value of a Letter of Intent or Rights of Accumulation can be fully realized.

With the learning of this information, the registered person, as discussed in point of sale disclosure section, the value of letters of intents and rights of accumulations. More so, upon learning each of the 4 points, the registered person is obligated to attempt to obtain backdated letters of intent and rights of accumulation in the event such backdating will be advantageous to the client in reducing their front-end sales charges. For customer sales of funds with back-end loads, the registered person must primarily be cognizant of the length of time the client has held such position and compare it to the load schedule in the prospectus, regardless of whether or not the client purchased such fund through them. In the event a client did purchase a mutual fund at another firm or through another broker prior to transferring to the registered person, the registered person has an obligation to learn of the age of the holding.

PERSPECTIVE CONCEPT POINT – Most mutual fund companies offer breakpoint opportunities at either the $25,000 or $50,000 level for Class A shares. Class B contingent deferred sales charges gradually decline over a period of 6-8 years, after which no deferred charge is applied. Many Class C shares often have a contingent deferred sales charge for a period up to 1 year. A more reoccurring charge that many mutual fund companies have

06/08 78

recently implemented is a penalty fee for short-term redemptions of Class A shares in order to curb market timing of mutual funds. PRACTICAL POINT – To assist registered persons, the firm recommends use of the Mutual Fund Expense Analyzer to track breakpoints. REGULATORY VIEW – While regulators are scrutinizing the suitability of funds and fund classes selected, they are also closely viewing sales charges applied to mutual fund purchases and sales very closely. In fact, regulators are required to review sales charges applied in every audit they conduct. For Class A purchases, auditors are verifying clients are receiving appropriate sales charges based on the current dollar amount invested in addition to viewing historical trades to see if rights of accumulation and letters of intent were utilized. More so, regulators are looking closely at potential linked accounts to see if aggregate purchases would qualify for reduced sales charges. For Class B shares, regulators are verifying customers are receiving appropriate contingent deferred sales charges as stated in mutual fund prospectuses by analyzing holding periods of clients. As such, regulators will often go back as much as 6-8 years, depending on the sales load schedule in a prospectus, to verify a client did receive the appropriate sales charge. REGULATORY ACTION – In 2003 and 2004, FINRA initiated numerous actions citing firms and individuals for failing to apply appropriate sales charge, in particular “missed breakpoints”. A task force report of FINRA, NYSE, and SEC cited one of the major causes of “missed breakpoints” was the failure to appropriately link family-related purchases to receive reduced sales charges. This was very much the case where mutual funds were being purchased through a clearing agent, where few firms had the technology to appropriately link accounts. The moral of this is each registered person must not assume breakpoints will be automatically credited, thus, each registered person needs to make sure the current client’s purchases plus those of linked accounts are appropriately aggregated to receive reduced sales charges when placing a mutual fund order. 6.4.2.2 NAV TRANSFERS/ SALES CHARGE WAIVERS/REINSTATEMENTS Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring NAV transfers and those transactions subject to a sales charge waiver are not charged a sales charge. The Designated Principal or their designee shall review the daily trade blotter to identify such transactions. Typically, such transactions involve the sale of funds within the same fund family or, in the event of an error by the Firm, mutual funds are reinstated via a letter of indemnity executed by the Chief Compliance Officer. The Designated Principal or their designee will evidence such through initialing the daily trade blotter and maintenance of any supervisory notes. Registered Person Responsibilities Upon completion of the above-type transaction, the registered person in the following days shall verify by reviewing the fund company and trade workbooks, the client did not incur a sales charge. 6.4.2.3 LETTERS OF INTENT/RIGHTS OF ACCUMULATION

06/08 79

Supervisory Responsibilities The Designated Principal or their designee is responsible for verifying appropriate Letters of Intent/Rights of Accumulation have been gathered/inputted by the registered person. The Designated Principal or their designee will review this by reviewing the daily trade blotter and/or applications every day. The Designated Principal or their designee will evidence such reviews by initialing the trade blotter and/or signing applications. Registered Person Responsibilities Registered persons are required to inform clients of possible reductions in sales charges via Letters of Intent and Rights of Accumulation. In addition, registered persons should appropriately designate orders, where needed based on size or potential known investments, with Letters of Intent and Rights of Accumulation. This includes, but is not limited to those situations, where the registered person is obligated to obtain backdated letters of intent and rights of accumulation in the event such backdating will be advantageous to the client in reducing their front-end sales charges. 6.4.3 POINT OF SALE DISCLOSURES 6.4.3.1 PROSPECTUS DELIVERY Supervisory Responsibilities The Designated Principal or their designee is required to verify clients have received a prospectus with their purchase of a mutual fund. The Designated Principal or their designee will review the New Account Form upon receipt for new accounts and any other notes/disclosures evidencing prospectus delivery. The Designated Principal or their designee will evidence their review by signing the New Account Form and/or applicable disclosure forms. Registered Person Responsibilities Registered persons are required to deliver a copy of a prospectus no later than the date an initial transaction is made. 6.4.3.2 REQUIRED DISCLOSURES Supervisory Responsibilities The Designated Principal or their designee will provide training as needed on required disclosures with respect to mutual funds. Such training will be documented in the firm’s continuing education files. Registered Person Responsibilities Prior to the sale of a mutual fund to a client, a registered person is required to provide the following disclosures to a client:

Discuss with clients the relative differences, advantages and disadvantages of each share class before asking the client to make a decision. Registered persons will find a section in every mutual fund prospectus that is intended to help investors decide which class is best suited to their needs. This section should be used in connection with your discussion of the merits of each class.

Carefully counsel clients who are merely seeking to avoid front-end loads about the potential long-term effect of the higher ongoing internal expenses associated

06/08 80

with Class B shares (and Class C shares, if applicable). FINRA’s Expense Analyzer can be utilized to demonstrate the differences.

Indicate that by investing in Class A shares, a client may be entitled to discounts on sales charges. In doing so, an explanation of breakpoint levels must be discussed, including levels and relative differences between fund families. More so, the client must be informed of LOI/ROA opportunities, reductions due to linked accounts, and the importance of disclosing such linked accounts.

Discuss the fund's investment objective; the fund's portfolio, historical income, or capital appreciation; the fund's expense ratio and sales charges, risks of investing in the fund relative to other investments; and the fund's hedging or risk amelioration strategies. Material facts also include sales charges associated with a purchase or sale, relative risks and rewards of the investment being liquidated to the proposed investment, the risk aversion of the investor, and the age and/or life expectancy of the investor.

How mutual funds are priced and prohibitions against market timing and late trading.

Future changes in mutual funds may subject the client to sales charges unless such change is from one fund to another within the same fund family.

A copy of the prospectus is available upon request from either the registered person or the mutual fund company.

6.4.4 MARKET TIMING Supervisory Responsibilities The Designated Principal or their designee is responsible to reviewing for potential instances of market timing. The Designated Principal or their designee will review the daily trade blotter for potential instances of market timing. The Designated Principal or their designee initialing the blotter will indicate evidence of such review. Registered Person Responsibilities Registered persons are strictly prohibited from engaging in market timing of mutual funds.

PERSPECTIVE CONCEPT POINT - "Market timing" refers to the practice of rapid trading of mutual fund shares in order to exploit inefficiencies in the pricing of mutual funds. While not illegal per se, market timing raises transaction costs for fund companies, which diminishes investor returns. Rapid and repeated redemptions also can force fund managers to sell winning investments, and/or cause managers, anticipating frequent redemptions, to hold a larger cash reserve than necessary and desirable. Consequently, mutual funds often maintain policies (as indicated in prospectuses) to detect and prevent market timing. REGULATORY ACTION – Among other cases, in 2004, FINRA found from October 2002 to July 2003, H&R Block, through the actions of two brokers in its Orlando office and the Orlando branch office manager, enabled one of the brokers’ customers to evade mutual fund attempts to block or restrict the client’s market timing transactions. H&R Block recruited and hired the two brokers in September 2002 knowing the brokers were going to open accounts for hedge funds that intended to actively trade or market time in mutual funds that discouraged or limited such trading. Each of these clients was

06/08 81

permitted to open fee-based accounts, even though the firm acknowledged that these accounts were not meant for investors primarily intending to market time. Because these customers were going to engage in market timing, H&R Block charged them a flat fee of 1%, which was higher than the customary fee for fee-based accounts of the same size. FINRA announced today that it has censured and fined H&R Block Financial Advisors, Inc., $500,000 for enabling a hedge fund customer in its Orlando, FL branch office to engage in deceptive practices to market time mutual funds. FINRA also ordered H&R Block to pay $325,000 to reimburse the affected funds. 6.4.5 LATE TRADING Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing instances of late trading. The Designated Principal or their designee will review the daily trade blotter for potential instances of late trading. The Designated Principal or their designee initialing the blotter will indicate evidence of such review. As a preventative measure, order entry systems utilized by the Firm prevent mutual fund orders being placed and executed after 4:00 P.M. EST. Registered Person Responsibilities Registered persons are strictly prohibited from engaging in late trading of mutual funds.

PERSPECTIVE CONCEPT POINT - "Late trading" refers to the practice of placing mutual fund orders after the fund has calculated its daily net asset value (NAV) - typically when markets close at 4 p.m. Eastern Time - but receiving the price based upon that earlier, 4 p.m. calculation. Firms that permit late trades for select customers provide them with an information advantage - by allowing them to trade based on news that breaks after the market close that could affect the value of the mutual fund's holdings, but which is not reflected in the NAV for that day. SEC and FINRA rules prohibit late trading to ensure that all purchasers of mutual fund shares are on equal footing as to price and information on any given day. SUPERVISOR: JEROLYN D. NEWTON 6.4.6 REDEMPTION POLICY Supervisor Responsibilities The Designated Principal is responsible for ensuring the firm and its personnel maintains compliance with firm policy prohibiting registered persons from assisting clients with the redemption of investment company shares custodied and held directly at the investment company. Annually, the Designated Supervisor will review compliance with firm policy via review of the firm’s annual certification form. Registered Person Responsibilities Registered persons are prohibited from assisting clients in the redemption of Investment Company shares held directly with the mutual fund company. This does not include

06/08 82

assisting clients with the redemption of shares custodied by our clearing agent. Annually, the registered person will affirm compliance with firm policy through the annual certification form. 6.5 EXCHANGE TRADED FUNDS (ETFs) 6.5.1 SPECIFIC SUITABILITY ISSUES 6.5.1.1 PERIODIC INVESTING PLANS Supervisory Responsibilities The Designated Principal or their designee is responsible for scrutinizing ETF purchases on a periodic/dollar-cost-averaging plan basis is suitable for clients in light of commission costs, investment objectives, and the periodic dollar amount to be invested. The Designated Principal or their designee will review for suitability by reviewing the daily trade blotter. The review of transactions is to occur daily and evidenced by initialing the daily trade blotter. Registered Person Responsibilities At all times, a registered person must use prudent judgment in recommending ETF purchases as part of a periodic investment plan.

PERSPECTIVE CONCEPT POINT - Exchange traded funds, also known as “ETFs”, are index funds or trusts that are listed on an exchange and can be traded intraday. Prices of ETFs can vary significantly with changes in the value of the underlying shares that construct the ETF. Some of the typical advantages of an ETF over a mutual fund are lower commission costs, the ability to trade intraday and lower capital gains taxes. Common examples are SPIDERS, VIPERS, etc. FIRM POLICY – The Firm prohibits the use of ETFs as part of periodic investment plans for most clients. The rationale behind this is that the commission charges associated with such purchases far exceed load costs, if any, for mutual fund transactions. In order for the Firm to allow such activity, the dollar amount for each individual investment must be no less than $1,000. 6.5 VARIABLE CONTRACTS 6.6.1 SPECIFIC SUITABILITY ISSUES 6.6.1.1 SALES WITHIN TAX QUALIFIED ACCOUNTS Supervisory Responsibilities The Designated Principal or their designee is responsible for scrutinizing sales within tax-qualified accounts. The Designated Principal or their designee is responsible for reviewing the purpose for investing in a variable contract within a tax-qualified account is not for tax benefits. Daily, the Designated Principal or their designee will review the variable contract application along with the New Account Form, the Variable Annuity Acknowledgment form, and, if applicable, the Variable Annuity Replacement

06/08 83

Acknowledgement. The Designated Principal or their designee will evidence their review by signing a copy of the form(s). Registered Person Responsibilities Registered persons should exercise care in selling variable contracts as part of a tax qualified account. Specifically, the registered person should discuss with the client the lack of any tax benefits that will accrue by purchasing the product within in a qualified account. The registered person must present the Designated Principal the application, a New Account Form, a Variable Annuity Acknowledgment form, and a Variable Annuity Replacement Acknowledgement form, if applicable.

PERSPECTIVE FIRM POLICY – The Firm prohibits the sale of variable contracts as part of a tax qualified account if the primary purpose of the transaction is tax benefits. REGULATORY VIEW – In reviewing variable contract transactions, regulators will tend to more closely scrutinize sales 1) Within tax qualified accounts; 2) To people aged 65+; 3) 1035 Exchanges/Replacements; 4) Contracts with numerous added riders; and 5) Contracts sold with a Bonus Feature. 6.6.1.2 SALES OF RIDERS Supervisory Responsibilities The Designated Principal or their designee is responsible for examining the suitability of all variable contract sales, including the sale of additional riders. The Designated Principal or their designee must determine that the riders are consistent with client information, disclosure forms, and other information obtained from the client. The Designated Principal or their designee will evidence their review by signing the Variable Annuity Acknowledgment. Registered Person Responsibilities Registered persons must not sale of unnecessary riders to investors. Registered persons must ensure all additional riders sold are suitable in light of the client’s age, investment objectives, investment objectives, tax situation, financial status, time horizon, and income demands. For all variable annuity transactions, the registered person must obtain a Variable Annuity Acknowledgment. 6.6.1.3 1035 EXCHANGES AND REPLACEMENTS Supervisory Responsibilities The Designated Principal or their designee is responsible for examining all 1035 Exchanges. A comparison should be made between the contract being sold and the new one being purchased. The Designated Principal or their designee should make sure the new contract meets the client’s objectives as well as determine if the sale of the other contract with the subsequent purchase of the new contract is necessary and in the best interest of the client. The Designated Principal or their designee will daily review variable contract transactions as well as the Variable Annuity Replacement

06/08 84

Acknowledgement and Variable Annuity Acknowledgment. The Designated Principal will evidence their review by signing the Variable Annuity Replacement Acknowledgement. Registered Person Responsibilities Registered persons are responsible for ensuring 1035 Exchanges of variable contracts are suitable in light of the client’s age, investment objectives, investment objectives, tax situation, financial status, time horizon, and income demands. In completing a sale, the registered person must provide the Designated Principal an application, a New Account Form, a Variable Annuity Replacement Acknowledgement, and a Variable Annuity Acknowledgment completed by the client. 6.6.1.4 TWISTING (EXCESSIVE TRADING) The Designated Principal or their designee is responsible for reviewing and identifying potential instances of twisting. The Designated Principal or their designee is required to review the current application plus a history of transactions via daily/monthly trade blotters upon receiving an application. The Designated Principal or their designee will evidence their review by signing the Variable Annuity Replacement Acknowledgement and Variable Annuity Acknowledgment. Registered Person Responsibilities Registered persons are prohibited from engaging in twisting.

