written supervisory procedures · v.03/18/2016 page 1 written supervisory procedures (capital...

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WRITTEN SUPERVISORY PROCEDURES

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

March 18, 2016

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.

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TABLE OF CONTENTS

1.0 INTRODUCTION ........................................................................................ 8

1.1 FORWARD ....................................................................................................................................... 8 1.2 DEFINITIONS ................................................................................................................................... 8 2.0 GENERAL POLICIES OF REGISTERED PERSONS ............................... 9

2.1 DISTRIBUTION OF WRITTEN SUPERVISORY PROCEDURES AND AMENDMENTS ................. 9 2.2 REQUIREMENT OF WORKING E-MAIL ADDRESS ........................................................................ 9 2.3 PROHIBITED ACTIVITES ...............................................................................................................10 2.4 REGULATORY INQUIRES, INVESTIGATIONS, AND AUDITS ......................................................11 2.5 OUTSIDE BUSINESS ACTIVITIES .................................................................................................12 2.6 PRIVATE SECURITIES TRANSACTIONS (“SELLING AWAY”) .....................................................14 2.7 INVESTMENT ADVISORY BUSINESS OF REGISTERED PERSONS ..........................................16 2.7.1 REQUEST TO CONDUCT INVESTMENT ADVISORY BUSINESS ................................................16 2.7.2 REVIEW OF INVESTMENT ADVISORY TRANSACTIONS ............................................................16 2.7.3 REVIEW OF FORM ADV .................................................................................................................16 2.7.4 ADDITIONAL POINTS .....................................................................................................................17 2.8 REGISTERED PERSON AND REGISTERED PERSON RELATED ACCOUNTS ..........................17 2.8.1 OUTSIDE SECURITIES ACCOUNTS .............................................................................................17 2.8.2 ACCOUNTS MAINTAINED AT CAPITAL ........................................................................................18 2.8.3 SHARING IN ACCOUNTS WITH CUSTOMERS .............................................................................18 2.8.4 PARTICIPATION IN INVESTMENT CLUBS ....................................................................................18 2.8.5 PARTICIPATION IN INITIAL PUBLIC OFFERINGS (“IPOs”) ..........................................................19 2.9 INSIDER TRADING .........................................................................................................................20 2.10.1 REFERRAL FEES ...........................................................................................................................21 2.10.2 REBATING OF COMMISSIONS......................................................................................................22 2.11 CASH AND NON-CASH COMPENSATION, GENERAL .................................................................23 2.11.1 GIFTS AND GRATUITIES TO AND FROM CUSTOMERS .............................................................23 2.11.2 BONA FIDE TRAINING AND EDUCATIONAL TRIPS/SEMINARS FROM PRODUCT SPONSORS

.........................................................................................................................................................23 2.12 DEALING WITH NON-CAPITAL BROKER/DEALERS AND THEIR REGISTERED PERSONS .....25 2.12.1 REFERRAL FEES ...........................................................................................................................25 2.12.2 SHARING IN COMMISSIONS AND SERVICE FEES .....................................................................25 2.13 PROHIBITION AGAINST GUARANTEES .......................................................................................25 2.14 HEIGHTENED SUPERVISION ........................................................................................................26 2.15 HEIGHTENED OFFICE INSPECTIONS ..........................................................................................27 2.16 INTERNAL USE MATERIAL ............................................................................................................27 2.17 SIGNATURE GUARANTEE STAMPS .............................................................................................28 3.0 HIRING, REGISTRATION AND EDUCATION ......................................... 28

3.1 NEW HIRES AND EXISTING REGISTERED PERSONS ...............................................................28 3.1.1 BACKGROUND CHECKS ...............................................................................................................29 3.1.1.1 BACKGROUND CHECKS – REGULATION S-P .............................................................................29 3.1.2 SCREENING FOR STATUTORILY DISQUALIFIED PERSONS .....................................................29 3.1.4 REVIEW OF REGISTERED PERSONS AND SUPERVISORY PERSONNEL QUALIFICATIONS .34 3.1.5 FORM U-4 FILING ...........................................................................................................................35 3.1.6 FORM U-5 UPDATES BY PRIOR EMPLOYER...............................................................................36 3.1.7 MAINTAINING REGISTRATIONS ...................................................................................................36 3.2 TERMINATIONS/RESIGNATIONS..................................................................................................36 3.2.1 NOTIFICATION OF TERMINATION ................................................................................................36 3.2.2 FORM U-5 FILING ...........................................................................................................................36 3.2.3 FORM U-5 DELIVERY .....................................................................................................................37 3.3 FORM BD ........................................................................................................................................37 3.4 ROLE OF NON-REGISTERED PERSONS .....................................................................................37 3.5 TRAINING AND EDUCATION .........................................................................................................38 3.5.1 BROKER ORIENTATION TRAINING ..............................................................................................38 3.5.2 SPECIALIZED TRAINING ...............................................................................................................38 3.5.3 CONTINUING EDUCATION ............................................................................................................39 3.5.3.1 REGULATORY ELEMENT REQUIREMENTS ................................................................................39 3.5.3.2 FIRM ELEMENT REQUIREMENTS ................................................................................................40 3.5.4 ANNUAL COMPLIANCE MEETING ...............................................................................................41

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4.0 COMMUNICATIONS ............................................................................... 42

4.1 CUSTOMER GRIEVANCES ............................................................................................................42 4.1.1. CUSTOMER COMPLAINTS, ARBITRATIONS, LITIGATIONS, CIVIL SUITS, AND CRIMINAL

SUITS ..............................................................................................................................................42 4.1.2 SETTLEMENTS WITH CUSTOMERS .............................................................................................42 4.1.3 4530 REPORTING ..........................................................................................................................42 4.2 COMMUNICATIONS WITH THE PUBLIC (PREVIOUSLY REFERRED TO AS ADVERTISING AND

SALES LITERATURE) .....................................................................................................................44 Pursuant to FINRA Rule 2210, any type of written communication, with both existing and prospective

customers, falls into one of three categories: ..................................................................................44 4.2.1 CORRESPONDENCE .....................................................................................................................45 4.2.1.1 WRITTEN CORRESPONDENCE ....................................................................................................45 4.2.1.2 EMAIL CORRESPONDENCE WITH CUSTOMERS .......................................................................45 4.2.1.3 INSTANT MESSAGING AND TEXTING ..........................................................................................46 4.2.1.4 RETAIL COMMUNICATIONS PRODUCED BY THE REGISTERED PERSON ................................46 4.2.2 ADVERTISING SPECIFIC TO MUTUAL FUNDS, VARIABLE PRODUCTS, MUNICIPALS, CMOs,

AND OPTIONS ................................................................................................................................47 4.2.3 INTERNET/ELECTRONIC ADVERTISING .....................................................................................48 4.2.5 TELEVISION ADVERTISEMENTS ..................................................................................................50 4.2.6 RADIO SPOT ADS ..........................................................................................................................50 4.2.7 RESEARCH REPORTS ..................................................................................................................50 4.2.8 COMMUNICATION RELATED TO DISTRIBUTOR FUNCTIONS ...................................................51 4.3 PUBLIC SPEAKING ........................................................................................................................51 4.3.1 SEMINARS AND PUBLIC PRESENTATIONS ................................................................................51 4.3.3 RADIO APPEARANCES .................................................................................................................52 4.4 BUSINESS AND OFFICE SIGNS ....................................................................................................52 4.5 BUSINESS STATIONERY/LETTERHEAD ......................................................................................52 4.6 BUSINESS CARDS .........................................................................................................................53 4.7.4 TELEMARKETING ..........................................................................................................................53 4.7.4.1 COLD CALLING ACTIVITIES ..........................................................................................................53 4.7.4.2 USE OF SALES SCRIPTS ..............................................................................................................54 4.7.4.3 DO NOT CALL LISTS ......................................................................................................................54 4.7.5 USE OF SOCIAL MEDIA/ ................................................................................................................55 4.7.6 CONSOLIDATED ACCOUNT REPORTS .......................................................................................57 4.8 PRIVACY POLICY NOTIFICATION .................................................................................................58 4.9 SAFEGUARDING OF CUSTOMER INFORMATION .......................................................................58 4.10 PROCEDURES FOR CUSTOMER DATA BREACH .......................................................................59 5.0 ACCOUNTS ............................................................................................. 61

5.1 NEW ACCOUNTS ...........................................................................................................................61 5.1.1 APPROVAL OF NEW ACCOUNTS .................................................................................................61 5.1.3 MARGIN ACCOUNTS .....................................................................................................................62 5.1.3.1 MARGIN AGREEMENT ...................................................................................................................62 5.1.3.2 MARGIN DISCLOSURE STATEMENT ...........................................................................................62 5.1.4 DISCRETIONARY ACCOUNTS ......................................................................................................63 5.1.4.1 INITIAL CONSENT ..........................................................................................................................63 5.1.5 THIRD PARTY ACCOUNTS ............................................................................................................63 5.1.6 OPTION ACCOUNTS ......................................................................................................................64 5.1.6.1 APPROVAL AND DUE DILIGENCE ................................................................................................64 5.1.7 CUSTOMER ACCOUNTS – MUNICIPAL SECURITIES .................................................................65 5.1.8 ERISA ACCOUNTS .........................................................................................................................66 5.1.9 RETIREMENT PLAN ROLLOVER ACCOUNTS..............................................................................67 5.2 ACCOUNT MAINTENANCE ITEMS ................................................................................................67 5.2.1 UPDATING ACCOUNT INFORMATION .........................................................................................67 5.2.2 REORGANIZATION ITEMS ............................................................................................................68 5.2.3 DIVIDEND CLAIMS .........................................................................................................................68 5.2.4 DEBITS ............................................................................................................................................68 5.2.5 HOLDING OF CUSTOMER MAIL....................................................................................................69 5.2.6 CHANGES IN ACCOUNT NAMES/DESIGNATION FOR TRANSACTIONS ...................................69 5.2.7 CHANGES OF ADDRESS ...............................................................................................................69 5.2.8 CHANGE OF INVESTMENT OBJECTIVES ....................................................................................70 5.3 ACCOUNTS OF FINRA-/AMEX-MEMBER EMPLOYEES ...............................................................70

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5.4 ACCOUNTS OF PERSONS REGISTERED WITH ANOTHER BROKER/DEALER (NON-CAPITAL) 71

5.5 MONITORING OF ACCOUNTS ......................................................................................................71 5.5.2 PRODUCING SUPERVISOR REVIEWS .........................................................................................71 5.5.3 ISSUES TO BE AWARE OF IN REVIEWING ACCOUNTS .............................................................72 6.0 TRANSACTIONS ..................................................................................... 74

6.1 REVIEW OF TRANSACTIONS........................................................................................................74 6.2 GENERAL TRANSACTION TOPICS ...............................................................................................74 6.2.1 BEST EXECUTION .........................................................................................................................74 6.2.2 INTERPOSITIONING ......................................................................................................................74 6.2.3 FEES AND COMMISSIONS ............................................................................................................74 6.2.3.1 TRADE SHREDDING ......................................................................................................................76 6.2.4 SUITABILITY ...................................................................................................................................76 6.2.5 MISREPRESENTATION/MATERIAL OMMISSIONS ......................................................................77 6.2.6 UNAUTHORIZED TRANSACTIONS ...............................................................................................77 6.2.7 CHURNING AND EXCESSIVE ACTIVITY ......................................................................................78 6.2.8 AFFIRMATIVE DETERMINATION ..................................................................................................79 6.2.9 REFINANCING MORTGAGES/LOANS TO FACILITATE TRANSACTIONS ..................................79 6.3 EQUITIES ........................................................................................................................................79 6.3.1 SPECIFIC SUITABILITY ISSUES....................................................................................................79 6.3.1.1 LOW-PRICED SECURITIES (STOCKS LESS THAN $2) ...............................................................79 6.3.2 RESTRICTED STOCK/144/144A TRANSACTIONS .......................................................................80 6.4 MUTUAL FUNDS.............................................................................................................................81 6.4.1 SPECIFIC SUITABILITY ISSUES....................................................................................................81 6.4.1.1 FUND SELECTIONS .......................................................................................................................81 6.4.1.2 CLASS SHARE SELECTION (SINGLE AND MULTI-CLASS) .........................................................82 6.4.1.3 SWITCHING ....................................................................................................................................83 6.4.1.4 SELLING DIVIDENDS .....................................................................................................................83 6.4.2 SALES CHARGES ..........................................................................................................................84 6.4.2.1 LOAD FUNDS..................................................................................................................................84 6.4.2.2 NAV TRANSFERS/ SALES CHARGE WAIVERS/REINSTATEMENTS ..........................................86 6.4.2.3 LETTERS OF INTENT/RIGHTS OF ACCUMULATION ...................................................................86 6.4.3 POINT OF SALE DISCLOSURES ...................................................................................................87 6.4.3.1 PROSPECTUS DELIVERY .............................................................................................................87 6.4.3.2 REQUIRED DISCLOSURES ...........................................................................................................87 6.4.4 MARKET TIMING ............................................................................................................................88 6.4.5 LATE TRADING...............................................................................................................................89 6.4.6 REDEMPTION POLICY ...................................................................................................................89 6.5 EXCHANGE TRADED FUNDS (ETFs) ............................................................................................90 6.5.1 SPECIFIC SUITABILITY ISSUES....................................................................................................90 6.6 VARIABLE CONTRACTS ................................................................................................................90 6.6.1 SPECIFIC SUITABILITY ISSUES....................................................................................................90 6.6.1.1 SALES WITHIN TAX QUALIFIED ACCOUNTS ..............................................................................90 6.6.1.2 GENERAL SALES PRACTICES......................................................................................................91 6.6.1.3 1035 EXCHANGES AND REPLACEMENTS ..................................................................................92 6.6.1.5 MULTIPLE CONTRACT SALES ......................................................................................................93 6.6.1.6 FUND SELECTIONS - CLASS SHARE SELECTION .......................................................................93 6.6.2 CONTRACT DELIVERY ..................................................................................................................94 6.6.3 MARKET TIMING OF MUTUAL FUNDS IN SUB-ACCOUNTS .......................................................94 6.7.1 SUITABILITY ...................................................................................................................................95 6.8 FIXED INCOME PRODUCTS (MUNICIPALS, CORPORATES, TREASURIES, AND

GOVERNMENT AGENCY DEBT) ...................................................................................................95 6.8.1 SUITABILITITY ................................................................................................................................95 6.8.2 YIELD BURNING .............................................................................................................................96 6.8.3 COPY OF MSRB RULES ................................................................................................................96 6.8.4 SEC Rule 15c2-12 ...........................................................................................................................96 6.9 529 PLANS/EDUCATIONAL SAVINGS PLANS ..............................................................................97 6.9.1 SUITABILITY ...................................................................................................................................97 6.9.2 PROSPECTUS DELIVERY .............................................................................................................97 6.9.3 DISCLOSURE OF POTENTIAL TAX DEDUCTIONS ......................................................................98 6.10 REAL ESTATE INVESTMENT TRUSTS (REITS) ...........................................................................98 6.10.1 SUITABILITY ...................................................................................................................................98 6.10.2 PROSPECTUS DELIVERY .............................................................................................................99

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6.10.3 DISCLOSURES ...............................................................................................................................99 6.11 OPTIONS ........................................................................................................................................99 6.11.1 SPECIFIC SUITABILITY ISSUES....................................................................................................99 6.11.1.1 UNCOVERED SHORT OPTIONS CONTRACTS ............................................................................99 6.11.2 ALLOCATION PROCEDURES ......................................................................................................100 6.11.3 POSITION LIMITS .........................................................................................................................100 6.11.4 REPORTING OF OPTIONS POSITIONS ......................................................................................100 6.11.5 MANIPULATION ............................................................................................................................100 6.12 TENANTS IN COMMON/1031 EXCHANGE PROGRAMS ............................................................101 6.12.1 SUITABILITY .................................................................................................................................101 6.12.2 CHOOSING A QUALIFIED CUSTODIAN ......................................................................................102 6.12.3 PROGRAM DOCUMENTS ............................................................................................................102 6.13 OIL & GAS PARTNERSHIPS ........................................................................................................102 6.13.1 SUITABILITY .................................................................................................................................102 6.13.2 PROGRAM DOCUMENTS ............................................................................................................103 6.14 OTHER ALTERNATIVE INVESTMENTS ......................................................................................103 6.14.1 SUITABILITY .................................................................................................................................103 6.14.2 PROGRAM DOCUMENTS ............................................................................................................104 7.0 FINANCIAL & OPERATIONAL ISSUES ............................................... 105

7.1 BOOKS & RECORDS ....................................................................................................................105 7.2 CUSTOMER PROTECTION RULE ...............................................................................................105 7.3 RECEIPT OF CUSTOMER SECURITIES .....................................................................................105 7.4 RECEIPT OF CUSTOMER CHECKS ............................................................................................105 7.5 RECEIPT OF CUSTOMER CASH .................................................................................................106 7.6 PREPARATION OF FINANCIAL RECORDS, INCLUDING NET CAPITAL ...................................107 7.7 FOCUS FILINGS ...........................................................................................................................108 7.8 ANNUAL AUDITED REPORT .......................................................................................................108 7.8.1 ACCOUNTANT’S LETTER OF SERVICES TO BE PROVIDED....................................................108 7.8.2 ANNUAL AUDITED REPORT .......................................................................................................108 7.8.3 ADJUSTMENTS TO FINANCIAL RECORDS AND FOCUS REPORTS FOR ANNUAL AUDIT

FINDINGS .....................................................................................................................................108 7.9 FINRA NOTIFICATIONS ...............................................................................................................109 7.10 SUBORDINATED LOANS AND SECURED DEMAND NOTES ....................................................109 7.11 CLEARING ARRANGEMENTS .....................................................................................................110 7.12 FIDELITY BOND............................................................................................................................110 7.13 CREDIT, REGULATION T AND EXTENSIONS OF TIME .............................................................110 7.13.1 REGULATION T ............................................................................................................................110 7.13.2 ARRANGING CREDIT AWAY FROM THE CLEARING AGENT ...................................................110 7.14 LOST AND STOLEN SECURITIES ...............................................................................................110 7.16 PRIVATE PLACEMENT FILING SYSTEM ....................................................................................112 8.0 ANTI-MONEY LAUNDERING PROGRAM AND POLICIES .................. 113

