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PAULSON INVESTMENT COMPANY,

LLC Compliance Manual

Prepared by:

Amal S. Amin

Mallon & Johnson

120 N. LaSalle St. Suite 2100

Chicago, Illinois 60602

March 14, 2016

PAUSLON INVESTMENT COMPANY, LLC Compliance Manual

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Table of Contents

Introduction ..................................................................................................................................... 4

Advertising ...................................................................................................................................... 6

Advisory Agreement and Services.................................................................................................. 9

Agency Cross Transactions........................................................................................................... 11

Annual Compliance Reviews ........................................................................................................ 12

Anti-Money Laundering ............................................................................................................... 14

Best Execution .............................................................................................................................. 23

Books and Records ....................................................................................................................... 24

Code of Ethics ............................................................................................................................... 26

Complaints .................................................................................................................................... 40

Corporate Records ........................................................................................................................ 41

Custody ......................................................................................................................................... 42

Directed Brokerage ....................................................................................................................... 45

Disaster Recovery ......................................................................................................................... 46

Disclosure Document .................................................................................................................... 48

E-Mail and Other Electronic Communications............................................................................. 50

ERISA ........................................................................................................................................... 52

Execution of Security Transactions .............................................................................................. 53

Insider Trading .............................................................................................................................. 55

Investment Processes .................................................................................................................... 57

Performance Data.......................................................................................................................... 59

Political Contributions .................................................................................................................. 61

Principal Trading .......................................................................................................................... 64

Privacy .......................................................................................................................................... 65

Proxy Voting ................................................................................................................................. 67

Registration ................................................................................................................................... 69

Regulatory Reporting .................................................................................................................... 71

Soft Dollars ................................................................................................................................... 71

Solicitor Arrangements ................................................................................................................. 73

Supervision/Internal Controls ....................................................................................................... 75


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Valuation of Securities .................................................................................................................. 77

Appendix 1. Certification of Annual Compliance Review ...................................................... 79

Appendix 2. Broker Evaluation Form ...................................................................................... 81

Appendix 3. Books and Records to be Maintained by Investment Advisers ........................... 82

Appendix 4. Paulson Investment Company, LLC Code of Ethics Acknowledgment ............. 88

Appendix 5. PIC Officers/Employees Data Sheet ................................................................... 89

Appendix 6. Disaster Recovery and Business Continuity Plan ............................................... 90

Appendix 7. Clover No-Action Letter ................................................................................... 110

Appendix 8. ICI Letter ........................................................................................................... 116

Appendix 9. Summaries of Clover No-Action Letter and ICI Institute Letter ...................... 121

Appendix 10. Paulson Investment Company, LLC Political Contribution Request Form ...... 123

Appendix 11. Privacy Policy ................................................................................................... 125


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Introduction

Policy

This Compliance Manual has been developed to educate the personnel of Paulson Investment

Company, LLC as to the laws, rules and regulations governing investment adviser and agent

activities and make known the strict policies and general procedures in regards to these matters.

Paulson Investment Company, LLC (“PIC”) is a registered investment adviser with the

Securities and Exchange Commission under the Investment Advisers Act of 1940. The primary

business of PIC is to serve in the capacity of investment adviser to certain pooled vehicles (the

“Funds”) (the “Funds” together with PIC’s other clients are referred to herein as “Clients”).

Each Fund typically has a number of investors (the “Investors”). PIC also has separately

managed accounts, and engages the services of third party asset managers (“TPAMs”) for its

Clients.

Personnel are required to read this Compliance Manual and to be thoroughly familiar with the

policies, practices and procedures set forth herein. Personnel are also required to report any

known or suspected violations of these policies, practices and procedures to the Chief

Compliance Officer (“CCO”), Basil Christakos. Personnel are asked and encouraged to raise

questions, criticisms or comments about the Manual. Please address all questions regarding

compliance issues to Basil Christakos.

The Fiduciary Standard

PIC is a fiduciary to our investment advisory Clients. PIC will provide investment advisory

services to investment Clients and act as a fiduciary.

The Investment Advisers Act of 1940 was enacted, at least in part, to strengthen the fiduciary

nature of the relationships between advisers and their clients. The Supreme Court has stated that

Section 206 of the Advisers Act establishes Federal fiduciary standards to govern the conduct of

investment advisers (see Securities and Exchange Commission v. Capital Gains Research

Bureau, 375 U.S. 18 1963), in which the Court stated that the Advisers Act is evidence that

Congress recognized the fiduciary nature of the relationship between an investment adviser and

its client and intended to "eliminate, or at least expose, all conflicts of interest which might

incline an investment advisor--consciously or unconsciously--to render advice which was not

disinterested."

Section 206 states that it is unlawful for any investment adviser, using the mail or any means or

instrumentality of interstate commerce:

To employ any device, scheme, or artifice to defraud a client or prospective client;

To engage in any transaction, practice, or course of business which defrauds or deceives a

client or prospective client;


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Knowingly to sell any security or purchase any security from a client when acting as a

principal for his or her account, or knowingly to effect a purchase or sale of a security

for a client's account when also acting as broker for the person on the other side of the

transaction, without disclosing to the client in writing before the completion of the

transaction the capacity in which the adviser is acting and obtaining the client's consent to

the transaction; and

To engage in fraudulent, deceptive or manipulative practices.

The SEC has stated that investment advisers owe their clients several specific duties as

fiduciaries. According to the SEC, the fiduciary duties include the provision of advice that is

suitable for the client, full disclosure of all material facts and potential conflicts of interest,

utmost and exclusive loyalty and good faith, best execution of client transactions, and the

exercise of reasonable care to avoid misleading clients.


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Advertising

Policy

PIC’s policy requires that any advertising and marketing materials must be truthful and accurate,

consistent with applicable rules, and reviewed and approved by the CCO. PIC’s policy prohibits

any advertising or marketing materials that may be misleading, fraudulent, deceptive and/or

manipulative.

Background

An advertisement is generally defined as any written communication, which includes websites,

newsletters, letters, and e-mails, directed to more than one person concerning advice or

recommendations about the purchase or sale of securities or any other advisory service.

Even items that are not advertising are subject to anti-fraud rules. The SEC antifraud rules under

the Advisers Act prohibit advisers from engaging in advertising practices, which are fraudulent,

deceptive, or manipulative activities. The manner in which investment advisers portray

themselves, services and their investment returns to existing and prospective clients is highly

regulated. SEC no-action letters also provide guidelines and prohibitions relating to an adviser's

advertising and marketing practices.

As a general rule of thumb, items to exclude from advertising materials are:

Testimonials or offers to provide testimonials.

A selective list of clients without disclosing the "as of" date, the basis for selection

(which cannot be performance) and that the listing does not imply clients'

recommendation of adviser.

"Cherry Picking" performance data.

Any suggestion that a graph, chart, formula or other device for selecting securities may

be relied on by investors without extensive disclaimers.

Any suggestion that a product or service is free, unless it is true and there are absolutely

no strings attached.

Statements of fact or opinion, which cannot be documented or proved (even if you are

sure they are true).

Incorrect representations about Global Investment Performance Standards (“GIPS”)

compliance.

Performance information that does not meet SEC requirements, specifically the SEC

requirements set forth in the Clover no-action letter or the ICI no-action letter described

more fully in the section entitled Performance.


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Items that may be included (all information must be accurate) are:

Portfolio composition data such as industry, sector or country weights.

Information about adviser's personal history, business or management philosophy.

Performance of indices with disclosure of "as of" date and source -- This is other than

actual or model account performance.

List of all recommendations for at least one year with proper information.

The following are items that should be excluded due to anti-fraud considerations:

Exaggerated, unwarranted or misleading statements about:

Management skill or technique

Characteristics or investment quality of a fund

Degree of risk involved

Effects of government supervision

Any express or implied projection of future performance unless expressly accompanied

by disclosures regarding their limitations and specific objectives.

Any statement of material fact that is untrue or otherwise misleading.

In addition, PIC will limit the use of its advertising, with respect to the Funds, so that it does not

violate the prohibition on “general solicitation” as required by Regulation D of the Securities Act

of 1933, in circumstances in which it is conducting offerings of unregistered securities under

Section 506(b) of Regulation D.

Responsibility

Basil Christakos, as Chief Compliance Officer, has the responsibility for implementing and

monitoring our policy, and for reviewing and approving any advertising and marketing to ensure

any materials are consistent with our policy and regulatory requirements. The Chief Compliance

Officer is also responsible for ensuring that PIC maintains the books and records related to

advertising, namely, copies of all advertising and marketing materials with a record of reviews

and approvals in accordance with applicable recordkeeping requirements.

Procedures

PIC has adopted procedures to implement the firm’s policy and reviews to monitor and ensure

the firm’s policy is observed, implemented properly and amended or updated, as appropriate,

which may be summarized as follows:

All advertisements and promotional materials including the firm’s website must be

reviewed and approved prior to use by the Chief Compliance Officer or his delegate (or

another officer if prepared by the CCO). The CCO may determine that the proposed

advertisement warrants attorney review, in which case, no advertisement under review by

the attorney will be used prior to attorney approval.


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Written or electronic approval, in the form of the CCO’s initials and dating, will serve as

document approval.

Each employee is responsible for ensuring that approved materials are not modified

without the express written authorization of the Chief Compliance Officer.

The Chief Compliance Officer will also review any other written communication

prepared for existing Investors or prospective Investors relating to advisory services.

Such materials may include quarterly letters to Clients or Investors, performance reports

prepared for specific Clients or Investors and newsletters sent to Clients or Investors.

The CCO may approve a template of each item listed above without initialing each and

every item distributed to Clients, Investors or prospective Investors.

The Chief Compliance Officer is responsible for maintaining copies of any advertising

and marketing materials distributed on or following February 9, 2016, including any

reviews and approvals, for a total period of five years following the last time any material

is disseminated.


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Advisory Agreement and Services

Policy

PICs policy requires a written investment advisory agreement for each Client relationship, which

includes a description of our services, discretionary/non-discretionary authority, advisory fees,

important disclosures and other terms of our Client relationship. PIC’s advisory agreements

meet all appropriate regulatory requirements and contain a non-assignment clause and do not

contain any “hedge clauses.”

As part of PIC’s policy, the firm also obtains important relevant and current information

concerning the client’s identity and investment objectives, among many other things, as part of

our advisory and fiduciary responsibilities.

PIC shall not render investment advice for a fee to any person unless the client and his, her, or its

adviser have signed an investment advisory agreement.

Background

Written advisory agreements form the legal and contractual basis for an advisory relationship

with each client and, as a matter of industry and business best practices, provide protections for

both the client and an investment adviser. An advisory agreement is the most appropriate place

for an adviser to describe its advisory services, fees, liability, disclosures for any conflicts of

interest, and acknowledgement of receipt of the advisor’s ADV, Part 2 and Privacy Policy,

among other things. It is also a best business practice to provide a copy of the advisory

agreement to the client and for the advisory agreement to provide that all client financial and

personal information shall be treated as confidential by the firm.

Responsibility

Basil Christakos, as Chief Compliance Officer, has the responsibility for the implementation and

monitoring of the firm’s advisory agreement policy, practices, disclosures and recordkeeping.

Procedures




All Clients sign a written Client Services Agreement (“CSA”) with his, her, or its PIC

adviser.

In the case of a Fund, the CSA will typically be the limited liability company agreement

of the Fund, to which PIC is a party.

If PIC revises its advisory fee schedules for the firm’s services, it will send written

notification to the relevant client.


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The Chief Compliance Officer, Basil Christakos, or his delegate periodically reviews

each PIC adviser’s disclosure brochure, marketing materials, advisory agreements and

other material for accuracy and consistency of disclosures regarding advisory services

and fees.

All signed advisory agreements, CSAs and any amendments shall be kept by the CCO in

either electronic or paper format.


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Agency Cross Transactions

Policy

PIC engages in agency cross transactions, in situations in which it acts as placement agent for the

private offering of securities, while also selling those securities to Funds that are advisory clients.

PIC’s policy is appropriately disclosed.

Background

An agency cross transaction is defined as a transaction where a person acts as an investment

adviser in relation to a transaction in which the investment advisor, or any person controlled by

or under common control with the investment advisor, acts as broker for both the advisory client

and for another person on the other side of the transaction (Advisers Act Rule 206(3)-2(b)).

Agency cross transactions typically may arise where an adviser is dually registered as a broker

dealer or has an affiliated broker dealer.

Agency cross transactions are permitted for advisers only if certain conditions are met under

Advisers Act rules including prior written consent, client disclosures regarding trade information

and annual disclosures, among other things.

Procedures

The PIC has adopted various procedures to implement the firm's policy and reviews to monitor

and insure the firm's policy is observed, implemented properly and amended or updated as

appropriate, which include the following:

Basil Christakos, Chief Compliance Officer, periodically monitors the firm's trading

practices to insure that no agency cross transactions occur for advisory Clients.

If an agency cross transaction were to occur, PIC would acquire a third-party valuation of

that security, disclose to both the Client and the counterparty, and receive consent from

both the Client and the counterparty to the transaction.


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Annual Compliance Reviews

Policy

As an SEC registered adviser, it is PIC’s policy to conduct an annual review of the firm's policies

and procedures to determine that they are adequate, current and effective in view of the firm's

businesses, practices, advisory services, and current regulatory requirements. Our policy

includes amending or updating the firm's policies and procedures to reflect any changes in the

firm's activities, personnel, or regulatory developments, among other things, either as part of the

firm's annual review, or more frequently, as may be appropriate, and to maintain relevant records

of the annual reviews.

Background

In December 2003, the SEC adopted new rule 206(4)-7, Compliance Programs of Investment

Companies and Investment Advisers (Compliance Program Rule) under the Advisers Act and

Investment Company Act, (SEC Release Nos. IA-2204 and IC-26299). The new rules are

effective and advisers and funds had to be in compliance with the new rules by 10/5/2004. The

rules require SEC registered advisers and investment companies to adopt and implement written

policies and procedures designed to detect and prevent violations of the federal securities laws.

The new rules are also designed to protect investors by ensuring all funds and advisers have

internal programs to enhance compliance with the federal securities laws. Among other things,

the rules require that advisers and investment companies annually review their policies and

procedures for their adequacy and effectiveness and maintain records of the reviews. A Chief

Compliance Officer must also be designated by advisers and investment companies to be

responsible for administering the compliance policies, procedures and the annual reviews.