PERSPECTIVE CONCEPT POINT - Twisting is defined as the movement of customer funds from one annuity to another in order to generate commissions. 6.6.1.5 MULTIPLE CONTRACT SALES Supervisory Responsibilities The Designated Principal or their designee, in reviewing customer accounts, should closely review for multiple contract sales. A series of multiple contract sales will likely be deemed unsuitable based on activity type, surrender fees, among other reasons. In processing daily transactions, the Designated Principal or their designee should be mindful of contract sales previously purchased prior to approving the current transaction. The Designated Principal or their designee will evidence their review by signing the Variable Annuity Replacement Acknowledgement. Registered Person Responsibilities Registered persons should not engage in multiple contract sales. 6.6.2 CONTRACT DELIVERY Registered persons are responsible for timely delivering variable contracts to their client. Upon receipt from the insurance company, the registered person must deliver the policy in person or by the mails. 6.6.3 MARKET TIMING OF MUTUAL FUNDS IN SUB-ACCOUNTS

06/08 85

Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing registered persons are not engaging in the market timing of mutual funds in variable contract sub-accounts. The Designated Principal or their designee, in their monthly review of accounts, is to check sub-account activity for a sample of variable contracts purchased within the last 12 months. The Designated Principal or their designee will evidence their review through maintaining an account review log, along with notes of such review or copies of statements initialed. Registered Person Responsibilities Registered persons are prohibited from engaging and facilitating the market timing of mutual funds through variable contracts purchased.

PERSPECTIVE REGULATORY ACTION - In the first case ever brought against a broker-dealer for facilitating deceptive market timing in variable annuities, FINRA fined Davenport & Co. LLC of Richmond, VA $450,000 and ordered the company to pay more than $288,000 in restitution to the affected funds. The fine also includes Davenport's failure to establish and maintain a reasonable supervisory system and written supervisory procedures designed to prevent late trading of mutual funds. From at least April 2002 through September 2003, Davenport helped two hedge funds carry out deceptive market timing in the sub-accounts of variable annuities. The brokers handling the accounts and managers at the firm were aware that the clients were engaging in market timing techniques and that the annuities' prospectuses stated that they were designed for long-term investors, and not for professional market timers. Nevertheless, Davenport enabled these clients to carry out frequent transfers among variable annuity sub-accounts without being detected by the affected insurance companies and mutual fund managers, who were attempting to enforce restrictions on market timing to protect the interests of long-term investors. Moreover, Davenport continued to sell variable annuity policies to the clients' investment partnerships even after receiving notice that some of the variable annuity companies considered the clients' trading strategy to be disruptive and contrary to the interests of long-term investors. As a result, Davenport's clients were able to realize profits in excess of $288,000, at the expense of long-term investors. This conduct was contrary to the ethical standards required by FINRA rules. 6.7 INDEXED ANNUITIES AND LIFE INSURANCE 6.7.1 SUITABILITY Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring client transactions are suitable in light of their age, investment objectives, investment experience, tax situation, financial status, and time horizons. The Designated Principal or their designee will review for suitability by reviewing the application in conjunction with their New Account Form, and any pertinent information. The review of transactions is to occur daily and evidenced by initialing/signing the application. Registered Person Responsibilities

06/08 86

At all times, a registered person should use prudent judgment in recommending equity indexed annuities to clients. All recommendations must be in line with the client’s age, investment objectives, financial status, and time horizons, keeping in mind issues affecting the market and individual issue. Registered persons are prohibited from making unsuitable recommendations to clients. 6.8 FIXED INCOME PRODUCTS (MUNICIPALS, CORPORATES, TREASURIES,

AND GOVERNMENT AGENCY DEBT) 6.8.1 SUITABILITITY Supervisory Responsibilities The Designated Principal or their designee is responsible for verifying client purchases of fixed income bonds are suitable in light of the client’s age, investment objectives, financial status, time horizon, tax situation, etc. The Designated Principal or their designee will review the daily trade blotter in conjunction with the New Account Form. Particular scrutiny should be paid to non-investment grade debt. The review of transactions is to occur daily and evidenced by initialing the daily trade blotter. Registered Person Responsibilities At all times, a registered person should use prudent judgment in recommending equities to clients. All recommendations must be in line with the client’s age, investment objectives, financial status, and time horizons, keeping in mind issues affecting the market and individual issue. Registered persons are prohibited from making unsuitable recommendations to clients. The Firm discourages fixed income investments in non-investment grade debt. More so, in recommending a fixed income product, the registered person must understand the terms, conditions, risks, and rewards of the product and make sure such facts are communicated accurately to the client. 6.8.2 YIELD BURNING Supervisory Responsibilities In reviewing transactions, the Designated Principal should be cognizant of potential issues of yield burning. The Designated Principal will review the trade blotter and activity history to assess if yield burning is occurring. The review of transactions is to occur daily and evidenced by initialing the daily trade blotter. Registered Person Responsibilities Yield burning is strictly prohibited. 6.8.3 COPY OF MSRB RULES Supervisory Responsibilities The Designated Principal is responsible for ensuring registered persons conducting business in municipal securities shall maintain a copy of MSRB rules in their office. Review of compliance will be conducted during the course of branch audit reviews. Registered Person Responsibilities Registered persons are required to maintain access to a copy of MSRB rules in their office if they conduct a municipal securities business.

06/08 87

6.8.4 SEC Rule 15c2-12 Supervisory Responsibilities The Designated Principal is responsible for ensuring registered persons disclose material events that may impact an issue. To do so, the Designated Principal will annually review annual certification forms executed by registered persons attesting they have, in fact, disclosed all material events pertaining to municipal securities. Registered Person Responsibilities Prior to a registered person recommending or selling a security to a customer, the registered person is to make sufficient efforts to determine whether the issue has disclosed any material events that could impact the security. If a material event has been disclosed by the issue, the registered person is required to provide the customer disclosure of such material event. Registered persons can obtain such information through a nationally recognized municipal securities information depository. 6.9 529 PLANS/EDUCATIONAL SAVINGS PLANS 6.9.1 SUITABILITY Supervisory Responsibilities The Designated Principal or their designee is responsible for verifying client purchases of 529 plans are suitable in light of the client’s age, investment objectives, financial status, time horizon, tax situation, etc. The Designated Principal or their designee will review the daily trade blotter in conjunction with the New Account Form. Particular scrutiny should be paid to non-investment grade debt. The review of transactions is to occur daily and evidenced by initialing the 529 Plan Disclosure. Registered Person Responsibilities At all times, a registered person should use prudent judgment in recommending equities to clients. All recommendations must be in line with the client’s age, investment objectives, financial status, and time horizons, keeping in mind issues affecting the market and individual issue. Registered persons are prohibited from making unsuitable recommendations to clients. All initial plan set-ups must be accompanied by a 529 Plan Disclosure. 6.9.2 PROSPECTUS DELIVERY Supervisory Responsibilities The Designated Principal or their designee is responsible for verifying investors in a 529 plan have received a copy of the products prospectus. The Designated Principal or their designee will review for such by signing the 529 Plan Disclosure. Registered Person Responsibilities Registered persons are required to deliver a copy of the 529 plan’s prospectus no later than the date of sale. To evidence the client has received such document, the registered person is required to obtain an executed 529 Plan Disclosure prior to submitting such a 529 plan application for processing.

06/08 88

PERSPECTIVE CONCEPT POINTS – The following are concept points: 1) MSRB Rule G-8 requires that all persons selling municipal fund securities (i.e. 529

Plans) document evidence of the delivery of prospectuses. 2) All 529 Plans must be approved by the Municipal Principal. 6.9.3 DISCLOSURE OF POTENTIAL TAX DEDUCTIONS Supervisory Responsibilities The Designated Principal or their designee is responsible for verifying investors in a 529 plan have been informed of potential tax deductions available for sponsored plans in their state of residence (some states do not offer such deductions). The Designated Principal or their designee will review for such by signing the 529 Plan Disclosure. Registered Person Responsibilities Registered persons are required to discuss potential tax deductions available if communicating with a client who resides in a state where that state offers tax deductions for investing in its sponsored plan. Client execution of the 529 Plan Disclosure will document such discussion. 6.10 REAL ESTATE INVESTMENT TRUSTS (REITS) 6.10.1 SUITABILITY Supervisory Responsibilities The Designated Principal or their designee is responsible for verifying client purchases of real estate investment trusts are suitable in light of the client’s age, investment objectives, financial status, time horizon, etc. The Designated Principal or their designee will review real estate investment trust applications in conjunction with the New Account Form and the Private REIT Disclosure upon the date of receipt. The Designated Principal or their designee will evidence their review of the investment by signing the New Account Form, initialing copies of the application, and signing the Private REIT Disclosure. Registered Person Responsibilities Registered persons are responsible for ensuring investments in real estate investment trusts are suitable in light of the client’s age, investment objectives, financial status, and time horizon. At the time of submitting an application, the registered person must also provide a New Account Form and the Private REIT Disclosure.

06/08 89

PERSPECTIVE FIRM POLICY – The Firm will permit aggregate private REIT investments up to 20% of liquid net worth. However, the Firm reserves the right to refuse the acceptance of an investment if: 1) Such investment(s) exceeds 20% of liquid net worth; 2) The dollar amount invested appears unsuitable in light of the client’s financial circumstances, experience, age, time horizon, and objectives; 3) No Private REIT Disclosure is obtained; or 4) The information on the New Account Form is deemed inaccurate. CONCEPT POINT - It is of critical importance to receive the Private REIT Disclosure. This document is designed to help clients be fully aware of the risks involved in such investments, while, at the same time, providing you an adequate paper trail to document your discussions in the event a dispute, or, worse yet, arbitration ensues. In arbitrations involving the purchase of non-traded securities, documents such as these are frequently the most important pieces of information in determining whether a client claim has merit. 6.10.2 PROSPECTUS DELIVERY Supervisory Responsibilities The Designated Principal or their designee is responsible for verifying investors in a real estate investment trust have received a copy of the products prospectus. The Designated Principal or their designee will review for such by making sure a copy of the Private REIT Disclosure is included with the initial application upon receipt. The Designated Principal or their designee will evidence their review of the investment by signing the New Account Form, initialing copies of the application, and signing the Private REIT Disclosure. Registered Person Responsibilities Registered persons are required to deliver a copy of the real estate investment trust’s prospectus no later than the date of sale. In addition, the registered person must obtain from the client an executed Private REIT Disclosure prior to submitting such application to the Designated Principal for review. 6.10.3 DISCLOSURES Supervisory Responsibilities The Designated Principal or their designee is responsible for verifying investors in a real estate investment trust have been provided adequate disclosure on liquidity, costs, and other features specific to REITs. The Designated Principal or their designee will verify such by requiring a Private REIT Disclosure accompanies an application. The Designated Principal or their designee will evidence their review of the investment by signing the New Account Form, initialing copies of the application, and signing the Private REIT Disclosure. Registered Person Responsibilities Registered persons are required to provide adequate disclosures to clients about costs, liquidity, and relevant risks associated with an investment. More so, the registered person is required to obtain a Private REIT Disclosure and provide such form at the time of submitting an application.

06/08 90

6.11 OPTIONS 6.11.1 SPECIFIC SUITABILITY ISSUES 6.11.1.1 UNCOVERED SHORT OPTIONS CONTRACTS Supervisory Responsibilities The Designated Principal or their designee will pay particularly attention in reviewing for uncovered short option contracts. Due to the risky nature of these investments, the Designated Principal or their designee will verify such option strategy has been approved previously, the relative risk level of the position per the client’s New Account Form, Account History, and liquidity. Daily, the Designated Principal or their designee will review such transactions and evidence such reviews by initialing the daily trade blotter. Registered Person Responsibilities Prior to recommending any uncovered short option contract, the registered person must exercise extreme care. The Firm discourages uncovered short options contracts due to the risk involved. 6.11.2 ALLOCATION PROCEDURES Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring customers are informed of the Firm’s option allocation procedures. Currently, the options are allocated for exercise based on the method of selection chosen by our clearing agent. The Designated Principal or their designee will verify clients have been informed of such method at the time of account opening by executing appropriate option paperwork. Registered Person Responsibilities No responsibilities. 6.11.3 POSITION LIMITS Supervisory Responsibilities The Designated Principal or their designee will verify clients are not exceeding position limits set forth in regulations. The Designated Principal or their designee will evidence their review by initialing the daily trade blotter. Registered Person Responsibilities No registered person shall assist a client in exceeding position limits set forth by the Options Clearing Corporation. 6.11.4 REPORTING OF OPTIONS POSITIONS Supervisory Responsibilities The Designated Principal or their designee currently has no responsibility as to the reporting of options transactions. Our clearing agent(s) will report all options positions to the Option Clearing Corporation.