8.1 FIRM POLICY ................................................................................................................................113 8.2 AML COMPLIANCE OFFICER DESIGNATION AND DUTY .........................................................113 8.2.1 FIRM DESIGNATION ....................................................................................................................113 8.2.2 FINRA NOTIFICATION ..................................................................................................................113 8.3 PROVIDING AML INFORMATION ................................................................................................113 8.3.1 FINCEN REQUESTS UNDER PATRIOT ACT SECTION 314 ......................................................113 8.3.2 SHARING INFORMATION WITH OTHER FINANCIAL INSTITUTIONS .......................................114 8.4 CHECKING THE OFFICE OF FOREIGN ASSETS CONTROL (“OFAC”) LIST.............................114 8.5 CUSTOMER IDENTIFICATION AND VERIFICATION ..................................................................115 8.5.1 GENERAL .....................................................................................................................................115 8.5.2 REQUIRED CUSTOMER INFORMATION ....................................................................................115 8.5.3 CUSTOMERS WHO REFUSE TO PROVIDE INFORMATION......................................................116 8.5.4 VERIFYING INFORMATION .........................................................................................................116 8.5.5 LACK OF VERIFICATION .............................................................................................................117 8.5.6 RECORDKEEPING .......................................................................................................................117 8.5.7 COMPARISION WITH GOVERNMENT PROVIDED LISTS OF TERRORISTS AND OTHER

CRIMINALS ...................................................................................................................................117 8.5.8 NOTICE TO CUSTOMERS ...........................................................................................................118 8.5.9 RELIANCE ON ANOTHER FINANCIAL INSTITUTION FOR IDENTITY VERIFICATION .............118 8.6 PROHIBITED ACCOUNTS ............................................................................................................118 8.7 MONITORING ACCOUNTS FOR SUSPICIOUS ACTIVITY ..........................................................118

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8.7.1 GENERAL .....................................................................................................................................118 8.7.2 EMERGENCY NOTIFICATION TO THE GOVERNMENT BY PHONE .........................................119 8.7.3 RED FLAGS ..................................................................................................................................119 8.7.4 RESPONDING TO RED FLAGS AND SUSPICIOUS ACTIVITY ...................................................121 8.8 SUSPICIOUS TRANSACTIONS AND BSA REPORTING .............................................................121 8.8.1 FILING A FORM SAR-SF ..............................................................................................................121 8.8.2 CURRENCY TRANSACTION REPORTS (CTR) ...........................................................................122 8.8.3 CURRENCY AND MONETARY INSTRUMENT TRANSPORTATION REPORTS (CMIR) ...........122 8.8.4 FOREIGN BANK AND FINANCIAL ACCOUNTS REPORTS (FBAR) ...........................................123 8.8.5 TRANSFERS OF $3,000 OR MORE UNDER THE JOINT AND TRAVEL RULE ..........................123 8.8.6 STRUCTURING.............................................................................................................................123 8.9 AML RECORDKEEPING ...............................................................................................................124 8.9.1 SAR–SF MAINTENANCE AND CONFIDENTIALITY ....................................................................124 8.9.2 RESPONSIBILITY FOR AML RECORDS AND SAR FILING ........................................................124 8.9.3 RECORDS REQUIRED .................................................................................................................124 8.10 CLEARING/INTRODUCING RELATIONSHIPS.............................................................................124 8.11 TRAINING PROGRAMS ................................................................................................................124 8.12 PROGRAM TO TEST AML PROGRAM ........................................................................................125 8.12.1 STAFFING .....................................................................................................................................125 8.12.2 EVALUATION AND REPORTING .................................................................................................125 8.12.3 RETALIATION AGAINST NON INDEPENDENT INDIVIDUAL CONDUCTING AML TESTING ....125 8.13 MONITORING EMPLOYEE CONDUCT AND ACCOUNTS ..........................................................125 8.14 CONFIDENTIAL REPORTING OF AML NON-COMPLIANCE ......................................................125 8.15 ADDITIONAL AREAS OF RISK .....................................................................................................126 9.0 TRANSACTION REPORTING ............................................................... 126

9.1 MUNICIPAL BONDS .....................................................................................................................126 9.2 OATS .............................................................................................................................................126 9.3 TRACE ..........................................................................................................................................127 10.0 PERIODIC REVIEW OF THE FIRM ....................................................... 128

10.1 SUPERVISORY SYSTEM .............................................................................................................128 10.2 SUPERVISORY CONTROL SYSTEM ...........................................................................................128 10.2.1 Designation of Principal for Supervisory Control Procedures ........................................................128 10.2.2 Testing and Verification of Supervisory Procedures & Amendments .............................................128 10.2.3 Annual Report to Senior Management ...........................................................................................128 10.2.4 Supervision of Customer Account Activity of Producing Managers ...............................................129 10.3 ANNUAL CERTIFICATION OF COMPLIANCE AND SUPERVISORY ..........................................129 PROCESSES ...............................................................................................................................................129 10.3.1 Designation of Chief Compliance Officer .......................................................................................129 10.3.2 Annual Certification ........................................................................................................................129 10.3.3 Annual Report ................................................................................................................................130 10.4 MEMBERSHIP AGREEMENT .......................................................................................................130 10.5 BUSINESS CONTINUITY PROGRAM ..........................................................................................131 10.6 BRANCH OFFICE INSPECTIONS ................................................................................................131 10.7 DUE DILIGENCE OF PRODUCT OFFERINGS ............................................................................131 10.7.1 DUE DILIGENCE OF OTHER MEMBERS RELATED TO DISTRIBUTOR FUNCTIONS ..............133

11.0 SALES ON THE PREMISES OF FINANCIAL INSTITUTIONS ............. 134

11.1 APPLICABILITY.............................................................................................................................134 11.2 SECURITIES MARKETING AGREEMENT ...................................................................................134 11.3 OFFICE SETTING/PHYSICAL SEPARATION OF BROKERAGE ACTIVITIES ............................135 11.4 DISCLOSURES AND COMMUNICATIONS WITH THE PUBLIC ..................................................135 11.4.1 CUSTOMER DISCLOSURE AND WRITTEN ACKNOWLEDGEMENT .........................................135 11.4.2 CUSTOMER CONFIRMATIONS AND STATEMENTS ..................................................................136 11.4.3 ADVERTISING AND SALES LITERATURE ..................................................................................136 11.4.4 PUBLIC SPEAKING ......................................................................................................................137 11.4.5 DISCUSSION OF INSURANCE ....................................................................................................138 11.5 CONFIDENTIALITY OF CUSTOMER INFORMATION .................................................................138 11.5.1 ACCESSING BANK CUSTOMER INFORMATION .......................................................................138 11.5.2 BANK ACCESS TO CLIENT INFORMATION OBTAINED BY THE FIRM .....................................138 11.5.3 CONFIDENTIALITY OF CUSTOMER INFORMATION OBTAINED BY THE FIRM.......................139 11.6 RESTRICTED PRODUCTS ...........................................................................................................139

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11.7 RESTRICTIONS ON THE INSTITUTION AND EMPLOYEES NOT REGISTERED WITH THE FIRM 140

11.8 ROLE OF A REGISTERED PERSON ...........................................................................................141 11.9 DUAL EMPLOYEES ......................................................................................................................141 11.10 NOTIFICATION OF TERMINATIONS ...........................................................................................142 11.11 BRANCH AUDIT PROGRAM ........................................................................................................142 11.11.1 BRANCH AUDIT INSPECTIONS...................................................................................................142 12.0 APPENDICES ........................................................................................ 143

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1.0 INTRODUCTION 1.1 FORWARD Capital Investment Group, Inc. and Capital Investment Brokerage, Inc. (“Firm”), and persons registered with the Firm, are expected, with no exception, to conduct business consistent with high standards of commercial honor and just and equitable principles of trade. Keeping customers’ interest foremost is key to Firm, and 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 (“manual”, “procedures”, or “written supervisory procedures”) 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. In addition, the procedures include “Perspective” boxes for education, insight, and discussions of Firm policy. The policies should be referenced for guidance and perspective, as needed. In creating and carrying out the procedures herein, it is understood that “compliance” is not a static event. It is a process that evolves, in tandem with regulations governing the investment 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. The following are definitions of these terms: Designated Principal (“Principal”) – This term refers to the person(s) responsible for supervising a particular activity, and who possesses the appropriate licensing qualifications (Series 24, 26, etc.). For Designated Principal assignments, with respect to a specific responsibilities, refer to the Section in the Appendices entitled Principal Supervisory Responsibilities. Principals at Offices of Supervisory Jurisdiction should closely review this area. The term “Designated Principal” may not always refer to the Principal directly assigned to a given office, as some topics require approval from the Main office. Thus, it is important to know the breakdown of responsibilities between the Main office and an OSJ. Firm – When capitalized, this term refers exclusively to Capital Investment Group, Inc. and Capital Investment Brokerage, Inc. (“CIG” or “CIB”, respectively). Main Office – The corporate/home office of CIG and CIB, and its Designated Principals and staff. Non-Office of Supervisory Jurisdiction (“non-OSJ”) – A location at which 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 mutual fund companies, insurance carriers,

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etc., without documented approval from a Designated Principal. If the location is not designated as an OSJ in the Section entitled “Designated Branch Offices”, it is 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.) is required to directly 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. The list of OSJ branches are indicated in the Section entitled “Designation of Branch Offices”, the list of OSJ Designated Principals are provided in the Section entitled “Designation of Principals”, and the list of individuals reportable to an OSJ Manager is provided under “Assignment of Registered Persons”. Producing Supervisor – An individual who serves as a Designated Principal, and also conducts retail and sales activity. Registered Person – This term refers to persons who are registered as representatives with Capital Investment Group, Inc. or Capital Investment Brokerage, Inc. The Designated Principals of Registered Persons are included in 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 will be responsible for distributing written supervisory procedures and subsequent amendments to those procedures. Written supervisory procedures are delivered electronically through the password-protected section of the Firm’s website, 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 Compliance Questionnaire (“ACQ”).

Registered Person Responsibilities It is the responsibility of all Registered Persons to understand these 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 the Firm. Annually, each Registered Person will evidence receipt and review of the written supervisory procedures via the Annual Compliance Questionnaire. 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

http://www.capital-invest.com/

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made to the 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 Registered Persons at risk of potentially violating securities regulations. As such, the Registered Persons could be subject to a fine, up to termination, for willfully neglecting to disclose all e-mail addresses utilized in their business. 2.3 PROHIBITED ACTIVITES Supervisory Responsibilities The Designated Principal is responsible for ensuring that Registered Persons comply with the Firm’s policy regarding prohibited activities. Reviews will take place, and evidenced in accordance with the policies set forth throughout the written supervisory procedures, as well as through the review and execution of the Annual Compliance Questionnaire completed by Registered Persons. Registered Person Responsibilities In addition to any prohibitions stated in the procedures, Registered Persons are prohibited from 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 behalf 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, on the basis of the information provided by the investor, after reasonable inquiry concerning their investment goals, financial situation and needs, and any other information.

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

first having obtained written authorization from the investor. Extend to, arrange, or participate in arranging for, credit to an investor, in

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

Charge an investor unreasonable commissions or service fees in any transaction executed, in which the Registered Person and Firm act 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 a 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 the Firm, as well as the other broker/dealer.

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

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

Borrow or lend money or securities to, or from, an investor, or use an investor’s 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 with another Registered Person is acceptable, as long as it has been approved by the Designated Principal.

Use advertising describing, or relating to, one’s securities business, unless the advertising clearly identifies the Registered Person’s name, address and phone number, and is approved by the Designated Principal prior to use.

Accept cash from a customer for a transaction. Execute margin transactions without a written margin agreement. Participate in chat room/forum discussions, on the Internet, regarding investment

products. Recommend that customers 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. Alter account forms, applications, disclosure documents, customer

correspondence or any similar paperwork after a customer has provided their signature, without written authorization from the customer.

Forge the signature of a customer on a document. Registered Persons will communicate their compliance/non-compliance with the Firm’s policies by completing the Annual Compliance Questionnaire. 2.4 REGULATORY INQUIRES, INVESTIGATIONS, AND AUDITS Supervisory Responsibilities The Designated Principal is responsible for discussing regulatory inquiries, investigations, and audits with Registered Persons, and conducting any internal investigation into the matter, if necessary. The Designated Principal 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 related to the review of the matter. Registered Person Responsibilities Registered Persons 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 materials requested by the Designated Principal. For Registered Persons working in OSJ locations, the Registered Person must notify their OSJ manager as well.

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2.5 OUTSIDE BUSINESS ACTIVITIES Supervisory Responsibilities The Designated Principal is responsible for reviewing all requests to conduct outside business activities. When reviewing requests, the Designated Principal must consider whether the activity will: (1) interfere with or otherwise compromise the Registered Person’s responsibilities to the Firm and/or the Firm’s customers or (2) be viewed by customers or the public as part of the Firm’s business based upon, among other factors, the nature of the proposed activity and the manner in which it will be offered. The Firm may also choose to approve the activity subject to specific limitations or considerations. Upon completion of the review, the Designated Principal will approve/deny such outside business activities via written notice. The Designated Principal will maintain documentation of the review. The Firm must also evaluate whether an outside business activity should be characterized as a private securities transaction, and therefore subject to additional regulatory requirements. Periodically, or as needed, the Designated Principal 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, review will be maintained in the appropriate file as evidence of supervisory review. In certain instances, based on the nature of the outside business activity, additional reporting may be required of Registered Persons, prior to, and during the term of the activity. Registered Person Responsibilities All Registered Persons must provide written notification of outside business activities to the Designated Principal and are required to receive the Designated Principal’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) Independent contractor;

5) Sole proprietor of an entity; 6) Investment adviser or pension adviser not affiliated with Capital Investment

Companies;

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

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

Companies; and

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

Additionally, should a Registered Person cease to conduct an outside business activity, they should notify their Designated Principal within 30 calendar days of ceasing the activity. Such notification should include the type of outside business activity and the date of termination for such activity. In certain instances, based on the nature of the outside business activity, additional reporting may be required of Registered Persons, prior to, and during the term of the activity.

PERSPECTIVE CONCEPT POINTS – The following are some key points regarding outside business activities. 1) ALL outside business activities must be disclosed and receive the prior approval of

the Firm before a Registered Person commences such activity, regardless of whether compensation is involved.

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

be disclosed on a Registered Person’s Form U-4. 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 by regulations, and the Firm’s policy, may result in fines from $2,500, up to expulsion 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 directly addresses outside business activities), and Firms are cited for failing to maintain an adequate supervisory system to monitor those outside business activities.

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2.5.1 OUTSIDE BUSINESS ACTIVITIES – ACTIVITIES INVOLVING RECEIPT OF FUNDS AT BRANCH OFFICES Supervisory Responsibilities The Designated Principal is responsible for ensuring that Registered Persons conducting Outside Business Activities involving the receipt of funds (cash or checks) in their branch office, have reasonable policies and/or procedures in place to ensure that potential conflicts are mitigated. This assessment will be performed at the time of initial approval for the activity. Subsequent reviews will be conducted during branch audits and on an as-needed basis. The Designated Principal may take a risk-based approach when conducting these reviews. For example, the Designated Principal may determine that a review of the manner in which a CPA conducts his “Outside Business Activity” does not warrant the scrutiny of a Registered Person operating a rental business in his or her branch office.

Registered Person Responsibilities Registered Persons who conduct Outside Business Activities involving the receipt of funds, in either cash or check form, at their branch office, must have reasonable policies and procedures to ensure that possible conflicts are mitigated. Potential issues or conflicts that must be considered:

Avoidance of co-mingling money for outside activity with brokerage funds

Could customers of an outside activity believe that the outside business activity is related to the Capital activity?

Could customers believe SIPC would cover products of the outside business activity?

Should you develop special procedures for “dual” customers?

Does the outside business involve securities of any kind? Depending upon the activities conducted in the office, Registered Persons may be required to draft written procedures designed to address the potential issues. Registered Persons may rely on written procedural manuals for their outside business activities, in order to comply with the requirement, if the Designated Principal believes they address the Firm’s potential concerns. 2.6 PRIVATE SECURITIES TRANSACTIONS (“SELLING AWAY”) Supervisory Responsibilities The Designated Principal is responsible for ensuring Registered Persons do not conduct private securities transactions without approval from the Designated Principal. At a minimum, the Designated Principal will verify compliance with the regulation by reviewing the Annual Compliance Questionnaire. The Designated Principal will evidence such reviews by appropriate means. Registered Person Responsibilities Private securities transactions are prohibited, unless approved by the Designated Principal. Registered Persons must provide written notice, which provides details about the transaction, including any compensation arrangements. Annually, the Registered Person is required to attest they have followed Firm policy by completing the Annual Compliance Questionnaire.

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PERSPECTIVE CONCEPT POINT – As long as the product is defined as a security, and it is not being sold through the broker/dealer, a private securities transaction has taken place. The Firm will generally 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 – As with outside business activities, private securities transactions have long been one of the main sources of disciplinary actions by regulators. This is very 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 customers 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, in order to protect Registered Persons and the Firm for the following reasons: 1) A Registered Person cannot rely on the fact there is a lack of precedent indicating

a product is a security, in order to feel comfortable they are not selling away, as many disciplinary actions are, in themselves, 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 customer, have significantly increased.

FOR THESE REASONS, THE FIRM PROHIBITS INDIVIDUALS SELLING EQUITY INDEXED ANNUITIES, EQUITY INDEXED LIFE INSURANCE, LIFE SETTLEMENTS, INSTITUTIONAL ANNUITIES IN QUALIFIED PLANS, AND SIMILAR PRODUCTS AWAY FROM THE FIRM. WHEN IN DOUBT ABOUT WHETHER A PRODUCT IS A SECURITY, DO NOT TAKE ANY ACTION PRIOR TO CONTACTING THE DESIGNATED PRINCIPAL.

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2.7 INVESTMENT ADVISORY BUSINESS OF REGISTERED PERSONS 2.7.1 REQUEST TO CONDUCT INVESTMENT ADVISORY BUSINESS Supervisory Responsibilities The Designated Principal is responsible for approving 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 will review the outside activity disclosure form(s), providing a subsequent approval or denial to the Registered Person. The Designated Principal will evidence review by maintaining notes and approval signatures, if applicable, or by appropriate means in effect at the time. Registered Person Responsibilities Prior to engaging in investment advisory services, Registered Persons must provide notification of their intent to conduct such activity by completing the outside activity disclosure form(s) and submit it to the Designated Principal for approval. No activity should be conducted until an approval is received from the Designated Principal.