The required reviews are to consider any changes in the adviser’s activities, any compliance

matters that have occurred in the past year and any new regulatory requirements or

developments, among other things. Appropriate revisions of a firm's or fund's policies or

procedures should be made to help insure that the policies and procedures are adequate and

effective.

Responsibility

Basil Christakos, CCO, or his delegate, has the overall responsibility and authority to develop

and implement the firm's compliance policies and procedures and to conduct an annual

review to determine their adequacy and effectiveness in detecting and preventing violations of

the firm's policies, procedures or federal securities laws. The CCO also has the responsibility for

maintaining relevant records regarding the policies and procedures and documenting the annual

reviews.


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Procedures

PIC has adopted procedures to implement the firm's policy and reviews to monitor and insure the

firm's policy is observed, implemented properly and amended or updated, as appropriate, which

include the following:

On at least an annual basis, PIC (through its CCO or outside counsel) will undertake a

complete review of the firm’s written compliance policies and procedures.

The review will include a review of each policy to determine the following:

adequacy;

effectiveness;

accuracy;

appropriateness for the firm's current activities

current regulatory requirements;

any prior policy issues, violations or sanctions; and

any changes or updates that may otherwise be required or appropriate.

The annual review process should also consider and assess the risk areas for the firm and

review and update any risk assessments in view of any changes in advisory services,

Client base and/or regulatory developments.

Basil Christakos, or designee(s), will coordinate the review of each policy with an

appropriate person, to ensure that each of the firm's policies and procedures is adequate

and appropriate for the business activity covered, e.g., a review of trading policies and

procedures with the person responsible for the firm's trading activities.

Basil Christakos, or designee(s), will revise or update any of the firm's policies and/or

procedures as necessary or appropriate and obtain the approval of the person,

management person or officer responsible for a particular activity as part of the review.

The firm's annual reviews will include a review of any prior violations or issues under

any of the firm's policies or procedures wi th any revisions or amendments to

the policy or procedures designed to address such violations or issues to help avoid

similar violations or issues in the future.

Basil Christakos will maintain hardcopy or electronic records of the firm's policies and

procedures as in effect at any particular time since registration in February, 2016;

Basil Christakos will also maintain an Annual Compliance Review file for each year

which will include and reflect any revisions, changes, updates, and materials supporting

such changes and approvals, of any of the firm's policies and/or procedures and an annual

certification of the review in the form attached as Appendix 1 on page 79.

Basil Christakos, or designee(s), will also conduct more frequent reviews of PIC’s

policies or procedures, or any specific policy or procedure, in the event of any

change in personnel, business activities, regulatory requirements or developments, or

other circumstances requiring a revision or update.


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Anti-Money Laundering

As of the current date, the PIC are not required to adhere to any anti-money laundering program.

When and if the SEC adopts anti-money laundering regulations for investment advisers, PIC will

officially adopt the following policy and procedures.

Policy

It is the policy of the PIC to seek to prevent the misuse of the funds they manage, as well as

preventing the use of the firm’s personnel and facilities for the purpose of money laundering and

terrorist financing. PIC has adopted and enforces policies, procedures and controls with the

objective of detecting and deterring the occurrence of money laundering, terrorist financing and

other illegal activity. Anti-money laundering (“AML”) compliance is the responsibility of every

employee. Therefore, any employee detecting any suspicious activity is required to immediately

report such activity to the AML Compliance Officer. The employee making such report should

not discuss the suspicious activity or the report with the Client in question.

Background

On October 26, 2001, the President signed into law the Uniting and Strengthening America by

Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA

PATRIOT Act”). Prior to the passage of the USA PATRIOT Act, regulations applying the anti-

money laundering provisions of the Bank Secrecy Act (“BSA”) were issued only for banks and

certain other institutions that offer bank-like services or that regularly deal in cash. The USA

PATRIOT Act required the extension of the anti-money laundering requirements to financial

institutions, such as registered and unregistered investment companies that had not previously

been subjected to BSA regulations.

In April 2003, the Department of the Treasury proposed new rules that would require SEC

registered advisors, and certain unregistered advisors, to adopt an anti-money laundering

program.

Responsibility

The PIC have designated Basil Christakos, CCO as their AML Compliance Officer. In this

capacity, the AML Compliance Officer is responsible for coordinating and monitoring the firm’s

AML program as well as maintaining the firm’s compliance with applicable AML rules and

regulations. The AML Compliance Officer will review any reports of suspicious activity, which

has been observed and reported by employees.

Procedures


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The PIC have adopted procedures to implement the firm’s policy and reviews to monitor and

insure the firm’s policy is observed, implemented properly and amended or updated, as

appropriate, which may be summarized as follows:

Client Identification Procedures

PIC is not obligated to obtain Client identification due to recent FinCen pronouncements.

However, since Client assets will be custodied at a bank or broker-dealer, that third party source

will obtain sufficient Client identification. In the event, the broker-dealer or bank does not check

the identities of PIC’s Client’s and Investors, PIC will confirm identity through appropriate

identification means. See the PIC “Customer Identification Program” below for more

information on investor identification verification and security.

ANTI-MONEY LAUNDERING (AML) PROGRAM: Customer

Identification Program (CIP)

Background

Under Section 326 of the USA PATRIOT Act, “customer” is defined as the

account holder. The person or entity that opens a new account is the customer to

which all of the CIP criteria must apply. Excluded from the definition of

customer are (a) financial institutions regulated by a federal regulator, (b) banks

regulated by a state (including credit unions, private banks and trust companies),

(c) federal, state and local government entities and (d) corporations whose

shares are publicly traded on U.S. exchanges.

Under Section 326 of the USA PATRIOT Act, “account” is generally defined as

a formal or contractual relationship with the broker-dealer to provide financial

products and/or services. Excluded from this definition are (a) accounts acquired

via acquisition, merger, purchase of assets or assumption of liabilities and (b)

accounts opened for the purpose of participating in an employee benefit plan

under the Employee Retirement Income Security Act (ERISA).

Designated Supervising Principal

Our AML Principal ensures that our AML program contains a Customer

Identification Program (CIP) sufficient to meet the requirements of the USA

PATRIOT Act and attendant FINRA rules.


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Our AML Principal also ensures that all appropriate associated personnel

receive sufficient education and training on the requirements under our

Customer Identification Program.

On an ongoing basis, designated supervising principals are responsible for

ensuring that the individuals under their direct supervision are aware of the

requirements and adhere to them.

Supervisory Review Procedures and Documentation

We have established new account opening procedures that require our

associated personnel to collect and use information on the account holder’s

identity, employment, past history, wealth, net worth, anticipated transaction

activity and sources of income, to detect and deter possible money laundering

and terrorist financing.

Section 326 of the USA PATRIOT Act does not require that we look through a

trust or similar account to its beneficiaries, or with respect to an omnibus

account established by an intermediary, if the intermediary is identified as the

account holder. Furthermore, we do not have to verify the identity of those who

have trading authority over an account.

PRIOR to opening an account, we must minimally obtain

A name

Date of Birth

An address

- For an individual, a residential or business street address

- For an individual who does not have a residential or business street address, an

APO or FPO box number or business street address of a next of kin or other

contact individual

- For other than an individual (i.e., corporation, partnership, trust, etc.), a

principal place of business, local office or other physical location

An identification number

- For a US person, a taxpayer identification number (Social Security Number or

employer identification number)

- For a non-US person, one or more of the following:

o A taxpayer identification number (TIN)

o A passport number and country of issuance

o An alien identification card number

o The number and country of issuance of any other government-issued

document evidencing nationality or residence and bearing a photograph

or other similar safeguard


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We will verify the information within a reasonable time before or after the

account is opened. Depending on the nature of the account and requested

transactions, we may refuse to complete a transaction before we have verified

the information. In some instances when we need more time, we may, pending

verification, restrict the types of transactions or dollar amount of transactions. If

we find suspicious information that indicates possible money laundering or

terrorist financing activity, we will, after internal consultation with the firm's

AML Principal, file a Suspicious Activity Report-SF (SAR-SF) in accordance

with applicable law and regulation.

Given proof that a natural or non-natural customer has applied for, but has not

yet received, a taxpayer identification number, our CIP program allows the

account to be opened, as long as an appropriate principal has approved the

account in all other aspects.

Our AML Principal and all appropriate supervisors will closely monitor

accounts opened without taxpayer identification numbers during the period of

time the account is open prior to receipt of such numbers.

Our policy is that all such accounts will be closed within 30 days if the taxpayer

identification number is not received. Exceptions to this policy may only be

made if approved by our AML Principal, documented by initials and date on the

new account form. In addition, a note must be made to the file, signed by our

AML Principal, indicating why such an extension was granted and the period of

time for which the extension is in place.

When the extension time limit has expired, we will adhere to the same

procedures as in the first instance of allowing such an account to be opened.

Registered personnel are encouraged, through AML training, Annual

Compliance Meetings and other compliance-related training, to make every

effort to obtain more than one type of documentary verification. The more

information we obtain regarding our customers, the greater the likelihood that

we would find inconsistencies in instances when a person is attempting to

provide false, or less than complete, information.

In addition, and most specifically when it is not possible to examine original

documents, every effort should be made to use a variety of identification

verification methods.

Where documents are utilized to identify a customer, we are not required to take

steps to determine the validity of the document; we may rely on the document

itself as verification of identity. However, registered and non-registered

personnel alike receive training to be aware of the following requirement: In


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those instances where suspicion exists that a document shows, or seems to show,

any obvious form of fraud, the reasonable belief that we know the customer’s

true identity CANNOT be determined to exist.

Another reason why relying solely on documented identification may not be

sufficient is the fact that, in cases of outright fraud the perpetrator is likely to

have seemingly valid identification documents, either through identity theft or

through illegally obtained documents.

Therefore, except in the most obvious low-risk instances, supervising principals

at the time of the account opening, or our AML principal at the time of review,

may require some non-documented verification to back up the documented

verification.

Documentary verification is required as follows:

Individual

Unexpired government-issued ID evidencing nationality or residency and

bearing a photograph or similar safeguard (e.g., driver’s license, passport, etc.)

Other documents as may be required by our policies and procedures that allow

us to establish a reasonable belief that we know the true identity of the customer

Non-Individual

Documents showing the existence of the entity, such as certified Articles of

Incorporation, government-issued business license, Partnership Agreement, trust

instrument, etc.

Non-documentary verification methods include, but are not necessarily limited

to:

Contacting the customer

Independently verifying the customer’s identity through the comparison of

information provided by the customer with information obtained from a

consumer reporting agency, public database or other source. Compare

information obtained from the customer against databases such as Equifax,

Experian, Lexis/Nexis, or other in-house or custom databases.)

Compare information obtained from customer with information available from a

trusted third-party source, such as a credit report

Checking references with other financial institutions

Obtaining a financial statement

An analysis of the logical consistency between information supplied (such as

name, street address, zip code, telephone number, date of birth and Social


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Security Number). For example, does the zip code match the city/state? Is the

area code given appropriate for the address? Does date of birth reflect the

individual’s appearance?

We will always use non-documentary methods of verification in the following

situations:

When the customer is unable to present an unexpired government-issued

identification document with a photograph or other similar safeguard

When the firm is unfamiliar with the documents the customer presents for

identification verification

When the customer and firm do not have face-to-face contact

When other circumstances increase the risk that the firm will be unable to verify

the true identity of the customer through documentary means

Risk-Based Identity Verification Requirements: Due to our commitment

to an effective AML Program, our AML Principal, in conjunction with other

Senior Management and compliance personnel, have created a risk-based

customer verification program.

While we believe that we will be able to verify the majority of our customers

adequately through documentary and nondocumentary methods and by adhering

to the minimal requirements set forth in the USA PATRIOT Act,

occasionally the risk of not knowing the customer sufficiently may be

heightened for certain accounts.

For those customers identified as having heightened risk, we require that

the identification go beyond the customer. Beneficial owners, control

individuals, individuals given trading authority, etc., may require identification

in certain instances.

Type of accounts that fall under a more involved verification process include,

but are not necessarily limited to:

Corporations, trusts, partnerships created in a jurisdiction that have been

designated by the U.S. as a primary money laundering haven, or that have been

designated as non-cooperative by an international body

Corporations, trusts, and partnerships conducting substantial business in a

jurisdiction that has been designated by the U.S. as a primary money laundering

haven or has been designated as non-cooperative by an international body.

For the above, we require that information be obtained about individuals with

authority or control over such accounts.


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Additional Inquiries: In creating this AML CIP, we acknowledge our

obligations under suitability and fair-dealing requirements to collect customer

identification information. Depending on the nature of the account, supervising

principals, under the guidance of our AML Principal, will take the following

additional steps to the extent reasonable and practicable, when we open an

account:

Inquire about the source of the customer’s assets and income to determine

whether the inflow and outflow of money and securities is consistent with the

customer’s financial status.

Gain an understanding of what the customer’s likely trading patterns will be to

detect any deviations from the patterns at a later date.

Individuals responsible for final approval of new accounts will receive sufficient

training to be able to identify additional accounts that may also require more

than the minimal customer identification verification requirements.

In addition to the information that we are required to collect under various

FINRA and SEC rules, we must also establish, document and maintain a CIP for

anti-money laundering purposes.

Our AML Principal will ensure that our CIP program has in place reasonable

written procedures to

Collect minimum customer identification information from each customer who

opens an account

Utilize risk-based measures to verify the identity of each customer who opens an

account

Record customer identification information and the verification methods and

results

Provide notice to customers that we will seek identifying information

Compare customer identification information with government-provided lists of

suspected terrorists

In addition, our AML Principal, in partnership with Senior Management, will

ensure that we have an appropriate training program for all associated

personnel, which fully explains what is required of them when opening a new

account and what they must know about our AML Program and the laws that

govern it.

We will maintain documentation of all such training and educational efforts in

the files, indicating dates, copies of training materials utilized, method of

delivery (i.e., Annual Compliance Meeting, AML annual training, CE,


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compliance manuals, compliance alerts, online training, etc.) and the names and

CRD numbers of all individuals who received the training.

Supervising principals are responsible for reviewing all account-opening

documentation gathered by the registered representatives PRIOR to opening the

account.

These reviews will include checking the information provided in the account

application against a list of the information required for each type of account

and documenting why any account is opened absent that information.