06/08 91

Registered Person Responsibilities No responsibilities. 6.11.5 MANIPULATION Supervisory Responsibilities The Designated Principal or their designee, in reviewing options transactions, will review for potential instances of manipulation. Daily, the Designated Principal will review the trade blotter in addition to any pertinent information (i.e. New Account Form, Account History, etc.) to determine if manipulation has taken place. The Designated Principal will evidence their review by initialing the daily trade blotter. Registered Person Responsibilities A registered person is prohibited from engaging in or facilitating any form of manipulative activity. 6.12 TENANTS IN COMMON/1031 EXCHANGE PROGRAMS 6.12.1. SUITABILITY Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring client transactions are suitable in light of their age, investment objectives, investment experience, tax situation, financial status, and time horizons. The Designated Principal or their designee will review for suitability by reviewing the application in conjunction with their New Account Form, and any pertinent information. The review of transactions is to occur daily and evidenced by initialing/signing the application. Registered Person Responsibilities All recommendations must be in line with the client’s age, investment objectives, financial status, and time horizons, keeping in mind issues affecting the market and individual issue. Registered persons are prohibited from making unsuitable recommendations to clients. In making a recommendation of a 1031/TIC, the following considerations, at a minimum, must be made:

1. Do fees and expenses outweigh potential tax benefits to the customer? (Programs with high up-front fees to the broker and firm raise potential concerns of suitability.)

2. Will the transaction provide a complete tax-free exchange for the investor

(i.e. in situations where the investor’s debt ratio on the replacement property decreases, the difference may result in a taxable event for the investor)

3. Real estate agents offering referrals of clients to our firm cannot receive a

split or a portion of the brokerage fee.

06/08 92

4. The custodian of record must be a firm-approved custodian.

5. Given the size of the transaction and the percentage of a client’s net worth and potential provisions about selling a tic, the client must be made aware of potential illiquidity if the program has restrictions on redemptions.

6.12.2 CHOOSING A QUALIFIED CUSTODIAN Supervisory Responsibilities In the event, the Designated Principal becomes aware the qualified custodian is not of good business repute or recognition, the Designated Principal is to contact the registered person, convey this message, and possibly assist the registered person in selecting a more appropriate custodian. Representative Responsibilities Careful due diligence into selecting a bona fide, clean qualified custodian is imperative as the potential of theft and fraud is very possible otherwise. The representative is encouraged to consult with the vendor on appropriate custodians in their area or nationally to ensure client monies are held safely until the exchange is completed 6.12.3 PROGRAM DOCUMENTS Representative Responsibilities Registered persons are responsible for providing program documents, including prospectuses, to potential clients explaining exchanges, properties choices, how they work, and other pertinent information to ensure clients are provided adequate information about the process and how it works. 6.13 OIL & GAS PARTNERSHIPS 6.13.1 SUITABILITY Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring client transactions are suitable in light of their age, investment objectives, investment experience, tax situation, financial status, and time horizons. The Designated Principal or their designee will review for suitability by reviewing the application in conjunction with their New Account Form, and any pertinent information. The review of transactions is to occur daily and evidenced by initialing/signing the application. Registered Person Responsibilities All recommendations must be in line with the client’s age, investment objectives, financial status, and time horizons, keeping in mind issues affecting the market and individual issue. Registered persons are prohibited from making unsuitable recommendations to clients. 6.13.2 PROGRAM DOCUMENTS

06/08 93

Representative Responsibilities Registered persons are responsible for providing program documents, including prospectuses, to potential clients explaining the partnerships, properties choices, how they work, and other pertinent information to ensure clients are provided adequate information about the process and how it works. 7.0 FINANCIAL & OPERATIONAL ISSUES 7.1 BOOKS & RECORDS Supervisory Responsibilities The Designated Principal is responsible for ensuring appropriate books and records are kept and maintained in accordance to Firm and SEC requirements. Periodically, the Designated Principal will review such records verifying such records exist through the annual review of the Firm’s business. Registered Person Responsibilities Registered persons must maintain all records indicated in the Broker Handbook. 7.2 CUSTOMER PROTECTION RULE Supervisory Responsibilities The Designated Principal is responsible for Firm compliance with the Customer Protection Rule (SEC Rule 15c3-3). While it is Firm policy to not hold or custody cash, checks, and securities, the Firm could be in non-compliance with the rule in the event checks and securities received are not forwarded promptly to the appropriate institution, whether that is a clearing firm, Investment Company, insurance company, or other entity. As such, it is Firm policy to evidence Firm compliance with the rule by reviewing the appropriate blotters and evidencing such review by initialing the document(s). Registered Person Responsibilities See responsibilities with respect to the receipt of checks and securities. 7.3 RECEIPT OF CUSTOMER SECURITIES Supervisory Responsibilities The Designated Principal is responsible for ensuring all securities received from clients of theirs or by registered persons assigned to them for supervisory purposes are accounted for and timely forwarded to the appropriate financial institution (clearing firm, investment company, insurance company, real estate investment trust, etc.) by the close of business (barring unusual circumstances). The Designated Principal is responsible for evidencing such reviews by initialing a daily blotter and retaining copies of securities with any airbill receipts. Registered Person Responsibilities The registered person must immediately mail the security by the close of business via 1 day, overnight mail to the clearing firm. Copies of certificates, blotters, with evidence of forwarding must be maintained. If a non-OSJ office, copies of this information must be sent to the Home Office.

06/08 94

7.4 RECEIPT OF CUSTOMER CHECKS Supervisory Responsibilities The Designated Principal is responsible for ensuring all checks received from clients of theirs or by registered persons assigned to them for supervisory purposes are accounted for and timely forwarded to the appropriate financial institution (clearing firm, Investment Company, insurance company, real estate investment trust, etc.) The Designated Principal is responsible for evidencing such reviews by initialing a daily blotter and retaining copies of checks with any airbill receipts or deposits slips if a sweep account has been established at a depository institution (i.e. commercial bank or savings and loan institution). Registered Person Responsibilities The registered person must immediately provide any customer checks received to their Designated Principal or the Main Office, if you are a non-OSJ location. If your Designated Principal is in the Main Office, you must mail all checks by the close of business to the Main Office. If your Designated Principal is your OSJ Manager, your OSJ Manager is responsible for mailing the check by the close of business via mail to the appropriate financial institution (clearing firm, investment company, insurance company, real estate investment trust, etc.). or depositing the check into a sweep account established at a depository institution (i.e. commercial bank or savings and loan institution).

PERSPECTIVE FIRM POLICY – The Firm will permit and actually encourages OSJ offices to establish sweep accounts at a commercial bank to deposit checks to be overnighted to our clearing firm(s). The Firm views the establishment of such accounts as expediting the settlement/clearing process thereby reducing the potential of credit extensions and customer reneges. 7.5 RECEIPT OF CUSTOMER CASH Supervisory Responsibilities The receipt of cash is prohibited. Registered Person Responsibilities Registered persons are prohibited from receiving client cash. 7.6 PREPARATION OF FINANCIAL RECORDS, INCLUDING NET CAPITAL Supervisory Responsibilities The Designated Principal is responsible for the review and preparation of a net capital computation and all other financial records, including, but not limited to, a general ledger, balance sheet, income statement, and trial balance sheet on a monthly basis. In doing so, the Designated Principal is responsible for ensuring and verifying the Firm is in net capital compliance. The Designated Principal will evidence the review of such documents by initialing the net capital computation.

06/08 95

Registered Person Responsibilities No responsibilities. 7.7 FOCUS FILINGS Supervisory Responsibilities The Designated Principal is responsible for the timely and accurate submission of financials to FINRA via FOCUS Reports. The Designated Principal will compare the Firm’s financial records, including net capital computation, with FOCUS submissions to verify accuracy and timeliness. The filing and review of FOCUS Reports will be done quarterly. The Designated Principal will evidence such reviews by initialing a copy of the FOCUS Report. Registered Person Responsibilities No responsibilities. 7.8 ANNUAL AUDITED REPORT 7.8.1 ACCOUNTANT’S LETTER OF SERVICES TO BE PROVIDED Supervisory Responsibilities The Designated Principal will ensure the Firm obtains a letter from their accountant detailing services to be provided by the accountant prior to the preparation of such annual audited reports being prepared. The Designated Principal will evidence review by maintaining a copy of the letter. Registered Person Responsibilities No responsibilities. 7.8.2 ANNUAL AUDITED REPORT Supervisory Responsibilities The Designated Principal will ensure an annual audited report is prepared by an accountant and will subsequently review of such audit. More so, the Designated Principal is responsible for the timely filing of the audit with FINRA and SEC within 60 days of the fiscal year end date, unless the Firm receives an exemption. The annual audited report is to be reviewed upon receipt and evidenced by the Designated Principal by initialing a copy of the audit. Registered Person Responsibilities No responsibilities. 7.8.3 ADJUSTMENTS TO FINANCIAL RECORDS AND FOCUS REPORTS FOR

ANNUAL AUDIT FINDINGS Supervisory Responsibilities The Designated Principal will ensure material differences between the annual audit report with financial records and FOCUS Reports are addressed. Specifically, if there is a material difference, the Designated Principal is responsible for verifying changes to financial records are made and the appropriate FOCUS Report(s) are amended as soon as possible. The Designated Principal will evidence such reviews by initialing a copy of the net capital computation adjustment and/or the FOCUS Report.

06/08 96

Registered Person Responsibilities No responsibilities. 7.9 FINRA NOTIFICATIONS Supervisory Responsibilities The Designated Principal is responsible for filing all 17a-11 and other Notifications with FINRA and SEC. A 17a-11 notification must be provided within 24 hours of learning of facts requiring such notification. Additional notifications, which must be filed in accordance to FINRA guidance, includes the following:

• Rule 15c3-1(e) Withdrawals of equity capital • Rule 15c3-3(i) Special Reserve Bank Account • Rule 17a-4(f)(2)(i); • Rule 17a-4(f)(3)(vii) Electronic storage media6 • Rule 17a-5(f)(4) Replacement of accountant7 • Rule 17a-11(b) Net capital deficiency • Rule 17a-11(c)(1) Aggregate indebtedness is in excess of 1200 percent • of net capital • Rule 17a-11(c)(2) Net capital is less than 5 percent of aggregate debit items • Rule 17a-11(c)(3) Net capital is less than 120 percent of required minimum • dollar amount • Rule 17a-11(d) Failure to make and keep current books and records • Rule 17a-11(e) Material inadequacy in accounting systems, internal controls, • or practices and procedures

A copy of the notification will serve as evidence of the Designated Principal’s review.

PERSPECTIVE CONCEPT POINT - A 17a-11 notification is required in the event the following situations occur: 1) A firm falls below 120% of their minimum net capital requirement, whether the firm’s net capital is above or below $0; 2) The firm withdraws money in excess of $500,000 in any 30 days and in excess of 20% of the firm’s net capital; 3) The firm learns it is materially deficient in the maintenance of books and records; 4) A regulatory authority requires such notice be provided. Such notice must be provided to the District and national office of FINRA and the regional and national office of SEC. Registered Person Responsibilities No responsibilities. 7.10 SUBORDINATED LOANS AND SECURED DEMAND NOTES

06/08 97

Supervisory Responsibilities The Designated Principal is required to ensure appropriate forms are filed and the Firm is in compliance with loan agreements and regulatory requirements governing such. On an as needed basis, the Designated Principal will review subordinated agreements. The Designated Principal will evidence their initial review by signing appropriate loan documents. Registered Person Responsibilities No responsibilities. 7.11 CLEARING ARRANGEMENTS Supervisory Responsibilities The Designated Principal is required to annually review the Firm’s clearing arrangement(s) is appropriate and in good condition. Registered Person Responsibilities No responsibilities. 7.12 FIDELITY BOND Supervisory Responsibilities The Designated Principal is responsible for ensuring the Firm maintains an adequate fidelity bond. Annually, the Designated Principal will review coverage upon requesting fidelity bonding for the upcoming year. The Designated Principal will evidence such reviews by maintaining a copy of the new fidelity bond. Registered Person Responsibilities No responsibilities. 7.13 CREDIT, REGULATION T AND EXTENSIONS OF TIME 7.13.1 REGULATION T Supervisory Responsibilities The Designated Principal is responsible for ensuring the Firm’s compliance with Regulation T and applicable provisions like the freezing of accounts. Daily, through the normal conduct of business, the Designated Principal will ensure compliance with Regulation T. Registered Person Responsibilities No responsibilities. 7.13.2 ARRANGING CREDIT AWAY FROM THE CLEARING AGENT Supervisory Responsibilities Arranging credit away from the clearing agent for the purchase of securities is strictly prohibited. Registered Person Responsibilities The registered person shall not arrange credit way from the clearing agent.

06/08 98

7.14 LOST AND STOLEN SECURITIES Supervisory Responsibilities The Designated Principal will ascertain that the Firm is properly registered in the Lost & Stolen Securities Program with the Securities Information Center (SIC) as an indirect inquirer. Should there be questions regarding the genuineness of a particular certificate or if a certificate has been reported as having been lost or stolen, the Firm will utilize its clearing agent as direct inquirer to SIC. All reports made pursuant to this section, to the SIC, the FBI, or to the transfer agent, are required to be completed on Form X-17F-1A supplied by the SIC by the Firm’s clearing agent. Registered Person Responsibilities No responsibilities.

7.15 TRANSMITTALS OF FUNDS AND SECURITIES Supervisory Responsibilities The Designated Principal is responsible for thoroughly knowing, understanding, and abiding by firm policy with respect to the transmittal of funds and securities. The Designated Principal is to review transmittals of funds and securities on a daily basis. Evidence will be documented by maintenance of a log or initialing such documents reviewed. In the event of a breach of firm policy, notice should be made to the Financial and Operations Principal or their designee. The firm’s policy is:

THIRD PARTY ACCOUNT TRANSMITTALS Transmittals to third party accounts are permitted under the following circumstances: 1) Gifting to family members; 2) Gifting to IRS-recognized charitable organizations, endowments, and foundations; and 3) Gifting to religious and educational institutions. Permissible third party transmittals require an executed letter of authorization and notary to be obtained from the client of record. Should the identity of the third party not be clearly recognizable, the firm will contact the representative requesting identity information. Additional information from the Internet and the clearing agent should be considered in verifying the transmittal is permittable per firm policy. If there is inadequate information on the identity, no transmittal can take place. If after receiving information, the identity does meet the firm’s exempted situations, the firm will permit such transmittal.

TRANSMITTALS TO OUTSIDE ENTITIES – Transmittal of funds or securities to

outside entities is permitted should a client have another investment account at a financial institution where our firm serves as broker/dealer of record, we will permit the transmittals if acceptable to the outside entity if the registration of the account from where funds are being transferred from are like-kind in nature (i.e. John Doe, Individual transferring to another John Doe, Individual account). Permissible transmittals require an executed letter of authorization and notary to be obtained from the client of record.