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 of their intent to provide such service, via the outside activity disclosure form or, if a new hire, in any initial paperwork The Registered Person must receive approval, from the Designated Principal, prior to conducting such activity.

2) The Firm will review a Registered Person’s request to provide investment advisory

services conducted away from the Firm, on an individual basis. Additionally, the Firm may determine that previously approved investment advisory activities must cease, if it is believed that the activities are not in the best interest of the Firm or customers.

2.7.2 REVIEW OF INVESTMENT ADVISORY TRANSACTIONS Supervisory Responsibilities The Designated Principal is responsible for reviewing customer account transactions conducted by Registered Persons serving in the capacity of an investment advisor. Registered Person Responsibilities Each Registered Person is required to provide transaction data for all investment advisory transactions executed away from the Firm. Transaction data must be made available, upon request. 2.7.3 REVIEW OF FORM ADV Supervisory Responsibilities The Designated Principal is responsible for reviewing the Form ADV of each office serving as an investment advisory firm. No less than annually, the Designated Principal

http://www.capital-invest.com/pdffiles/OutsideBusinessActivityRequestForm.pdf

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will review such information. The Designated Principal will evidence such reviews by maintenance of a review log or file. Registered Person Responsibilities Each Registered Person’s office is required to submit to the Designated Principal 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 any required new account forms, if accounts are maintained at the Firm, or by the firm that custodies assets (i.e. Schwab)

Use proper care in using the Firm’s name. Avoid any conflicts. Avoid conflicts of interest in dealing with customers. The Firm is only permitted to be used in connection with a Registered Person’s

investment advisory business 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 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 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 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. Account reviews for beneficial accounts of the CCO shall be performed by a member of senior management. Registered Person Responsibilities Registered Persons must immediately notify the Designated Principal, and receive written approval from, the Designated Principal for opening any account maintained at a non-Firm broker/dealer in which they have direct or indirect beneficial ownership, at the time of establishment. Such notifications, at a minimum, should include account number, title, and the Registered Person’s relationship to the account.

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PERSPECTIVE FIRM POLICY - The Firm does not require that 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 that 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 is responsible for monitoring accounts of Registered Persons, in which they have a direct or indirect beneficial ownership. The Designated Principal will review sample accounts no less than quarterly via clearing firm reports and/or account activity. The Designated Principal 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 the names of the beneficial owners. 2.8.3 SHARING IN ACCOUNTS WITH CUSTOMERS Supervisory Responsibilities The Designated Principal 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. Registered Person Responsibilities Registered Persons are prohibited from sharing in customer accounts unless 1) The customer 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 is responsible for approving/denying a Registered Person’s intent to participate in an investment club, prior to such account being established, whether or not maintained at the Firm. The Designated Principal will evidence their approval/denial by initialing/signing any written notifications, 407 letters, or similar documents pertaining to the Registered Person, prior to such account being established.

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Registered Person Responsibilities The Registered Person is required to send notification to the Designated Principal of any investment club account in which they will have direct or indirect beneficial ownership. The Designated Principal must provide written approval/denial of such account.

PERSPECTIVE

FIRM POLICY – The Firm does not prohibit Registered Persons from participating in investment clubs, overall; however, the Firm will not approve the establishment of investment club accounts in which customers participate. The Firm views the establishment of investment clubs with customers as creating unnecessary conflicts of interests, creating potentially problematic situations, should investments not perform as well as expected, and possible regulatory violations regarding sharing in customer accounts.

2.8.5 PARTICIPATION IN INITIAL PUBLIC OFFERINGS (“IPOs”) Supervisory Responsibilities The Designated Principal is responsible for ensuring Registered Persons do not participate in IPOs. The Designated Principal 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 the previously stated prohibition. If a Registered Person serves in the capacity of an investment advisor, and are purchasing an IPO for a customer account, they will be permitted to execute the transaction on behalf of the customer’s account, although they may receive fee income, per an investment advisory contract. CONCEPT POINT – Registered Persons are prohibited from participating in an initial public offering of securities for accounts in which they have direct or indirect beneficial ownership/interest. An offering of securities is not a bona fide distribution to the public, if firms or Registered Persons with broker/dealers participating in the offering purchase the security 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 direct or indirect beneficial ownership/interest, you may face expulsion from the securities industry.

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2.9 INSIDER TRADING Supervisory Responsibilities The Designated Principal is responsible for ensuring Registered Persons comply with insider trading prohibitions. The Designated Principal will conduct reviews of accounts directly or indirectly beneficially owned by Registered Persons. The frequency and the evidence of such reviews is indicated in the sections pertaining to Reviews of Investment Advisory Transactions, Outside Securities Accounts, Accounts Maintained at Capital, Sharing in Accounts with Customers, and Participation in Investment Clubs. The Designated Principal is also responsible for reviewing customer accounts to ensure they are not conducting insider trading. The Designated Principal reviewing daily trade blotters, is required to review for suspicious activity. As noted later, the Designated Principal will evidence their review of the daily trade blotter by initialing the document. In the event activity reveals potential insider trading, the Designated Principal 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 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 making an investment decision. Examples of such information include but are not limited to:

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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, they 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 CUSTOMERS AND NON-MEMBERS 2.10.1 REFERRAL FEES Supervisory Responsibilities The Designated Principal 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 Persons are also prohibited from sharing any commissions or service fees with any person or entity not registered as a Registered Person or broker/dealer, respectively, including customers.

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PERSPECTIVE CONCEPT POINT – Sharing in commissions or service fees is strictly prohibited for the same reasons stated in the previous Perspective.

2.10.2 REBATING OF COMMISSIONS Supervisory Responsibilities The Designated Principal is responsible for ensuring no Registered Person rebates brokerage commissions to any non-Registered Person or entity, including customers. Registered Person Responsibilities Registered Persons are prohibited from rebating commissions to customers. The Designated Principal will evidence review by appropriate means. Registered Person Responsibilities Registered Persons are prohibited from borrowing or lending securities and monies to/from a customer. The Registered Person must complete the Annual Compliance Questionnaire, 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 or from a customer. This does not include accounts in which a customer requests a margin account be established at the clearing firm. REGULATORY ACTIONS – Regulatory authorities have historically fined and suspended Registered Persons for borrowing monies from customers, 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.

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2.10.3 BORROWING OR LENDING SECURITIES AND MONIES TO OR FROM A CUSTOMER

Supervisory Responsibilities

The Designated Principal is responsible for ensuring no Registered Person borrows or lends any securities and monies to or from a customer. Registered Person Responsibilities Registered Persons are prohibited from borrowing from, or lending to a customer, securities and monies. 2.11 CASH AND NON-CASH COMPENSATION, GENERAL 2.11.1 GIFTS AND GRATUITIES TO AND FROM CUSTOMERS Supervisory Responsibilities The Designated Principal is responsible for annually reviewing Firm compliance with gift and gratuity rules. Annually, the Designated Principal will check Registered Person compliance by reviewing the Annual Compliance Questionnaire. 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 customer, the Registered Person must complete the Annual Compliance Questionnaire attesting they have not received gifts and gratuities in excess of $100. Registered Persons must maintain a log of gifts and gratuities, including those provided to, or received from, customers, of less than $100. The log must include a detailed description, the date of such gift, the approximate value, and to whom, or from whom, the gift or gratuity was exchanged, and whether 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 seminar/education trips funded by product sponsors. The Designated Principal will review all requests and invitation details submitted by a Registered Person or vendor. The Designated Principal will approve or deny the request prior to the Registered Person’s attendance. The Designated Principal 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 prior approval of the Designated Principal. The Registered Person shall only accept reimbursement for reasonable travel expenses, such as transportation, hotels, dinners, etc., associated with attending such seminar for their participation only, as no reimbursement for family or non-family members are not permitted. Please note that all reimbursement checks must be paid to CIG or CIB only, depending on the Registered Person’s affiliation. Registered Persons are prohibited from

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receiving direct payments from sponsors to pay for seminars they attend or host for their customers or potential customers. All other items are considered gifts and gratuities and subject to rules/prohibitions stated in Section 2.11.1. Registered Persons requesting attendance, at such forums, must submit a request in advance, and receive approval from the Designated Principal prior to attending, with the exception of approval provided directly to the vendor by the Designated Principal. Registered Persons are not required to obtain prior approval to attend events, such as a luncheon provided by a vendor, with a value of less than $100. Registered Persons are required to maintain a log of such events, including the approximate value. Registered Persons must attest to adherence to this policy annually via the Firm’s Annual Compliance Questionnaire.

PERSPECTIVE CONCEPT POINT – It is critical that Registered Persons receive prior approval from the Designated Principal to attend such educational forums. Numerous regulatory actions have been taken against Registered Persons for attending “educational forums” when, in fact, the seminars were viewed as recreational, than work-related. REGULATORY ACTION – In the below case, the offeror, not the Registered Persons, was cited by regulatory authorities for sponsoring an “educational seminar”. This example is being provided to highlight the fact that regulatory authorities may view an event as unreasonable, 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

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

2.12.1 REFERRAL FEES Supervisory Responsibilities The Designated Principal 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 will review the Registered Person’s request and provide approval/denial of such arrangement. The Designated Principal will evidence review and approval or denial by executing the request and/or subsequent executed contract. Registered Person Responsibilities Registered Persons are prohibited from accepting or providing 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, to which the Designated Principal agrees. 2.12.2 SHARING IN COMMISSIONS AND SERVICE FEES Supervisory Responsibilities The Designated Principal is responsible for reviewing Registered Persons’ compliance with the Firm’s policy regarding the sharing of commissions and fees. Prior to entering into any such arrangement, the Designated Principal will review the Registered Person’s notice and provide approval/denial of such arrangement. The Designated Principal 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 distributing any commissions and/or fees for directing any customer or accounts to another broker/dealer or their Registered Person, without receiving prior approval by the Designated Principal.

2.13 PROHIBITION AGAINST GUARANTEES

Supervisory Responsibilities The Designated Principal is responsible for ensuring Registered Persons make no guarantees, with the exception of the sale of variable products with riders, which provide minimum guarantees. To do this, the Designated Principal will review correspondence and all other forms of communications and document such as described in later sections. In addition, the Designated Principal will review the Annual Compliance Questionnaire. 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 Compliance Questionnaire.

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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 customer 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

Supervisory Responsibilities In determining whether a Registered Person should be placed on heightened supervision, the Compliance Department will consider the number of complaints, arbitrations and settlements during a given period, as well as any sales practice trends. The Compliance Department, in connection with senior management, is responsible for making a determination of the conditions under which a Registered Person will be placed under heightened supervision, as well as the subsequent review of all of their activities. Upon determining whether a Registered Person needs to be placed on heightened supervision, the Compliance Department will develop a supervisory plan, customized to the particular circumstances, to which a Designated Principal will be assigned responsibility for execution. At a minimum, the Designated Principal should consider, as needed, 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 of reviews conducted.

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.

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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. Upon determination that heightened inspections are necessary for producing supervisor/offices, the Firm will put in place the following procedures:

Inspections are conducted on a more frequent basis, consistent with the heightened supervision plan in place, using the current branch audit report. Additional inspections will be deemed appropriate, due to concerns such as complaints, operational and compliance issues, etc. Reviews may 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 Supervisory Responsibilities The Designated Principal is responsible for ensuring the office and Registered Persons comply with the Firm’s internal communications policy. The Designated Principal will review compliance as needed, but no less than annually through periodic inspections of the Firm. All internal communications must be maintained 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 individuals who have a right to, or need for, such information. All information regarding customers, the Firm’s business, or otherwise sensitive information disseminated outside the main office to Registered Persons, shall be marked as “Internal Use Only” Registered Person Responsibilities Registered Persons 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 customer files.

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2.17 SIGNATURE GUARANTEE STAMPS Supervisory Responsibilities 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 main 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 customer 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 customer involved, the document used, and the identity of the person executing the stamp.

Supervisory Responsibilities 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 main 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 customer 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 customer 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

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3.1.1 BACKGROUND CHECKS Supervisory Responsibilities The Designated Principal is responsible for conducting preliminary background checks of, and verifying the information provided by, each person applying for registration with the Firm. Background checks are required to include a review of their CRD record, credit history, the completed Form U-4, previous 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 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. 3.1.1.1 BACKGROUND CHECKS – REGULATION S-P Supervisory Responsibilities The Designated Principal is responsible for conducting preliminary background checks of each candidate applying for registration with the Firm. Background checks can include a review of the candidate’s CRD record, credit history, a completed Form U-4, Form U-5, prior production reports, tax returns, or equivalent records. Such background checks should take place prior to registration with the Firm, with the exception of the Form U-5, which may be submitted after the person is registered. The Designated Principal will evidence such background checks by maintaining review records in the candidate’s file. In utilizing consumer report information for background checks, the Firm will maintain such information for hired Registered Persons in their personnel file, for the life of their tenure with the Firm. For individuals denied registration, all information, including consumer report information, will be maintained in their file for three years, to evidence that background checks were properly conducted. At the end of three years, consumer report information is to be promptly shredded by the Designated Principal to prevent identity theft and inappropriate use of such information. All such information will remain in a locked area, only accessible by those individuals given clearance by the Designated Principal. Registered Person Responsibilities A candidate must present accurate and truthful representations of their background information, in a timely manner. In the event the Firm subsequently deems the Registered Person, or candidate made material omissions or misrepresentations, the Firm will terminate their registration.

3.1.2 SCREENING FOR STATUTORILY DISQUALIFIED PERSONS Supervisory Responsibilities The Designated Principal is responsible for conducting preliminary background checks, including the screening for statutory disqualification of all Registered and non-Registered Persons. Such screening may include a review of the candidate’s CRD record, credit

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report, criminal history, a completed Form U-4 , the Form U-5, , references, and/or equivalent records. Evidence of review will be maintained in the appropriate file. Registered/Non-Registered Person Responsibilities A candidate 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, such 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 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 is responsible for ensuring all appropriate persons, both registered and non-Registered, are fingerprinted, and copies of such fingerprints are submitted to FINRA in a timely manner. The Designated Principal will verify that 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.

REGISTERED PERSON LICENSING CATEGORIES

License # License Title

Pre-Requisites Activities

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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 customers

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

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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 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)

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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)

Senior management, supervisors or other personnel with authority, who engages in any of the following: 1. customer on-boarding (customer account data and document maintenance); 2. collection, maintenance, re-investment (i.e., sweeps) and disbursement of funds; 3. receipt and delivery of securities and funds, account transfers 4. bank, custody, depository and Firm account management and reconciliation; 5. settlement, fail control, buy ins, segregation, possession and control; 6. trade confirmation and account statements; 7. margin; 8. stock loan/securities lending; 9. prime brokerage (services to other broker-dealers and financial institutions); 10. approval of pricing models used for valuations; 11. financial control, including general ledger and treasury; 12. contributing to the process of preparing and filing financial regulatory reports; 13. defining and approving business requirements for sales and trading systems and any other systems related to the covered functions, and validation that these systems meet such business requirements; 14. defining and approving business security requirements and policies for information technology, including, but not limited to, systems and data, in connection with the covered functions; 15. defining and approving information entitlement policies in connection with the covered functions; 16. posting entries to a member’s books and records, in connection with the covered functions, to ensure integrity and compliance with the federal securities laws and regulations and FINRA rules.

99 Operations Professional (OS

None

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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.

3.1.4 REVIEW OF REGISTERED PERSONS AND SUPERVISORY PERSONNEL

QUALIFICATIONS Supervisory Responsibilities The Designated Principal 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 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. For non-supervisory activities of Registered Persons, the Designated Principal 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 REGARDING STATE REGISTRATIONS – If you wish to conduct securities activity with a customer who is located in a state in which you are not registered, you should contact the Compliance Department to request registration prior to accepting the account. 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 “de minimis activity” exemption exists.

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3.1.5 FORM U-4 FILING Supervisory Responsibilities The Designated Principal is responsible for verifying the accuracy, and timely submission, of Form U-4s, both initial and amended filings, in accordance with regulatory requirements. Notifications of grievances, outside business activities, etc., will 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 will 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 with appropriate details within 5 calendar days of receipt.

PERSPECTIVE CONCEPT POINT – It is critical that a Registered Person notifies the Firm immediately 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 is required 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 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, 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% of the required Form U-4 and Form U-5 updates that were the subject of FINRA's review.

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3.1.6 FORM U-5 UPDATES BY PRIOR EMPLOYER Supervisory Responsibilities The Designated Principal 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 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 in the CRD system. Registered Person Responsibilities Within five (5) calendar days of receipt, Registered Persons must immediately notify the Designated Principal, 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 whether to maintain the securities registration of an individual. Close attention should be paid to parking of licenses, which is strictly 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 is responsible for reviewing all termination notifications immediately upon receipt. The Designated Principal will initial such notification and prepare to file a Form U-5. Copies of such notifications will be maintained in the Registered 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 of their future departure. The notice must include the date of departure and the plan for the return of any information or items that belong to the Firm. 3.2.2 FORM U-5 FILING Supervisory Responsibilities The Designated Principal is responsible for the timely and accurate submission of 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 Registered Person’s file. Registered Person Responsibilities No responsibilities.

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3.2.3 FORM U-5 DELIVERY Supervisory Responsibilities The Designated Principal 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 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 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 in the CRD system. Registered Person Responsibilities No responsibilities. 3.4 ROLE OF NON-REGISTERED PERSONS Supervisory Responsibilities The Designated Principal is responsible for activities of non-Registered Persons associated with the Firm. Annually, the Designated Principal will request that Registered Persons complete the Annual Compliance Questionnaire, which addresses the activities and responsibilities of non-Registered Persons in their office. The Designated Principal will evidence review of the information provided in the ACQ, as deemed appropriate. Registered Person Responsibilities Registered Persons shall not permit non-Registered Persons to conduct any activities requiring registration. Annually, Registered Persons will attest, in the ACQ, to whether non-Registered Persons in their office conducted any activity requiring registration.