We will retain documentation of all review activities, including the results of

OFAC and other lists checked, in client files along with information concerning

any questions that were raised and satisfactorily answered during the review

process.

If OFAC and other checks are undertaken by a third-party on our behalf, our

registered personnel will not also be required to do these checks, but our AML

Principal must ensure that such checks are undertaken and that we receive proof

of such efforts on our behalf to retain in the files.

Our AML Principal will ensure that our verification is documented, 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,

any identification number contained in the document, the place of issuance and,

if any, the date of issuance and expiration date. 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 a period of five years

after an account has been closed; we will retain records about verification of the

customer's identity for five years after the record is made.

Regulatory Reference

Section 326 of the USA PATRIOT Act

Prohibited Clients


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PIC and its Funds will not accept funds or securities from, or on behalf of, any person or entity

whose name appears on the List of Specially Designated Nationals and Blocked Persons

maintained by the U.S. Office of Foreign Assets Control, from any Foreign Shell Bank or from

any other prohibited persons or entities as may be mandated by applicable law or regulation.

PIC and its Funds will also not accept Investors from FATF’s designated “high risk” countries

(“high risk” with respect to money laundering or terrorist financing) without conducting

enhanced, well-documented due diligence regarding such prospective Investors. The CCO or his

designee will use the FINRA OFAC tool to check the OFAC and FATF sites.


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Best Execution

Policy

In general, PIC does not execute public securities transactions for its Clients. However, it

recognizes that as an investment advisory firm, PIC has a fiduciary and fundamental duty to seek

best execution for Client transactions.

Background

Best execution has been defined by the SEC as the “execution of securities transactions for

Clients in such a manner that the Clients’ total cost or proceeds in each transaction is the most

favorable under the circumstances.” The best execution responsibility applies to the

circumstances of each particular transaction and an adviser must consider the full range and

quality of a broker dealer’s services, including execution capability, commission rates, and the

value of any research, financial responsibility and responsiveness, among other things.

Responsibility

Basil Christakos, as Chief Compliance Officer, or his delegate, has the responsibility for the

implementation and monitoring of our best execution policy, practices, disclosures and

recordkeeping.

Procedures




If it executes Client transactions through a brokerage firm, PIC will monitor the firm’s trading

practices, gather relevant information, periodically review and evaluate the services provided by

broker dealers, the quality of executions, research, commission rates, and overall brokerage

relationships, among other things. PIC will also conduct periodic reviews of the firm’s best

execution practices, evaluate services and document these reviews. A Best Execution file will be

maintained for this information and used in PIC’s periodic best execution review for analysis of

the same and to document the firm’s best execution practices as evidenced by the Broker

Evaluation Form attached as Appendix 2 on page 81.


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Books and Records

Policy

As a registered investment adviser, PIC is required, and as a matter of policy, maintain various

books and records on a current and accurate basis which are subject to periodic regulatory

examination. PIC’s policy is to maintain firm and Client files and records in an appropriate,

current, accurate and well-organized manner in various areas of the firm depending on the nature

of the records.

PIC’s policy is to maintain required firm and Client records and files in an appropriate office of

PIC for the first two years and in a readily accessible facility and location for an additional three

years for a total of not less than five years from the end of the applicable fiscal year. Certain

records for the firm’s advertising and corporate existence are kept for longer periods.

Background

Registered investment advisors, as regulated entities, are required to maintain specified books

and records. There are generally two groups of books and records to be maintained. The first

group is financial records for an adviser as an on-going business such as financial journals,

balance sheets, bills, etc. The second general group of records is Client related files as a

fiduciary to the firm’s advisory Clients and these include agreements, statements,

correspondence and advertising, trade records, among many others. The current list of books

and records for an SEC registered investment adviser is attached as Appendix 3 on page 82.

Responsibility

Basil Christakos, as Chief Compliance Officer, has the overall responsibility for the

implementation and monitoring of our books and records policy, practices, disclosures and

recordkeeping for the firm.

Procedures

PIC has adopted procedures to implement policy and reviews to monitor and ensure the policy is

observed, implemented properly and amended or updated, as appropriate, which may be

summarized as follows:

PIC’s CCO has the responsibility for the firm's filing systems for the books, records and

files required to be maintained. PIC’s filing systems for records, whether stored in files

or electronic media, are designed to meet the firm’s policy, business needs and regulatory

requirements as follows:

1. Arranging for easy location, access and retrieval;

2. Having available the means to provide legible true and complete copies;


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3. For records stored on electronic media, back-up files are made and such records

stored separately;

4. Reasonably safeguarding all files, including electronic media, from loss, alteration or

destruction;

5. Limiting access by authorized persons to PIC’s records; and

6. Ensuring that any non-electronic records that are electronically reproduced and stored

are accurate reproductions.

Periodic reviews may be conducted by the Chief Compliance Officer or his designee to

monitor PIC’s recordkeeping systems, controls, and firm and Client files.

The firm must maintain all required records on site for the first two years and then offsite

for the next three in an easily accessible location.


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Code of Ethics

Statement of General Policy

This Code of Ethics (“Code”) has been adopted by the PIC and is designed to comply with Rule

204A-1 under the Investment Advisers Act of 1940 (“Advisers Act”).

This Code establishes rules of conduct for all employees of the PIC and is designed to, among

other things, govern personal securities trading activities in the accounts of employees. The

Code is based upon the principle that PIC and its employees owe a fiduciary duty to PIC’s

Clients to conduct their affairs, including their personal securities transactions, in such a manner

as to avoid (i) serving their own personal interests before those of Clients, (ii) taking

inappropriate advantage of their position in the firm and (iii) any actual or potential conflicts of

interest or any abuse of their position of trust and responsibility.

The Code is designed to ensure that the high ethical standards long maintained by the PIC

continue to be applied. The purpose of the Code is to preclude activities which may lead to or

give the appearance of conflicts of interest, insider trading and other forms of prohibited or

unethical business conduct. The excellent name and reputation of our firm continues to be a

direct reflection of the conduct of each employee.

Pursuant to Section 206 of the Advisers Act, PIC and its employees are prohibited from engaging

in fraudulent, deceptive or manipulative conduct. Compliance with this section involves more

than acting with honesty and good faith alone. It means that PIC has an affirmative duty of

utmost good faith to act solely in the best interest of its Clients.

The PIC and all PIC employees are subject to the following specific fiduciary obligations when

dealing with Clients:

The duty to have a reasonable, independent basis for investment advice

provided;

The duty to obtain best execution for a Client’s transactions where PIC is in a

position to direct brokerage transactions for the Client;

The duty to ensure that investment advice is suitable and meets the Client’s

individual objectives, needs and circumstances; and

A duty to be loyal to Clients.

In meeting its fiduciary responsibilities to its Clients, PIC expects every employee to

demonstrate the highest standards of ethical conduct as a condition of continued employment

with PIC. Strict compliance with the provisions of the Code shall be considered a basic

condition of employment with PIC.


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PIC’s reputation for fair and honest dealing with its Clients has taken considerable time to build.

This standing could be seriously damaged as the result of even a single securities transaction

being considered questionable in light of the fiduciary duty owed to our Clients. Employees are

urged to seek the advice of Basil Christakos, CCO, for any questions about the Code or the

application of the Code to their individual circumstances. Employees should also understand

that a material breach of the provisions of the Code may constitute grounds for disciplinary

action, including termination of employment with PIC.

The provisions of the Code are not all-inclusive. Rather, they are intended as a guide for

employees of the PIC in their conduct. In situations in which an employee may be uncertain as

to the intent or purpose of the Code, he/she is advised to consult with the firm's CCO. The CCO

may grant exceptions to certain provisions contained in the Code only in those situations when it

is clear beyond dispute that the interests of our Clients will not be adversely affected or

compromised. All questions arising in connection with personal securities trading should be

resolved in favor of the Client even at the expense of the interests of employees.

Definitions

For the purposes of this Code, the following definitions shall apply:

“Access Person” means any Supervised Person who has access to nonpublic information

regarding any Clients’ purchase or sale of securities, or nonpublic information regarding

the portfolio holdings of any fund RIA or its control affiliates manage; or is involved in

making securities recommendations to Clients that are nonpublic.

“Account” means accounts of any employee and includes accounts of the employee’s

immediate family members (any relative by blood or marriage living in the employee’s

household), and any account in which he or she has a direct or indirect beneficial interest,

such as trusts and custodial accounts or other accounts in which the employee has a

beneficial interest or exercises investment discretion.

“Beneficial Ownership” shall be interpreted in the same manner as it would be under

Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 in determining whether a

person is the beneficial owner of a security for purposes of Section 16 of such Act and

the rules and regulations thereunder.

“Reportable Security” means any security as defined in Section 202(a)(18) of the

Advisers Act, except that it does not include: (i) Transactions and holdings in direct

obligations of the Government of the United States; (ii) Bankers’ acceptances, bank

certificates of deposit, commercial paper and other high quality short-term debt

instruments, including repurchase agreements; (iii) Shares issued by money market

funds; (iv) Transactions and holdings in shares of other types of open-end registered

mutual funds, unless PIC or a control affiliate acts as the investment adviser or principal

underwriter for the fund; and (v) Transactions in units of a unit investment trust if the unit

investment trust is invested exclusively in mutual funds, unless PIC or a control affiliate

acts as the investment adviser or principal underwriter for the fund.


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“Supervised Person” means directors, officers and principals of the PIC (or other

persons occupying a similar status or performing similar functions); employees of PIC;

and any other person who provides advice on behalf of PIC and is subject to PIC’s

supervision and control.

Standards of Business Conduct

PIC places the highest priority on maintaining its reputation for integrity and professionalism.

That reputation is a vital business asset. The confidence and trust placed in our firm and its

employees by our Clients is something we value and endeavor to protect. The following

Standards of Business Conduct set forth policies and procedures to achieve these goals. This

Code is intended to comply with the various provisions of the Advisers Act and also requires that

all Supervised Persons comply with the various applicable provisions of the Investment

Company Act of 1940, as amended, the Securities Act of 1933, as amended, the Securities

Exchange Act of 1934, as amended, and applicable rules and regulations adopted by the

Securities and Exchange Commission (“SEC”).

Section 204A of the Advisers Act requires the establishment and enforcement of policies and

procedures reasonably designed to prevent the misuse of material, nonpublic information by

investment advisors. Such policies and procedures are contained in this Code. The Code also

contains policies and procedures with respect to personal securities transactions of all PIC’s

Access Persons as defined herein. These procedures cover transactions in a Reportable Security

in which an Access Person has a beneficial interest or in accounts over which the Access Person

exercises control as well as transactions by members of the Access Person’s immediate family.

Section 206 of the Advisers Act makes it unlawful for the PIC or their agents or employees to

employ any device, scheme or artifice to defraud any Client or prospective Client, or to engage

in fraudulent, deceptive or manipulative practices. This Code contains provisions that prohibit

these and other enumerated activities and that are reasonably designed to detect and prevent

violations of the Code, the Advisers Act and rules thereunder.

Prohibition Against Insider Trading

Introduction

Trading securities while in possession of material, nonpublic information, or improperly

communicating that information to others may expose Supervised Persons and the PIC to

stringent penalties. Criminal sanctions may include a fine of up to $1,000,000 and/or ten years

imprisonment. The SEC can recover the profits gained or losses avoided through the illegal

trading, a penalty of up to three times the illicit windfall, and an order that permanently bars

individuals from the securities industry. Finally, Supervised Persons and PIC may be sued by

investors seeking to recover damages for insider trading violations.


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The rules contained in this Code apply to securities trading and information handling by

Supervised Persons of the PIC and their immediate family members.

The law of insider trading is unsettled and continuously developing. An individual legitimately

may be uncertain about the application of the rules contained in this Code in a particular

circumstance. Often, a single question can avoid disciplinary action or complex legal problems.

You must notify the firm's CCO immediately if you have any reason to believe that a violation of

this Code has occurred or is about to occur.

General Policy

No Supervised Person may trade, either personally or on behalf of others (such as investment

funds and private accounts managed by the PIC), while in the possession of material, nonpublic

information, nor may any personnel of PIC communicate material, nonpublic information to

others in violation of the law.

1. What is Material Information?

Information is material where there is a substantial likelihood that a reasonable investor

would consider it important in making his or her investment decisions. Generally, this

includes any information, the disclosure of which will have a substantial effect on the

price of a company’s securities. No simple test exists to determine when information is

material; assessments of materiality involve a highly fact-specific inquiry. For this

reason, you should direct any questions about whether information is material to the

firm's CCO.

Material information often relates to a company’s results and operations, including, for

example, dividend changes, earnings results, changes in previously released earnings

estimates, significant merger or acquisition proposals or agreements, major litigation,

liquidation problems, and extraordinary management developments.

Material information also may relate to the market for a company’s securities.

Information about a significant order to purchase or sell securities may, in some contexts,

be material. Prepublication information regarding reports in the financial press also may

be material. For example, the United States Supreme Court upheld the criminal

convictions of insider trading defendants who capitalized on prepublication information

about The Wall Street Journal’s “Heard on the Street” column.

You should also be aware of the SEC’s position that the term “material nonpublic

information” relates not only to issuers but also to the PIC’ securities recommendations

and Client securities holdings and transactions.

2. What is Nonpublic Information?


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Information is “public” when it has been disseminated broadly to investors in the

marketplace. For example, information is public after it has become available to the

general public through a public filing with the SEC or some other government agency,

the Dow Jones “tape” or The Wall Street Journal or some other publication of general

circulation, and after sufficient time has passed so that the information has been

disseminated widely.

3. Identifying Inside Information

Before executing any trade for yourself or others, including investment funds or private

accounts managed by the PIC (“Client Accounts”), you must determine whether you have

access to material, nonpublic information. If you think that you might have access to

material, nonpublic information, you should take the following steps:

a. Report the information and proposed trade immediately to the firm's CCO.

b. Do not purchase or sell the securities on behalf of yourself or others, including

investment funds or private accounts managed by the firm.

c. Do not communicate the information inside or outside the firm, other than to the

firm's CCO.

d. After the CCO has reviewed the issue, the firm will determine whether the

information is material and nonpublic and, if so, what action the firm will take.

You should consult with the firm's CCO before taking any action. This degree of caution

will protect you, our Clients, and the firm.