TRANSMITTALS FROM CUSTOMER ACCOUNTS TO LOCATIONS OTHER

THAN THEIR PRIMARY ADDRESS OF RECORD – Transmittal of funds and

06/08 99

securities to a location other than the primary address of record are permissible if an executed letter of authorization and notary is obtained from the client of record.

TRANSMITTAL OF FUNDS TO A REGISTERED REPRESENTATIVE – Where

practical, the registered person should encourage the client to send such funds to the appropriate custodian institution. Otherwise, upon receipt, the registered person must immediately provide any customer funds received to their Designated Principal or the Main Office, if a non-OSJ location. If your Designated Principal is in the Main Office, you must mail all funds by the close of business to the Main Office. If your Designated Principal is your OSJ Manager, your OSJ Manager is responsible for mailing the funds by the close of business via mail to the appropriate financial institution (clearing firm, investment company, insurance company, real estate investment trust, etc.). or depositing the funds into a sweep account established at a depository institution (i.e. commercial bank or savings and loan institution). Cash cannot be accepted.

TRANSMITTAL OF SECURITIES TO A REGISTERED REPRESENTATIVE –

Where practical, the registered person should encourage the client to send such securities to the appropriate custodian institution. Otherwise, upon receipt, the registered person must immediately provide any customer securities received to their Designated Principal or the Main Office, if a non-OSJ location. If your Designated Principal is in the Main Office, you must mail all securities by the close of business to the Main Office. If your Designated Principal is your OSJ Manager, your OSJ Manager is responsible for mailing the securities by the close of business via mail to the appropriate custodian. All securities received must be accompanied by a letter of authorization and notary by the client of record.

Any exception to the firm’s policy must be personally approved by the firm’s Financial and Operations Principal. Registered Person Responsibilities Registered persons shall not convey or indicate to clients that transmittals not consistent with firm policy are permissible. Registered persons are responsible for abiding the above-referenced policy on transmittals. Failure to abide by firm policy can subject to the representative to fines or possibly termination. SUPERVISOR: FIRM’S FINOP 8.0 ANTI-MONEY LAUNDERING PROGRAM AND POLICIES 8.1 FIRM POLICY It is the policy of the Firm to prohibit and actively prevent money laundering and any activity that facilitates money laundering or the funding of terrorist or criminal activities. Money laundering is generally defined as engaging in acts designed to conceal or disguise the true origins of criminally derived proceeds so that the unlawful proceeds appear to have derived from legitimate origins or constitute legitimate assets. Generally, money laundering occurs in three stages. Cash first enters the financial system at the "placement" stage, where the cash generated from criminal activities is converted into monetary instruments, such as money orders or traveler's checks, or deposited into accounts at financial institutions. At the "layering" stage, the funds are

06/08 100

transferred or moved into other accounts or other financial institutions to further separate the money from its criminal origin. At the "integration" stage, the funds are reintroduced into the economy and used to purchase legitimate assets or to fund other criminal activities or legitimate businesses. Terrorist financing may not involve the proceeds of criminal conduct, but rather an attempt to conceal the origin or intended use of the funds, which will later be used for criminal purposes. In order to prevent money laundering, we strictly prohibit the receipt of cash, as a method for payment for a transaction or a deposit in an account. 8.2 AML COMPLIANCE OFFICER DESIGNATION AND DUTY 8.2.1 FIRM DESIGNATION The Designated Principal is the Firm’s Anti-Money Laundering Program Compliance Officer, with full responsibility for the Firm’s AML program. The Designated Principal is qualified by experience, knowledge and training. The duties of the AML Compliance Officer will include monitoring the Firm’s AML compliance, overseeing communication and training for employees. The AML Compliance Officer will also ensure that proper AML records are kept. When warranted, the AML Compliance Officer in consultation with our clearing firm will ensure Suspicious Activity Reports (SARs) are filed. 8.2.2 FINRA NOTIFICATION The Designated Principal will be responsible for notifying FINRA of its contact person via FINRA Contact System. Any changes to such designation will required the Designated Principal to promptly notify FINRA via FINRA Contact System. 8.3 PROVIDING AML INFORMATION 8.3.1 FINCEN REQUESTS UNDER PATRIOT ACT SECTION 314 Under U. S. Treasury regulations, we will respond to a Financial Crimes Enforcement Network (FINCEN) request about accounts or transactions by immediately searching our records, at our main office or at one of our branches, to determine whether we maintain or have maintained any account for, or have engaged in any transaction with, each individual, entity, or organization named in FINCEN’s request. Unless otherwise stated in FINCEN’s request, we are required to search current accounts, accounts maintained by a named suspect during the preceding 12 months, and transactions conducted by or on behalf of or with a named subject during the preceding 6 months If we find a match, we will report it to FINCEN by completing FINCEN’s subject information form. The form will be sent to FINCEN by facsimile to 703- 905-3660 and a copy of the report submission maintained will be maintained in an appropriate file. If facsimile is not available, the form will be sent to FINCEN by e-mail at [email protected]. We will not disclose the fact that FINCEN has requested or obtained information from us, except to the extent necessary to comply with the information request. We will maintain procedures to protect the security and confidentiality of requests from FINCEN, such as those established to satisfy the requirements of Section 501 of the Gramm-Leach-Bliley Act.

06/08 101

8.3.2 SHARING INFORMATION WITH OTHER FINANCIAL INSTITUTIONS We will share information about those suspected of terrorism and money laundering with other financial institutions for the purposes of identifying and reporting activities that may involve terrorist acts or money laundering activities and determine whether to establish or maintain an account o engage in a transaction. We will file with FINCEN an initial certification before any sharing occurs and annual notices afterwards. We will use the notice found at www.fincen.gov. Before we share information with another financial institution, we will take reasonable steps to verify that the other financial institution has submitted the requisite notice to FINCEN, either by obtaining confirmation from the financial institution or by consulting a list of such financial institutions that FINCEN will make available. We understand the requirement applies even with respect to financial institutions with whom we are affiliated, and so we will obtain the requisite notices from affiliates and follow all required procedures. We will employ strict procedures both to ensure that only relevant information is shared and to protect the security and confidentiality of this information, including segregating it from the Firm’s other books and records. In addition to sharing information with other financial institutions about possible terrorist financing and money laundering, we will also share information about particular suspicious transactions with our clearing broker for purposes of determining whether one of us will file a SAR-SF. In cases in which we file a SAR-SF for a transaction that has been handled both by us and by the clearing broker, we may share with the clearing broker a copy of the filed SAR, unless it would be inappropriate to do so under the circumstances, such as where we filed a SAR-SF concerning the clearing broker or one of its employees. 8.4 CHECKING THE OFFICE OF FOREIGN ASSETS CONTROL (“OFAC”) LIST Before opening an account, and on an ongoing basis, we will check to ensure that a customer does not appear on Treasury’s OFAC “Specifically Designated Nationals and Blocked Persons” List (SDN List) (See the OFAC Web Site at www.treas.gov/ofac, which is also available through an automated search tool on www.FINRA.com/money.asp), and is not from, or engaging in transactions with people or entities from, embargoed countries and regions listed on the OFAC Web Site. Because the OFAC Web Site is updated frequently, we will consult the list on a regular basis and subscribe to receive updates when they occur. We may access these lists through various software programs to ensure speed and accuracy. We will also review existing accounts against these lists when they are updated and we will document our review. In the event that we determine a customer, or someone with or for whom the customer is transacting, is on the SDN List or is from or engaging in transactions with a person or entity located in an embargoed country or region, we will reject the transaction and/or block the customer's assets and file a blocked assets and/or rejected transaction form with OFAC. We will also call the OFAC Hotline at 1-800-540-6322. 8.5 CUSTOMER IDENTIFICATION AND VERIFICATION 8.5.1 GENERAL

06/08 102

In addition to the information we must collect under FINRA Rules 2110 (Standards of Commercial Honor and Principles of Trade), 2310 (Recommendations to Customers - Suitability), and 3110 (Books and Records), and SEC Rules 17a-3(a)(9) (Beneficial Ownership regarding Cash and Margin Accounts) and 17a-3(a)(17) (Customer Accounts), we will collect certain minimum customer identification information from each customer who opens an account; utilize risk-based measures to verify the identity of each customer who opens an account; record customer identification information and the verification methods and results; provide notice to customers that we will seek identification information and compare customer identification information with government-provided lists of suspected terrorists. At a minimum, we will verify, to the extent reasonable and practicable, the identity of any customer seeking to open an account; maintain records of information used to verify a customer's identity; and check that a customer does not appear on government terrorist lists, such as the list on Treasury's Office of Foreign Assets Control (OFAC) Web Site. 8.5.2 REQUIRED CUSTOMER INFORMATION Prior to opening an account, we will collect the following information for all accounts, if applicable, for any person, entity or organization who is opening a new account and whose name is on the account: the name; date of birth (for an individual); an address, which will be a residential or business street address (for an individual), an Army Post Office ("APO") or Fleet Post Office ("FPO") number, or residential or business street address of next of kin or another contact individual (for an individual who does not have a residential or business street address), or a principal place of business, local office or other physical location (for a person other than an individual); an identification number, which will be a taxpayer identification number (for U.S. persons) or one or more of the following: a taxpayer identification number, passport number and country of issuance, driver’s license, alien identification card number and country of issuance of any other government-issued document evidencing nationality or residence and bearing a photograph or other similar safeguard (for non-U.S. persons). In the event that a customer has applied for, but has not received, a taxpayer identification number, we will confirm that the application was filed before the customer opens the account and to obtain the taxpayer identification number within a reasonable period of time after the account is opened. 8.5.3 CUSTOMERS WHO REFUSE TO PROVIDE INFORMATION If a potential or existing customer either refuses to provide the information described above when requested, or appears to have intentionally provided misleading information, our Firm will not open a new account and, after considering the risks involved, consider closing any existing account. In either case, our AML Compliance Officer will be notified so that we can determine whether we should report the situation to FinCEN. In the event, a potential or current client does not have a government or other acceptable form of ID, non-documentary may be utilized such as personal knowledge of the client. This should be considered for, in particular, elderly clients who do not have a driver’s license. 8.5.4 VERIFYING INFORMATION

06/08 103

Based on the risk, and to the extent reasonable and practicable, we will ensure that we have a reasonable belief that we know the true identity of our customers by using risk-based procedures to verify and document the accuracy of the information we get about our customers. In verifying customer identity, we will analyze any logical inconsistencies in the information we obtain. We will verify customer identity through documentary evidence, non-documentary evidence, or both. We will use documents to verify customer identity when appropriate documents are available. In light of the increased instances of identity fraud, we will supplement the use of documentary evidence by using the non-documentary means described below whenever possible. We may also use such non-documentary means, after using documentary evidence, if we are still uncertain about whether we know the true identity of the customer. In analyzing the verification information, we will consider whether there is a logical consistency among the identifying information provided, such as the customer’s name, street address, zip code, telephone number (if provided), date of birth, and social security number. Appropriate documents for verifying the identity of customers include, but are not limited to, the following:

• For an individual, an unexpired government-issued identification evidencing nationality, residence, and bearing a photograph or similar safeguard, such as a driver’s license or passport; and

• For a person other than an individual, documents showing the existence of the entity, such as certified articles of incorporation, a government-issued business license, a partnership agreement, or a trust instrument.

Verification of customer identity through the use of non-documentary evidence is mandatory in the following situations: (1) when the customer is unable to present an unexpired identification card with a photograph or other biometric safeguard; (2) when the documents the customer presents for identification verification are unfamiliar to the Firm; (3) when the customer and Firm do not have face-to-face contact; and (4) when there are other circumstances that increase the risk that the Firm will be unable to verify the true identity of the customer through documentary means. Under these circumstances, we will use the following non-documentary methods of verifying identity:

• Contact the customer after the account has been opened (although we cannot rely solely on customer contact as a means for verification);

• Obtain financial statements from the customer; • Compare information obtained from the customer against databases supplied by

our clearing firm; • Compare information obtained from customer with information available from a

trusted third-party source (such as a credit report); • Check references with other financial institutions; and • Any other information necessary used to obtain the identity of the customer.

We will verify the information prior to or at the time new accounts are opened, if possible, but in most situations no later than five business days after opening. However, we recognize that there may be situations where even a five-day delay will be too long. Depending on the nature of the account and requested transactions, we may refuse to complete a transaction before we have verified the information, or in some instances when we need more time, we may restrict the types of transactions or dollar amount of transactions pending verification. If we find suspicious information that indicates

06/08 104

possible money laundering or terrorist financing activity, we will file a SAR-SF in accordance to applicable law and regulation. 8.5.5 LACK OF VERIFICATION When we cannot form a reasonable belief that we know the true identity of a customer, we will close an account after attempts to verify the customer’s identity fail. 8.5.6 RECORDKEEPING We will document our verification, including all identifying information provided by a customer, the methods used and results of verification, and the resolution of any discrepancy in the identifying information. We will keep records containing a description of any document that we relied on to verify a customer’s identity, noting the type of document and any identification number contained in the document. With respect to non-documentary verification, we will retain documents that describe the methods and the results of any measures we took to verify the identity of a customer. We will maintain records of all identification information for five years after the account has been closed; we will retain records made about verification of the customer's identity for five years after the record is made. 8.5.7 COMPARISION WITH GOVERNMENT PROVIDED LISTS OF TERRORISTS

AND OTHER CRIMINALS From time to time, we may receive notice that a Federal government agency has issued a list of known or suspected terrorists. Within a reasonable period of time after an account is opened (or earlier, if required by another Federal law or regulation or Federal directive issued in connection with an applicable list), we will determine whether a customer appears on any such list of known or suspected terrorists or terrorist organizations issued by any Federal government agency and designated as such by Treasury in consultation with the Federal functional regulators. We will follow all Federal directives issued in connection with such lists. We will continue to comply with Treasury’s Office of Foreign Asset Control rules prohibiting transactions with certain foreign countries or their nationals. 8.5.8 NOTICE TO CUSTOMERS The Firm will provide notice to customers that it is requesting information from them to verify their identities, as required by Federal law. The Firm will use the telephone and in-person notices to customers. 8.5.9 RELIANCE ON ANOTHER FINANCIAL INSTITUTION FOR IDENTITY

VERIFICATION We may, under the following circumstances, rely on the performance by another financial institution (including an affiliate) of some or all of the elements of our customer identification program with respect to any customer that is opening an account or has established an account or similar business relationship with the other financial institution to provide or engage in services, dealings, or other financial transactions:

06/08 105

When such reliance is reasonable under the circumstances; When the other financial institution is subject to a rule implementing the anti-

money laundering compliance program requirements of 31 U.S.C. 5318(h), and is regulated by a Federal functional regulator; and

When the other financial institution has entered into a contract with our Firm requiring it to certify annually to us that it has implemented its anti-money laundering program, and that it will perform (or its agent will perform) specified requirements of the customer identification program.