PERSPECTIVE FIRM POLICY – Non-Registered Persons shall not: 1) Make recommendations to a customer relating to the purchase or sale of securities; 2) Provide any form of investment advice; 3) Deliver prospectuses to customers; 4) Open a customer securities account for the Firm;

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5) Complete or assist the customer in completing New Account Forms or any other

securities-related document; 6) Take orders from a customer for the Firm; 7) Solicit a customer; 8) Answer customer questions about the advisability of purchasing or selling securities; 9) Make representations to a customer about securities; 10) Discuss the merits of any security with a customer; 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 the desired date. The Broker Orientation Training is designed to enhance a new Registered Person’s ability to successfully serve their customers, increase their awareness of Firm offerings, as well as ease any transition issues in moving from another broker/dealer. Such orientation will typically include the meeting of Firm personnel, processing of product sales, cashiering, registration issues, and compliance topics. The Firm will attempt to tailor the training to 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 The Firm seeks to enhance each Registered Person’s experience and ability to service customers. As such, the Firm may offer or require additional training. A Registered Person may request specialized training and such training will be provided after a judgment is made as to its merits and feasibility. In addition, the Firm may require additional training in order for a Registered Person to conduct certain types of business or sell specific products. The following is currently required as additional training: Alternative Investment Product Training – the Firm utilizes a prospectus-based, product-level training and education solution for alternative investment products, accessed via the internet. The solution offers the Firm the flexibility of requiring representatives, prior

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to submitting a client application for each alternative investment, to complete an educational session specific to the product being offered. Supervisory Responsibilities The Designated Principal is responsible for tracking the completion of any specialized training required by the Firm, and retaining records of completion of such training. Supervisory review will be evidenced by maintenance of files for the specialized training, which shall include a list of the participating Registered Persons and the courses completed. Registered Person Responsibilities Registered Persons must complete all training assigned by the Designated Principal, as part of the specialized training requirements, within the required timeframes or stipulations. 3.5.3 CONTINUING EDUCATION 3.5.3.1 REGULATORY ELEMENT REQUIREMENTS Supervisory Responsibilities The Designated Principal will be responsible for periodically reviewing Firm compliance with the Regulatory Element requirements. The Designated Principal will monitor the status of Registered Persons via e-mails from FINRA or similar means. Notice of the requirement to complete Regulatory Element requirements will be delivered to Registered Persons, via e-mail, on a periodic basis. Should a broker fail to successfully complete their Regulatory Element requirements within the 120 day timeframe, the Designated Principal will notify the Registered Person to cease conducting securities activity. More so, the Designated Principal will notify appropriate persons and departments (i.e. Cashiering, Payroll, Trading, etc.) the person is deficient. With regards to each, the Designated Principal will mandate no activity of any sort be permitted, including the payment of commissions. Registered Person Responsibilities All Registered Persons must successfully complete a Continuing Education session within 120 calendar days of the second anniversary date of the licensing examination (i.e., Series 7, Series 24), and every third year thereafter. Upon notification by the Designated Principal, Registered Persons are responsible for scheduling a session at a local testing center. In the event a Registered 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 customer contact, until such exam is successfully completed.

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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.

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 responsible for completing the annual Continuing Education 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 part of the Firm Element requirements of Continuing Education, within the appointed timeframe.

PERSPECTIVE FIRM POLICY - Each calendar year, the Designated Principal will announce requirements and the time frames for completing such requirements.

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3.5.4 ANNUAL COMPLIANCE MEETING Supervisory Responsibilities The Designated Principal is responsible for developing, executing, and verifying Registered Person attendance at the Annual Compliance Meeting or the Make-Up Compliance Meeting. The Designated Principal 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. Registered Person Responsibilities Registered Persons are required to attend the Annual Compliance Conference or Make-Up Compliance Meeting and completing any attendance lists/questionnaires provided during the meetings.

PERSPECTIVE HOW WILL I LEARN ABOUT THE ANNUAL COMPLIANCE CONFERENCE – Each year, the Firm distributes information, regarding the meeting, via email. WHEN DOES THE CONFERENCE TAKE PLACE? The conference is generally conducted in May or June each year. WHY DOES THE FIRM CONDUCT AN ANNUAL COMPLIANCE CONFERENCE? From a regulatory standpoint, FINRA rules specifically require annual compliance meetings, in 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 Firm and regulatory initiatives; 3) Provide educational experiences regarding product and compliance topics; 4) Receive and provide feedback on topics through Q & As; and, 5) Allow individuals an opportunity to network. MAKE-UP COMPLIANCE MEETING –The Make-Up Compliance Meeting is required of those not able to attend the Annual Compliance Conference. The Firm may choose to meet face-to-face and/or make a webcast available to Registered Persons, based on FINRA's November 2006 interpretation of Rule 3010 (currently rule 3110).

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4.0 COMMUNICATIONS 4.1 CUSTOMER GRIEVANCES 4.1.1. CUSTOMER COMPLAINTS, ARBITRATIONS, LITIGATIONS, CIVIL SUITS, AND CRIMINAL SUITS Supervisory Responsibilities The Designated Principal 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 will evidence the review of such grievances by maintaining a file with applicable information concerning the complaint. Registered Person Responsibilities Registered Persons should encourage clients to submit verbal complaints, in writing, to the Designated Principal. If received from a client directly, whether verbally or in writing, within one day of receipt, Registered Persons must notify the Designated Principal of any customer grievance. A copy of the grievance, or summary thereof, must be mailed, faxed, or emailed to the Designated Principal within the one day time limitation. Any inquires of the Registered Person by the Designated Principal or designee requires full cooperation. 4.1.2 SETTLEMENTS WITH CUSTOMERS Supervisory Responsibilities The Designated Principal is responsible for drafting all written settlement agreements with customers prior to submission to a customer. Copies of settlement agreements will be maintained in the appropriate customer grievance files. Registered Person Responsibilities Registered Persons must notify the Designated Principal, if they intend to enter into any written settlement agreement with a customer. Specifically, the Registered Person must forward preliminary details of such settlement, so that the Designated Principal can provide the appropriate language, per regulatory requirements.

PERSPECTIVE REGULATORY VIEW – Historically, FINRA has brought several cases against broker/dealers, relative to the language in settlement agreements, both from disclosure and restrictive language standpoints. In such cases, firms and Registered Persons have been cited, fined, and reported on their Form U-4 for settlement agreements not in compliance with regulations. As such, it is important for the Designated Principal to draft such agreement, to ensure that the appropriate language is included.

4.1.3 4530 REPORTING

Supervisory Responsibilities The Designated Principal is responsible for filing timely and accurate 4530 Reports regarding certain customer grievances. In general, the Designated Principal will file 4530 reports within 7 (seven) business days of receipt of a complaint. In the event of a

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settlement of a customer complaint, the filing will be submitted within 30 days with the disposition thereof, to allow time for receipt of signed settlement documents. The Designated Principal will print such 4530 report and place it in the appropriate complaint file, as evidence of filing. Registered Person Responsibilities No responsibilities.

PERSPECTIVE CONCEPT POINT – The following events may warrant a 4530 report filing requirement: 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 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 thereunder, 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

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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 manner which would have significant limitation on the individual's activities on a temporary or permanent basis.

4.2 COMMUNICATIONS WITH THE PUBLIC (PREVIOUSLY REFERRED TO AS ADVERTISING AND SALES LITERATURE) Pursuant to FINRA Rule 2210, any type of written communication, with both existing and prospective customers, falls into one of three categories: Correspondence - includes any written (including electronic) communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period. “Retail investor” includes any person, other than an institutional investor, regardless of whether the person has an account with the Firm. For purposes of this definition, prospective customers and existing customers are all categorized as “retail investors”. Retail communication - includes any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period. “Retail investor” includes any person other than an institutional investor, regardless of whether the person has an account with the Firm. For purposes of this definition, prospective customers and existing customers are all categorized as “retail investors”. In addition, an independently prepared reprint, distributed to more than 25 retail investors within a 30 calendar-day period, would also fall under the definition of “retail communication”. Institutional communication - includes any written (including electronic) communication that is distributed or made available only to institutional investors, but does not include a firm’s internal communications. Institutional investors generally include registered investment companies, insurance companies, banks, registered broker-dealers, registered investment advisers, certain retirement plans, governmental entities, and individual investors and other entities with at least $50 million in assets. Communications should not be distributed to an institutional investor if there is any reason to believe that the communication itself, or an excerpt from it, will be forwarded or made available to a retail investor.

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4.2.1 CORRESPONDENCE Correspondence – as defined in Section 4.2. 4.2.1.1 WRITTEN CORRESPONDENCE Supervisory Responsibilities The Designated Principal is responsible for reviewing outgoing written correspondence with customers or prospective customers on an as-needed basis. The Designated Principal 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 customers or prospective customers. 4.2.1.2 EMAIL CORRESPONDENCE WITH CUSTOMERS Supervisory Responsibilities The Designated Principal is responsible for periodically reviewing incoming and outgoing electronic correspondence with customers or prospective customers, on a monthly basis. The Firm will provide education and training on the proper use of electronic correspondence as a part of the New Representative Orientation. Additionally, as 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 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 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 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

Additionally, the Firm will maintain records that specifically identify the emails that have been reviewed for each period.

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Registered Person Responsibilities Registered Persons are required to use an e-mail address that has been set up on the Firm’s surveillance and archive program for all work related electronic correspondence. 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 customers has been a requirement since the mid-1990s, regulators have been more closely monitoring each Firm’s recordkeeping and supervision of such e-mails. It is imperative that you comply with Firm policy concerning e-mail.

4.2.1.3 INSTANT MESSAGING AND TEXTING Supervisory Responsibilities Instant messaging and texting is strictly prohibited as a means of communicating with existing or prospective customers. Registered Person Responsibilities Registered Persons are prohibited from using instant messaging or texting in communicating with customers. 4.2.1.4 RETAIL COMMUNICATIONS PRODUCED BY THE REGISTERED PERSON Retail communication as defined in section 4.2 Supervisory Responsibilities The Designated Principal is generally required to review each item of retail communication upon receipt from, and prior to use by, a Registered Person. Retail communications that do not make any financial or investment recommendations, or otherwise promote a product or service, do not require Designated Principal approval prior to use. If a communication item is acceptable and compliant with applicable regulations, the Designated Principal will evidence such approval by initialing such piece, or by other approval methods in effect at the time. If an item of communication is deemed unacceptable or not compliant with applicable regulations, the Designated Principal must: 1) promptly notify the Registered Person that such piece cannot be distributed; 2) indicate any corrective measures needed to be made to the retail communication piece; and 3) indicate to the Registered Person that a revised copy of the communication piece must be resubmitted and approved prior to the Registered Person using such piece. Registered Person Responsibilities

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Registered Persons must submit non-pre-approved retail communications to their Designated Principal as far in advance of intended first use as possible (minimum 5 calendar day advance notice recommended). In submitting retail communications for approval, the Registered Person must include a copy of the piece, intended date of first use, the method of distribution (i.e. newspaper, mail, etc.), and to whom it will be distributed (i.e. mailing list and an overall, general description of why these people are chose – i.e. over age 65 in zip code 30210). The Registered Person must wait until approval has been given prior to use. If the Designated Principal has requested revisions be made to the materials, the corrected version must be also be re-submitted to the Designated Principal. The Registered Person must retain documentation of the revisions, rejections, and approval, related to advertising materials, along with the finalized piece. By rule, Retail Communications that do not make any financial or investment recommendations, or otherwise promote a product or service, do not require Principal approval prior to use. Please note that, even though Principal approval may not be required prior to use, material must be presented in a fair, balanced and reasonable manner. If there is any doubt as to whether the material presented meets these requirements, Principal review should be requested. 4.2.1.5. INSTITUTIONAL COMMUNICATIONS PRODUCED BY THE REGISTERED

PERSON Institutional communication as defined in section 4.2 Supervisory Responsibilities The Designated Principal is responsible for reviewing communications to institutional investors, prior to approval. Documentation of the revisions, rejections and approval, and the dates of each, must be maintained, along with the finalized piece. No filing needs is required to be made to FINRA Advertising Regulation. Registered Person Responsibilities Registered Persons must submit communications to institutional investors to their Designated Principal for review and approval, prior to dissemination. 4.2.2 ADVERTISING SPECIFIC TO MUTUAL FUNDS, VARIABLE PRODUCTS,

MUNICIPALS, CMOs, AND OPTIONS Supervisory Responsibilities The Designated Principal will, upon receipt, review such pieces for compliance with applicable regulations. The only exception is when form retail communications, or those produced by insurance and mutual fund companies, have been previously approved. If the retail communication piece appears acceptable and compliant with applicable regulations, the Designated Principal 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

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receiving any FINRA response letter, the Designated Principal will communicate to the Registered Person the following: 1) whether or not the piece is approved for distribution; 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 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 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.

PERSPECTIVE CONCEPT POINT – FINRA generally requires retail communications pertaining to mutual funds, options, variable products, registered structured products, CMO’s, and municipal securities be submitted for review by FINRA. For this reason, the Firm will generally not approve retail communications related to these products until review comments have been received. FINRA’s Advertising Regulation assesses a fee for filings and 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 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 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. Registered Person Responsibilities The Registered Person must notify the Designated Principal 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 prior to such web site or amendments going “live”.

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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 customers. As a general rule of thumb, such investment analysis tools and related reports can be offered, upon approval of FINRA and the Designated Principal 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 is responsible for reviewing web streamers or pop-up ads prior to use by a Registered Person. The Designated Principal 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 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 prior to such web streamers/ads being used. 4.2.4 PRINT AND WEB COLUMNS (NEWSPAPER ARTICLES, MAGAZINE ARTICLES, AND INTERNET COLUMNS) Supervisory Responsibilities The Designated Principal is responsible for reviewing any newspaper columns, magazine columns, or internet columns produced by a Registered Person prior to use. The Designated Principal will evidence such review by initialing a paper copy of the article/column or by approval means in effect at the time.

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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 (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 is responsible for reviewing television advertisements by Registered Persons prior to use. The Designated Principal will review the script for the ad. The Designated Principal 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 is responsible for reviewing radio advertisements by Registered Persons. The Designated Principal will review the script for the ad. The Designated Principal 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 approval, prior to purchasing radio spot advertisements (minimum 5 calendar day advance notice recommended). In requesting approval, the Registered Person must submit the spot advertisement. 4.2.7 RESEARCH REPORTS Supervisory Responsibilities The Designated Principal 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 Compliance Questionnaire.

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. Regulatory oversight of research reports and required supervision increased substantially in light of the corporate scandals between 2001 and 2003.

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4.2.8 COMMUNICATION RELATED TO DISTRIBUTOR FUNCTIONS Supervisory Responsibilities The Designated Principal is responsible for ensuring that all Communication With The Public, as defined by FINRA Rule 2211, related to the Firm’s Distributor functions comply with applicable regulations. This includes identifying the type of communication (Correspondence, Retail or Institutional) and ensuring that the materials comply with content standards. Once approved, the Designated Principal or its designee will comply with any applicable filing requirements. The Firm will maintain a log of all materials as all required written records related to the process. The Firm may rely on a 3rd party to perform certain administrative functions associated with this policy; however all final approvals for Communication must be conducted by a Registered Principal of the Firm. 4.3 PUBLIC SPEAKING 4.3.1 SEMINARS AND PUBLIC PRESENTATIONS Supervisory Responsibilities The Designated Principal is responsible for reviewing the content of topics to be discussed through submitted materials. In reviewing such information, the Designated Principal is responsible for determining whether such engagements are in compliance with applicable regulations and that the materials are appropriate in nature. The Designated Principal 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 (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 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.

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Registered Person Responsibilities A Registered Person must receive approval from the Designated Principal 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 in advance of participating by providing basic details of their appearance. 4.3.3 RADIO APPEARANCES Supervisory Responsibilities The Designated Principal 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 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 in advance of participating by providing basic details of their appearance. 4.4 BUSINESS AND OFFICE SIGNS Supervisory Responsibilities The Designated Principal is responsible for reviewing prior to use business signs are compliant with applicable regulations. The Designated Principal 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 the use of office signage (minimum 5 calendar day advance notice recommended). Specifically, the Registered Person must submit to the Designated Principal a template of any office sign to be used in advance of such usage. 4.5 BUSINESS STATIONERY/LETTERHEAD Supervisory Responsibilities The Designated Principal is responsible for reviewing any business stationery and letterhead used to communicate with the public prior to usage. The Designated Principal will evidence their approval of such pieces by initialing templates of the stationery or letterhead or by approval means in place at the time. Registered Person Responsibilities

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Registered Persons must submit to the Designated Principal any business stationery or letterhead used to communicate with the public and receive the Designated Principal’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 Rule 2010, 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 is responsible for reviewing any business cards prior to usage. The Designated Principal 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 any templates of business cards and receive the Designated Principal’s approval prior to usage of such business cards. 4.7.4 TELEMARKETING 4.7.4.1 COLD CALLING ACTIVITIES Supervisory Responsibilities The Designated Principal 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 will annually review the Annual Compliance Questionnaire to verify Registered Person compliance with telemarketing requirements. The Designated Principal 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. In prospecting customers, the Registered Person must abide by the Telephone Consumer Protection Act of 1991. Annually, each Registered Person must complete the Annual Compliance Questionnaire indicating compliance with the rule.

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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 is responsible for reviewing any sales scripts to be used by Registered Persons prior to use. The Designated Principal 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 prior to conducting any telemarketing activities. Sales scripts must include 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, and the purpose of the call. 4.7.4.3 DO NOT CALL LISTS Supervisory Responsibilities The Designated Principal is responsible for periodically verifying a Do Not Call List is being maintained by offices. Registered Person Responsibilities In the event a prospective customer 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.

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4.7.5 USE OF SOCIAL MEDIA Supervisory Responsibilities The Designated Principal is responsible for ensuring Registered Persons do not utilize social media to market services, discuss securities or companies, solicit business, comment on market conditions, or any other topics related to the financial services industry, and also comply with the Firm’s policies regarding social media (see below Perspective). Additionally, the Designated Principal will verify compliance by reviewing sites and posts, via the Firm’s third-party social media archiving site. The Designated Principal will evidence such reviews by an appropriate method. Registered Person Responsibilities Registered Persons are prohibited from utilizing social media sites for business-related communications or advertising, without prior written approval from the Designated Principal or designee. For those registered persons seeking approval, the use of social media is limited to social media sites currently being utilized by the Firm. Utilizing any social media, including LinkedIn, for the purpose of marketing services, discussion of securities or companies, solicit business, commentary on market conditions, or any other topics related to the financial services industry that has not already been published through media by Capital Investment, is strictly prohibited. Annually, each Registered Person will attest to complying with Firm policy by completing the Annual Compliance Questionnaire.