4. Contacts with Public Companies

Difficult legal issues can arise should a Supervised Person of the PIC or other person

subject to this Code become aware of material, nonpublic information. In such situations,

PIC must make a judgment as to its further conduct. To protect yourself, the Clients and

the firm, you should contact the firm's CCO immediately if you believe that you may

have received nonpublic information regardless of whether or not you believe it to be

material.

5. Tender Offers

Tender offers represent a particular concern in the law of insider trading for two reasons:

First, tender offer activity often produces extraordinary gyrations in the price of the target

company’s securities. Trading during this time period is more likely to attract regulatory

attention (and produces a disproportionate percentage of insider trading cases). Second,

the SEC has adopted a rule which expressly forbids trading and “tipping” while in the

possession of material, nonpublic information regarding a tender offer received from the

tender offeror, the target company or anyone acting on behalf of either.

6. Watch List


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Although the PIC dos not typically receive material, non-public information relating to

individual public companies, it may, if it receives or may potentially have access to such

information, take appropriate procedures to establish a watch list to monitor the trading of

these certain Reportable Securities.

At his discretion, the firm's CCO may place certain securities on a “Restricted List.”

Access Persons are prohibited from personally, or on behalf of an advisory account in

which they have discretion, purchasing or selling any securities without the approval of

the CCO during any period in which there are securities listed on the Restricted List. The

CCO shall take steps to immediately inform all Supervised Persons of the securities listed

on the Restricted List.

Personal Securities Transactions

General Policy

PIC has adopted the following principles governing personal investment activities by PIC’s

Supervised Persons:

The interests of Client accounts will at all times be placed first;

All personal securities transactions will be conducted in such manner as to avoid any

actual or potential conflict of interest or any abuse of an individual’s position of trust and

responsibility; and

Access persons must not take inappropriate advantage of their positions.

Timing of Personal Securities Transactions

Pre-Clearance Required for Participation in IPOs

No Access Person shall acquire any Beneficial Ownership in any securities in an Initial Public

Offering for his or her account, as defined herein, without the prior written approval of the firm's

CCO (or the firm's CEO in the case of the CCO) who has been provided with full details of the

proposed transaction (including written certification that the investment opportunity did not arise

by virtue of the Access Person’s activities on behalf of a Client) and, if approved, will be subject

to continuous monitoring for possible future conflicts.

Pre-Clearance Required for Private or Limited Offerings

No Access Person shall acquire Beneficial Ownership of any securities in a limited offering or

private placement without the prior written approval of the firms' CCO who has been provided


32

with full details of the proposed transaction (including written certification that the investment

opportunity did not arise by virtue of the Access Person’s activities on behalf of a Client) and, if

approved, will be subject to continuous monitoring for possible future conflicts.

Gifts and Entertainment

Giving, receiving or soliciting gifts in a business setting may create an appearance of impropriety

or may raise a potential conflict of interest. The PIC have adopted the policies set forth below to

guide Access Persons in this area.

General Policy

The PIC’ policy with respect to gifts and entertainment is as follows:

Access persons should not accept or provide any gifts or favors that might influence the

decisions you or the recipient must make in business transactions involving the PIC or

that others might reasonably believe would influence those decisions;

Modest gifts and favors, which would not be regarded by others as improper, may be

accepted or given on an occasional basis. Entertainment that satisfies these requirements

and conforms to generally accepted business practices also is permissible;

Where there is a law or rule that applies to the conduct of a particular business or the

acceptance of gifts of even nominal value, the law or rule must be followed.

Reporting Requirements

Any Access Person who accepts, directly or indirectly, anything of value from any person

or entity that does business with or on behalf of the PIC including gifts and gratuities

with value in excess of $300 per year, must obtain consent from the firm's CCO before

accepting such gift.

Any Access Person who accepts, directly or indirectly, anything of value from any person

or entity that does business with or on behalf of the PIC including gifts and gratuities

with value in excess of $200 per year, must report such gift to the CCO and a record kept

in the Gift Reporting Log.

This reporting requirement does not apply to bona fide dining or bona fide entertainment

if, during such dining or entertainment, you are accompanied by the person or

representative of the entity that does business or reasonably has the potential to do

business with the PIC.

This gift reporting requirement is for the purpose of helping PIC monitor the activities of

its employees. However, the reporting of a gift does not relieve any Access Person from

the obligations and policies set forth in this Section or anywhere else in this Code. If you

have any questions or concerns about the appropriateness of any gift, please consult the

firm's CCO.

Protecting the Confidentiality of Client Information


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Confidential Client Information

In the course of investment advisory activities PIC gains access to non-public information about

its Clients’ and Investors. The Confidential Client Information discussed below generally refers

to Client Non-Public Information, as described in the Privacy Act, that relate to tax identification

number and Client name, address and phone number. As a best practice, it also includes the

Investors in the Fund accounts. Such information may include a person's status as an Investor in

a Fund, personal financial and account information, the allocation of assets in an Investor’s

portfolio, the composition of investments in any Investor portfolio, advice provided by PIC to an

Investor, and data or analyses derived from such non-public personal information (collectively

referred to as "Confidential Client Information"). All Confidential Client Information, whether

relating to PIC’s current or former Clients and/or their Investors, is subject to the Code's policies

and procedures. Any doubts about the confidentiality of information must be resolved in favor

of confidentiality.

Non-Disclosure of Confidential Client Information

All information regarding PIC’s Clients and Investors is confidential. Information may only be

disclosed when the disclosure is consistent with the firm's policy and made at the Client's or

Investor’s direction. PIC does not share Confidential Client Information with any third parties,

except in the following circumstances:

As necessary to provide service that the Client or Investor requested or authorized, or to

maintain and service the Client's or Investor’s account. PIC will require that any

financial intermediary, agent or other service provider utilized by PIC (such as broker-

dealers or sub-advisors) comply with substantially similar standards for non-disclosure

and protection of Confidential Client Information and use the information provided by

PIC only for the performance of the specific service requested by PIC;

As required by regulatory authorities or law enforcement officials who have jurisdiction

over PIC or as otherwise required by any applicable law. In the event PIC is compelled

to disclose Confidential Client Information, the firm shall provide prompt notice to the

Clients and/or Investors affected, so that the Clients and/or Investors may seek a

protective order or other appropriate remedy. If no protective order or other appropriate

remedy is obtained, PIC shall disclose only such information, and only in such detail, as

is legally required;

To the extent reasonably necessary to prevent fraud, unauthorized transactions or

liability.

Employee Responsibilities

All Access Persons are prohibited, either during or after the termination of their employment

with the PIC from disclosing Confidential Client Information to any person or entity outside the

firm, including family members, except under the circumstances described above. An Access

Person is permitted to disclose Confidential Client Information only to such other Access


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Persons who need to have access to such information to deliver PIC’s services to the Client

and/or Investors.

Access persons are also prohibited from making unauthorized copies of any documents or files

containing Confidential Client Information and, upon termination of their employment with PIC

must return all such documents to PIC.

Any Supervised Person who violates the non-disclosure policy described above will be subject to

disciplinary action, including possible termination, whether or not he or she benefited from the

disclosed information.


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Security of Confidential Personal Information

PIC enforces the following policies and procedures to protect the security of Confidential Client

Information:

The firm restricts access to Confidential Client Information to those Access Persons who

need to know such information to provide PIC’s services to Clients;

Any Access Person who is authorized to have access to Confidential Client Information

in connection with the performance of such person's duties and responsibilities is

required to keep such information in a secure compartment, file or receptacle on a daily

basis as of the close of each business day;

In general, all file cabinets containing Confidential Client Information will be locked at

the end of the business day and all entries to the office are locked as well;

All electronic or computer files containing any Confidential Client Information shall be

password secured and firewall protected from access by unauthorized persons;

Any conversations involving Confidential Client Information, if appropriate at all, must

be conducted by Access Persons in private, and care must be taken to avoid any

unauthorized persons overhearing or intercepting such conversations.

Privacy Policy

As a registered investment advisor, the PIC and all Supervised Persons, must comply with SEC

Regulation S-P, which requires investment advisers to adopt policies and procedures to protect

the "nonpublic personal information" of natural person clients. "Nonpublic information," under

Regulation S-P, includes personally identifiable financial information and any list, description, or

grouping that is derived from personally identifiable financial information. Personally

identifiable financial information is defined to include information supplied by individual clients,

information resulting from transactions, any information obtained in providing products or

services. Pursuant to Regulation S-P, PIC has adopted policies and procedures to safeguard the

information of natural person Clients and its Clients’ Investors who are natural persons.

Enforcement and Review of Confidentiality and Privacy Policies

The firm's CCO is responsible for reviewing, maintaining and enforcing PIC’s confidentiality

and privacy policies. He is also responsible for conducting appropriate employee training to

ensure adherence to these policies. Any exceptions to this policy require the written approval of

PIC.


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Service as a Director

No Access Person shall serve on the board of directors of any publicly traded company without

prior authorization from the firm's CCO based upon a determination that such board service

would be consistent with the interest of PIC’s Clients. Where board service is approved, PIC

shall implement a “Chinese Wall” or other appropriate procedures to isolate such person from

making decisions relating to the company’s securities.

Compliance Procedures

Reporting Requirements

Every Access Person shall provide initial and annual holdings reports and quarterly transaction

reports to the Chief Compliance Officer which must contain the information described below. It

is the policy of the PIC’ that each Access Person must provide, either by personally delivering to

the CCO or by having duplicate copies sent to the CCO, duplicate brokerage account statements

and trade confirmations of all securities transactions to the Chief Compliance Officer.

1. Initial Holdings Report

Every Access Person shall, no later than ten (10) days after the person becomes an Access

Person, file an initial holdings report containing the following information:

The title and exchange ticker symbol or CUSIP number, type of security, number of

shares and principal amount (if applicable) of each Reportable Security in which the

Access Person had any direct or indirect beneficial interest ownership when the person

becomes an Access Person;

The name of any broker, dealer or bank, account name, number and location with whom

the Access Person maintained an account in which any securities were held for the direct

or indirect benefit of the Access Person; and

The date that the report is submitted by the Access Person.

If no Reportable Security is held by the Access Person, the Access Person must complete the

appropriate disclosure and acknowledgement form indicating as much. The information

submitted must be current as of a date no more than forty-five (45) days before the person

became an Access Person. PIC relies upon the periodic brokerage statements of its Access

Persons to fulfill this requirement.

2. Annual Holdings Report

Every Access Person shall, no later than January 31 each year, file an annual holdings report

containing the same information required in the initial holdings report as described above. The

information submitted must be current as of a date no more than forty-five (45) days before the

annual report is submitted. PIC relies upon the brokerage statements of its Access Persons to


37

fulfill this requirement. If no Reportable Security is held by the Access Person, the Access

Person must complete the appropriate disclosure and acknowledgement form, no later than

January 31 each year, indicating as such.

3. Quarterly Transaction Reports

Every Access Person must, no later than thirty (30) days after the end of each calendar quarter,

file a quarterly transaction report containing the following information:

With respect to any transaction during the quarter in a covered security in which the Access

Persons had any direct or indirect Beneficial Ownership:

The date of the transaction, the title and exchange ticker symbol or CUSIP number, the

interest rate and maturity date (if applicable), the number of shares and the principal

amount (if applicable) of each covered security;

The nature of the transaction (i.e., purchase, sale or any other type of acquisition or

disposition);

The price of the covered security at which the transaction was effected;

The name of the broker, dealer or bank with or through whom the transaction was

effected; and

The date the report is submitted by the Access Person.

PIC relies upon the monthly brokerage statements of its Access Persons to fulfill this

requirement. If no Reportable Security is held by the Access Person, the Access Person must

complete the appropriate disclosure and acknowledgement form, no later than thirty (30) days

after the end of each calendar quarter, indicating as such.

;


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4. Monitoring and Review of Personal Securities Transactions

The firm's CCO or his designee will monitor and review all reports required under the Code for

compliance with the PIC’ policies regarding personal securities transactions and applicable SEC

rules and regulations. The CCO may also initiate inquiries of Access Persons regarding personal

securities trading. Access persons are required to cooperate with such inquiries and any

monitoring or review procedures employed by PIC.

Any transactions for any accounts of the CCO will be reviewed and approved by Byron Crowe

or other designated supervisory person. The CCO shall, at least annually, identify all Access

Persons who are required to file reports pursuant to the Code and will inform such Access

Persons of their reporting obligations.

Certification

Initial Certification

All Supervised Persons will be provided with a copy of the Code and must initially certify in

writing to Compliance (attached as Appendix 4 on page 88) that they have: (i) received a copy of

the Code; (ii) read and understand all provisions of the Code; (iii) agreed to abide by the Code;

and (iv) reported all account holdings as required by the Code.

Acknowledgement of Amendments

All Supervised Persons shall receive any amendments to the Code and must certify to

Compliance in writing that they have: (i) received a copy of the amendment; (ii) read and

understood the amendment; (iii) and agreed to abide by the Code as amended.

Annual Certification

All Supervised Persons must annually certify in writing to the CCO that they have: (i) read and

understood all provisions of the Code; (ii) complied with all requirements of the Code; and (iii)

submitted all holdings and transaction reports as required by the Code.

Further Information

Supervised persons should contact the firm's CCO regarding any inquiries pertaining to the Code

or the policies established herein.

Records

The Chief Compliance Officer shall maintain and cause to be maintained in a readily accessible

place the following records:

A copy of any code of ethics adopted by the firm pursuant to Advisers Act Rule 204A-1

which is or has been in effect during the past five years;


39

A record of any violation of the PIC’ Code and any action that was taken as a result of

such violation for a period of five years from the end of the fiscal year in which the

violation occurred;

A record of all written acknowledgements of receipt of the Code and amendments thereto

for each person who is currently, or within the past five years was, an Access Person

which shall be retained for five years after the individual ceases to be an Access Person

of the PIC (Sample attached as Appendix 4 on page 88);

A copy of each report made pursuant to Advisers Act Rule 204A-1, including any

brokerage confirmations and account statements made in lieu of these reports;

A list of all persons who are, or within the preceding five years have been, Access

Persons;

A record of any decision and reasons supporting such decision to approve an Access

Person's acquisition of securities in IPOs and limited offerings within the past five years

after the end of the fiscal year in which such approval is granted.

Reporting Violations and Sanctions

All Supervised Persons shall promptly report to the firm's CCO or an alternate designee all

apparent violations of the Code.