8.6 PROHIBITED ACCOUNTS Our Firm policy prohibits the opening, maintaining, administering, or managing of the following account types:

Foreign Correspondent Accounts; Foreign Shell Banks; Private Banking Accounts; Accounts of Foreign Officials; and Accounts of Persons and Entities Domiciled in High Risk and Non-Cooperative

Jurisdictions. In the event an attempt is made to open any one of the above accounts, we will prior to account opening and no later than within a reasonable period after such account is opened, close such an account. The Firm relies on its ability to detect such accounts via its Customer Identification Program described previously. 8.7 MONITORING ACCOUNTS FOR SUSPICIOUS ACTIVITY 8.7.1 GENERAL We will manually monitor a sufficient amount of account activity to permit identification of patterns of unusual size, volume, pattern or type of transactions, geographic factors such as whether jurisdictions designated as “non cooperative” are involved, or any of the “red flags”. We will look at transactions, including trading and wire transfers, in the context of other account activity to determine if a transaction lacks financial sense or is suspicious because it is an unusual strategy for that customer. The AML Compliance Officer, in consultation with our clearing firm, will be responsible for this monitoring, will document when and how it is carried out, and will report suspicious activities to the appropriate authorities. Among the information we will use to determine whether to file a SAR-SF are exception reports that include transaction size, location, type, number, and nature of the activity. We will create employee guidelines with examples of suspicious money laundering activity and lists of high-risk clients whose accounts may warrant further scrutiny. Our AML Compliance Officer will conduct an appropriate investigation before a SAR-SF is filed. 8.7.2 EMERGENCY NOTIFICATION TO THE GOVERNMENT BY PHONE When conducting due diligence or opening an account, we will immediately call Federal law enforcement when necessary, and especially in these emergencies: a legal or beneficial account holder or person with whom the account holder is engaged in a transaction is listed on or located in a country or region listed on the OFAC list, an account is held by an entity that is owned or controlled by a person or entity listed on the OFAC list, a customer tries to use bribery, coercion, or similar means to open an account or carry out a suspicious activity, we have reason to believe the customer is

06/08 106

trying to move illicit cash out of the government’s reach, or we have reason to believe the customer is about to use the funds to further an act of terrorism. We will first call the OFAC Hotline at 1-800-540-6322. The other contact numbers we will use are: Financial Institutions Hotline (1-866-556-3974), local U.S. Attorney’s Office, local FBI Office, and local SEC Office 8.7.3 RED FLAGS Red flags that signal possible money laundering or terrorist financing include, but are not limited to:

The customer exhibits unusual concern about the firm compliance with government reporting requirements and the Firm's AML policies (particularly concerning his or her identity, type of business and assets), or is reluctant or refuses to reveal any information concerning business activities, or furnishes unusual or suspicious identification or business documents.

The customer wishes to engage in transactions that lack business sense or

apparent investment strategy, or are inconsistent with the customer's stated business or investment strategy.

The information provided by the customer that identifies a legitimate source for

funds is false, misleading, or substantially incorrect.

Upon request, the customer refuses to identify or fails to indicate any legitimate source for his or her funds and other assets.

The customer (or a person publicly associated with the customer) has a

questionable background or is the subject of news reports indicating possible criminal, civil, or regulatory violations.

The customer exhibits a lack of concern regarding risks, commissions, or other

transaction costs.

The customer appears to be acting as an agent for an undisclosed principal, but declines or is reluctant, without legitimate commercial reasons, to provide information or is otherwise evasive regarding that person or entity.

The customer has difficulty describing the nature of his or her business or lacks

general knowledge of his or her industry.

The customer attempts to make frequent or large deposits of currency, insists on dealing only in cash, or asks for exemptions from the Firm’s policies relating to the deposit of cash.

The customer engages in transactions involving cash or cash equivalents or

other monetary instruments that appear to be structured to avoid the $10,000 government reporting requirements, especially if the cash or monetary instruments are in an amount just below reporting or recording thresholds.

For no apparent reason, the customer has multiple accounts under a single

name or multiple names, with a large number of inter-account or third-party transfers.

06/08 107

The customer is from, or has accounts in, a country identified as a non-

cooperative country or territory by the FATF.

The customer's account has unexplained or sudden extensive wire activity, especially in accounts that had little or no previous activity.

The customer's account shows numerous currency or cashier’s check

transactions aggregating to significant sums.

The customer's account has a large number of wire transfers to unrelated third parties inconsistent with the customer's legitimate business purpose.

The customer's account has wire transfers that have no apparent business

purpose to or from a country identified as money laundering risk or a bank secrecy haven.

The customer's account indicates large or frequent wire transfers, immediately

withdrawn by check or debit card without any apparent business purpose.

The customer makes a funds deposit followed by an immediate request that the money be wired out or transferred to a third party, or to another firm, without any apparent business purpose.

The customer makes a funds deposit for the purpose of purchasing a long-term

investment followed shortly thereafter by a request to liquidate the position and transfer of the proceeds out of the account.

The customer engages in excessive journal entries between unrelated accounts

without any apparent business purpose.

The customer requests that a transaction be processed to avoid the Firm’s normal documentation requirements.

The customer, for no apparent reason or in conjunction with other red flags,

engages in transactions involving certain types of securities, such as penny stocks, Regulation S stocks, and bearer bonds, which although legitimate, have been used in connection with fraudulent schemes and money laundering activity. (Such transactions may warrant further due diligence to ensure the legitimacy of the customer's activity.)

The customer's account shows an unexplained high level of account activity with

very low levels of securities transactions.

The customer maintains multiple accounts, or maintains accounts in the names of family members or corporate entities, for no apparent purpose.

The customer's account has inflows of funds or other assets well beyond the

known income or resources of the customer.

06/08 108

8.7.4 RESPONDING TO RED FLAGS AND SUSPICIOUS ACTIVITY When a member of the firm detects any red flag he or she will investigate further under the direction of the AML Compliance Officer. This may include gathering additional information internally or from third party sources, contacting the government, freezing the account, and filing a SAR-SF. 8.8 SUSPICIOUS TRANSACTIONS AND BSA REPORTING 8.8.1 FILING A FORM SAR-SF We will file SAR-SFs for any account activity (including deposits and transfers), conducted or attempted through our firm, involving $5,000 or more where we know, suspect, or have reason to suspect: 1) the transaction involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity as part of a plan to violate or evade federal law or regulation, 2) the transaction is designed to evade the any requirements of the BSA regulations, 3) the transaction has no business or apparent lawful purpose or is not the sort in which the customer would normally be expected to engage, and we know, after examining the background, possible purpose of the transaction and other facts, of no reasonable explanation for the transaction, or 4) the transaction involves the use of the firm to facilitate criminal activity. We will not base our decision on whether to file a SAR solely on whether the transaction falls above a set threshold. We will file a SAR-SF and notify law enforcement of all transactions that raise an identifiable suspicion of criminal, terrorist, or corrupt activities. In high-risk situations, we will notify the government immediately and will file a SAR-SF with FINCEN. Securities law violations that are reported to the SEC or an SRO may also be reported promptly to the local U.S. Attorney as appropriate. We will not file SAR-SFs to report violations of Federal securities laws or Self Regulatory Organization rules by our employees or registered persons that do not involve money laundering or terrorism, but we will report them to the SEC or SRO. All SAR-SFs will be periodically reported to the Board of Directors and senior management, with a clear reminder of the need to maintain the confidentiality of the SAR-SF. We will report suspicious transactions by completing a SAR-SF and we will collect and maintain supporting documentation as required by the BSA regulations. We will file a SAR-SF no later than 30 calendar days after the date of the initial detection of the facts that constitute a basis for filing a SAR-SF. If no suspect is identified on the date of initial detection, we may delay filing the SAR-SF for an additional 30 calendar days pending identification of a suspect, but in no case, will the reporting be delayed more than 60 calendar days after the date of initial detection. We will retain copies of any SAR-SF filed and the original or business record equivalent of any supporting documentation for five years from the date of filing the SAR-SF. We will identify and maintain supporting documentation and make such information available to FINCEN, any other appropriate law enforcement agencies, or federal or state securities regulators, upon request.

06/08 109

8.8.2 CURRENCY TRANSACTION REPORTS (CTR) Our firm prohibits the receipt of currency. We will monitor attempted receipts of currency via blotters, branch office inspections, and registered person’s attestations via the annual certification form. If we discover currency has been received, we will file with FINCEN CTRs for transactions involving currency that exceed $10,000. Multiple transactions will be treated as a single transaction if they total more than $10,000 during any one business day. We will use the CTR form at http://www.fincen.gov/reg_bsaforms.html#4789.

PERSPECTIVE REGULATORY ACTION – In October 2002, FINRA suspended a registered person, Christian Baker, from the securities industry for structuring currency transactions in an effort to evade currency reporting requirements and failing to file required Currency Transaction Reports. Baker accepted $50,000 in cash from a customer who insisted the transaction not be reported. To circumvent regulations, Baker purchased 24 separate cashier checks in amounts less than $3,000 until all $50,000 was deposited. 8.8.3 CURRENCY AND MONETARY INSTRUMENT TRANSPORTATION REPORTS

(CMIR) Our firm prohibits the receipt of currency and has the procedures described in the previous subsection to prevent its receipt. If we discover currency has been received, We will file with the Commissioner of Customs a CMIR whenever the firm transports, mails, ships or receives or causes or attempts to transport, mail, ship or receive monetary instruments of more than $10,000 at one time (on one calendar day or, if for the purposed of evading the reporting requirements, on one or more days) in or out of the U.S. We will file a CMIR for all such shipments or receipts of monetary instruments, except for currency or monetary instruments shipped or mailed through the postal service or by common carrier. We will, however, file a CMIR for such receipts of currency and monetary instruments and for shipments and deliveries made by the firm by means other than the postal service or common carrier, even when the firm makes such shipment or transport to an office of the firm located outside the U.S. We will use the CMIR Form at http://www.fincen.gov/reg_bsaforms.html#4790. 8.8.4 FOREIGN BANK AND FINANCIAL ACCOUNTS REPORTS (FBAR) We will file with FINCEN an FBAR for any financial accounts that we hold, or for which we have signature or other authority over, in a foreign country of more than $10,000. We will use the FBAR Form at http://www.treas.gov/fincen/f9022-1.pdf. 8.8.5 TRANSFERS OF $3,000 OR MORE UNDER THE JOINT AND TRAVEL RULE When funds of $3,000 or more are transferred, our clearing firm will record on the transmittal order at least the following information: the name and address of the transmitter and recipient, the amount of the transmittal order, the identity of the

06/08 110

recipient’s financial institution, and the account number of the recipient. They will also verify the identity of transmitters and recipients who are not established customers of the firm (i.e., customers of the firm who have not previously maintained an account with us or for whom we have not obtained and maintained a file with the customer's name, address, taxpayer identification number, or, if none, alien identification number or passport number and country of issuance). 8.8.6 STRUCTURING A provision for maintaining an effective anti-money laundering is to monitor for structuring of transactions, whereby a series of deposits or withdrawals take place in order to circumvent reporting requirements (i.e. Suspicious Activity Reporting, Currency Transaction Reporting, etc.) or documentation requirements as required by the Joint and Travel Rule. The firm will monitor all transactions via blotters, branch office inspections, wire transfer and issuance instructions, and any clearing firm notifications for potential cases of structuring. In reviewing such information, the firm will not only look at transactions on a given day but over a series of days. The firm will specifically look for situations where deposits or remittals take place on one day or multiple days in amounts below reporting requirements where transactions involve the same client even if the contra party or account is not identical with each transaction. Specifically noted transactions would include those where the transactions involves an amount slightly below reporting thresholds (i.e. $9,900) for reporting or recordkeeping purposes. In the event transactions are questionable in nature, the account(s) in question will be frozen until an investigation has taken place by the AML Compliance Officer and any required filings have been made. The investigation will include the review of transactions as an aggregate amount as well as individual amounts, discussions with operational individuals, and, where appropriate, additional parties such as the clearing firm. To further prevent structuring, the firm does not accept or remit cash from clients or prospective clients and generally prohibits third party transfers, except in limited situations like transfers to a recognized charitable or religious non-profit organization. 8.9 AML RECORD KEEPING 8.9.1 SAR–SF MAINTENANCE AND CONFIDENTIALITY We will hold SAR-SFs and any supporting documentation confidential. We will not inform anyone outside of a law enforcement or regulatory agency or securities regulator about a SAR-SF. We will refuse any subpoena requests for SAR-SFs or SAR-SF information and immediately tell FinCEN of any such subpoena we receive. We will segregate SAR-SF filings and copies of supporting documentation from other firm books and records to avoid disclosing SAR-SF filings. Our AML Compliance Officer will handle all subpoenas or other requests for SAR-SFs. [Describe any other retention or confidentiality procedures of your firm for SAR-SFs.] We will share information with our clearing broker about suspicious transactions in order to determine when a SAR-SF should be filed. As mentioned earlier, we may share with the clearing broker a copy of the filed SAR-SF – unless it would be inappropriate to do so under the circumstances, such as where we file a SAR-SF concerning the clearing broker or its employees.