PERSPECTIVE FIRM POLICY - In addition to its website, Capital Investment shall maintain LinkedIn, Facebook,Twitter, and YouTube accounts. At this time, Registered Persons may request permission to create and maintain a LinkedIn, Facebook, and/or Twitter social site. Any other sites require the written approval of the Chief Compliance Officer. Such request(s), and the continuation thereof, for any social media site, may be approved contingent upon compliance with firm policies. Prior to utilizing any social media for business communications, Registered Persons must submit, to the Designated Principal, a written request for approval, which shall be done through the Firm’s third-party advertising/communication archival site (currently, Ad Trax in the RegEd Compliance Management System). Registered Persons that are approved for social media use must include the following pieces of information:

Job title

Job description

Firm DBA name, if applicable

Securities offered disclosure (CIG or CIB)

Investment Advisor affiliation (if applicable)

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Member FINRA/SIPC (In smaller front that other items. Also, if allowed, hyperlinks should be setup so that a viewer may click on “FINRA” or “SIPC” and they will be redirected to the respective website for each entity)

FINRA regulations require member firms to retain social media content. Currently, the firm uses Arkovi, which is provided by the RegEd Compliance Management System. In order to be approved and continue using social media, all registered persons must enroll their respective social media sites in the Arkovi system. The Firm will use a third party provider to obtain content to publish on its social media sites. Currently, Marketing Pro is the only provider for content. Generally, Registered Persons can only repost content that the Firm has selected and previously posted to its respective social media sites. Registered Persons may review content in the Marketing Pro Library and submit requests to Capital Investment’s marketing officer to consider posting content to a Capital Investment social media site, which shall be subject supervisory responsibilities as stated above. All content, prior to posting, must be approved by compliance. CONCEPT POINTS - FINRA rules and written guidance require that all communications utilizing social media (i.e., Facebook, Twitter, LinkedIn, YouTube, chat rooms, bulletin boards, blogs, podcasts, wikis), when the content of such communications involves and/or relates to investments, securities, investment strategies, and any other business activities with, about and/or related to, the Firm (“business communications”), be captured and/or recorded and maintained as part of the firm’s books and records. Accordingly, all Firm Registered and non-Registered Persons must take the appropriate steps to ensure that all business communications (i) with any customers, prospective customers and/or the public, and (ii) made either as the firm’s representative and/or on behalf of the firm, are captured/recorded and maintained as the firm’s books and records. Testimonials are generally understood to include any statement by a former or present customer or investor, which endorses the Firm or refers to a favorable investment experience with a Registered Person and, if applicable, an Investment Adviser Representative. Under current regulations, testimonials regarding Registered Person’s advice and services are generally prohibited. Third-party use of social media plug-ins (i.e., the “Like” feature on Facebook or LinkedIn, or “Recommend” on LinkedIn), may be deemed a testimonial by regulators. For Registered Persons who are also Investment Adviser Representatives, allowing clients or others to provide testimonials (i.e., “Like” on Facebook or LinkedIn, “Recommend” on LinkedIn) is strictly prohibited, insofar as being able to control such feature. Given the regulatory focus, the Firm prohibits testimonials on Registered Person social media pages and any features that may constitute a testimonial must be blocked, disabled, or removed, where possible. In the event it is not possible to remove a feature, any recommendations must be removed from the social media page. Personal social media activity should be kept distinctly separate from business social media. Personal activity should be conducted from personal email or personal social media accounts only. Social media dealing with business affairs must be communicated through those approved by the Firm and archived, per regulatory requirements.

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REGULATORY ACTION - FINRA settled a matter involving a Registered Person who posted 75 messages on an Internet finance message board, in which he failed to disclose the fact that he was a Registered Person, as well as 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. Due to the increased scrutiny by regulators relative to social media, Registered Persons are encouraged to read FINRA Regulatory Notices 10-06, 11-39, and 12-29, which provide guidance on the use of social media.

4.7.6 CONSOLIDATED ACCOUNT REPORTS Supervisory Responsibilities The Designated Principal is responsible for ensuring that any consolidated account reports generated by the Firm or its Registered Persons for customers, are in compliance with FINRA rules regarding communication. The Designated Principal will periodically review these consolidated reports, based on the following criteria:

Reports generated are produced by Firm-approved software

Reports contain appropriate disclosures

Data is consistent with custodian, fund or sponsor statements

Reports are sent to customer’s address of record Documentation of the reviews, as well as any exceptions noted, will be maintained. The reviews will be on a sample basis, but should cover accounts of all Registered Persons using consolidated reports, and occur no less frequently than annually. In situations where Registered Persons must manually input account data, instead of it being downloaded to the software, the Designated Principal or his designee should request, from Registered Persons, the supporting documentation of the values utilized, and review for accuracy, on a periodic basis. Registered Person Responsibilities Registered Persons are prohibited from generating performance reports for customers, unless they are in compliance with the following Firm guidelines:

Reports generated are produced by Firm-approved software

Reports contain appropriate disclosures

Reports are sent to customer’s address of record

Maintain records of the report(s) produced and all supporting data

Reports may not be customized without Designated Principal approval Any exceptions to these policies require pre-approval from the Designated Principal. Registered Persons must maintain and submit, upon the request of the Designated Principal, the support documentation of the values utilized.

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4.8 PRIVACY POLICY NOTIFICATION Supervisory Responsibilities The Designated Principal is responsible for development of the Firm’s privacy policy, delivering the privacy policy to existing customers annually, and ensuring new customers are provided a copy of the privacy policy upon opening an account with the Firm. The Designated Principal will ensure/order the annual delivery of the privacy policy by ordering such policies delivered to existing customers. 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 CUSTOMER 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 customer 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 is responsible for ensuring the safeguarding of customer information. Annual and periodic reviews will be undertaken by the Designated Principal. Among the aspects that will be reviewed are:

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

The Firm has established the following policies to ensure customer information is properly safeguarded:

1. Firm servers are to undergo periodic 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 customer information with third parties is strictly prohibited, unless

necessary to fully and properly carry out the securities business conducted for a customer’s account, required by law or legal process, or with customer’s consent.

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All law or legal process forwarded to the Firm’s Compliance Department. Customer consents must be acknowledged in a written Letter of Authorization.

5. Sharing of computers with sensitive customer 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. . All

computers should be password-protected and have virus protection software. 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. 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 customer information. After an analysis of such information and conducting a review of information the third party has with respect to our Firm’s customers, will we follow-up with such entity, where necessary, to ensure our satisfaction that our customers’ information is protected.

11. All paper copies that contain customer non-public personal information should be shredded, so that the information cannot be practicably read or reconstructed.

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

13. No customer sensitive information shall be transmitted through electronic communications, except in instances in which proper safeguards are in place (i.e., encryption).

14. Firm employees, as well as Registered Persons, should adhere to a “Clean Desk Policy”. Materials containing sensitive information, such as account applications and statements should be stored out of plain sight when employees are away from their desk.

4.10 PROCEDURES FOR CUSTOMER DATA BREACH The following are general guidelines to be considered in the event a customer account or information about a customer may have been compromised.

Alert the Compliance Department

Monitor, limit, or temporarily suspend activity in the account until the situation

is resolved.

Alert others in the firm to be mindful of unusual activity in other customer

accounts.

Identify, if possible, the root cause of the account intrusion (e.g., the firm’s

system was compromised, the individual account was hacked, the customer

was the victim of identity theft) and determine whether the intrusion is

isolated to one account.

Notify the clearing firm of the situation.

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Contact the SEC and your FINRA Coordinator. In the event of an account

intrusion, have the following information readily available if possible:

o Firm information (both the introducing and clearing firms involved)

Firm name and CRD number

Firm contact name and telephone number

o Date(s) and time(s) of activity

o IP addresses used to access the account

o Security or securities involved (name and symbol)

o Time and date of the activity

o Details of the trades or unexecuted orders

o Details concerning any wire transfer activity

o Customer account affected by the activity, including name and

account number

o Whether the customer has been or will be reimbursed and by

whom

If appropriate, contact law enforcement agencies, such as the FBI or, if the

U.S. mail is involved, the United States Postal Inspector.

Contact the relevant state regulatory authorities.

Contact the customer and, if appropriate, change the password and/or

account number.

Determine whether any unauthorized person has gained access to an

account holder’s personally identifiable information and, if so, whether Firm

must provide a specific type of notification to the customer or others under

state law regarding the loss of the customer’s information. Some states

require notice to the Attorney General or other state law enforcement

agencies if a customer’s “personally identifiable financial information” has

been compromised.

Determine whether the Firm should file a Suspicious Activity Report (SAR)

under the federal anti-money laundering provisions.

http://www.finra.org/Industry/Contacts/P016038

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5.0 ACCOUNTS 5.1 NEW ACCOUNTS 5.1.1 APPROVAL OF NEW ACCOUNTS Supervisory Responsibilities The Designated Principal is responsible for approving new accounts. The Designated Principal 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 will evidence approval and review of accounts by executing the New Account Form or by electronic approval. 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 customer. 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. 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 customer documents in the appropriate customer file.

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.

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5.1.2 COPIES OF AGREEMENTS TO CUSTOMERS Supervisory Responsibilities The Designated Principal will evidence his/her knowledge copies of agreements have been or are in the process of being sent to the customer by executing the New Account Form at the time an account is submitted for approval. Registered Person Responsibilities Registered Persons are required to provide customers copies of all documents used to establish an account, including the New Account Form. This information should be provided at the time the customer executes the New Account Form. In the event the customer 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 customer executes such agreements.

PERSPECTIVE FIRM POLICY – The copy of the New Account Form provided to the customer is not required 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 customer.

5.1.3 MARGIN ACCOUNTS 5.1.3.1 MARGIN AGREEMENT Supervisory Responsibilities The Designated Principal is responsible for approving/denying margin accounts. Prior to any approval, the Designated Principal must review the experience of the customer. More so, the Designated Principal must ensure the customer has executed a Margin Agreement and received a Margin Disclosure Statement. The Designated Principal 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 customer. The Firm discourages Registered Persons from encouraging customers to open margin accounts. 5.1.3.2 MARGIN DISCLOSURE STATEMENT Supervisory Responsibilities The Designated Principal is responsible for verifying customers have received a Margin Disclosure Statement. The Designated Principal will do so through executing a Margin Agreement. The Margin Agreement indicates an acknowledgement by the customer they have received such Margin Disclosure Statement Registered Person Responsibilities Registered Persons must provide each new margin account a Margin Disclosure Statement.

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5.1.4 DISCRETIONARY ACCOUNTS 5.1.4.1 INITIAL CONSENT

Supervisory Responsibilities The Designated Principal is responsible for approving/denying discretionary accounts. If approved, the Designated Principal or designee is responsible for ensuring Registered Persons obtain written authorization from customers 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 customers wishing to provide a Registered Person discretionary authority, the Registered Person must obtain a written agreement executed by the customer. Upon receipt, the Registered Person must forward such agreement to the Designated Principal for review. The Registered Person must obtain their Designated Principal’s or designee’s approval prior to conducting any discretionary trades.

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. An exception is provided to Registered Persons serving in the pre-approved capacity as an Investment Adviser Representative, in which they have received written discretion authorization for customers of the investment advisory firm they represent.

5.1.5 THIRD PARTY ACCOUNTS Supervisory Responsibilities The Designated Principal 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 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 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 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.

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5.1.6 OPTION ACCOUNTS 5.1.6.1 APPROVAL AND DUE DILIGENCE Supervisory Responsibilities The Designated Principal is responsible for reviewing all accounts for approval for which option activity is requested to be conducted. The Designated Principal will review the New Account Form and the Options Account Agreement, both of which must be executed by the customer, and any other pertinent information in conducting due diligence. The Designated Principal will review such information prior to any options activity taking place. The Designated Principal 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 customer, the Registered Person must obtain a signed Options Account Agreement from the customer and obtain the Designated Principal’s or designee’s approval of the account.

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 - Customers who are requesting approval to trade options

should have prior experience. On occasion, a customer 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 customer

on the Options Agreement. - The customer’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 customer, prior to the customer 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

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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 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 customers wishing to engage in options activity. The Designated Principal will verify such by checking the customer has executed copies of the Options Account Agreement (which discusses the disclosure document). The Designated Principal will evidence review by signing the above documents. Registered Person Responsibilities Registered Persons are required to provide the options disclosure document to customers 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 customer’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 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 customer 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 customer, and otherwise known about the customer and product that such security is suitable for the customer. 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 customer is of legal age); Tax identification number or social security number; Occupation; Name and address of employer; Customer’s financial status; Customer’s tax status; Customer’s investment objectives; and

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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.

5.1.8 ERISA ACCOUNTS 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 an ERISA Account. Under ERISA section 404(a)(1), plan fiduciaries, including persons to whom named fiduciaries delegate certain fiduciary responsibilities, such as broker/dealers, must discharge their duties solely in the interest of the participants and beneficiaries and: 1) For the exclusive purpose of providing benefits and defraying reasonable

administrative expenses; 2) With the care, skill, prudence, and diligence under the circumstances then prevailing

that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims (the prudent man rule);

3) By diversifying plan investments so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and

4) In accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of title I of ERISA.

Registered Person Responsibilities Registered Persons must obtain required documentation and make appropriate disclosures prior to recommending or effecting any transaction in an ERISA Account. IARs are required to provide a Fee Disclosure, as set forth in ERISA 408(b)(2), to the plan sponsor prior to, or at the time of, account opening. In order to fulfill this requirement, the following procedure must be followed, as prior approval is required for each new ERISA-covered plan account: a. Prior to obtaining New Account Paperwork, the Registered Person must complete

the following forms and forward them to the Designated Principal for review: i. ERISA Plan Pre-Approval Request ii. ERISA Disclosure Form – A Guide to Services and Compensation

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b. Upon review, the Designated Principal will return the signed Pre-Approval Request form and the edited Disclosure Form to the Registered Person, as notification that the plan has been approved.

c. The Registered Person must provide the approved/edited ERISA Disclosure Form to Customer, prior to obtaining signatures on all new account paperwork.

d. The New Account paperwork should be forwarded to the appropriate recipient and must be accompanied by the Pre-Approval Request form, signed by the Designated Principal. Accounts submitted without the Approval Form will be rejected.

5.1.9 RETIREMENT PLAN ROLLOVER ACCOUNTS 5.1.9.1 RETIREMENT PLAN ROLLOVER DISCLOSURE Supervisory Responsibilities The Designated Principal is responsible for ensuring Registered Persons obtain required documentation and make appropriate disclosures prior to recommending or effecting a retirement plan rollover. Specifically, a completed Retirement Plan Rollover Disclosure must be submitted prior to the account being approved. Registered Person Responsibilities Registered Persons are must obtain required documentation (i.e., new account form, Retirement Plan Rollover Disclosure), and make appropriate disclosures, prior to recommending or effecting a retirement account rollover. 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 will review customer files verifying Registered Persons have received updated account information from customers or have made a sufficient effort in obtaining such information. In reviewing accounts, the Designated Principal will verify customer information has been updated within the last 3 years via an updated New Account Form, Account Update 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 customers 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 customer. 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, Account Update Form and/or instructions for accessing such information on-line, a copy of which should be maintained in the customer’s file. In the event a customer 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 customer file. After sending out a second notification in which you have received no response, you have fulfilled your responsibilities on attempting to obtain updated customer information.

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PERSPECTIVE CONCEPT POINT – It is always important to keep abreast of customer’s financial situation and the changes in their lifecycle so that suitable investments are chosen for such customers. 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 customer beneficially owns multiple accounts (i.e. individual, IRA, trust, etc.), you

must obtain separate updated information for every account registration type. 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 customer, in the event they 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 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 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 is responsible for communicating any debit/error items to Registered Persons.

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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 customer mails. 5.2.6 CHANGES IN ACCOUNT NAMES/DESIGNATION FOR TRANSACTIONS Supervisory Responsibilities The Designated Principal 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 will make a decision on changing the account name or designation based on the facts. The Designated Principal will review such changes on as needed basis. The Designated Principal 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 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 CHANGES OF ADDRESS Supervisory Responsibilities The Designated Principal is responsible for ensuring a signed written request for a change in address has been obtained from a customer prior to any address change being affected. No change of address requests will be processed without an appropriate letter of authorization. Change of address requests will be maintained in appropriate files. To confirm the accuracy and validity of such changes, a letter will be sent to the customer, from the firm or its designee, to the current address of record.

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Registered Person Responsibilities Each Registered Person is responsible for obtaining a signed written request from a customer 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 customer 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 is responsible for ensuring that a signed written request, in the form of a revised New Account Form or Account Update Form, for a change in investment objectives, has been obtained from a customer prior to any change being effected. No change request will be processed without receipt of a revised New Account Form or Account Update Form. Forms will be maintained in appropriate customer files. The Designated Principal will evidence their review by signing and retaining a copy of the New Account Form or Account Update Form. To confirm the accuracy and validity of such changes, customers will receive updated information identifying the new investment objectives. Registered Person Responsibilities Each Registered Person is responsible for obtaining a revised New Account Form or Account Update Form for an investment objective change to be effected. 5.3 ACCOUNTS OF FINRA-/AMEX-MEMBER EMPLOYEES Supervisory Responsibilities The Designated Principal 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 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

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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 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 Supervisory Responsibilities The Designated Principal is responsible for reviewing account activity either by a sample of accounts on an as-needed basis or by utilizing exception reporting programs. The Designated Principal 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. . Registered Person Responsibilities The Registered Person is responsible for periodically reviewing customer 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 SUPERVISOR REVIEWS Supervisory Responsibilities The Designated Principal is responsible for monitoring the activity of producing OSJ supervisors. The Designated Principal will use discretion in selecting accounts for review and may use exception reporting programs.