The CCO shall promptly report to the firm's CEO all apparent material violations of the Code.

When the CCO finds that a violation otherwise reportable to the CEO could not be reasonably

found to have resulted in a fraud, deceit, or a manipulative practice in violation of Section 206 of

the Advisers Act, he or she may, in his or her discretion, submit a written memorandum of such

finding and the reasons therefore to a reporting file.

The CEO, or in the case of purported violations by the CEO, the Executive Committee of the

Company’s Board of Managers shall consider reports made to it hereunder and shall determine

whether or not the Code has been violated and what sanctions, if any, should be imposed.

Possible sanctions may include reprimands, monetary fine or assessment, or suspension or

termination of the employee’s employment with the firm.


40

Complaints

Policy

As a registered adviser, PIC has adopted this policy, which requires a prompt, thorough and fair

review of any Client or Investor complaint, and a prompt and fair resolution, which is

documented, with appropriate supervisory review.

Background

Based on an advisor's fiduciary duty to its Clients and as a good business practice of maintaining

strong and long term Client relationships, any advisory Client’s Investor complaints of whatever

nature and size should be handled in a prompt, thorough and professional manner. Regulatory

agencies may also require or request information about the receipt, review and disposition of any

written Investor complaints.

Responsibility

Basil Christakos, as Chief Compliance Officer, has the primary responsibility for the

implementation and monitoring of the firm's complaint policy, practices and recordkeeping for

the firm.

Procedures

PIC has adopted procedures to implement the firm's policy and reviews to monitor and ensure

the firm's policy is observed, implemented properly and amended or updated as appropriate,

which include the following:

1. PIC maintains a Complaint File for any written complaints received from any advisory

Client or Investor.

2. Any person receiving any written Investor or Client complaint is to forward the

complaint to Basil Christakos.

3. If appropriate, Basil Christakos will promptly send the Client or Investor a letter

acknowledging receipt of the complaint letter indicating the matter is under review and a

response will be provided promptly.

4. Basil Christakos will then investigate the complaint and determine the appropriate course

of action. If necessary, Christakos will contact counsel and a joint decision will be made

as to the necessary and appropriate course of action.

5. Basil Christakos will maintain records and supporting information for each written

Investor complaint in the firm's complaint file.


41

Corporate Records

Policy

As a registered investment adviser and a legal entity, PIC has a duty to maintain accurate and

current “Organization Documents.” All Organization Documents are maintained in a well-

organized and current manner and reflect current directors, officers, members or partners, as

appropriate. Our Organization Documents will be maintained for the life of the firm in a secure

manner and location and for an additional three years after the termination of the firm.

Background

Organization Documents, depending on the legal form of an advisor, may include the following,

among others:

Articles of Organization

Operating Agreements

Any changes or amendments of the Organization Documents

Responsibility

Tanya Urbach, as Head of Legal, has the responsibility for the implementation and monitoring of

our Organization Documents policy, practices, and recordkeeping.

Procedures

PIC has adopted procedures to implement the firm's policy and reviews to monitor and ensure

the firm's policy is observed, implemented properly and amended or updated, as appropriate,


Tanya Urbach will maintain the Organization Documents in PIC’s principal office in a secure

location or in a secure office whichever office she sits. Organization Documents will be

maintained on a current and accurate basis and periodically reviewed and updated by or at the

direction of the Chief Compliance Officer so as to remain current and accurate with PIC’s

regulatory filings, among other things.


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Custody

Policy

As a matter of policy and practice, the PIC does maintain custody of Funds’ funds, securities or

assets, by agreement with the Funds. Accordingly, PIC only maintains custody, as now defined

by the custody rule under the Investment Advisers Act of 1940, for the purpose of directly

debiting advisory fees. As such, PIC answers "no" to the custody questions in Item 9 of Form

ADV Part 1A. Furthermore, the PIC Adviser ensures that Clients’ assets are held by “qualified

custodians” and that the custodian is sending to the Client directly, at least quarterly, statements

of the Client accounts.

Additionally, the PIC will not act as either general partner, managing member, or in some similar

capacity and investment adviser to any pooled investment vehicle other than PIC or its affiliates.

Background

The custody rule under the Investment Advisers Act of 1940 now defines custody as "holding,

directly or indirectly, Client funds or securities, or having any authority to obtain possession of

them."

The custody rule now requires advisers with custody to maintain Client funds and securities with

"qualified custodians," which include banks, registered broker dealers, and certain foreign

custodians, which provide at least quarterly account statements directly to the advisor's Clients.

For advisers with custody who do use qualified custodians, the prior requirements of having a

surprise annual audit and delivering an audited balance sheet as part of Form ADV Part 2 have

been eliminated except as noted below.

For advisers with custody who do not use qualified custodians, they must still send quarterly

account statements to Clients and undergo an annual surprise examination by an independent

public accountant to verify Client funds and securities. Any material discrepancies found by the

accountant must be reported to the SEC within one day. The requirement to deliver an audited

balance sheet with Form ADV Part II has been eliminated for these advisers also.

Advisers that deduct fees directly from Client accounts will be deemed to have custody and must

comply with the requirements of the new rule in lieu of prior no-action letters issued by the SEC.

However, advisers that have custody only because they deduct fees may continue to answer "no"

to the custody questions in Item 9 of Form ADV Part 1A.

Responsibility


43


monitoring of our policies, practices, and procedures as an advisory firm, which maintains

custody of Client funds and securities for the sole purpose of directly debiting advisory fees.

Procedures

PIC has adopted various procedures to implement the firm’s policy and reviews to monitor and

ensure the firm’s policy is observed, implemented properly and amended or updated, as

appropriate, which may be summarized as follows.

As an advisory firm with custody for the sole purpose of directly debiting advisory fees, PIC’s

procedures include the following practices:

Securities and funds of custodial Clients are maintained with a "qualified custodian" or, in

the case of accounts holding shares of open-end mutual funds, the fund's transfer agent and

held in the Client's name or under PIC as agent or trustee for the Clients;

PIC has a reasonable belief that the qualified custodian(s) holding Client assets provides at

least quarterly account statements directly to those Client or an "independent representative"

of their choosing that does not have a "control" relationship with PIC and has not had a

material business relationship within the past two years with PIC;

The CCO, or his delegate, will engage an auditor each year to audit the Funds, which audit

shall be completed by no later than the last day of the first quarter, after PIC’s year end.

Within 30 days of the receipt of the audited financials, PICwill distribute copies of the each

Fund’s audit to its respective the Investors.

In the alternative, the CCO shall engage an auditor to conduct a surprise examination of the

Funds who will file a Form ADV-E with the SEC upon completion of the audit.

Each officer and member of PIC will complete an officers and directors questionnaire (an

example of which is attached as Appendix 5 on page 89) annually which inquires as to any

possible custody arrangements such officer may have such as check writing authority, full

power of attorney or acting as a trustee on a Client account. The questionnaire shall be

used for the purpose of discovering any potential conflicts of interest among the adviser’s

officers and directors and PIC.

PIC will promptly forward Client’s cash and securities directly to the appropriate Custodian

with an electronic copy provided to PIC. PIC will maintain a log of dates and times of any

funds or securities received and sent to comport with this policy.

In the event of a transaction in which PIC must surrender the securities to the counterparty

and the exact date of the transfer is not known, PIC will obtain the necessary securities from

the Custodian based on a reasonable estimation of the transaction’s timing. PIC will hold


44

said securities in a secure, locked safe in PIC’s offices until which time it is required to turn

over the securities. In the event the transaction does not close, the securities will be returned

to the Custodian promptly.


45

Directed Brokerage

Policy

As a matter of course PIC does NOT accept Client direction for brokerage.

Background

Clients may direct advisers to use a particular broker dealer under various circumstances,

including where a Client has a pre-existing relationship with the broker or participates in a

commission recapture program, among other situations. Advisers may also elect not to exercise

brokerage discretion and, therefore, require Clients to direct brokerage. Advisers should

recommend to Clients the use of broker dealers providing reasonable, competitive and quality

brokerage services and advise Clients if a Client's directed broker does not provide competitive

and quality services.

Responsibility


monitoring of the directed brokerage policy, practices, disclosures and recordkeeping.

Procedures

PIC has adopted various procedures used to implement the firm’s policy and reviews to monitor

and ensure the firm’s policy is observed, implemented properly and amended or updated, as


The firm does not allow any of its Clients to direct brokerage.

PIC provides appropriate disclosures in the firm’s ADV Part 2 and/or the firm’s advisory

agreement about the fact that it does not allow Clients to direct brokerage.


46

Disaster Recovery

Policy

As part of its fiduciary duty to its Clients and as a matter of best business practices, PIC has

adopted policies and procedures for disaster recovery and for continuing PIC’s business in the

event of a disaster. These policies are designed to allow PIC to resume providing service to its

Clients in as short a period of time as possible. These policies are, to the extent practicable,

designed to address those specific types of disasters that PIC might reasonably face given its

business and location.

Background

All advisory firms need to establish written disaster recovery and business continuity plans for

the firm’s business. This will allow advisers to meet their responsibilities to Clients as a

fiduciary in managing Client assets, among other things. It also allows a firm to meet its

regulatory requirements in the event of any kind of disaster, such as a bombing, fire, flood,

earthquake, power failure or any other event that may disable the firm or prevent access to our

office(s).

Responsibility

Basil Christakos, as Chief Compliance Officer, is responsible for maintaining and implementing

the PIC’ Disaster Recovery and Business Continuity Plan, attached as Appendix 6 on page 90.

Procedures




Basil Christakos has primary responsibility for the Disaster Recovery Plan.

Christakos is responsible for identifying and listing key or mission critical people in the

event of an emergency or disaster, obtaining their names, addresses, e-mail, fax, cell

phone and other information and distributing this information to all personnel.

Christakos is responsible for designating and arranging for “hot,” “warm,” or home site

recovery location(s) for mission critical persons to meet to continue business, and for

obtaining or arranging for adequate systems equipment for these locations.

Christakos is responsible for establishing back-up telephone/communication system for

Clients and the Clients’ Investors, personnel and others to contact the firm and for the

firm to contact Clients and the Clients’ Investors.

Christakos is responsible for determining and assessing back-up systems for key vendors

and mission critical service providers.

Christakos is responsible for conducting periodic and actual testing and training for

mission critical and all personnel.


47

PIC’s Disaster Recovery Plan will be reviewed periodically, and on at least an annual basis, by

key personnel.


48

Disclosure Document

Policy

PIC, as a matter of policy, complies with relevant regulatory requirements and maintains its

Disclosure Document on a current and accurate basis. PIC’s Disclosure Document is its ADV

Part 2, which provides information about PIC’s advisory services, business practices,

professionals, policies and any actual and potential conflicts of interest, among other things.

Background

As a registered investment adviser, PIC has a duty to comply with the disclosure document

delivery requirements of Rule 204-3 (a) under the Advisers Act. An advisor's Disclosure

Document may be Form ADV Part 2 or another document containing all of the information

required by Form ADV Part 2.

Responsibility

Basil Christakos, CCO, or his delegate, has the responsibility for maintaining PIC’s ADV Part 2

on a current and accurate basis, making appropriate amendments and filings, ensuring initial

delivery of ADV Part 2 to new Clients and Investors, sending the annual Client offer of the

relevant ADV Part 2 and maintaining all appropriate files.

Procedures

PIC has adopted various procedures to implement its policy and reviews to monitor and ensure

the advisers’ disclosure document policy is observed, implemented properly and amended or

updated, as appropriate, which may be summarized as follows:

1. Initial Delivery

A representative of PIC will provide a copy of the firm’s current ADV Part 2 to each

prospective Client and Investor either at the time of entering into an advisory agreement

with a Client or not less than 48 hours prior to entering into an advisory agreement with

a Client. PIC uses Part 2 of its Form ADV as its Disclosure Document. PIC requires

written acknowledgement evidencing delivery of the ADV Part 2 to each Client. Such

acknowledgement is set forth in and obtained through Client signature in the CSA.

Chief Compliance Officer will maintain dated copies of all PIC’s complete ADV Part 2

so as to be able to identify which iteration of ADV Part 2 was in use at any time.

2. Annual Delivery

PIC will deliver to all current advisory Clients at least once each year a current copy of

the firm’s ADV Part 2. It is the practice of PIC that deliveries will be made in the second

quarter of each calendar year.


49

PIC through Basil Christakos, its CCO, or his designee, will maintain an “Annual

Delivery File” for each calendar year which will include:

A copy of the ADV Part 2 offered to Clients for the particular year; and

A list of the names and addresses of the Clients to whom PIC sent the ADV Part 2.

3. Review and Amendment

The Chief Compliance Officer will review PIC’s ADV Part 2 on at least an annual basis to

maintain it on a current and accurate basis and to properly reflect and be consistent with PIC’s

current services, business practices, fees, investment professionals, affiliations and conflicts of

interest, among other things.

When changes or updates to the Disclosure Document are necessary or appropriate, the Chief

Compliance Officer will make any and all amendments timely and promptly and maintain

records of the filings and amendments. Christakos or his designee will promptly revise Part 2 of

the firm’s Form ADV if at any time any of the information provided therein becomes materially

inaccurate.


50

E-Mail and Other Electronic Communications

Policy

PIC has implemented a retention policy for e-mail that satisfies the requirements of “original

communications” to or from Clients as related in Rule 204-2 (a) (7) and treats such

communications as written communications. As such the firm retains copies of all e-mail

communications to, from or concerning Client accounts in its computer systems.

In addition, PIC has a social media policy. In general, its policy is to prohibit the use of certain

Social Media (Facebook, Twitter) by its employees for any PIC activity. PIC does allow the use

of LinkedIn accounts; however, it does not allow posts on any Social Media site which relate to

the activities of PIC, its Clients, their Investors or the investments they have selected.

Background

As a result of recent financial industry issues and several regulatory actions against major firms

involving very significant fines, financial industry regulators, e.g., SEC and FINRA are focusing

attention on advisers and broker dealer policies and practices on the use of e-mail, other

electronic communications and retention practices.

The Books and Records rule (Rule 204-2(a)(7)) provides that specific written communications

must be kept including those relating to a) investment recommendations or advice given or

proposed; b) receipt or delivery of funds or securities; and c) placing and execution of orders for

the purchase or sale of securities.