06/08 111

8.9.2 RESPONSIBILITY FOR AML RECORDS AND SAR FILING Our AML Compliance Officer and his or her designee will be responsible to ensure that AML records are maintained properly and that SARs are filed as required. 8.9.3 RECORDS REQUIRED As part of our AML program, our firm will create and maintain SAR-SFs, CTRs, CMIRs, FBARs, and relevant documentation on customer identity and verification, and funds transfers and transmittals, as well as any records related to customers listed on the OFAC list. We will maintain SARs and their accompanying documentation for at least five years. Other documents will be kept according to existing BSA and other record keeping requirements, including certain SEC rules that require six-year retention. 8.10 CLEARING/INTRODUCING RELATIONSHIPS We will work closely with our clearing firm to detect money laundering. We will exchange information, records, data and exception reports as necessary to comply with AML laws. Both our firm and our clearing firm have filed (and kept undated) the necessary annual certifications for such information sharing, which can be found at www.ustreas.gov/fincen/fi_infoappb.html. As a general matter, we have agreed that our clearing firm will monitor customer activity on our behalf, and we will provide our clearing firm with proper customer identification information as required to successfully monitor customer transactions. We have set out these responsibilities in our clearing agreement under FINRA Rule 3230. We understand that the agreement will not relieve either of us from our independent obligation to comply with AML laws, except as specifically allowed under the PATRIOT Act and its implementing regulations. 8.11 TRAINING PROGRAMS We will develop ongoing employee training under the leadership of the AML Compliance Officer and senior management. Our training will occur on at least on an annual basis. It will be based on our Firm’s size, its customer base, and its resources. Our training will include, at a minimum: how to identify red flags and signs of money laundering that arise during the course of the employees’ duties; what to do once the risk is identified; what employees' roles are in the Firm’s compliance efforts and how to perform them; the Firm’s record retention policy; and the disciplinary consequences (including civil and criminal penalties) for non-compliance with the PATRIOT Act. We will develop training in our firm, or contract for it. Delivery of the training may include educational pamphlets, videos, intranet systems, in-person lectures, on-line courses, seminars, and explanatory memos. Currently our training program consists of on-line courses and seminars. We will maintain records to show the persons trained, the dates of training, and the subject matter of their training. We will review our operations to see if certain employees, such as those in compliance, margin, and corporate security, require specialized additional training. Our written procedures will be updated to reflect any such changes.

06/08 112

8.12 PROGRAM TO TEST AML PROGRAM 8.12.1 STAFFING The testing of our AML program will be performed by Fairview Investment Services, LLC. Their qualification is that they are staffed by compliance professionals, with an average of 12+ years in the financial services industry, including work with Broker/Dealers, Registered Investment Advisers and Investment Companies, all of which are subject to AML regulations. 8.12.2 EVALUATION AND REPORTING AML testing will be completed at least annually. After we have completed the testing, staff will report its findings to senior management. We will address each of the resulting recommendations. 8.12.3 RETALIATION AGAINST NON INDEPENDENT INDIVIDUAL CONDUCTING AML TESTING Current procedures designate to test the AML Program. As is not independent and reports directly to the CCO, any adverse findings that could reflect negatively on the CCO, other firm principals, or any other employee of the Firm, will not result in any retaliatory actions. 8.13 MONITORING EMPLOYEE CONDUCT AND ACCOUNTS We will subject employee accounts to the same AML procedures as customer accounts, under the supervision of the AML Compliance Officer. 8.14 CONFIDENTIAL REPORTING OF AML NON-COMPLIANCE Employees will report any violations of the Firm’s AML compliance program to the AML Compliance Officer, unless the violations implicate the Compliance Officer, in which case the employee shall report to Richard K. Bryant, President. Such reports will be confidential, and the employee will suffer no retaliation for making them. 8.15 ADDITIONAL AREAS OF RISK The firm has reviewed all areas of its business to identify potential money laundering risks that may not be covered in the procedures described above. No other areas of risk were identified. 8.16 SENIOR MANAGEMENT APPROVAL I have approved this AML program as reasonably designed to achieve and monitor our Firm’s ongoing compliance with the requirements of the BSA and the implementing regulations under it. Signed: Title:

06/08 113

Date: 9.0 TRANSACTION REPORTING 9.1 MUNICIPAL BONDS Supervisory Responsibilities The Designated Principal or their designee is responsible for monthly reviewing municipal bond trade reporting. Reports supplied by MSRB will be compared with Inventory Reports to verify municipal bonds were reported accurately and timely. The Designated Principal will evidence such reviews by initialing the appropriate documents and/or logs Registered Person Responsibilities No responsibilities. 9.2 OATS Supervisory Responsibilities The firm relies upon its reporting agent for submission of OATS data and a written agreement is in place evidencing this arrangement. The Designated Principal or their designee is responsible for periodically reviewing OATS trade reporting. A sample of trades will be compared with reports of OATS data to verify transactions were reported timely and accurately. Evidence of the reviews will be maintained. Additionally, The Designated Principal or their designee will perform a daily review of the OATS website to ensure that there were no rejected submissions or any other incidents requiring a re-submission of data. The Designated Principal or their designee shall attempt to resolve any such instances via the OATS website. Evidence of the reviews will be maintained. Registered Person Responsibilities No responsibilities. 9.3 TRACE Supervisory Responsibilities The Designated Principal or their designee is responsible for monthly reviewing corporate bond trade reporting. Reports supplied by FINRA will be compared with Inventory Reports to verify corporate bonds were reported accurately and timely. The Designated Principal or their designee will maintain a monthly log. Registered Person Responsibilities No responsibilities. 10.0 PERIODIC REVIEW OF THE FIRM 10.1 SUPERVISORY SYSTEM Supervisory Responsibilities The Designated Principal or their designee is responsible for developing and reviewing the Firm’s supervisory system, including written supervisory procedures. The review of

06/08 114

the Firm’s supervisory system is an ongoing process which will be conducted no less than annually through a review of the Firm’s business as described in the following section. Any changes will be made on an as needed basis. The Designated Principal or their designee will evidence the annual review of the Firm’s supervisory system through a report. Registered Person Responsibilities No responsibilities. 10.2 SUPERVISORY CONTROL SYSTEM 10.2.1 Designation of Principal for Supervisory Control Procedures The firm designates the Chief Compliance Officer as responsible for establishing, maintaining, and enforcing a system of supervisory control policies and procedures that 1) test and verify that the member’s supervisory procedures are reasonably designed with respect to the activities of the member and its registered representatives and associated persons, to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules and 2) create additional or amend supervisory procedures where the need is identified by such testing and verification. 10.2.2 Testing and Verification of Supervisory Procedures & Amendments The firm designates the Chief Compliance Officer as responsible for: 1) establishing, maintaining, and enforcing supervisory control procedures that test and verify that the member’s supervisory procedures are sufficient; and 2) amend or create additional supervisory procedures where the need is identified by such testing and verification. The Chief Compliance Officer may appoint principal-licensed individuals to assist in the testing and verification process as long as such individuals are senior or otherwise independent of producing managers. All testing and verification of the adequacy of the supervisory control procedures must be independent of any business considerations that are countervailing to full compliance with applicable securities laws and regulations. Documents utilized in testing and verifying the supervisory procedures will be maintained in an annual file along with the annual report to senior management. 10.2.3 Annual Report to Senior Management The Chief Compliance Officer will submit to the member’s senior management no less than annually, a report detailing the firm’s system of supervisory controls, the summary of the test results and significant identified exceptions, and any additional or amended supervisory procedures created in response to the test results. The report will be in maintained in appropriate firm files on supervisory controls. 10.2.4 Supervision of Customer Account Activity of Producing Managers

The Chief Compliance Officer will appoint a Designated Principal, who is senior or otherwise independent to producing managers, as responsible for reviewing and

06/08 115

supervising on a day-to-day basis customer account activity conducted by a producing manager. In reviewing customer account activity, the Designated Principal is independent and otherwise senior to the producing manager. The Designated Principal will review daily trade blotters, customer applications, customer statements, activity screens or systems used to review overall account activity, and customer account information, such as the New Account Form. The review of such activity will be evidenced by initialing trade blotters or creating supervisory review logs. In the event the firm determines that it is limited in terms of size and resources, the Chief Compliance Officer will notify FINRA through FINRA prescribed processes within 30 days of the date on which the firm relies on the exception and annually thereafter. More so, the firm will update its procedures to document factors used in determining complete compliance with all of the provisions of the rule is not possible and that the firm’s supervisory systems and procedures in place with respect to producing managers comply to the extent applicable to requirements for reviewing customer account activity of producing managers. Should the firm determine it no longer needs to rely on the exemption, the Chief Compliance Officer, within 30 days of ceasing to rely on the exception, notify FINRA through FINRA prescribed processes. For the purposes of determining who are producing managers, the Chief Compliance Officer or their designee will monthly review production activity for all revenue generated by or credited to the producing manager or the producing manager’s office, daily transaction blotters to determine who is a producing manager, as well access their own personal knowledge of the business conducted by or associated with the producing manager. 10.2.5 Heightened Supervision of Producing Managers The Designated Principal is responsible for making a determination as to which offices and registered persons meet criteria for conducting heightened supervision. The firm will place heightened supervision over any producing manager who is responsible for generating 20 percent or more of the revenue of the business units supervised by the producing manager’s supervisor over the course of a rolling, twelve-month period. For purposes of determining the 20 percent threshold, the firm will look at all revenue generated by or credited to the producing manager or the producing manager’s office, and that amount shall be included as part of the overall revenues of the business units supervised by the producing manager’s supervisor irrespective of a firm’s internal allocation of such revenue. . In the event, the firm makes a determination a producing manager needs to be under heightened supervision due to the above calculation method or otherwise, the firm will appoint qualified personnel, a principal-licensed individual, to conduct heightened supervisory reviews. In carrying out heightened supervision, the firm will implement one or more of the following procedures:

Unannounced audits of office locations where the producing manager has supervisory authority will be conducted at more frequent intervals than those prescribed by firm procedures on branch audits.

06/08 116

Sweep reviews will be conducted, meaning the firm will make special requests of information, such as communications, etc. to ensure compliance with firm policy and applicable regulations.

Special reviews of activity of registered persons supervised by producing

managers, when atypical high levels of production occur, new product sales, or overall level of production of a particular registered person under the producing manager’s supervision.

Special reviews of activity conducted by new registered persons within a branch

office supervised by the producing manager. Records and other material used in conducting heightened supervision will be maintained in supervisory control files. 10.3 ANNUAL CERTIFICATION OF COMPLIANCE AND SUPERVISORY PROCESSES 10.3.1 Designation of Chief Compliance Officer The firm will designate on Schedule A on the Form BD, the Chief Compliance Officer. Evidence of this designation will be maintained on the Form BD in the WebCRD system. 10.3.2 Annual Certification The Chief Executive Officer or similarly named individual with the firm is required to annually certify: 1. The firm has in place processes to: . a. establish, maintain and review policies and procedures reasonably designed to

achieve compliance with applicable FINRA rules, MSRB rules and federal securities laws and regulations; b. modify such policies and procedures as business, regulatory and legislative changes and events dictate; and c. test the effectiveness of such policies and procedures on a periodic basis, the timing and extent of which is reasonably designed to ensure continuing compliance with FINRA rules, MSRB rules and federal securities laws and regulations.

2. The chief executive officer(s) (or equivalent officer(s)) has/have conducted one or more meetings with the chief compliance officer(s) in the preceding 12 months, the subject of which satisfy the obligations set forth in IM-3013. 3. The firm's processes, with respect to item 1 above, are evidenced in a report reviewed by the chief executive officer(s) (or equivalent officer(s)), chief compliance officer(s), and such other officers as the firm may deem necessary to make this certification. The final report has been submitted to the firm's board of directors and audit committee or will be submitted to the firm’s board of directors and audit committee (or equivalent bodies) at the earlier of their next scheduled meetings or within 45 days of the date of execution of this certification.

06/08 117

4. The chief executive officer(s) (or equivalent officer(s)) has/have consulted with the chief compliance officer(s) and other officers as applicable (referenced in item 3 above) and such other employees, outside consultants, lawyers and accountants, to the extent deemed appropriate, in order to attest to the statements made in this certification The certification will be maintained in annual certification files. 10.3.3 Annual Report The Chief Compliance Officer or their designee is required to create an annual report that documents the member's processes for establishing, maintaining, reviewing, testing and modifying compliance policies that are reasonably designed to achieve compliance with applicable FINRA rules, MSRB rules and federal securities laws and regulations. The report will include the manner and frequency in which the processes are administered, as well as the identification of the officers and supervisors who have responsibility for such administration. The report must clearly indicate in title that it is responsive to the requirements of the certification process The report will be produced prior to execution of the certification and be reviewed by the chief executive officer(s) (or equivalent officer(s)), chief compliance officer(s) and any other officers the member deems necessary to make the certification. Furthermore, the report must be provided to the member's board of directors and audit committee in final form either prior to execution of the certification or at the earlier of their next scheduled meetings or within 45 days of execution of the certification. The report is available for review by FINRA or other regulatory bodies upon request. The annual report will be maintained in annual certification files. 10.4 MEMBERSHIP AGREEMENT Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring the firm abides by its Membership Agreement. Annually, during the review of the Firm’s business and supervisory system, the Designated Principal or their designee will verify compliance. In addition, on as needed basis, the Designated Principal or their designee will review compliance with the Membership Agreement should the firm engage in sales of a new product type or should there be a substantial increase in registered persons or branches. The Designated Principal or their designee will evidence such annual review through a report. Registered Person Responsibilities No responsibilities. 10.5 BUSINESS CONTINUITY PROGRAM Supervisory Responsibilities The Designated Principal or their designee is responsible for maintaining a Business Continuity Program. Annually and on an as-needed basis, the Designated Principal will review such Business Continuity Program. Registered Person Responsibilities Registered persons are only required to provide notice of the business continuity plan to customers upon opening of a new account.

06/08 118

10.6 BRANCH OFFICE INSPECTIONS Supervisory Responsibilities The Designated Principal or their designee is responsible for developing a system for conducting branch office inspections. Branch office inspections may be announced or unannounced based on the discretion of the Designated Principal or their designee. The Designated Principal or their designee will provide the Branch Auditor any templates and pertinent information used in conducting inspections, identifying what offices need to be reviewed, and informing the Branch Auditor whether an inspection should be announced or unannounced prior to such inspection taking place. The Branch Auditor is responsible for completing any required templates and promptly providing a completed template and any report of findings, if required, to the Designated Principal. At a minimum, the firm will adhere to the following branch office inspection cycle. Additional inspections can be conducted at the discretion of the Designated Principal, with or without prior notice.