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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 customer 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 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 customer’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) Customer’s need for liquidity

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REITS 1) Liquidity relative to customer’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

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6.0 TRANSACTIONS

6.1 REVIEW OF TRANSACTIONS Supervisory Responsibilities The Designated Principal 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. 6.2 GENERAL TRANSACTION TOPICS 6.2.1 BEST EXECUTION

Supervisory Responsibilities The Designated Principal is responsible for ensuring customer orders receive best execution. Best execution will be reviewed by analyzing a number of factors including statistical information supplied by clearing broker, subjective review of the clearing broker, interviews with management of the clearing broker as well other potential factors that may be deemed relevant. The Best Execution Committee will meet periodically and documentation of these meetings will be maintained. 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 is responsible for ensuring all commissions, markups, markdowns, and fees associated with any transaction are reasonable in nature, or, in the case of direct business, is in conformity with sales charges listed in the prospectus. The Designated Principal will review for such charges in daily reviewing the trade blotter. The Designated Principal 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.

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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

$ 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


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


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.

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6.2.3.1 TRADE SHREDDING Supervisory Responsibilities The Designated Principal 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 will review for such charges in daily reviewing the trade blotter. The Designated Principal 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 customers should be fair and in the best interest of the customer. 6.2.4 SUITABILITY Supervisory Responsibilities The Designated Principal is responsible for ensuring customer transactions and strategies are suitable based on information obtained to ascertain the customer’s investment profile. A customer’s investment profile includes, but is not limited to, the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance and any other information the customer may disclose to the Firm or Registered Persons. The Designated Principal will review for suitability by reviewing the daily trade blotter or application in conjunction with the New Account Form or Account Update Form, any pertinent information, and any disclosure forms, as well as surveillance reports. The review of transactions is to occur daily and evidenced by initialing the daily trade blotter and/or applications and/or electronic approval. Registered Person Responsibilities At all times, a Registered Person must use prudent judgment in recommendations to customers. All recommendations must be in line with the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance and any other information the customer may disclose to the Firm or Registered Persons, keeping in mind issues affecting the market and the individual. Registered Persons are prohibited from making unsuitable recommendations to customers.

PERSPECTIVE CONCEPT POINT - It is critical to have obtained all pertinent information of the customer before recommending any security or investment strategy. FINRA interprets the term “investment strategy” broadly, including an explicit recommendation to hold a security or securities. 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 customer. This underlies the fact the Registered Person has to

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consider to the total profile of the customer before recommending a security to a customer. 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 Supervisory Responsibilities The Designated Principal is responsible for reviewing potential instances of misrepresentation/omissions. The Designated Principal will do so by reviewing the daily trade blotter for unusual activity, monitoring correspondence, and complaints of assigned Registered Persons. The Designated Principal 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 customer 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 is responsible for reviewing potential instances of unauthorized trading. The Designated Principal will do so by reviewing the daily trade blotter, monitoring correspondence and complaints of assigned Registered Persons. (Patterns

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of cancellations and Regulation T extensions should be closely monitored as potential indicators of unauthorized transactions.) The Designated Principal 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 customer 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 customer 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 customer. Oral discretion is not adequate and against regulations. REGULATORY ACTION – The following two instances are examples of unauthorized trade cases. 1) In the second quarter of 2003, FINRA found a Registered Person had conducted 2

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

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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 customer objectives and unusually high based on the products sold.

6.2.8 AFFIRMATIVE DETERMINATION Supervisory Responsibilities The Designated Principal 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 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. 6.2.9 REFINANCING MORTGAGES/LOANS TO FACILITATE TRANSACTIONS Supervisory Responsibilities The Designated Principal in their review of correspondence, should review for whether or not Registered Persons are recommending customers 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 customers 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 is responsible for closely monitoring transactions in low-priced securities. The Designated Principal 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 NASDAQ National Market, the Designated Principal must ensure the Registered Person is obtaining an executed Low Priced Securities Disclosure from the customer. The Designated Principal will evidence their review by initialing the daily trade blotter and executing the Low Priced Securities Disclosure received from customers.

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Registered Person Responsibilities The Registered Person must exercise extreme care in handling customer 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 NASDAQ 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 2010, 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 Supervisory Responsibilities The Designated Principal 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 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 CUSTOMERS AT THE TIME THE SECURITIES ARE ACCEPTED. Registered Persons are advised to work closely with the main 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.

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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

- 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 is responsible for reviewing funds selected for a customer are consistent with the customer’s age, investment objectives, financial status, investment experience, tax situation, and time horizons. The Designated Principal 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 customer information prior to selecting a mutual fund to buy. More so, the selection of a fund must be consistent with a customer’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.

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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 is responsible for reviewing fund classes chosen are consistent with the customer’s investment objectives and time horizons. In addition, the Designated Principal must take into consideration the amount currently invested, the customer’s intent to add additional money to current investments, family-related/linked accounts, and whether or not the customer is an investment advisory customer, as the customer may be eligible for reduced sales charges with certain mutual fund classes. The Designated Principal will evidence such reviews through initialing daily trade blotters or applications. Additionally the Designated Principal must ensure the Registered Person has obtained the appropriate mutual fund disclosure form for all sales in Class B shares and for C Share purchases of $100,000 or more. The Designated Principal will evidence their review by executing the disclosure form received from customers or by electronic approval Registered Person Responsibilities At all times, Registered Persons must choose fund classes most appropriate with the customer’s investment objectives and time horizons. In addition, the Registered Person needs to consider amounts currently invested, the customer’s intent to add additional money to current investments, family-related/linked accounts, and whether or not the customer is an investment advisory customer, as the customer 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. The Firm requires the representative to obtain a Mutual Fund B Share Disclosure Form from the customer for all sales in B shares, and a Mutual Fund C Share Disclosure Form for Class C purchases of $100,000 or more

PERSPECTIVE FIRM POLICY – 1) The Firm strictly prohibits recommending cumulative Class B mutual fund sales of the same fund family to the same customer and related accounts that are $100,000 or greater. This prohibition extends to situations where a customer 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. 2) The Firm believes that Class B shares can be misunderstood by customers and those customers may be better served by

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purchasing Class A shares in certain situations. In order to ensure that the customer is aware of the characteristics of Class B Shares, representatives are required to obtain a Mutual Fund B Share Disclosure Form per the requirements stated in this section of the procedures. 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 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 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 to review mutual fund switches are suitable in light of the customer’s age, investment objectives, financial status, etc. The Designated Principal will review the daily trade blotter to detect instances of switching. In reviewing the daily trade blotter, the Designated Principal will verify the Registered Person has received executed copies of the Mutual Fund Switch Disclosure from the customer, if applicable. The Designated Principal will evidence such reviews by initialing the daily trade blotter or applications and the Mutual Fund Switch Disclosure or by electronic approval. Registered Person Responsibilities Registered Person shall recommend only those mutual fund switches in the best interest of the customer. Registered Person must disclose sales charges incurred, etc. Registered Persons must obtain an executed Mutual Fund Switch Disclosure from the customer, if the 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 is responsible for reviewing mutual fund transactions shortly before an ex-dividend date. The Designated Principal 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 customer. If such purchases are deemed advantageous, the Designated Principal will complete their review by initialing the daily trade blotter. If there appears to be

http://www.capital-invest.com/pdffiles/MutualFundSwitchDisclosure.pdf



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potential suitability concerns, the Designated Principal 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 customer, unless there are specific and clearly described tax or other advantages to the customer. 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 is responsible for verifying customers received appropriate sales charge for any buy or sale of a mutual fund. The Designated Principal 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 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 is to review a current prospectus for sales charge schedules. For sales of funds with a contingent deferred sales load, the Designated Principal 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 will evidence such through initialing the daily trade blotter. Registered Person Responsibilities In dealing with customer buys of mutual funds, the Registered Person is obligated to ensure customers 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 customer’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 customer names and amounts of mutual funds held at other financial institutions or direct with the fund, including any funds as part of the customer’s or “linked” accounts 401k, 403b, or other retirement holdings. The Firm requests such information be reflected on the customer’s New Account Form.

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2. Identify all other mutual fund assets of the customer 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 customer’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 customer 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.

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 customer 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 customer has held such position and compare it to the load schedule in the prospectus, regardless of whether or not the customer purchased such fund through them. In the event a customer 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 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 customers 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 customers. As such, regulators will often go back as much as 6-8

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years, depending on the sales load schedule in a prospectus, to verify a customer 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 customer’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 is responsible for ensuring NAV transfers and those transactions subject to a sales charge waiver are not charged a sales charge. The Designated Principal 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 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 customer did not incur a sales charge.

6.4.2.3 LETTERS OF INTENT/RIGHTS OF ACCUMULATION Supervisory Responsibilities The Designated Principal is responsible for verifying appropriate Letters of Intent/Rights of Accumulation have been gathered/inputted by the Registered Person. The Designated Principal will review this by reviewing the daily trade blotter and/or applications every day. The Designated Principal will evidence such reviews by initialing the trade blotter and/or signing applications or by electronic approval. Registered Person Responsibilities Registered Persons are required to inform customers 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 customer in reducing their front-end sales charges.

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6.4.3 POINT OF SALE DISCLOSURES 6.4.3.1 PROSPECTUS DELIVERY Supervisory Responsibilities The Designated Principal is required to verify customers have received a prospectus with their purchase of a mutual fund. The Designated Principal will review the New Account Form upon receipt for new accounts and any other notes/disclosures evidencing prospectus delivery. The Designated Principal will evidence their review by signing the New Account Form and/or applicable disclosure forms or by electronic approval. 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 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 customer, a Registered Person is required to provide the following disclosures to a customer:

Discuss with customers the relative differences, advantages and disadvantages of each share class before asking the customer 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 customers who are merely seeking to avoid front-end loads about the potential long-term effect of the higher ongoing internal expenses associated 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 customer 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 customer 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.

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Future changes in mutual funds may subject the customer 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 is responsible to reviewing for potential instances of market timing. The Designated Principal will review the daily trade blotter for potential instances of market timing. The Designated Principal 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 customer’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 customers was 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.

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6.4.5 LATE TRADING Supervisory Responsibilities The Designated Principal is responsible for reviewing instances of late trading. The Designated Principal will review the daily trade blotter for potential instances of late trading. The Designated Principal 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.

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 customers 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 Compliance Questionnaire. Registered Person Responsibilities Registered Persons are prohibited from assisting customers in the redemption of Investment Company shares held directly with the mutual fund company. This does not include assisting customers with the redemption of shares custodied by our clearing agent. Annually, the Registered Person will affirm compliance with Firm policy through the Annual Compliance Questionnaire.

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6.5 EXCHANGE TRADED FUNDS (ETFs) 6.5.1 SPECIFIC SUITABILITY ISSUES 6.5.1.1 PERIODIC INVESTING PLANS Supervisory Responsibilities The Designated Principal is responsible for scrutinizing ETF purchases on a periodic/dollar-cost-averaging plan basis is suitable for customers in light of commission costs, investment objectives, and the periodic dollar amount to be invested. The Designated Principal 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 customers. 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.

6.6 VARIABLE CONTRACTS 6.6.1 SPECIFIC SUITABILITY ISSUES 6.6.1.1 SALES WITHIN TAX QUALIFIED ACCOUNTS Supervisory Responsibilities The Designated Principal is responsible for scrutinizing sales within tax-qualified accounts. The Designated Principal 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 will review the variable contract application along with the New Account Form, the Variable Annuity Acknowledgment form, and, if applicable, the Variable Annuity Replacement Acknowledgement. The Designated Principal will evidence their review by signing a copy of the form(s) or by electronic approval. Registered Person Responsibilities

http://www.capital-invest.com/pdffiles/VariableAnnuityAcknowledgements.pdf

http://www.capital-invest.com/pdffiles/VariableAnnuityReplacementAcknowledgement.pdf

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Registered Persons should exercise care in selling variable contracts as part of a tax qualified account. Specifically, the Registered Person should discuss with the customer 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 GENERAL SALES PRACTICES Supervisory Responsibilities Prior to transmitting a customer’s application for a deferred variable annuity to the issuing insurance company for processing, but no later than seven business days after an OSJ has received a complete and correction application package, including all required forms, a Designated Principal shall review and determine whether the transaction is approved. The determination must be documented and maintained in accordance with recordkeeping requirements. Registered Person Responsibilities Registered Persons shall not recommend the purchase of a deferred variable annuity unless he or she has a reasonable basis to believe that the transaction is suitable in accordance with Rule 2310 and that the customer has been informed of the features of the product, including potential surrender period; potential surrender charge; potential tax penalties; mortality and expense fees; investment advisory fee; potential charges for and features of riders; insurance and investment components; and market risk. The Registered Person should also have a reasonable basis to believe that the customer would benefit from certain features of the deferred variable annuity, such as tax-deferred growth, annuitization, or a death or living benefit. Finally, the Registered Person must have also have a reasonable basis to believe that the particular deferred variable annuity has a whole is suitable when considering the customer’s age, annual income, financial situation and needs, investment experience, investment objectives, intended use of the deferred variable annuity, investment time horizon, existing assets (including investment and life insurance holdings), liquidity needs, liquid net worth, risk tolerance, tax status, and any other available information that may be relevant in making the recommendation. For all variable annuity transactions, the Registered Person must obtain a Variable Annuity Acknowledgment.




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6.6.1.3 1035 EXCHANGES AND REPLACEMENTS Supervisory Responsibilities The Designated Principal is responsible for examining all 1035 Exchanges. The transaction should be reviewed based on the procedures described in section 6.6.1.2 (General Sales Practices). A comparison should be made of the characteristics and benefits between the existing contract and the replacement policy being purchased. The Designated Principal should make sure the new contract meets the customer’s objectives, as well as determine if the sale of the existing contract, with the subsequent purchase of the replacement contract, is necessary and in the best interest of the customer. The Designated Principal will review variable contract transactions, as well as the Variable Annuity Replacement Acknowledgement and Variable Annuity Acknowledgment. The Designated Principal will evidence their review by signing the form(s) or by electronic approval. The Designated Principal must perform his or her review responsibilities within the seven day period described in section 6.6.1.2 (General Sales Practices). Additionally, the Designated Principal is responsible for reviewing the Capital VA Statistics Report. This report provides information that allows the Designated Principal to determine if Registered Persons may be effecting deferred variable annuity exchanges at a rate that may indicate improper sales practices or behavior that is inconsistent with applicable rules. Should the Designated Principal identify a potential area of concern, they should immediately inform the Chief Compliance Officer, who will determine whether to initiate an internal review. Such review would generally involve a more intense review of the Registered Person’s activity and discussions directly with them and/or customers. Corrective measures may include warnings, fines, termination, or any other actions deemed appropriate. The Firm will maintain records of all internal reviews, in accordance with recordkeeping requirements. Registered Person Responsibilities Registered Persons are required to adhere to all of the General Sales Practices, when recommending the exchange or replacement of an existing deferred variable annuity. In addition, they must determine that the transaction is suitable, when taking into consideration potential surrender charges, the commencement of a new surrender period, the possible loss of existing benefits and increased fees or charges. The Registered Person must also have a reasonable basis to believe the customer would benefit from the product enhancements and improvements. Finally, the Registered Person must make a determination as to whether the customer’s account has had another exchange or replacement within the preceding 36 months, and consider this in assessing suitability. These considerations are evidenced by the completion of the Variable Annuity Replacement Acknowledgement. The Registered Person should review all paperwork for completeness and accuracy and promptly transmit the application package to an office of supervisory jurisdiction that has been designated by the Firm to review variable contracts.






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PERSPECTIVE FIRM POLICY – In order to ensure that Registered Persons, including Principals, who are involved in the sale or review of variable annuities, comply with the requirements of associated rules, the Firm will provide targeted training on variable annuities. This training may occur through the annual conference, internet based modules, firm element courses or any other means deemed appropriate by the Chief Compliance Officer.6.6.1.4 TWISTING (EXCESSIVE TRADING) The Designated Principal is responsible for reviewing and identifying potential instances of twisting. The Designated Principal is required to review the current application, as well as a history of transactions, via daily/monthly trade blotters, upon receiving an application. The Designated Principal will evidence their review by signing the Variable Annuity Replacement Acknowledgement and Variable Annuity Acknowledgment, or by electronic approval.

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, 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 should be mindful of previous contract sales, prior to approving the current transaction. The Designated Principal will evidence their review by signing the Variable Annuity Replacement Acknowledgement, or by electronic approval. Registered Person Responsibilities Registered Persons should not engage in multiple contract sales. 6.6.1.6 FUND SELECTIONS - CLASS SHARE SELECTION Supervisory Responsibilities The Designated Principal is responsible for reviewing the fund classes chosen and their consistency with the customer’s investment objectives and time horizon. The Designated Principal must take into consideration the amount currently invested and the customer’s intent to add additional money to the annuity product. The Designated Principal will evidence such reviews through initialing daily trade blotters or applications. The Designated Principal will evidence their review by executing the disclosure form received from customers or by electronic approval





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Registered Person Responsibilities At all times, Registered Persons must choose fund classes most appropriate with the customer’s investment objectives and time horizons. In addition, the Registered Person needs to consider amounts currently invested and the customer’s intent to add additional money to the annuity product. A Registered Person should never consider solely the differentials in compensation they might receive by selling one fund class versus another. The Firm requires that the representative obtain a Variable Annuity Share Class Disclosure Form from the customer for all sales in “L” shares. 6.6.2 CONTRACT DELIVERY Registered Persons are responsible for timely delivering variable contracts to their customer. Upon receipt from the insurance company, the Registered Person must deliver the policy in person or by the mail. 6.6.3 MARKET TIMING OF MUTUAL FUNDS IN SUB-ACCOUNTS Supervisory Responsibilities The Designated Principal is responsible for reviewing Registered Persons are not engaging in the market timing of mutual funds in variable contract sub-accounts. The Designated Principal, 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 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 customers 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 customers 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 customers' investment partnerships even after receiving notice that some of the

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variable annuity companies considered the customers' trading strategy to be disruptive and contrary to the interests of long-term investors. As a result, Davenport's customers 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 is responsible for ensuring customer transactions are suitable in light of their age, investment objectives, investment experience, tax situation, financial status, and time horizons. The Designated Principal 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 or by electronic approval. Registered Person Responsibilities At all times, a Registered Person should use prudent judgment in recommending equity indexed annuities to customers. All recommendations must be in line with the customer’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 customers. 6.8 FIXED INCOME PRODUCTS (MUNICIPALS, CORPORATES, TREASURIES,

AND GOVERNMENT AGENCY DEBT) 6.8.1 SUITABILITITY Supervisory Responsibilities The Designated Principal is responsible for verifying customer purchases of fixed income bonds are suitable in light of the customer’s age, investment objectives, financial status, time horizon, tax situation, etc. The Designated Principal 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 customers. All recommendations must be in line with the customer’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 customers. 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 customer.