All electronic communications are viewed as written communications, and the SEC has publicly

indicated its expectation that firms retain all electronic communications for the required record

retention periods. If a method of communication lacks a retention method, then it must be

prohibited from use by the firm. Further, SEC regulators also will request and expect all

electronic communications of Supervised Persons to be monitored and maintained for the same

required periods. E-mails consisting of spam or viruses are not required to be maintained.

Responsibility

Each employee has an initial responsibility to be familiar with and follow the firm’s e-mail

policy with respect to their individual e-mail communications. The CCO has the overall

responsibility for making sure all employees are familiar with the firm’s e-mail policy,

implementing and monitoring our e-mail policy, practices and recordkeeping.

Procedures


51

PIC has adopted procedures to implement PIC’s policy and reviews to monitor and insure that


which include the following:

Our firm’s e-mail policy has been communicated to all persons within the firm and any

changes in our policy will be promptly communicated.

E-mails and any other electronic communications relating to the firm’s advisory services

and Client relationships will be maintained and kept electronically. A copy of all e-mails

will be kept on a cloud-based storage system.


52

ERISA

Policy

PIC may act as an investment manager for advisory Clients which are governed by the

Employment Retirement Income Security Act (ERISA). As an investment manager and a

fiduciary with special responsibilities under ERISA, and as a matter of policy, PIC is responsible

for acting solely in the interests of the plan participants and beneficiaries. PIC’s policy includes

managing Client assets consistent with the “prudent man rule,” exercising proxy voting authority

if not retained by a plan fiduciary, maintaining any ERISA bonding that may be required, and

obtaining written investment guidelines/policy statements, as appropriate.

Background

ERISA imposes duties on investment advisers that may exceed the scope of an advisor’s duties

to its other Clients. For example, ERISA specifically prohibits certain types of transactions with

ERISA plan Clients that are permissible (with appropriate disclosure) for other types of Clients.

ERISA also prohibits investment managers from refusing to take proxy-voting responsibility

when plan documents do not reserve that responsibility for the plan trustees or other parties. In

certain instances, the Internal Revenue Code may impose requirements on non-ERISA retirement

accounts that may mirror ERISA requirements.

Responsibility

Basil Christakos, Chief Compliance Officer, has the responsibility for the implementation and

monitoring of our ERISA policy, practices, disclosures and recordkeeping.

Procedures




Review by the CCO of the percentage ownership of the Funds that are held by ERISA

Investors so as not to exceed the 25% threshold to be deemed an ERISA Client.

Review by the CCO as to whether or not each Fund qualifies as a Venture Capital

Operating Company (“VCOC”), and therefore would not be an ERISA Client regardless

of the percentage of ERISA investors.

If PIC determines that it has an ERISA Client, PIC will provide a separate disclosure

document detailing its services, compensation, role in relation to the ERISA Client, and

recordkeeping services.


53

Execution of Security Transactions

Policy

As an adviser and a fiduciary to Clients, the Clients’ interests must always be placed first and

foremost, and purchase and sale practices and procedures must prohibit unfair transaction

practices and seek to disclose and avoid any actual or potential conflicts of interests or resolve

such conflicts in the Client’s favor.

Our firm has adopted the following policies and practices to meet the firm’s fiduciary

responsibilities and to insure our trading practices are fair to all Clients and that no Client or

account is advantaged or disadvantaged over any other.

.

Background

As a fiduciary, many conflicts of interest may arise in the trading activities on behalf of our

Clients, our firm and our employees, and must be disclosed and resolved in the interests of the

Clients. In addition, securities laws, insider trading prohibitions and the Advisers Act, and rules

thereunder, prohibit certain types of trading activities.

Allocation

There is not typically an issue of allocating an investment opportunity to one Fund over another

Fund because the Funds generally either (i) invest in different types of instruments or (ii) operate

in sequence (e.g., Fund III finished its normal course investments in Portfolio Companies before

Fund IV began investing in Portfolio Companies). In the rare occasion where two Funds may be

able to purchase the same security, PIC would disclose to and receive consent from both Clients

to the transaction.

Transaction Errors

As a fiduciary, PIC has the responsibility to effect security transactions correctly, promptly and

in the best interests of our Clients. In the event any error occurs in the handling of any Client

transactions, due to PIC’s actions, or inaction, or actions of others, PIC’s policy is to seek to

identify and correct any errors as promptly as possible without disadvantaging the Client.

Responsibility


monitoring of our security execution policies and practices, disclosures and recordkeeping for

the firm.

Procedures


54


ensure the firm’s trading policies are observed, implemented properly and amended or updated,


Periodic supervisory reviews of the firm’s security transaction practices.

Use of forms for security transactions that are approved by the Chief Compliance Officer.

No security transactions will be transmitted unless such forms are filled out properly,

according to written procedures maintained by the CCO.


55

Insider Trading

Policy

PIC’s policy prohibits any employee from acting upon, misusing or disclosing any material non-

public information, known as inside information. Any instances or questions regarding possible

inside information must be immediately brought to the attention of the Chief Compliance Officer

and any violations of the firm’s policy will result in disciplinary action and/or termination.

Background

Various federal and state securities laws and the Advisers Act (Section 204A) require every

investment adviser to establish, maintain and enforce written policies and procedures reasonably

designed, taking into consideration the nature of such advisor’s business, to prevent the misuse

of material, nonpublic information in violation of the Advisers Act or other securities laws by the

investment adviser or any person associated with the investment advisor.

Responsibility


monitoring of the firm’s Insider Trading Policy, practices, disclosures and recordkeeping.

Procedures

The PIC has adopted various procedures to implement the firm’s insider trading policy and

reviews to monitor and ensure the firm’s policy is observed, implemented properly and amended

or updated, as appropriate, which are contained within the firm’s Code of Ethics. In general, the

firm does the following in order to prevent insider trading:

The Code of Ethics containing the firm’s Insider Trading Policy is distributed to all

employees, and new employees upon hire, and requires a written acknowledgement by

each employee,

Advisory representatives must disclose personal securities accounts and report at least

quarterly any reportable transactions in their employee and employee-related personal

accounts or provide copies of brokerage statements,

Employees must report to the Chief Compliance Officer (or Chief Operations Officer if

the Chief Compliance Officer is the Access Person) all business, financial or personal

relationships that may result in access to material, non-public information through the use

of an employee questionnaire and data sheet,

The Chief Compliance Officer reviews all personal investment activity for employee and

employee-related accounts and evidences such review by initialing and dating the

account statements,

The Chief Compliance Officer provides guidance to employees on any possible insider

trading situation or question,


56

PIC’s Chief Compliance Officer will review the Code of Ethics, including the firm’s

Insider Trading Policy on a periodic basis and update it as may be appropriate, and

The Chief Compliance Officer will consult counsel if he discovers any possible violation

of the firm’s Insider Trading Policy for the purpose of determining if a violation has

occurred and if disciplinary action is necessary.


57

Investment Processes

Policy

As a registered advisor, and as a fiduciary to its Clients, PIC is required, and as a matter of

policy, obtains representations from the respective Investors for each of their Clients as to the

financial circumstances, sophistication with respect to financial and business matters, and risk

tolerance, among other things, to ensure that the advisory services provided to their Clients are

aligned with the respective Investor’s circumstances and background.

Background

The U.S. Supreme Court has held that Section 206 (Prohibited Activities) of the Investment

Advisers Act imposes a fiduciary duty on investment advisers by operation of law (SEC v.

Capital Gains Research Bureau, Inc., 1963). Also, the SEC has indicated that an adviser has a

duty, among other things, to ensure that its investment advice is suitable to the client's objectives,

needs and circumstances, (SEC No-Action Letter, In re John G. Kinnard and Co., publicly

available 11/30/1973).

Every fiduciary has the duty and a responsibility to act in the utmost good faith and in the best

interests of the client and to always place the client's interests first and foremost.

As part of this duty, a fiduciary and an adviser with such duties, must eliminate conflicts of

interest, whether actual or potential, or make full and fair disclosure of all material facts of any

conflicts so a client, or prospective client, may make an informed decision in each particular

circumstance.

Responsibility

The firm's investment professionals responsible for the particular Client and Investor

relationships have the primary responsibility for determining and knowing each Client’s

Investor's circumstances and managing the Client's portfolio consistent with the objectives of the

Client. PIC’s Chief Compliance Officer, has the overall responsibility for the establishment and

monitoring of our investment processes policy, practices, disclosures and recordkeeping for the

firm.

Procedures

PIC has adopted procedures to implement the firm's policy, and will conduct reviews to monitor

and ensure the firm's policy is observed, implemented properly and amended or updated, as

appropriate. Procedures include the following:

Each Investor and non-Fund Client provides representations regarding its financial

circumstances and sophistication with respect to financial and business matters, among

other things, to PIC through a subscription agreement and investor purchaser


58

questionnaire in the case of Investors, and through a CSA in the case of Clients with

separately managed accounts.

PIC provides its Form ADV Part 2 to all prospective Clients, which discloses PIC’s

advisory services, fees, conflicts of interest and portfolio/supervisory reviews and

investment reports provided by the firm to Funds and to all advisory Clients.

PIC adhere to the investment guidelines and objectives set forth in the applicable

Partnership Agreement and Private Placement Memorandum.


59

Performance Data

Policy

The PIC, as a matter of policy and practice, do prepare and distribute various performance data

relating to the investment performance of the Funds. Performance information is treated as

advertising/marketing materials and designed to obtain new Investors and to maintain existing

Client relationships.

PIC’s policy requires that any performance information and materials must be truthful and

accurate, and prepared and presented in a manner consistent with applicable rules and regulatory

guidelines and reviewed and approved by the Chief Compliance Officer, Basil Christakos. PIC’s

policy prohibits any performance information or materials that may be misleading, fraudulent,

deceptive and/or manipulative.

Further, PIC makes all required disclosures in the use of performance data. Such disclosures

include:

the investment objectives and strategies of accounts whose performance is shown

the periods covered by performance figures

the relevant similarities and differences between Clients and any index utilized for

comparison

whether data reflects reinvestment of dividends and interest

the possibility of profit or loss

the effect of material market or economic conditions on the performance shown

the concept that past performance is not indicative of future performance

PIC may show the performance data of its Funds net of fees in compliance with the Clover no-

action letter attached as Appendix 7 on page 110 or gross of fees in compliance with the ICI

letter attached as Appendix 8 on page 116.

Background

An investment advisor's performance information is included as part of a firm's advertising

practices which are regulated by the SEC under Section 206 of the Advisers Act, which prohibits

advisers from engaging in fraudulent, deceptive, or manipulative activities. The manner in

which investment advisers portray themselves and their investment returns to existing and

prospective Clients is highly regulated. These standards include how performance is presented.

SEC Rule 206(4)-1 proscribes various advertising practices of investment advisers as fraudulent,

deceptive or manipulative and various SEC no-action letters provide guidelines for performance

information.


60

Responsibility

Basil Christakos, as CCO, has the responsibility for implementing and monitoring our policy for

the preparation, presentation, review and approval of any performance information to ensure any

materials are consistent with our policy and regulatory requirements. The Chief Compliance

Officer is also responsible for maintaining, as requisite books and record, copies of all

performance materials, including the supporting records to demonstrate the calculation of any

performance information for the entire performance information period consistent with

applicable recordkeeping requirements, as well as records of reviews and approvals.

Procedure




All performance information and materials must be reviewed and approved prior to

use by the CCO to the firm.

Once approved, the Chief Compliance Officer, Basil Christakos shall initial and date

the performance materials and retain a copy in electronic or paper format.

The Chief Compliance Officer is responsible for ensuring that employees do not use

or modify the approved materials without the express authorization of the Chief

Compliance Officer.

The Chief Compliance Officer is responsible for maintaining copies of any

performance materials and supporting documentation for the calculation of

performance materials.

All performance information will be shown in compliance with the Clover no-action letter if net

of fees, and in compliance with the ICI Institute letter dated September 23, 1988 if shown gross

of fees. A summary of each is attached as Appendix 9 on page 121.

In addition, PIC will not send any newsletters or other advertising materials in which a past

specific recommendation is cited unless the requirements of the Franklin no-action letter

(12/10/98) are adhered to.


61

Political Contributions

Policy It is PIC’s policy to permit the firm and its Covered Associates (as defined below) to make political

contributions to elected officials, candidates and others, consistent with this policy and regulatory

requirements.

PIC recognizes that it is never appropriate to make or solicit political contributions, or provide gifts

or entertainment for the purpose of improperly influencing the actions of public officials.

Accordingly, PIC's policy is to restrict certain political contributions made to government officials

and candidates of state and state political subdivisions who can influence or have the authority for

hiring an investment adviser.

Solutions for PIC’s practice are to restrict monitor and require prior approval of any political

contributions to certain government officials. The firm also maintains appropriate records for all

political contributions made by the firm and/or its covered associates.

Background In July 2010, the SEC adopted "Pay-to-Play" rules; including the new anti-fraud Political

Contributions by Certain Investment Advisers Rule (Rule 206(4)-5) under the Advisers Act (SEC

Release No. IA-3043). The SEC had previously proposed a similar pay-to-play rule in 1999 which

was not adopted. The political contribution rule was re-proposed in 2009 and adopted 7/1/2010.

The Political Contributions rule addresses certain pay-to-play practices such as making or

soliciting campaign contributions or payments to certain government officials to influence the

awarding of investment contracts for managing public pension plan assets and other state

governmental investments.

The new rule applies to SEC registered advisers as well as advisers exempt from registration

with the SEC pursuant to reliance on the private adviser exemption as provided in Section 203

(b)(3) of the Advisers Act (hereafter, the "adviser"), which manage or seek to manage private

investment funds in which government and governmental plans invest.

Advisers with Clients who are government entities must comply with the amendments to Rule

204-2, including:

Maintaining required records of political contributions of the firm and all individuals

who are Covered Associates under the Rule. “Covered Associates” includes any

managing partner, executive officer or individual with similar status and function of

the Adviser, and any employee who solicits a government entity on behalf of PIC;

and

Maintaining required records identifying all government entities to which PIC

provides advisory services. “Government entity” includes all state and local


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governments, their agencies, and all public pension plans and other collective

government funds.