OSJ Branch Offices – Annually; Bank Branch Offices, whether OSJ or not, - Annually; Non-OSJ Locations – Every 3 Years; and

Registered Person Responsibilities The registered person must timely provide all information requested as part of the branch office reviews. The registered person must make themselves available to the Firm’s Branch Auditor at the time agreed upon by the Branch Auditor and registered person. Upon completion of the audit, the registered person must address all deficiencies found by the Branch Auditor in a timely manner. 10.7 DUE DILIGENCE OF PRODUCT OFFERINGS Supervisory Responsibilities The Designated Principal or their designee is responsible for the Firm conducting due diligence of any new product types prior to any sales by a registered person. The Designated Principal or their designee and the Firm will review those documents, such as prospectuses, sales literature, marketing packets, etc., necessary to make a reasonable judgment about the merits and suitability of such products. The reviews will be evidenced by initialing appropriate due diligence document(s) and maintaining a file of such information. In determining what is a new product, the Designated Principal or their designee will consider any product type not previously approved as a new product. On occasion, with the increasing complexity of existing products, the firm may consider a product as new although it may simply be a deviation of an existing product. In conducting due diligence, the following questions, at a minimum, should be addressed:

1. Who is the intended audience of the product? (Is the product proposed for limited or general retail distribution and, if limited, how will it be controlled? Conversely, to whom should this product not be offered?

06/08 119

2. What is the product’s investment objective? How does the product add to or improve the Firm’s current offerings? Can less costly, complex, or risky products achieve the objectives of the product?

3. What assumptions underlie the product, and how sound are they? What market

or performance factors determine the investor’s return?

4. What are the risks for investors? If the product was designed mainly to generate yield, does the yield justify the risks to principal?

5. What costs and fees for the investor are associated with this product? Why are

they appropriate? Are all of the costs and fees transparent? How do they compare with comparable products offered by the Firm or by competitors?

6. Does the product present any novel legal, tax, market investment, or credit risks?

7. How will the firm and registered representatives be compensated for offering the

product? Will the offering of the product create any conflicts of interest between the customer and any part of the Firm or its affiliates? If so, how will those conflicts be addressed?

8. What is the complexity of the product in structure, function, and description?

Does such complexity impair understanding and transparency of the product? Does such complexity impact suitability considerations and/or the training requirements associated with the product?

9. How will the product be marketed? What promotional and sales materials will be

used? What risks must be disclosed, and how will that disclosure be made?

10. What are the qualifications of the people making determinations about a new product’s assumptions, performance, and risk, and do such qualifications comport with the expertise necessary to reach sound conclusions?

11. Will the product necessitate the development or refinement of in-firm training

programs for registered representatives and their supervisors? If so, how and when will the training be provided?

12. What is the liquidity of the product?

13. Do the Firm’s current systems support the product, or will new systems be

required?

14. Does the structure or a feature of the new product, including the proposed sales plan, implicate any additional regulations?

Registered Person Responsibilities Prior to selling any product not previously communicated as an approved product type, contact your Designated Principal or their designee requesting approval of such activity.

PERSPECTIVE

06/08 120

FIRM POLICY - In determining what is a new product, the following questions, at a minimum, need to be asked: 1. Is the product new to the firm or the marketplace? 2. Does the product involve material modifications to an existing product’s structure,

fees and costs, and risk to the client? 3. Does the product require material operational or system changes? 4. Does the product involve a new or significant change in sales practices? 5. Does the product raise conflicts not previously identified and addressed? 11.0 SALES ON THE PREMISES OF FINANCIAL INSTITUTIONS 11.1 APPLICABILITY These procedures shall apply exclusively to those broker/dealer services conducted by the Firm on the premises of a financial institution. They do not alter or alleviate the Firm’s obligation to comply with other applicable FINRA rules, regulations and requirements, nor those of other regulatory authorities that may govern the firm operating on the premises of financial institutions. For registered persons and designated principals, these procedures are in addition to the rest of the Firm’s Written Supervisory Procedures. Thus, it is important for this section and the rest of the Firm’s Written Supervisory Procedures to be reviewed. In some areas, there is overlap between these procedures and the Written Supervisory Procedures due to relative importance of specific topics to sales on the premises on financial institution premises.

PERSPECTIVE

CONCEPT POINT – Financial institution means any federal and state-chartered banks, savings and loan associations, savings banks, credit unions, and the service corporation of such institutions. 11.2 SECURITIES MARKETING AGREEMENT Supervisory Responsibilities The Designated Principal or their designee shall ensure appropriate securities marketing agreement is in place prior to any broker/dealer activities taking place on the premises of a financial institution. An executed copy of the agreement will indicate evidence of Firm and Designated Principal or their designee approval. Registered Person Responsibilities No responsibilities.

06/08 121

PERSPECTIVE

CONCEPT POINT – A securities marketing agreement executed between the financial institution and a broker/dealer, like the Firm, is mandated for broker/dealers providing broker/dealer services on the premises on a financial institution. The agreement, at a minimum, must indicate the responsibilities of the financial institution and the broker/dealer, compensation arrangements, supervisory personnel, and permit SEC and FINRA auditors’ access to books and records and other relevant information maintained by the broker/dealer at the financial institution with respect to its broker/dealer services. 11.3 OFFICE SETTING/PHYSICAL SEPARATION OF BROKERAGE

ACTIVITIES Supervisory Responsibilities The Designated Principal or their designee is responsible for determining and verifying the area in which security products are sold are clearly distinguishable from the retail deposit-taking activities conducted by the financial institution. (What this means is that the area in which the registered person works within a financial institution is physically separate from the retail deposit-taking activities of the financial institution; or, if this is not feasible, signage clearly distinguishes the activities of the financial institution and the registered person are separate.) No less than annually through branch inspections, the Designated Principal or their designee will to verify this is the case. The evidence of such review will be maintained via completed templates and any subsequent correspondence relating to Branch Audits. Registered Person Responsibilities The registered person should at all times be aware the retail deposit taking activities are clearly distinguishable from securities activities taking place. If, at any time, the registered person feels such separation is not sufficient, they should contact their Designated Principal or their designee.

PERSPECTIVE CONCEPT POINT – It is critical an individual consumer who walks into a financial institution can easily distinguish between the services offered by the financial institution and the broker/dealer. The concern lies in the thought the client may mistakenly believe that FDIC insures broker/dealer services. 11.4 DISCLOSURES, ADVERTISING AND COMMUNICATIONS WITH THE

PUBLIC 11.4.1 CUSTOMER DISCLOURE AND WRITTEN ACKNOWLEDGEMENT Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring at or prior to the time a securities account is opened, the client has received, reviewed, and signed the Bank Disclosure Agreement (Bank Disclosure Agreement, Group or Bank Disclosure

06/08 122

Agreement, Brokerage) in addition to any other forms, such as the New Account Form, required to establish an account. The Designated Principal or their designee will review for such in approving any new accounts via signing the New Account Form. The Designated Principal or their designee cannot approve the establishment of a new account, under any circumstances, if such a disclosure is not obtained executed by the client at the time a new account is submitted to be opened. Registered Person Responsibilities Registered persons are required to provide each client upon establishment of any new account a Bank Disclosure Agreement (Bank Disclosure Agreement, Group or Bank Disclosure Agreement, Brokerage) from the client. The registered person must obtain from the client the agreement signed prior to establishing the account. More so, the registered person must orally discuss the contents of the disclosure form prior to the client executing the form in order for them to have full disclosure.

PERSPECTIVE CONCEPT POINT – The SEC and FINRA as part of our Firm offering services on the premises of a financial institution mandate the Bank Disclosure Agreement. Among other things, the agreement specifically discloses that non-deposit investment products offered by the Firm are: 1) Not insured by the FDIC, NCUA, or any other federal agency; 2) Not deposits of, obligations of, or guaranteed by any bank or credit union; 3) Subject to investment risk, including possible loss of principal invested; 4) The Firm is a separate broker/dealer; and 5) The Firm is a separate entity. 11.4.2 CUSTOMER CONFIRMATIONS AND STATEMENTS Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring customer confirmations and statements clearly indicate the Firm provides broker/dealer services. Annually, a sample of confirmations and account statements will be reviewed as part of the branch audit. The evidence of such review will be maintained via completed templates and any subsequent correspondence relating to Branch Audits. Registered Person Responsibilities Registered persons should immediately bring to the attention of their Designated Principal instances of where confirmations and account statements provided to clients do not clearly indicate the Firm provides broker/dealer services. 11.4.3 ADVERTISING AND SALES LITERATURE

06/08 123

Supervisory Responsibilities The Designated Principal or their designee is required to review and evidence their review of advertising in accordance to the procedures set forth earlier in the procedures. More so, the Designated Principal or their designee must ensure required disclosures specific to financial institutions are clearly indicated on all advertising and sales literature. Registered Person Responsibilities Registered persons must submit all advertising to their Designated Principal or their designee prior to use in accordance to Firm policy set forth earlier in the procedures. More so, the registered person must add required disclosures specific to financial institutions.

PERSPECTIVE FIRM POLICY – All advertisements, sales literature, or similar materials, whether prepared by the Firm or the financial institution, pertaining to broker/dealer services must clearly indicate the following items, unless they qualify for the exceptions listed later. 1) Securities are offered through the Firm and not the financial institution; 2) The Firm is not affiliated with the financial institution; 3) The Firm, and not the institution, is registered as a broker/dealer; 4) Securities products are not insured by FDIC or other insurance applicable to the

bank deposit accounts; 5) Securities products are not deposit accounts of the financial institution; 6) Securities products are not obligations of the financial institution; 7) Securities products are not guaranteed by the financial institution; and 8) Securities products are subject to investment risks, including possible loss of the

principal invested. A shorter logo may be used, if done in a conspicuous manner, in radio or television broadcasts, ATM screens, billboards, signs, posters, and brochures: 1) Not FDIC Insured 2) No Bank Guarantee 3) May Lose Value 4) Securities offered through the Firm, an independent broker/dealer

06/08 124

For electronic signs (i.e. time and temperature signs, billboard signs, and ticker tape signs), and signs such as banners and posters when used only as a location indicator, neither of the two methods are required to be disclosed. Also, any advertisements, sales literature, or similar material may only reference the financial institution to the extent necessary to identify the Firm’s location. 11.4.4 PUBLIC SPEAKING Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing public speaking engagements in accordance to policy set forth earlier in the procedures. The Designated Principal or their designee will review and evidence such review in accordance to procedures set forth in earlier sections. Registered Person Responsibilities Registered persons must receive the approval of the Designated Principal or their designee prior to engaging in any public speaking, specifically seminars, radio broadcast, and TV broadcasts. In seminar invitations and in the seminar itself, the registered person must clearly discuss the 8 disclosures noted above in the Perspective Box. For TV and radio broadcasts, the 4 disclosures noted above in the Perspective Box suffice. 11.4.5 DISCUSSION OF INSURANCE Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing and verifying all communications do not misrepresent insurance coverage available for non-deposit activities. No less than annually, during the course of branch audits, the Designated Principal or their designee is responsible for reviewing such communications. The evidence of such review will be maintained via completed templates and any subsequent correspondence relating to Branch Audits. Registered Person Responsibilities If any oral or written representation, including advertisements, concerns insurance protection provided by an entity other than FDIC (i.e. SIPC, a state insurance fund, or a private insurance company) the registered person is required to provide clear and accurate written or oral explanations of the coverage. Any such representations should not suggest or imply any alternative insurance coverage is the same as or similar to FDIC insurance. 11.5 CONFIDENTIALITY OF CLIENT INFORMATION 11.5.1 ACCESSING BANK CLIENT INFORMATION Supervisory Responsibilities The Designated Principal or their designee is responsible for monitoring registered persons do not obtain confidential information about clients who have deposit accounts or obtain other products through the financial institution not offered through the Firm

06/08 125

without the client’s written consent. At the time of account opening, the Designated Principal or their designee will review whether or not the client has agreed to allow the Firm and its registered persons to obtain such information by reviewing the Bank Disclosure Agreement. The Designated Principal or their designee will evidence review of the client’s intent by signing the New Account Form in approving an account. Registered Person Responsibilities No registered person can request or receive information about clients who have deposit accounts or obtain other products through the financial institution without the client agreeing to such in writing via the Bank Disclosure Agreement. 11.5.2 BANK ACCESS TO CLIENT INFORMATION OBTAINED BY THE FIRM Supervisory Responsibilities The Designated Principal or their designee is responsible for monitoring registered persons do not provide confidential information about clients who obtain securities products through the Firm without the client’s written consent. At the time of account opening, the Designated Principal or their designee will review whether or not the client has agreed to allow the Firm and its registered persons to provide such information by reviewing the Bank Disclosure Agreement. The Designated Principal or their designee will evidence review of the client’s intent by signing the New Account Form. Registered Person Responsibilities No registered person can provide confidential client information obtained by him or her to the financial institution without the written consent of the client. Consent can only be received via them completing and agreeing to the information sharing via the Bank Disclosure Agreement.

PERSPECTIVE CONCEPT POINT – It is critical registered persons and the Firm safeguard confidential client information. Not only is it necessary to maintain client trust and the reputations of the Firm and financial institution; but, under federal law (Gramm, Leach & Bliley and Regulation S-P), the Firm is required to not only safeguard customer information but also inform clients of the Firm’s privacy policy about when and how confidential client information can and will be disseminated to third parties. One single instance of sharing confidential information without the client’s consent is considered a federal crime. 11.6 RESTRICTED PRODUCTS Supervisory Responsibilities The Designated Principal or their designee is responsible for ensuring no registered person sales restricted products to a client. Daily, the Designated Principal or their designee will review trade activity via the daily trade blotter and applications. The Designated Principal or their designee will evidence their review by initialing the daily trade blotters and/or signing applications. Registered Person Responsibilities A registered person is prohibited from the following:

06/08 126

Offer or sell any non-deposit product whose name is identical or substantially similar to that of the financial institution; and

Solicit or recommend the purchase or sale of securities of the financial institution or any of its affiliates.