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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 and adhere to applicable rules.

PERSPECTIVE CONCEPT POINT – The following is a concept point: MSRB Rule G-37 is a rule designed to ensure that the high standards and integrity of the municipal securities industry are maintained, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to perfect a free and open market and to protect investors and the public interest. It requires broker dealers to report contributions made by Registered Persons to officials of municipal securities issuers, political figures or political parties (collectively “Political Contributions”) under certain conditions. As such, you are required to report Political Contributions to the compliance department on a quarterly basis should your contributions total $250 per person per election or per party annually. You will also be required to attest to adherence to this rule on your Annual Compliance Questionnaire.

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 Compliance Questionnaires executed by Registered Persons attesting they have, in fact, disclosed all material events pertaining to municipal securities.

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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 is responsible for verifying customer purchases of 529 plans are suitable in light of the customer’s age, investment objectives, financial status, time horizon, tax situation, etc. The Designated Principal will review the daily trade blotter in conjunction with the New Account Form. The review of transactions is to occur daily and evidenced by initialing the 529 Plan Disclosure or by electronic approval. Registered Person Responsibilities At all times, a Registered Person should use prudent judgment in recommending these securities to customers. All recommendations must be in line with the customer’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 customers. All initial plan set-ups must be accompanied by a 529 Plan Disclosure. 6.9.2 PROSPECTUS DELIVERY Supervisory Responsibilities The Designated Principal is responsible for verifying investors in a 529 plan have received a copy of the products prospectus. The Designated Principal will review for such by signing the 529 Plan Disclosure or via electronic approval. 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 customer 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.

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.

http://www.capital-invest.com/pdffiles/529PLANDISCLOSURE.pdf



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6.9.3 DISCLOSURE OF POTENTIAL TAX DEDUCTIONS Supervisory Responsibilities The Designated Principal is responsible for verifying that 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 will review for such by signing the 529 Plan Disclosure or by electronic approval. Registered Person Responsibilities Registered Persons are required to discuss potential tax deductions available if communicating with a customer who resides in a state where that state offers tax deductions for investing in its sponsored plan. Customer 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 is responsible for verifying customer purchases of real estate investment trusts are suitable in light of the customer’s age, investment objectives, financial status, time horizon, etc. The Designated Principal 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 will evidence their review of the investment by signing the New Account Form, initialing copies of the application, and signing the Private REIT Disclosure or by electronic approval Registered Person Responsibilities Registered Persons are responsible for ensuring investments in real estate investment trusts are suitable in light of the customer’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. Product-level training may be required prior to submitting business in any one product. Please refer to Section 3.5.2 - Specialized Training, for further information.

PERSPECTIVE FIRM POLICY – The Firm will generally limit aggregate private REIT investments to a maximum of 20% of a customer’s liquid net worth. Additionally, the Firm has a concentration policy, which generally limits a customer to 10% of liquid net worth with any one product sponsor. Any exceptions to these policies must be at the approval of the Chief Compliance Officer (“CCO”), or their designee. However, the Firm reserves the right to refuse the acceptance of an investment if: 1) The dollar amount invested appears unsuitable in light of the customer’s financial circumstances, experience, age, time horizon, and objectives; 2) No Private REIT Disclosure is obtained; or 3) 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 customers be fully aware of the risks involved in such investments, while, at the same time, providing you an adequate paper trail to document




http://www.capital-invest.com/pdffiles/PRIVATEREITDISCLOSURE.pdf





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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 customer claim has merit.

6.10.2 PROSPECTUS DELIVERY Supervisory Responsibilities The Designated Principal is responsible for verifying investors in a real estate investment trust have received a copy of the products prospectus. The Designated Principal for review for such by making sure a copy of the Private REIT Disclosure is included with the initial application upon receipt. The Designated Principal will evidence their review of the investment by signing the New Account Form, initialing copies of the application, and signing the Private REIT Disclosure or by electronic approval. 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 customer 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 is responsible for verifying investors in a real estate investment trust have been provided adequate disclosure about liquidity, costs, and other features specific to REITs. The Designated Principal will verify such by requiring a Private REIT Disclosure accompanies an application. The Designated Principal will evidence their review of the investment by signing the New Account Form, initialing copies of the application, and signing the Private REIT Disclosure or by electronic approval. Registered Person Responsibilities Registered Persons are required to provide adequate disclosures to customers 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. 6.11 OPTIONS 6.11.1 SPECIFIC SUITABILITY ISSUES 6.11.1.1 UNCOVERED SHORT OPTIONS CONTRACTS Supervisory Responsibilities The Designated Principal will pay particularly attention in reviewing for uncovered short option contracts. Due to the risky nature of these investments, the Designated Principal will verify such option strategy has been approved previously, the relative risk level of the position per the customer’s New Account Form, Account History, and liquidity. Daily, the Designated Principal will review such transactions and evidence such reviews by initialing the daily trade blotter.








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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 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 will verify customers 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 will verify customers are not exceeding position limits set forth in regulations. The Designated Principal will evidence their review by initialing the daily trade blotter. Registered Person Responsibilities No Registered Person shall assist a customer in exceeding position limits set forth by the Options Clearing Corporation. 6.11.4 REPORTING OF OPTIONS POSITIONS Supervisory Responsibilities The Designated Principal 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. Registered Person Responsibilities No responsibilities. 6.11.5 MANIPULATION Supervisory Responsibilities The Designated Principal 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.

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6.12 TENANTS IN COMMON/1031 EXCHANGE PROGRAMS 6.12.1 SUITABILITY Supervisory Responsibilities The Designated Principal is responsible for ensuring customer transactions are suitable in light of their age, investment objectives, investment experience, tax situation, financial status, and time horizons. The Designated Principal will review real estate investment trust applications, in conjunction with the New Account Form and the Tenants in Common Investment in Real Estate Disclosure Form, upon the date of receipt. The Designated Principal will evidence their review of the investment by signing the New Account Form, initialing copies of the application, and signing the disclosure form or by electronic approval. Registered Person Responsibilities All recommendations must be in line with the customer’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 customers. Registered representatives are required to obtain a Tenant in Common Investment in Real Estate Disclosure Form and provide such form at the time of submission of the application. 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 customers to our Firm cannot

receive a split or a portion of the brokerage fee.

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

5. Given the size of the transaction and the percentage of a customer’s net worth and potential provisions about selling a TIC, the customer must be made aware of potential illiquidity if the program has restrictions on redemptions. Note that 1031/TIC transactions are not considered REITs for determining compliance with the Firm’s policy, which permits up to an aggregate 20% of net worth maximum for REIT purchases. However, that does not relieve the representative from carefully considering illiquidity issues and reviewing current REIT holdings when recommending a 1031/TIC transaction.

http://www.capital-invest.com/pdffiles/TICRealEstateDisclosure.pdf

http://www.capital-invest.com/pdffiles/TICRealEstateDisclosure.pdf

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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 customer 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 customers explaining exchanges, properties choices, how they work, and other pertinent information to ensure customers 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 is responsible for ensuring customer transactions are suitable in light of the customer’s age, investment objectives, investment experience, tax situation, financial status, and time horizons. The Designated Principal will review sponsor applications in conjunction with the New Account Form (or Account Update Form) and the Oil & Gas Disclosure Form upon the date of receipt. The Designated Principal will evidence their review of the investment by signing the account form, initialing copies of the application, and signing the disclosure form or by electronic approval. Registered Person Responsibilities All recommendations must be in line with the customer’s age, investment objectives, investment experience, tax situation, financial status, and time horizons, keeping in mind issues affecting the market and individual issue. Registered Persons are prohibited from making unsuitable recommendations to customers. Registered representatives are required to obtain an Oil & Gas Disclosure Form and provide such form at the time of submission of the application. Product-level training may be required prior to submitting business in any one product. Please refer to Section 3.5.2 - Specialized Training, for further information.

PERSPECTIVE FIRM POLICY – The Firm will generally limit aggregate oil & gas partnership investments to a maximum of 20% of a customer’s liquid net worth. Any exceptions to this policy must be at the approval of the CCO, or their designee. However, the Firm

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reserves the right to refuse the acceptance of an investment if: 1) The dollar amount invested appears unsuitable in light of the customer’s financial circumstances, experience, age, time horizon, and objectives; 2) No Oil & Gas Disclosure Form is obtained; or 3) The information on the New Account Form is deemed inaccurate. CONCEPT POINT - It is of critical importance to receive the Oil & Gas Disclosure Form. This document is designed to help customers 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 customer claim has merit.

6.13.2 PROGRAM DOCUMENTS Representative Responsibilities Registered Persons are responsible for providing program documents, including prospectuses, to potential customers explaining the partnerships, properties choices, how they work, and other pertinent information to ensure customers are provided adequate information about the process and how it works. 6.14 OTHER ALTERNATIVE INVESTMENTS 6.14.1 SUITABILITY Supervisory Responsibilities The Designated Principal is responsible for ensuring customer transactions are suitable for other alternative investments, such as Business Development Companies, in light of the potential illiquidity of the product, the customer’s age, investment objectives, investment experience, tax situation, financial status, and time horizons. The Designated Principal will review sponsor applications, in conjunction with the New Account Form (or Account Update Form), and the Illiquid Asset Disclosure form, upon the date of receipt. The Designated Principal will evidence their review of the investment by signing the account form, initialing copies of the application, and signing the disclosure form or by electronic approval. Registered Person Responsibilities All recommendations must be in line with the customer’s age, investment objectives, investment experience, tax situation, financial status, and time horizons, keeping in mind issues affecting the market and individual offering, such as potential illiquidity of the product. Registered Persons are prohibited from making unsuitable recommendations to customers. Registered representatives are required to obtain an Illiquid Asset Disclosure form and provide such form at the time of submission of the application. Product-level training may be required prior to submitting business in any one product. Please refer to Section 3.5.2 - Specialized Training, for further information.


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PERSPECTIVE FIRM POLICY – The Firm will generally limit aggregate investments in alternatives to a maximum of 20% of a customer’s liquid net worth. Additionally, the Firm has a concentration policy, which generally limits a customer to 10% of their liquid net worth with any one product sponsor. Any exceptions to these policies must be at the approval of the CCO, or their designee. However, the Firm reserves the right to refuse the acceptance of an investment if: 1) The dollar amount invested appears unreasonable in light of the customer’s time horizon, objectives, age and net worth; 2) No Illiquid Asset Disclosure Form is obtained; or 3) The information on the New Account Form is deemed inaccurate. CONCEPT POINT - It is of critical importance to have a customer complete the Illiquid Asset Disclosure form. This document is designed to help make customers fully aware of the risks involved in such investments, while providing adequate documentation of 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 customer claim has merit.

6.14.2 PROGRAM DOCUMENTS Representative Responsibilities Registered Persons are responsible for providing program documents, including prospectuses, to customers, which describe pertinent information and any potential illiquidity issues of the product, to ensure customers are provided adequate information about the investment process.

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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 to verify their existence, 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 a clearing firm, Investment Company, insurance company, or other entity. As such, it is Firm policy to evidence compliance with the rule by reviewing the appropriate blotters and evidencing such review by initialing the document(s) or electronic review and approval. 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 that all securities received from their customers, or by Registered Persons assigned to them for supervisory purposes, are accounted for and forwarded to the appropriate financial institution (clearing firm, investment company, insurance company, real estate investment trust, etc.) by the close of business the same day, barring any unusual circumstances. The Designated Principal is responsible for evidencing such reviews by initialing a daily check and securities log or electronic review and approval, and retaining copies of securities with any airbill receipts, as well as a check and securities log. Registered Person Responsibilities The Registered Person must send the security by the close of business the same day, via overnight mail to the clearing firm. Copies of certificates and security receipts, with evidence a copy of the airbill, must be maintained and logged in a check and securities log. If a non-OSJ office, copies of this information must be sent to the Main office. 7.4 RECEIPT OF CUSTOMER CHECKS Supervisory Responsibilities The Designated Principal is responsible for ensuring that all checks received from their customers, or by Registered Persons assigned to them for supervisory purposes are accounted for and forwarded to the appropriate financial institution (clearing firm,

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Investment Company, insurance company, real estate investment trust, etc.) by the close of business the same day, barring any unusual circumstances. The Designated Principal is responsible for evidencing review by initialing a daily check and securities log, or electronic review and approval, and retaining copies of checks with any airbill receipts, or deposit slips, if a sweep account has been established at a depository institution (i.e. commercial bank or savings and loan institution), or by electronic review and approval. Registered Person Responsibilities The Registered Person must immediately remit, any customer checks received, to their Designated Principal or the Main Office, if associated with a non-OSJ location. If your Designated Principal is located in the Main Office, you must mail all checks, by the close of business the same day, to the Main Office. For direct business only, you have the alternative to submit all paperwork, including copies of checks, electronically to the Main Office. If you receive notice of approval, you may forward the check to the sponsor (investment company, insurance company, etc.). You are required to ensure that a record of the mail date and method, including tracking information when applicable, is maintained, by utilizing the check and securities log. If you do not have approval on date the check was received, you must forward the check to the Main Office by the close of business. If your Designated Principal is your OSJ Manager, your OSJ Manager is responsible for forwarding the check, by the close of business the same day, to the appropriate financial institution (clearing firm, investment company, insurance company, real estate investment trust, etc.) or, if permitted, 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 strictly prohibited. Registered Person Responsibilities Registered Persons are strictly prohibited from receiving customer cash from clients. 7.5.1 RECEIPT OF COMPENSATION DIRECTLY FROM A BROKER OR PRODUCT

SPONSOR Supervisory Responsibilities Receipt of commissions, or other compensation, directly from a broker, other than Capital, or product sponsor, including insurance and mutual fund companies, is strictly

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prohibited. All compensation must be paid to the Firm and, in turn, the Registered Person. Registered Person Responsibilities Registered Persons are prohibited from receiving compensation directly from a broker or product sponsor, including insurance and mutual fund companies. In the event that compensation is received, the Compliance Department must be notified immediately. 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. Registered Person Responsibilities No responsibilities.

PERSPECTIVE CONCEPT POINT – The SEC published an interpretation stating the concessions received from certain products can be treated as allowable assets, to the extent they are offset by a commission/concession payable to the sales representative. Only the amount, up to the payable to the representative, should be treated as an allowable asset. This policy applies to Variable Annuities, Oil & Gas offerings and REITS. The Designated Principal should consider this interpretation when performing applicable financial reporting and calculations.

7.6.1 FINANCIAL RECORDS ASSOCIATED WITH MUTUAL FUND DISTRIBUTOR FUNCTIONS

Supervisory Responsibilities The Designated Principal is responsible for recording the funds associated with the Firm’s role as Distributor for certain Nottingham mutual funds (“Funds”), as well as the review of the activity. The Firm periodically receives reporting from Nottingham, detailing intended payments to other brokerage firms, for sales commissions and/or 12b-1 fees. These fees are paid from the respective Funds to the Firm. The Designated Principal will review the activity and, upon approval, send any money payable back to Nottingham, who serves as disbursement agent for the Firm. The Firm will ensure that proper recording of these commissions receivable and payable will be made to its financial books.

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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 the net capital computation, with FOCUS submissions, to verify accuracy and timeliness. The filing and review of FOCUS Reports will be completed 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 provide 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. Registered Person Responsibilities No responsibilities.

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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, include 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 media

Rule 17a-5(f)(4) Replacement of accountant

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 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.

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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. 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.

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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 or by electronic approval of activity. 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 a notarized letter of authorization to be obtained from the customer of record. Should the identity of the third party not be clearly recognizable, the Firm will contact the representative requesting the transmittal. Additional information from the internet and the clearing agent should be considered in verifying that the transmittal is permissible per Firm policy. If there is inadequate information regarding the identity, the transmittal will not be take place. If after receiving information, the identity meets 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 if a customer has an investment account, on which our Firm serves as the broker/dealer of record. We will permit the transmittals, if acceptable to the outside entity, if the registration of the account from which the funds are being transferred, is like-kind in nature (i.e. John Doe, Individual transferring to another John Doe, Individual account). Permissible transmittals require a notarized letter of authorization to be obtained from the customer of record.

TRANSMITTALS FROM CUSTOMER ACCOUNTS TO LOCATIONS OTHER

THAN THEIR PRIMARY ADDRESS OF RECORD – Transmittal of funds and securities to a location other than the primary address of record are permissible if a notarized letter of authorization is obtained from the customer of record.

TRANSMITTAL OF FUNDS TO A REGISTERED REPRESENTATIVE – Where

practical, the Registered Person should encourage the customer 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, or comply with the procedures for electronic approval described in Section 7.4, 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 or comply with procedures identified in Section 7.4.

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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 customer 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 notarized letter of authorization by the customer 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 customers 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 7.16 PRIVATE PLACEMENT FILING SYSTEM Supervisory Responsibilities The Designated Principal will be responsible for filing the private placement memorandum, term sheet and/or other documents used to sell an issuer’s securities, in FINRA’s filing system, pursuant to applicable rules and filing exceptions. The filing must be made within 15 calendar days of the date of the first sale. The filing system is available through FINRA’s Firm Gateway. Registered Person Responsibilities No responsibilities.

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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 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

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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. 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 to 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 the 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 http://apps.finra.org/RulesRegulation/OFAC/1/Default.aspx ), and is not from, or

mailto:[email protected]

http://www.treas.gov/ofac

http://apps.finra.org/RulesRegulation/OFAC/1/Default.aspx

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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 In addition to the information we must collect under FINRA Rules 2010 (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 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. 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.

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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 customer does not have a government or other acceptable form of ID, non-documentary means may be utilized, such as personal knowledge of the customer. This should be considered for, in particular, elderly customers who do not have a driver’s license. 8.5.4 VERIFYING INFORMATION 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:

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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 available 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 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.

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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:

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

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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 customers 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 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.

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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.

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.

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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. 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.

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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. 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 Compliance Questionnaire. 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/forms/files/fin104_ctr.pdf.

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

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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/forms/files/fin105_cmir.pdf. 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.fincen.gov/forms/files/f9022-1_fbar.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 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 customer 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 customers or prospective customers and generally prohibits third party transfers, except in limited situations like transfers to a recognized charitable or religious non-profit organization.