The rule sets forth a two (2) year ban on the firm or any Covered Associate

contributing to a candidate of a government entity, including not only an official

possessing the legal authority to hire the investment adviser, but also to officials who

can influence the hiring of the investment adviser, such as persons with appointment

authority, if the Adviser provides advisory services to that government entity. If the

Adviser is seeking to provide advisory services to a plan of a government entity, then

the same prohibition will apply in the event, that the adviser is appointed by the

government entity.

Additionally, if the Adviser pays regulated persons to solicit government entities for

advisory services on its behalf, it must maintain a list of those persons

Exceptions to the Rule

The following contributions are allowed without triggering the two (2) year ban

on an advisory contract with a government entity or forfeiture of fees:

Individuals can contribute up to $350 in aggregate per election to a candidate or

elected official for whom they are entitled to vote;

Individuals can contribute up to $150 in aggregate per election to a candidate or

elected official for whom they are NOT entitled to vote.

Individuals have no limitations on the amount they may contribute to an official of a

government entity so long as the firm does not provide advisory services to the

government entity, has no intention of seeking to provide advisory services to that

government entity or if the person is an official of a governmental body that does not

fit the definition of “government entity”.

For purposes of determining the meaning of the word “election”, primary and general

elections are considered separate elections.

Responsibility

The firm's CCO has the responsibility for the implementation and monitoring of

PIC’s political contribution policy, practices, disclosures and recordkeeping funds.


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Procedure

The PIC have adopted various procedures to implement the firm's policy, conducts

reviews to monitor and ensure the firm's policy is observed, implemented properly

and amended or updated, as appropriate, which include the following:

Pre-approval of any political monetary or in-kind contributions (the political

contribution request form is attached as Appendix 10 on page 123);

The Compliance Officer, or other designated officer, maintains records including the

names, titles, and business and residence addresses of all Covered Associates;

The Compliance Officer, or other designated officer, monitors and maintains records

identifying all Government Entities to which the PIC provide advisory services, if

any;

The Compliance Officer, or other designated officer, monitors and maintains records

detailing political contributions made by the firm and/or its covered associates;

• Such records will be maintained in chronological order and will detail:

1. the name and title of the contributor;

2. the name and title (including any city/county/state or other political

subdivision) of each recipient of a contribution or payment;

3. the monetary amount or estimated monetary value, if an in-kind

donation, and date of each contribution or payment; and

4. whether any such contribution was the subject of the exception for certain

returned contributions.

• The Compliance Officer, or other designated officer, maintains records

reflecting approval of political contributions made by the firm and/or its

Covered Associates;

• Prior to engaging a third party solicitor to solicit advisory business from a

government entity, the Chief Compliance Officer, or other designated officer,

will determine that such solicitor is (1) a "regulated person" as defined under

this Rule and (2) determined that such individual has not made certain political

contributions or otherwise engaged in conduct that would disqualify the solicitor

from meeting the definition of "regulated person";

• On at least an annual basis, the Compliance Officer, or other designated officer,

will require covered associates and any third party solicitors to confirm that such

person(s) have reported any and all political contributions, and continue to meet

the definition of "regulated person";

• The Compliance Officer, or other designated officer, maintains records of each

regulated person to whom the firm provides or agrees to provide (either directly or

indirectly) payment to solicit a government entity for advisory services on its behalf.


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Principal Trading

Policy

PIC’s policy and practice is to NOT engage in any principal transactions, and our firm’s policy

is appropriately disclosed.

Responsibility

Basil Christakos, as Chief Compliance Officer has the responsibility for the implementation and

monitoring of our principal trading policy and disclosures that the firm/affiliated firm does not

engage in any principal transactions with advisory Clients.

Procedures

PIC has adopted various procedures to implement the firm's policy and reviews to monitor and

insure the firm's policy is observed, implemented properly, and amended or updated, as


PIC’s policy of prohibiting any principal trades with advisory Clients has been

communicated to relevant individuals, including management, and portfolio managers,

among others.

Basil Christakos periodically monitors the firm’s advisory services and trading practices

to help insure no principal trades occur with advisory Clients.

In the event of any change in the firm's policy, management must approve any such

change, and any principal transactions would only be allowed after appropriate reviews

and approvals, disclosures, meeting strict regulatory requirements and maintaining proper

records.


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Privacy

Background

As registered investment advisers, the PIC must comply with federal Regulation S-P (or other

applicable regulations), which requires registered advisers to adopt policies and procedures to

protect the “nonpublic personal information” of natural person consumers and customers and to

disclose to such person policies and procedures for protecting that information.

Nonpublic personal information includes nonpublic “personally identifiable financial

information” plus any list, description or grouping of customers that is derived from nonpublic

personally identifiable financial information. Such information may include personal financial

and account information, information relating to services performed for or transactions entered

into on behalf of Clients, advice provided by the PIC to their respective Clients, and data or

analyses derived from such nonpublic personal information.

The purpose of these privacy policies and procedures is to provide administrative, technical and

physical safeguards, which assist employees in maintaining the confidentiality of nonpublic

personal information collected from the consumers and customers of an investment advisor. All

nonpublic information, whether relating to an advisor's current or former Clients, is subject to

these privacy policies and procedures. Any doubts about the confidentiality of Client

information must be resolved in favor of confidentiality.

Responsibility

Basil Christakos, as Chief Compliance Officer, is responsible for reviewing, maintaining and

enforcing these policies and procedures to ensure meeting the PIC’ Client privacy goals and

objectives while at a minimum ensuring compliance with applicable federal and state laws and

regulations. Christakos is also responsible for distributing these policies and procedures to

employees and conducting appropriate employee training to ensure employee adherence to these

policies and procedures.

Policy and Procedures

PIC has adopted the privacy policy attached as Appendix 11 on page 125 and the CCO reviews

to monitor and insure the firm’s policy is observed, implemented properly and amended or

updated, as appropriate, which include the following:

Non-Disclosure of Client Information

The PIC maintain safeguards to comply with federal and state standards to guard each Client’s

nonpublic personal information (NPI). PIC does not share any nonpublic personal information

with any nonaffiliated third parties, except in the following circumstances:

As necessary to provide the service that the Client has requested or authorized, or to

maintain and service the Client’s account;


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As required by regulatory authorities or law enforcement officials who have jurisdiction

over the PIC or as otherwise required by any applicable law; and

To the extent reasonably necessary to prevent fraud and unauthorized transactions.

Employees are prohibited, either during or after termination of their employment, from

disclosing Clients’ NPI to any person or entity outside of the PIC including family members,

except under the circumstances described above. An employee is permitted to disclose

nonpublic personal information only to such other employees who need to have access to such

information to deliver our services to the Client.

Security of Client Information

The PIC restrict access to nonpublic personal information to those employees who need to know

such information to provide services to our Clients. Any Client NPI is secured in a locked

compartment or receptacle on a daily basis as of the close of business each day. All electronic or

computer files containing such information shall be password secured and firewall protected

from access by unauthorized persons. Any conversations involving nonpublic personal

information, if appropriate at all, must be conducted by employees in private, and care must be

taken to avoid any unauthorized persons overhearing or intercepting such conversations.

Opt Out Provision

Pursuant to the privacy policy, if at any time a Client does not wish to have any of his/ her NPI

disclosed to a third party, the Client shall telephone Basil Christakos at (646) 553-3684 to notify

him of such decision. The CCO shall keep a list of any Client who opts out of disclosure and

will consult such list prior to disseminating any Client NPI to a third party.

Privacy Notices

The CCO shall provide to each natural person Client the initial privacy policy notice at the time

the Client signs the advisory agreement and acknowledges receipt of the privacy policy. The

PIC shall also mail to each such Client a new notice of the firm’s current privacy policy at least

annually.

If, at any time, the PIC adopts material changes to their privacy policies, the advisers shall

provide each relevant natural person Client with a revised notice reflecting the new privacy

policies.


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Proxy Voting

Policy

The PIC, as a matter of policy and practice, do not vote proxies on behalf of advisory Clients.

Background

Proxy voting is an important right of shareholders and reasonable care and diligence must be

undertaken to ensure that such rights are properly and timely exercised.

Investment advisers registered with the SEC, and which exercise voting authority with respect to

Client securities, are required by Rule 206(4)-6 of the Advisers Act to (a) adopt and implement

written policies and procedures that are reasonably designed to ensure that Client securities are

voted in the best interests of Clients, which must include how an adviser addresses material

conflicts that may arise between an advisor's interests and those of its Clients; (b) to disclose to

Clients how they may obtain information from the adviser with respect to the voting of proxies

for their securities; (c) to describe to Clients a summary of its proxy voting policies and

procedures and, upon request, furnish a copy to its Clients; and (d) maintain certain records

relating to the advisor's proxy voting activities when the adviser does have proxy voting

authority.

Responsibility


monitoring of our proxy policy and to ensure that the firm does not accept or exercise any proxy

voting authority on behalf of Clients without an appropriate review and change of the firm's

policy with appropriate regulatory requirements being met and records maintained.

Procedures:

Generally PIC does not vote Client proxies. However, if it should occur (and then only on behalf

of Funds), PIC, in voting Client proxies intends to:

Vote Client proxies in a manner that is consistent with what PIC believes to be the best

interests of its Clients;

Base its decision to vote a Client proxy on information that is reasonably available to

PIC;

Base its determination of what is in the best interest on the maximization of the long-term

value of the Fund;

Vote each and every proxy unless the responsible principal affirmatively determines to

abstain from voting such proxy because such abstention is in the best interest of its

Clients;


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Disregard its own interests in voting a proxy if PIC determines that there is an actual

conflict of interest between the Client and PIC, as adviser, with respect to a specific

proxy issue;

Maintain a Client proxy file to retain records and any related research conducted by PIC

relating to the proxies voted by PIC, which file will contain, at a minimum, the proxy

materials distributed by the issuer of the security to which the proxy relates and a record

of how PIC voted that proxy and copies of such research; and

Disclose how PIC voted any proxies to any Client or its Investors that requests such

disclosure in writing.

Recordkeeping

The Chief Compliance Officer will maintain the following proxy voting records:

Proxy statements that PIC receives on behalf of a Client;

A record of the votes that the firm casts on behalf of a Client

Any document that was material to the Managing Member of a Fund to making the

decision on how to vote proxies on behalf of that Fund; and

Copies of any Fund or Investor request for information how the firm voted proxies on

behalf of the Fund in which the requesting Investor is a member and a copy of the firm’s

response.

PIC may rely upon the EDGAR system to maintain certain records (namely proxy statements)

referred to above.


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Registration

Policy

As registered investment advisors, the PIC maintain and renew their respective adviser

registrations on an annual basis through the Investment Adviser Registration Depository

(“IARD”), for the firm, state filings, as appropriate, and investment adviser representatives

(“IARs”).

The PIC’ policy is to monitor and maintain all appropriate firm and IAR registrations that may

be required for providing advisory services to our Clients in any location. PIC monitors the state

residences of our advisory Clients. This requirement is for Clients only and not Investors. The

PIC will not provide advisory services unless appropriately registered as required, or a de

minimis or other exemption exists.

Background

In accordance with the Advisers Act, and unless otherwise exempt from registration

requirements, investment adviser firms are required to be registered either with the Securities and

Exchange Commission (SEC) or with the state(s) in which the firm maintains a place of business

and/or is otherwise required to register in accordance with each individual state(s) regulations

and de minimis requirements. The registered investment adviser is required to maintain such

registrations on an annual basis through the timely payment of renewal fees and filing of the

firm’s Annual Updating Amendment.

Individuals providing advisory services on behalf of the firm are also required to maintain

appropriate registration(s) in accordance with each state(s) regulations unless otherwise exempt

from such registration requirements. The definition of investment adviser representative may

vary on a state-by-state basis. The investment adviser representative registration(s) must also be

renewed on an annual basis through the timely payment of renewal fees.

Responsibility


monitoring of our registration policy, practices, disclosures and recordkeeping.

Procedures

The PIC have adopted various procedures to implement the firm’s policy and reviews to monitor

and ensure the firm’s policy is observed, implemented properly and amended or updated, as


Basil Christakos, CCO monitors the state residences of PIC’s Clients by maintaining a

list of Clients by states, which he reviews at least annually. If any state has Client

numbers which exceed five, then the firm will file an amendment to its ADV Part1A and

notice-file in the appropriate state.


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The PIC and/or their Investment Advisory Representatives will not provide advisory

services unless appropriately registered, as required, or a de minimis or other exemption

exists.

The PIC’ Chief Compliance Officer monitors the firm's registration requirements on an

annual as well as a periodic basis.

Registration filings are made on a timely basis and the Chief Compliance Officer

maintains appropriate files and copies of all filings.


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Regulatory Reporting

Policy

As registered investment adviser with the SEC, the PIC’ policy is to maintain the firm’s

regulatory reporting requirements on an effective and good standing basis at all times. PIC also

monitors, on an on-going and periodic basis, any regulatory filings or other matters that may

require amendment or additional filings with the SEC and/or any states for the firm and its

associated persons. Any regulatory filings for the firm are to be made promptly and accurately.

Our firm’s regulatory filings include Form ADV, among others that may be appropriate.

Background

Form ADV may serve as an advisor's Disclosure Document and is an advisor's registration

document. Form ADV, therefore, provides information to the public and to regulators regarding

an investment advisor. Regulations require that material changes to Form ADV be updated

promptly and that Form ADV be updated annually. In addition, if at any time, an adviser or

collectively its Clients obtains a 5% interest in a security registered under the Securities and

Exchange Act of 1934, it is required to make a regulatory filing under Section 13F or 13G of the

Exchange Act.

Responsibility

Basil Christakos, as CCO, has the responsibility for the implementation and monitoring of our

regulatory reporting policy, practices, disclosures and recordkeeping.

Procedures

PIC has adopted procedures to implement its policy and reviews to monitor and ensure that the

policy is observed, implemented properly and amended or updated, as appropriate, which may be

summarized as follows:

PICmakes itsannual filings of Form ADV within 90 days of the end of each fiscal year

(Annual Updating Amendment) to update certain information on an annual basis.

PIC promptly updates its Disclosure Document and Items 1, 3, 9 and 11 of Form ADV,

Part 1A when material changes occur.

PIC will monitor on at least quarterly basis the holdings of their Funds to determine if,

collectively, they own over 5% of a publicly traded stock or if PIC manages over $100

million in “13f securities”. If so, the CCO will contact counsel who will prepare and file

the necessary regulatory report (Form 13 F or 13G) with the SEC.