If a client wishes to purchase a security or sale a security of the financial institution or any of its affiliates that has not been recommended to them by the registered person, the registered person may accommodate the request by placing a buy or sale order for the security. THE REGISTERED PERSON MUST CLEARLY MARK THE TRANSACTION AS UNSOLICITED. 11.7 RESTRICTIONS ON THE INSTITUTION AND EMPLOYEES NOT

REGISTERED WITH THE FIRM Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing restrictions have been complied with by financial institutions and their employees. No less than annually, during the branch audit, the Designated Principal or their designee will review compliance with Firm policies. The evidence of such review will be maintained via completed templates and any subsequent correspondence relating to Branch Audits. Firm Policy In connection with the offering of securities at the financial institution, employees of the financial institution who are not registered persons may only engage in various clerical and ministerial activities as follows:

Distribution of promotional literature regarding the services of the Firm and its registered person(s);

Introducing or directing persons to the area in which registered persons of the Firm operate;

Providing persons information on how to contact the Firm; Taking and transmitting messages for, or routing telephone calls to, the Firm Providing a telephone number where the registered person can be reached if he

or she is not on-site at the institution; Scheduling an appointment for the person to meet the registered person; If fingerprinted, a copy of which has been provided to the Compliance

Department, accepting cash, checks, and securities for a client’s securities account at the Firm; and

Any other activities of similar kind relating to the activities of the Firm. This does not include soliciting or advising persons, executing transactions, providing market or stock quotes, or client performance information

Financial institution employees not registered with the Firm shall not:

Make recommendations to a client relating to the purchase or sale of securities; Provide any form of investment advice; Deliver prospectuses to clients; Open a customer securities account for the Firm; Complete or assist the client in completing New Account Forms or any other

securities-related document; Manage cash, checks, or securities for the Firm; Take orders from a client for the Firm; Solicit a client for the Firm, except to the extent that the financial institution

employee is performing non-ministerial duties;

06/08 127

Answer client questions about the advisability of purchasing or selling securities; Make representations to a client about customer about securities; Discuss the merits of any security with a client; Handle any questions that might require familiarity with the securities industry or

require the exercise the judgment regarding securities; and Accept cash, checks, and securities for a client’s securities account at the Firm,

unless fingerprinted. The financial institution shall not:

Hold securities or funds used for, or received from, the purchase or sale of securities, unless the client places such funds or securities in a safe deposit box or account at the financial institution;

Extend credit to a client for use in connection with the purchase or sale of securities; and

Assist in refinancing a mortgage, car loan, etc. where the registered person has recommended the client do such in order to facilitate the purchase of securities.

11.8 ROLE OF A REGISTERED PERSON Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing the role of registered persons on the premises of a financial institution. No less than annually, during the branch audit, the Designated Principal or their designee will review compliance with Firm policies. The evidence of such review will be maintained via completed templates and any subsequent correspondence relating to Branch Audits. Firm Policy The Firm only permits a registered person to perform the following non-ministerial duties that include, but are not limited to:

Make recommendations to a client relating to the purchase or sale of securities; Provide any form of investment advice relating to securities; Deliver prospectuses to clients; Open securities accounts of clients for the Firm; Complete or assist the client in completing New Account Forms or any other

securities-related document; Handle cash, checks, or securities for transmittal to the Firm; Take orders from a client for the Firm; Solicit a client for the Firm, except to the extent that the financial institution

employee is performing non-ministerial duties; Answer client questions about the advisability of purchasing or selling securities; Make representations to a client about customer about securities; Discuss the merits of any security with a client; and Handle any questions that might require familiarity with the securities industry or

require the exercise the judgment regarding securities. 11.9 DUAL EMPLOYEES Supervisory Responsibilities The Designated Principal or their designee is responsible for reviewing the role of dual employees on the premises of a financial institution. No less than annually, during the branch audit, the Designated Principal or their designee will review compliance with Firm

06/08 128

policies. The evidence of such review will be maintained via completed templates and any subsequent correspondence relating to Branch Audits. Firm Policy A dual employee shall not:

Identify themselves as an employee of, or imply that they are operating on behalf of the financial institution, when involved with broker/dealer services; and

Engage in any activity that presents a conflict of interest for the financial institution, the Firm, or both.

11.10 NOTIFICATION OF TERMINATIONS Supervisory Responsibilities The Designated Principal or their designee is responsible for immediately notifying the financial institution of the termination of any registered person, whether an employee of the financial institution or not. Such notification will be provided by whatever means of communication can be immediately accessed. The Designated Principal or their designee will evidence their notification via a letter to the appropriate financial institution personnel. Registered Person Responsibilities No responsibilities. 11.11 BRANCH AUDIT PROGRAM 11.11.1 BRANCH AUDIT INSPECTIONS Supervisory Responsibilities The Designated Principal or their designee is responsible for developing a system for conducting branch office inspections for activities conducted at financial institution premises. Branch office inspections may be announced and unannounced based on the discretion of the Designated Principal or their designee. No less than annually, the Designated Principal or their designee will require a branch audit be taken place at financial institution premises where securities are offered. Registered Person Responsibilities The registered person must timely provide all information requested as part of the branch office reviews. The registered person must make themselves available to the Firm’s Branch Auditor, if an announced examination, at the time agreed upon by the Branch Auditor and registered person. Upon completion of the audit, the registered person must address all deficiencies found by the Branch Auditor. 12.0 APPENDICES

06/08 129

DESIGNATION OF PRINCIPALS

MAIN OFFICE Richard K. Bryant President/Financial & Operations Principal Capital Investment Group, Inc. and Capital Investment Brokerage, Inc. 17 Glenwood Avenue Raleigh, North Carolina 27603 Qualifications: Series 7, 24, 27, and 63 William H. Eddins AVP/Municipal Principal Capital Investment Group, Inc. and Capital Investment Brokerage, Inc. 17 Glenwood Avenue Raleigh, North Carolina 27603 Qualifications: Series 7, 24, 53, 63, and 65 Jerolyn D. Newton Trading Manager Capital Investment Group, Inc. and Capital Investment Brokerage, Inc. 17 Glenwood Avenue Raleigh, North Carolina 27603 Qualifications: Series 7, 24, 63 William B. Nicholson Head – Capital Insurance Affiliates Capital Investment Group, Inc. and Capital Investment Brokerage, Inc. 17 Glenwood Avenue Raleigh, North Carolina 27603 Qualifications: Series 6, 26, 63 Ronald L. King Chief Compliance Officer Capital Investment Group, Inc. and Capital Investment Brokerage, Inc. 17 Glenwood Avenue Raleigh, North Carolina 27603 Qualifications: Series 7, 9, 10, 24, 63, 66

06/08 130

OSJ MANAGERS Frank H. Shields 105 North Washington Street Rocky Mount, North Carolina 27804 Qualifications: Series 7, 24, 63 Lon A. Waggoner. 155 Union Street Gastonia, North Carolina 28053 Qualifications: Series 7, 24, 63, 65 Gerald V. Weber 1310 Azalea Court, Suite M Myrtle Beach, South Carolina 29577 Qualifications: Series 7, 24, 63 Phillip C. Allen 330 East Coffee Street Greenville, South Carolina 29601 Qualifications: Series 6, 7, 26, 63 John A. Capets 831 East Morehead Street; Suite 350 Charlotte, North Carolina 28202 Qualifications: Series 7, 24, 63, 65 Joseph A. Giordano 2530 Riva Road #312 Annapolis, MD 21401 Qualifications: Series 7, 24, 63, 65 Naomi D. Johnson 169 Rogers Drive Boone, North Carolina 28607 Craig M. McDaniel 6156 St. Andrews Road Columbia, South Carolina 29212 Qualifications: Series 7, 24, 63, 65 Brian Thomas 23 Cleveland Street Suite B Greenville, South Carolina 29601 Qualifications: Series 6, 26, 63

06/08 131

PRINCIPAL SUPERVISORY RESPONSIBILITIES

RICHARD BRYANT Bryant is responsible for the following:

Heightened Supervision (Section 2.14)

,Maintaining Registrations (3.1.7)

Safeguarding of Client Information (Section 4.9)

Preparation, Monitoring, and Maintenance of Financial Books and Records (Sections 7.1; 7.3; 7.4; 7.5)

• Balance Sheet • Income Statement • General Ledger • Trial Balance • Net Capital Computation • Checks Received and Forwarded Blotter • Securities Received and Forwarded Blotter

Customer Protection Rule ( (Section 7.2)

Preparation, Filing, and Maintenance of Regulatory Financial Reports (Sections

7.6; 7.7; 7.8)

• FOCUS llA and Schedule 1 • Annual Audited Report • FINRA Assessment Report

FINRA Notifications (Section 7.9)

Subordinated Loans and Secured Demand Notes (Section 7.10)

Clearing Arrangements (Section 7.11)

Fidelity Bond (Section 7.12)

Credit, Regulation T and Extensions of Time (Section 7.13)

Lost and Stolen Securities (Section 7.14)

Annual Review of Compliance and Supervisory Processes (Section 10.2)

Securities Marketing Agreement (Section 11.2)

06/08 132

WILLIAM EDDINS Eddins is responsible for the following:

Transaction Reviews (Municipals/529s) (Section 6.8 and 6.9)

MSRB Transaction Reporting (Section 9.0) JEROLYN NEWTON

Newton is responsible for the following:

New Accounts (Section 5.1)

Account Maintenance Items for non-OSJs (Section 5.2)

Transaction Reviews for non-OSJs (all except 529 Plans, Municipal Bonds,

REITs, Options; Insurance/Annuities) (Section 6.1)

Fees and Commissions for non-OSJs (Section 6.2.3)

Affirmative Determination for non-OSJs (Section 6.2.8)

Purchase and Sales Blotter (Section 7.1)

Credit, Regulation T, and Extensions (Section 7.1.3)

BILL NICHOLSON Nicholson is responsible for the following:

Transaction Reviews of Insurance and Annuity Product Types (Section 6.1)

Maintenance of Insurance Purchase and Sales Blotter

Due Diligence of Insurance and Annuities (Section 10.7) RON KING

King is responsible for reviewing, approving, and/or addressing the following:

Development and distribution of Written Supervisory Procedures (Section 2.1)

Requirement for Working E-Mail Address (Section 2.2)

Compliance with Prohibited Activities (Section 2.3)

Regulatory inquiries, investigations, and audits (Section 2.4)

06/08 133

Outside Business Activities (Section 2.5)

Private Securities Transactions (Section 2.6)

Investment Advisory Business of Registered Persons (Section 2.7)

Registered Person and Registered Person Related Accounts (Section 2.8)

Insider Trading (Section 2.9)

Dealing with Clients and Non-Member (Section 2.10)

Cash and Non-Cash, General (Section 2.11)

Dealing with Non-Capital Broker/Dealers and their Registered Person Issues (Section 2.12)

Prohibition Against Guarantees (Section 2.13)

Hiring, Registration, and Education Items (Section 3.0) – All Sections Except

3.1.7

Communications (Section 4.0) with the exception of 1. Correspondence and Internal Communications of OSJs. The OSJ manager is responsible for this area; 2. Safeguarding of Client Information.

Option Account Approvals (Section 5.1.6)

Request of Duplicate Statements (FINRA/AMEX/Other BD Employees Who

Open Accounts at the Firm) (Section 5.3 – 5.4)

Customer Account Reviews (non-OSJs) (Section 5.5.1)

Producing Manger Reviews (Section 5.5.3)

Best Execution (Section 6.2.1)

Transaction Reviews (144/144A, Options, REITs, 1031 Programs, OGPs) (Section 6.1)

Anti-Money Laundering Program (Section 8.0)

Transaction Reporting (TRACE, OATS, Order Routing, Etc.) (Section 9.0)

Periodic Review of the Firm Items (Supervisory System, Annual Review,

Membership Agreement, Business Continuity Program, and Branch Office Inspections) (Section 10.0 except for 10.2 & Section 10.7 as it relates to Insurance and Annuities)

Sales on the Premises of Financial Institutions (Section 11 except for Section

11.2)

06/08 134

OSJ MANAGERS

OSJ Managers are required for reviewing for and/or approving the following:

Correspondence for the OSJ (Section 4.7)

Internal Communications for the OSJ (Section 4.8)

Safeguarding of Client Information (Section 4.9)

New Accounts for the OSJ (Section 5.1)

Maintenance of Account Items for the OSJ (Section 5.2)

Customer Account Reviews for the OSJ (Section 5.5.1)

Transaction Reviews for OSJ (all except 529 Plans, Municipal Bonds, 144/144A, REITs, Options) (Section 6.1)

Fees and Commissions (all except 529 Plans, Municipal Bonds, 144/144A,

REITs, Options) (Section 6.2.3)

Affirmative Determination for OSJs (Section 6.2.8)

Receipt and Forwarding of Checks at the OSJ (Section 7.3)

Receipt and Forwarding of Securities at the OSJ (Section 7.4)

Receipt of Customer Cash at the OSJ (Section 7.5)

06/08 135

CLIENT DISCLOSURE FORMS Check on the below hotlink to access the following forms from the Firm’s web site. Not all of the below forms are required to be completed by a client or a registered person. They are being provided as tools for the registered person to use to analyze investments, further protect themselves against potential liability, and to assist the client in their understanding.

529 PLAN DISCLOSURE (Required)

BANK DISCLOSURE AGREEMENT, GROUP (Required)

BANK DISCLOSURE AGREEMENT, BROKERAGE (Required)

LOW-PRICED SECURITIES DISCLOSURE (Required)

MUTUAL FUND CLASS C SHARE DISCLOSURE (Optional)

MUTUAL FUND SWITCH DISCLOSURE (Required)

MUTUAL FUND/UNIT INVESTMENT TRUST DISCLOSURE (Optional)

PRIVATE REIT DISCLOSURE (Required)

VARIABLE ANNUITY ACKNOWLEDGEMENT (Required)

VARIABLE ANNUITY REPLACEMENT ACKNOWLEDGEMENT (Required)

06/08 136

APPROVED AND NON-APPROVED PRODUCT TYPES APPROVED PRODUCTS The following product-types have been approved for sale; however, this does not mean that particular vendors or security types have been approved as due diligence must be conducted in advance. All of these securities/securities-like products MUST be sold through the Firm.

144/144A/Restricted Stock Callable/Brokered CDs Corporate Bonds/Notes Equities (Publicly-Traded) Equity Indexed Annuities Equity Indexed Life Insurance Exchange-Traded Funds Government/Treasury Bonds/Notes/Bills Government Agency Bonds/Notes/Bills Life Settlements Municipal Bonds Mutual Funds Oil & Gas Partnerships Options Real Estate Investment Trusts Tenant-in-Common/1031 Exchange Programs Unit Investment Trusts Variable Annuities Variable Life Insurance

NON-APPROVED PRODUCTS A registered representative is prohibited from selling the following products:

Income Deposit Securities Private Placements and Offerings Reverse Repurchases Repurchases Promissory Notes

KEY POINTS

If a product is not listed above, contact the Compliance Department prior to selling such product.

Although the product type itself may be approved, the Firm will need to undertake

due diligence if we do not have a selling agreement.

The above products can only be sold with appropriate registration licenses.