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8.9 AML RECORDKEEPING 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. 8.9.2 RESPONSIBILITY FOR AML RECORDS AND SAR FILING Our AML Compliance Officer, and their 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 https://www.fincen.gov/314b/314b_notification.php . 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.

https://www.fincen.gov/314b/314b_notification.php

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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. 8.12 PROGRAM TO TEST AML PROGRAM 8.12.1 STAFFING The testing of the Firm’s AML program will be performed by Fairview Investment Services, LLC. Fairview is staffed by compliance professionals with extensive financial services industry experience, providing ongoing services to Broker/Dealers, Registered Investment Advisers and Investment Companies 8.12.2 EVALUATION AND REPORTING AML testing will be completed by the Firm at least annually. Following completion, the Compliance staff will report its findings, and any recommendations, to senior management. 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 Designated Principal, any adverse findings that could reflect negatively on the Designated Principal 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 AML 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.

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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. 9.0 TRANSACTION REPORTING 9.1 MUNICIPAL BONDS Supervisory Responsibilities The Designated Principal 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 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 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 shall attempt to resolve any such instances via the OATS website. Evidence of the reviews will be maintained. The Firm will also review the monthly report card produced by FINRA to ensure that the Firm is adhering to reasonable standards with respect to:

Late submissions Out of sequence events Unmatched executions Unmatched NASDAQ routes Unmatched Interfirm routes Unrepaired rejections

These reports should not be seen as confirmation of compliance with the requirements of OATS; however, they are a tool that the Firm can use in its internal reviews. Registered Person Responsibilities No responsibilities.

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9.3 TRACE Supervisory Responsibilities The Designated Principal 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 will maintain a monthly log. Registered Person Responsibilities No responsibilities.

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10.0 PERIODIC REVIEW OF THE FIRM 10.1 SUPERVISORY SYSTEM Supervisory Responsibilities The Designated Principal is responsible for developing and reviewing the Firm’s supervisory system, including written supervisory procedures. The review of 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 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 Persons 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 supervisor. 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 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.

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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 of producing supervisors, as responsible for reviewing and supervising, on a day-to-day basis, customer account activity conducted by a producing supervisor. In reviewing customer account activity, the Designated Principal is independent and otherwise senior to the producing supervisor. 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 factors used to reach the determination will be documented, in accordance with FINRA Rule 3110(b)(6) requirements. For the purposes of determining those classified as producing supervisors, the Chief Compliance Officer, or their designee, will review monthly production/revenue generated by, or credited to, the producing supervisor or their office, daily transaction blotters to determine those who are producing supervisors, as well as utilizing personal knowledge of the business conducted by, or associated with, the producing supervisor. 10.3 ANNUAL CERTIFICATION OF COMPLIANCE AND SUPERVISORY PROCESSES 10.3.1 Designation of Chief Compliance Officer The Firm will designate, in Schedule A of the Form BD, a Chief Compliance Officer (“CCO”). Evidence of this designation will be maintained on the Form BD in the Web CRD 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.

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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. 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 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 will verify compliance. In addition, on as needed basis, the Designated Principal will review compliance with the Membership Agreement, if the Firm engages in sales of a new product type, or should there be a substantial increase in Registered Persons or branches. The Designated Principal will evidence such review through a report. Registered Person Responsibilities No responsibilities.

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10.5 BUSINESS CONTINUITY PROGRAM Supervisory Responsibilities The Designated Principal 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. 10.6 BRANCH OFFICE INSPECTIONS Supervisory Responsibilities The Designated Principal is responsible for developing a system for conducting branch office inspections. Branch office inspections may be announced or unannounced, at the discretion of the Designated Principal. The Designated Principal will provide the Branch Auditor any templates and pertinent information used in conducting inspections, identifying the 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 may 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

Registered Person Responsibilities The Registered Person must provide all information requested as part of the branch office reviews, in a timely manner or as stated in the document request. 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 is responsible for the Firm conducting due diligence of any new product types prior to any sales by a Registered Person. The Designated Principal will review 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.

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Due to the increasing complexity of existing products, the Firm may consider a product as “new” to the Firm’s offerings, although it is a new generation of an existing product. In conducting due diligence, the following questions, at a minimum, should be addressed:

1. Who is the intended audience for 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?

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 same objectives as 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 primarily designed to generate yield, does the yield justify the risks to principal?

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

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

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

7. How will the Firm and Registered Persons 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. How complex is the product in structure, function, and description? Does the

complexity impair understanding and transparency of the product? Does the 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 Person and the Designated Principals? 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?

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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 requesting approval of such activity.

PERSPECTIVE FIRM POLICY - In reviewing a new product, the following questions, at a minimum, should be addressed: 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 customer? 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?

10.7.1 DUE DILIGENCE OF OTHER MEMBERS RELATED TO DISTRIBUTOR FUNCTIONS Supervisory Responsibilities The Designated Principal is responsible for conducting due diligence of any new broker/dealers requesting a selling agreement related to mutual funds for which the Firm serves as Distributor. This due diligence may include any of the following: reputation of the firm, prior experience with the firm, information available through FINRA’s Broker Check, financial statements if available, discussions with personnel of the firm, and any other subjective or objective criteria deemed appropriate by the Designated Principal.

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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, as well as 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 related 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 shall ensure that a 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 evidence Firm and Designated Principal approval. Registered Person Responsibilities

No responsibilities.

PERSPECTIVE

CONCEPT POINT – A securities marketing agreement executed between the financial institution and a broker/dealeris required, by regulation, in order to provide such services on the premises of 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 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.

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11.3 OFFICE SETTING/PHYSICAL SEPARATION OF BROKERAGE ACTIVITIES Supervisory Responsibilities The Designated Principal is responsible for determining and verifying that the physical space in which securities business is conducted, are clearly distinguishable from the retail deposit-taking activities conducted by the financial institution. As such, the area in which the Registered Person conducts business within a financial institution should be physically separate from the retail deposit-taking activities of the financial institution; or, if this is not feasible, signage clearly distinguishes that the activities of the financial institution and the Registered Person are separate. No less than annually, through branch inspections, the Designated Principal will verify that 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.

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 customer may mistakenly believe that FDIC insures broker/dealer services.

11.4 DISCLOSURES AND COMMUNICATIONS WITH THE PUBLIC 11.4.1 CUSTOMER DISCLOSURE AND WRITTEN ACKNOWLEDGEMENT Supervisory Responsibilities The Designated Principal is responsible for ensuring that at, or prior to, the time a securities account is opened, the customer has received, reviewed, and signed the Bank Disclosure Agreement (Bank Disclosure Agreement, Group or Bank Disclosure Agreement, Brokerage), in addition to any other forms, such as the New Account Form, required to establish an account. The Designated Principal will review for such in approving any new accounts via signing the New Account Form or by electronic approval. The Designated Principal cannot approve the establishment of a new account, under any circumstances, if such a disclosure is not obtained executed by the customer at the time a new account is submitted to be opened. Registered Person Responsibilities Registered Persons are required to provide each customer upon establishment of any new account a Bank Disclosure Agreement (Bank Disclosure Agreement, Group or Bank Disclosure Agreement, Brokerage) from the customer. The Registered Person must obtain from the customer 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 customer executing the form in order for them to have full disclosure.

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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 is responsible for ensuring customer confirmations and statements clearly indicate the Firm provides broker/dealer services. As part of the branch audit process, a sample of brokerage confirmations and account statements are reviewed to ensure that all disclosures are included. 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 notify their Designated Principal of instances in which brokerage account confirmations and account statements, provided to customers, do not clearly indicate that the Firm provides broker/dealer services. 11.4.3 ADVERTISING AND SALES LITERATURE Supervisory Responsibilities The Designated Principal 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 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, prior to use, in accordance with Firm policy set forth earlier in the procedures. More so, the Registered Person must add required disclosures specific to financial institutions.

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PERSPECTIVE FIRM POLICY – All correspondence and retail communication, whether prepared by the Firm or the financial institution, pertaining to broker/dealer services must clearly indicate the following disclosures:. 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. An abbreviated disclosuremay be utilized, if placed 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 Exception: For electronic signs (i.e. time and temperature signs, billboard signs, and ticker tape signs), and other signage, such as a banner or poster used only as a location indicator, the disclosures described above are not required. In addition, any correspondence, retail communications 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 is responsible for reviewing public speaking engagements, in accordance with policy set forth earlier in the procedures. The Designated Principal will review and evidence such review, in accordance with procedures set forth in earlier sections.

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Registered Person Responsibilities Registered Persons must receive the approval of the Designated Principal 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 eight disclosures noted in the preceding Perspective Box. For TV and radio broadcasts, the four-point, abbreviated disclosures noted in the Perspective Box, will suffice. 11.4.5 DISCUSSION OF INSURANCE Supervisory Responsibilities The Designated Principal is responsible for reviewing and verifying that 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 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 verbal or written communication, including retail communications, address 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 written 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 CUSTOMER INFORMATION 11.5.1 ACCESSING BANK CUSTOMER INFORMATION Supervisory Responsibilities The Designated Principal is responsible for monitoring that Registered Persons do not obtain confidential information about customers of the financial institution, , without the customer’s prior written consent. At the time of account opening, the customer is required to complete a Bank Disclosure Agreement, which indicates whether or not they allow the Firm and its Registered Person(s) to obtain confidential information from the financial institution. The Designated Principal will evidence review of the customer’s intent by signing the New Account Form or by electronic approval in approving an account. Registered Person Responsibilities No Registered Person may request, or receive, confidential information regarding customers of the financial institution, without prior written consent of the customer, via the Bank Disclosure Agreement. 11.5.2 BANK ACCESS TO CLIENT INFORMATION OBTAINED BY THE FIRM Supervisory Responsibilities The Designated Principal is responsible for monitoring Registered Persons, to ensure that they do not share confidential information about clients of the Firm, , without the customer’s prior, written consent. At the time of account opening, the Designated Principal will review whether or not the customer has agreed to allow the Firm and its

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Registered Person(s) to share such information, by reviewing the executed Bank Disclosure Agreement. The Designated Principal will evidence review of the customer’s intent by signing the New Account Form, or by electronic approval. Registered Person Responsibilities No Registered Person may provide confidential customer information, to the financial institution, without the written consent of the customer. Consent can only be received via them completing and agreeing to the information sharing via the Bank Disclosure Agreement. 11.5.3 CONFIDENTIALITY OF CUSTOMER INFORMATION OBTAINED BY THE FIRM Supervisory Responsibilities The Designated Principal is responsible for monitoring that Registered Persons do not share confidential customer information with anyone who should not be privy to such information. Registered Person Responsibilities See Sections 4.9 and 4.10 for details regarding the Firm’s policy around customer information privacy and procedures in case of a data breach.

PERSPECTIVE CONCEPT POINT – It is critical Registered Persons and the Firm safeguard confidential customer information. Not only is it necessary to maintain customer 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 customers of the Firm’s privacy policy about when and how confidential customer information can and will be disseminated to third parties. One single instance of sharing confidential information without the customer’s consent is considered a federal crime.

11.6 RESTRICTED PRODUCTS

Supervisory Responsibilities The Designated Principal is responsible for ensuring no Registered Person sales restricted products to a customer. Daily, the Designated Principal will review trade activity via the daily trade blotter and applications. The Designated Principal will evidence their review by initialing the daily trade blotters and/or signing applications or by electronic approval. Registered Person Responsibilities A Registered Person is prohibited from the following:

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 customer wishes to purchase or sell a security issued by the financial institution, or any of its affiliates, which was not a recommendation of the Registered Person, the

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Registered Person may accommodate the request by placing a purchase 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 is responsible for reviewing the restrictions placed on the activities of financial institutions and their employees. No less than annually, during the branch audit, the Designated Principal 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 the following clerical and ministerial activities, as they relate to the business of the Firm:

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 with contact information for 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

are not on site; Scheduling an appointment to meet with the Registered Person; Accepting cash, checks, and securities for a customer’s securities account at the

Firm, provided that fingerprint cards for the employee have been submitted to the Firm’s Compliance Department; and

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

Financial institution employees, not registered with the Firm, shall not:

Make recommendations to a customer related to the purchase or sale of securities;

Provide any form of investment advice; Deliver prospectuses to customers; Open a customer securities account for the Firm; Complete or assist a customer in completing New Account Forms or any other

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

employee is performing non-ministerial duties; Answer customer questions about the advisability of purchasing or selling

securities; Make representations to a customer about customer about securities; Discuss the merits of any security with a customer;

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Handle any questions that might require familiarity with the securities industry, or require the exercise of judgment regarding securities; and

Accept cash, checks, and securities for a customer’s securities account at the Firm, unless fingerprint Cards were previously submitted to the Firm’s Compliance Department.

The financial institution shall not:

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

Extend credit to a customer 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 customer do so, in order to facilitate the purchase of securities.

11.8 ROLE OF A REGISTERED PERSON Supervisory Responsibilities The Designated Principal 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 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 customer relating to the purchase or sale of securities;

Provide any form of investment advice relating to securities; Deliver prospectuses to customers; Open securities accounts of customers for the Firm; Complete or assist the customer 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 customer for the Firm; Solicit a customer for the Firm, except to the extent that the financial institution

employee is performing non-ministerial duties; Answer customer questions about the advisability of purchasing or selling

securities; Make representations to a customer about customer about securities; Discuss the merits of any security with a customer; 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 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

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Designated Principal 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 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 is responsible for immediately notifying the financial institution of the termination of any Registered Person related to the program with the Firm, 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 will evidence their notification, via written correspondence, 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 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. No less than annually, the Designated Principal 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 noted by the Branch Auditor.

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12.0 APPENDICES

DESIGNATION OF PRINCIPALS MAIN OFFICE

Richard K. Bryant President/Financial & Operations Principal Capital Investment Group, Inc. and Capital Investment Brokerage, Inc. 100 E. Six Forks Road; Ste. 200 Raleigh, North Carolina 27609 Qualifications: Series 7, 24, 27, and 63 William H. Eddins AVP/Municipal Principal Capital Investment Group, Inc. and Capital Investment Brokerage, Inc. 100 E. Six Forks Road; Ste. 200 Raleigh, North Carolina 27609 Qualifications: Series 7, 24, 53, 63, and 65 Jerolyn D. Newton Trading Manager Capital Investment Group, Inc. and Capital Investment Brokerage, Inc. 100 E. Six Forks Road; Ste. 200 Raleigh, North Carolina 27609 Qualifications: Series 7, 24, 63 William B. Nicholson Head – Capital Insurance Affiliates Capital Investment Group, Inc. and Capital Investment Brokerage, Inc. 100 E. Six Forks Road; Ste. 200 Raleigh, North Carolina 27609 Qualifications: Series 6, 26, 63 Ronald L. King Chief Compliance Officer/ Options Principal, Municipal Principal Capital Investment Group, Inc. and Capital Investment Brokerage, Inc. 100 E. Six Forks Road; Ste. 200 Raleigh, North Carolina 27609 Qualifications: Series 4, 7, 9, 10, 24, 53 63, 66

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OSJ MANAGERS Maintained in Green Dog

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PRINCIPAL SUPERVISORY RESPONSIBILITIES

RICHARD BRYANT Bryant is responsible for the following:

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 JEROLYN NEWTON

Newton is responsible for the following:

New Accounts (Section 5.1)

Account Maintenance Items for non-OSJs (Section 5.2)

Transactions (all except 529 Plans, Municipal Bonds, REITs, Options;

Insurance/Annuities) (Section 6)

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:

Transactions (Insurance and Annuity Product Types) (Section 6) Maintenance of Insurance Purchase and Sales Blotter

Due Diligence of Insurance and Annuities (Section 10.7)

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RON KING

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

General Policies of Registered Persons (Section 2.0) Hiring, Registration, and Education Items (Section 3.0)

Communications (Section 4.0) with the exception of 1. Correspondence and

Internal Communications of OSJs. The OSJ manager is responsible for this area

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 Supervisor Reviews (Section 5.5.3)

Best Execution (Section 6.2.1)

Transactions (144/144A, Options, Munis/529s, REITs, 1031 Programs, OGPs,

Other Alternative Investments) (Section 6)

Financial & Operation Issues (Section 7.0) – All sections except 7.6, 7.7 and 7.8.

Anti-Money Laundering Program (Section 8.0)

Transaction Reporting (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 Section 10.7 as it relates to Insurance and Annuities)

Sales on the Premises of Financial Institutions (Section 11)

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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 Customer 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, Other Alternative Investments ) (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)

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CUSTOMER DISCLOSURE FORMS You can access the following forms from the Firm’s web site. Not all of the below forms are required to be completed by a customer 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 customer in their understanding.

529 PLAN DISCLOSURE (Required)

BANK DISCLOSURE AGREEMENT, GROUP (Required)

BANK DISCLOSURE AGREEMENT, BROKERAGE (Required)

ERISA PLAN PRE-APPROVAL REQUEST (Required)

ERISA DISCLOSURE FORM (Required)

ILLIQUID ASSET DISCLOSURE

LOW-PRICED SECURITIES DISCLOSURE (Required)

MULTIPLE FUNDS A SHARE DISCLOSURE FORM (Required)

MUTUAL FUND CLASS C SHARE DISCLOSURE (Required in certain circumstances)

MUTUAL FUND CLASS B SHARE DISCLOSURE FORM (Required)

MUTUAL FUND SWITCH DISCLOSURE (Required)

MUTUAL FUND/UNIT INVESTMENT TRUST DISCLOSURE (Optional)

OIL & GAS DISCLOSURE FORM (Required)

PRIVATE REIT DISCLOSURE (Required)

RETIREMENT PLAN ROLLOVER DISCLOSURE (Required)

TENANTS IN COMMON IN REAL ESTATE DISCLOSURE (Required)

VARIABLE ANNUITY ACKNOWLEDGEMENT (Required)

VARIABLE ANNUITY REPLACEMENT ACKNOWLEDGEMENT (Required)

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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 Other Alternative Investments Real Estate Investment Trusts Tenant-in-Common/1031 Exchange Programs Unit Investment Trusts Variable Annuities Variable Life Insurance

NON-APPROVED PRODUCTS A Registered Person is prohibited from selling the following products, unless the individual product is approved by the Firm:

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.