PIC will file Form PF annually no later than April 30th..

Soft Dollars

Policy


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PIC, as a matter of policy and practice, does NOT utilize research, research-related products and

other services obtained from broker dealers, or third parties, on a soft dollar commission basis.

Background

Soft dollars generally refers to arrangements whereby a discretionary investment adviser is

allowed to pay for and receive research, research-related or execution services from a broker

dealer or third-party provider, in addition to the execution of transactions, in exchange for the

brokerage commissions from transactions for Client accounts. Section 28(e) of the Securities

Exchange Act of 1934 allows and provides a safe harbor for discretionary investment advisers to

pay an increased commission, above what another broker dealer would charge for executing a

transaction, for research and brokerage services, provided the adviser has made a good faith

determination that the value of the research and brokerage services qualifies as reasonable in

relation to the amount of commissions paid.

Further, under SEC guidelines, the determination as to whether a product or service is research

or other brokerage services, and eligible for the Section 28(e) safe harbor, is whether it provides

lawful and appropriate assistance to the investment manager in performance of its investment

decision-making responsibilities.

Responsibility


monitoring of our soft dollar policy, practices, disclosures and recordkeeping

Procedure

All potential soft dollar arrangements must be reported to the Chief Compliance Officer for

consideration.


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Solicitor Arrangements

Policy

PIC, as a matter policy and practice, may compensate persons, i.e., individuals or entities, for the

referral of advisory Clients to the firm provided appropriate disclosures and regulatory

requirements are met. If however, it should enter into a solicitation agreement then it will follow

the procedures listed below.

Background

Under the SEC Cash Solicitation Rule, (Rule 206(4)-3) and comparable rules adopted by most

states, investment advisers may compensate persons who solicit advisory clients for a firm if

appropriate agreements exist, specific disclosures are made, and other conditions met under the

rules. Under the SEC rule, a solicitor is defined as "any person who, directly or indirectly,

solicits any client for, or refers any client to, an investment advisor”. The definition of client

includes any prospective client.

If PIC were to compensate any person for the referral of any Investor to one of the advisers’

Clients, then it would comply with all requirements of Rule 206(4)-3 of the Adviser’s Act. Rule

206(4)-3 requires that PIC:

Enter into an agreement with the solicitor;

Determine that the solicitor is not disqualified for any reason specified under Rule

206(4)-3; and

Receive from the prospective Investor an acknowledgement, in writing, that it or he or

she received PICs ADV Part2A and received the Solicitor’s Disclosure Statement

disclosing that the solicitor is being paid by PIC.

Responsibility

Basil Christakos, CCO, has the responsibility for the implementation and monitoring of the

firm’s cash solicitation policy, practices, disclosures and recordkeeping.

Procedures

The PIC have adopted the following procedures to implement the firm's policy and reviews to

monitor and insure the firm's policy is observed:

The Chief Compliance Officer is responsible for reviewing and approving any potential

solicitor arrangements. The CCO will ensure that all solicitors confirm initially that they

have not been statutorily disqualified.

The CCO will ensure that all arrangements are memorialized by a written contract, and

that the solicitor will provide the Client with a Solicitor’s Written Disclosure Statement

(“SWDS”) and obtain a signed written acknowledgement from the Client of the SWDS.

All solicitor’s agreements and SWDs must be submitted to and approved by the CCO;

and


74

Once approved the CCO is responsible for approving all payments to solicitors.


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Supervision/Internal Controls

Policy

The PIC adopted these written policies and procedures in conjunction with the Compliance

Procedures Checklist which are designed to set standards and internal controls for the advisers,

their employees, and their businesses and are also reasonably designed to detect and prevent any

violations of regulatory requirements and the advisers’ policies and procedures.

Background

The SEC adopted an anti-fraud rule titled Compliance Procedures and Practices (Rule 206(4)-7)

under the Advisers Act requiring formal compliance programs for all SEC registered advisors.

The new Compliance Procedures and Practices rule makes it unlawful for a SEC adviser to

provide investment advice to Clients unless the advisor:

Adopts and implements written policies and procedures reasonably designed to prevent

violations by the firm and its Supervised Persons;

Reviews, at least annually, the adequacy and effectiveness of the policies and procedures;

Designates a chief compliance officer who is responsible for administering the policies

and procedures; and

Maintains records of the policies and procedures and annual reviews.

Under Section 203(e)(6), the SEC is authorized to take action against an adviser or any

associated person who has failed to supervise reasonably in an effort designed to prevent

violations of the securities laws, rules and regulations. This section also provides that no person

will be deemed to have failed to supervise reasonably provided:

There are established procedures and a system which would reasonably be expected to

prevent any violations; and

such person has reasonably discharged his/her duties and obligations under the firm's

procedures and system without reasonable cause to believe that the procedures and

system were not being complied with.

Responsibility

Basil Christakos, as the Chief Compliance Officer, has the overall responsibility for monitoring

and testing compliance with the PIC’ policies and procedures.


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Procedures

PIC has adopted various procedures to implement their policy, reviews and internal controls to

monitor and insure the supervision policy is observed, implemented properly and amended or

updated, as appropriate which includes the following:

Designating a chief compliance officer as responsible for implementing and monitoring

the PIC’ compliance policies and procedures.

Establishing written policies and procedures with statements of policy, designated

persons responsible for the policy and procedures designed to implement and monitor the

firm's policy.

Preparing written Compliance Forms (Broker Evaluation Form, Officers Questionnaire,

Client Subscription Agreements), and Compliance Calendar in order to carry out the

procedures set forth in the written policies and procedures.

Conducting an annual review of the firm’s policies and procedures and controls by the

outside counsel with assistance by the Chief Compliance Officer to determine if the

firms’ policies and procedures are adequate, effective, and current, meet regulatory

requirements and are consistent with the firm’s business.

Maintaining appropriate records of the firm's annual review and changes to the firm's

policies and procedures, including a CCO certification, the checklist related to the

Compliance Calendar and the underlying documents to the annual review.

Conducting periodic reviews of employees' activities, e.g., personal trading.

Requiring annual written representations by employees as to understanding and abiding

by the firm’s policies by the use of the Code of Ethics.

Implementing sanctions for violations of the firm’s policies or regulatory requirements.


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Valuation of Securities

Policy

As registered investment advisers, the PIC’ policy is that all Client portfolios and investments

reflect current, fair and accurate market valuations.

Background

As fiduciaries, the PIC must always place our respective Client's interests first and foremost and

this includes pricing processes, which insure fair, accurate and current valuations of Client

securities of whatever nature. Proper valuations are necessary for accurate performance

calculations and fee billing purposes, among others. Independent custodians of Client accounts

may serve as the primary pricing source.

Responsibility

The Chief Compliance Officer has overall responsibility for the firm's pricing policy,

determining pricing sources, pricing practices, including any reviews to help insure fair, accurate

and current valuations.

Procedures

The PIC’ adopted procedures to implement the firm's policy and reviews to monitor and insure

the firm's policy is observed, implemented properly and amended or updated, as appropriate.

With respect to separately managed accounts, PIC relies on the custodian of those accounts to

value the securities being held therein the procedures for valuation with respect to the Funds,

include the following:

Since the Funds invest primarily in illiquid securities, PIC utilizes FAS 157 to value

securities on a semiannual basis within 90 days of the quarters ending June 30th and

December 31st. Interim valuation changes may be made if the Investment Managers

believe a material event has occurred that necessitates a valuation adjustment.

Pursuant to FAS 157, PIC typically relies on the “Market Approach” to determine the

“fair market value” and calculates the value using assumptions that market participants

would use in pricing the security.

In most cases, this means that the Investment Managers utilize both a formula

valuation (typically based on a multiple of its Earnings Before Interest Taxes

Depreciation and Amortization (“EBITDA”) as well as certain qualitative

knowledge (current outlook, compliance with lender agreements, pending

transactions, etc.) of the investment to determine the fair market value.


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The Formula Value is typically calculated as follows:

Trailing Twelve Month EBITDA

Multiplied by a Valuation Multiple 1

Enterprise Value

Less: Senior Debt

Net Value before Subordinated Debt

Less:

Subordinated Debt

All Other Debt / Obligations

Preferred Stock

Net Common Equity Value

1 Valuation Multiple: In most circumstances, the valuation multiple will equal to the original transaction

multiple. When appropriate, the Investment Managers may adjust a multiple based on market information,

including comparable transactions, the multiple implied using a discounted cash flow valuation, and/or the

implied multiples based on valuations of comparable publicly traded companies.

In certain cases, a security’s fair market value may be determined based on the cost /

replacement value, a discounted cash flow valuation, the asset value or a liquidation

value of a Client’s portfolio company in lieu of a formula valuation.

In all cases, the factors considered and methodologies employed are based on the

Investment Managers’ judgment of how a market participant would value the assets.

To the extent the valuation change suggested is less than $500,000, the Investment

Managers generally do not change the existing valuation due to the immateriality relative

to the overall amount of assets managed.

All valuations and contemplated changes are collectively reviewed and approved by the

Investment Managers. The Investment Managers final valuation determinations are

documented through minutes kept at each valuation meeting. The valuation meeting may

be held in-person in PIC’s offices or telephonically.

The valuations and the methodologies incorporated to determine the valuations are

reviewed by the Clients’ auditors annually as part of the annual audit process to prevent

any material misstatements.

Any errors in pricing or valuations are to be resolved as promptly as possible, preferably

upon a same day or next day basis, with repricing information obtained, reviewed and

approved by the Chief Compliance Officer.

Any valuations of Client securities determined in conjunction with an individually and

directly negotiated sale will be approved by the majority of the Investment Managers.


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Appendix 1. Certification of Annual Compliance Review

I, ______, Chief Compliance Officer certify that:

I have conducted a review of the compliance policies and procedures of Paulson Investment Company, LLC.

To do so, I have reviewed the areas described in paragraph 4 below by interviews, review of documents and

filings and forensic testing of the firm’s procedures.

I have prepared a report/ chart as evidence of my review.

Based on my knowledge, the Summary Compliance Chart accurately presents in all material respects, the

adequacy and effectiveness of Adviser’s policies and procedures relating to the Investment Advisers Act of

1940 (“Act”) and the rules that the Commission has adopted under the Act specifically relating to the following

areas:

Advertising

Advisory Agreement and Services

Agency Cross Transactions

Annual Compliance Reviews

Anti-Money Laundering

Best Execution

Books and Records

Code of Ethics

Complaints

Corporate Records

Custody

Directed Brokerage

Disaster Recovery

Disclosure Document

E-Mail and Other Electronic

Communications

ERISA

Execution of Security Transactions

Insider Trading

Investment Processes

Performance

Political Contributions

Principal Trading

Privacy

Proxy Voting

Registration

Regulatory Reporting

Soft Dollars

Solicitor Arrangements

Supervision/Internal Controls

Valuation of Securities

Paulson Investment Company, LLC Compliance Manual

80

Date: _______________________________, 20__

Signature: ________________________________

Title: ____________________________________


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Appendix 2. Broker Evaluation Form

Date:

Name of Broker:

New Approval: Annual Reevaluation:

Evidence of financial strength attached:

Rating Criteria: (based on experience or reputation) Good Adequate Poor

Overall Evaluation

Execution Capacity

Order size

Trading characteristics

Ability to execute difficult orders

Capital commitment

Knowledge of market

Broker Quality

Past experience

Familiarity

Financial strength

Research provided

Comments:

Approved:

Name of Person Approving:

Reviewed and Approved by CCO:


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Appendix 3. Books and Records to be Maintained by Investment Advisers

a) Every investment adviser registered or required to be registered under section 203 of the Act shall make and keep

true, accurate and current the following books and records relating to its investment advisory business:

1. A journal or journals, including cash receipts and disbursements, records, and any other records of

original entry forming the basis of entries in any ledger.

2. General and auxiliary ledgers (or other comparable records) reflecting asset, liability, reserve, capital,

income and expense accounts.

3. A memorandum of each order given by the investment adviser for the purchase or sale of any security,

of any instruction received by the investment adviser concerning the purchase, sale, receipt or delivery

of a particular security, and of any modification or cancellation of any such order or instruction. Such

memoranda shall show the terms and conditions of the order, instruction, modification or cancellation;

shall identify the person connected with the investment adviser who recommended the transaction to the

client and the person who placed such order; and shall show the account for which entered, the date of

entry, and the bank, broker or dealer by or through whom executed where appropriate. Orders entered

pursuant to the exercise of discretionary power shall be so designated.

4. All check books, bank statements, cancelled checks and cash reconciliations of the investment adviser.

5. All bills or statements (or copies thereof), paid or unpaid, relating to the business of the investment

adviser as such.

6. All trial balances, financial statements, and internal audit working papers relating to the business of such

investment adviser.

7. Originals of all written communications received and copies of all written communications sent by such

investment adviser relating to (i) any recommendation made or proposed to be made and any advice

given or proposed to be given, (ii) any receipt, disbursement or delivery of funds or securities, or (iii)

the placing or execution of any order to purchase or sell any security: Provided, however, (a) That the

investment adviser shall not be required to keep any unsolicited market letters and other similar

communications of general public distribution not prepared by or for the investment adviser, and (b) that

if the investment adviser sends any notice, circular or other advertisement offering any report, analysis,

publication or other investment advisory service to more than 10 persons, the investment adviser shall

not be required to keep a record of the names and addresses of the persons to whom it was sent; except

that if such notice, circular or advertisement is distributed to persons named on any list, the investment

adviser shall retain with the copy of such notice, circular or advertisement a memorandum describing

the list and the source thereof.

8. A list or other record of all accounts in which the investment adviser is vested with any discretionary

power with respect to the funds, securities or transactions of any client.

9. All powers of attorney and other evidences of the granting of any discretionary authority by any client

to the investment adviser, or copies thereof.

10. All written agreements (or copies thereof) entered into by the investment adviser with any client or

otherwise relating to the business of such investment adviser as such.

11. A copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin or other

communication that the investment adviser circulates or distributes, directly or indirectly, to 10 or more

persons (other than persons connected with such investment adviser), and if such notice, circular,

advertisement, newspaper article, investment letter, bulletin or other communication recommends the

purchase or sale of a specific security and does not state the reasons for such recommendation, a

memorandum of the investment adviser indicating the reasons therefor.

12.

A copy of the investment adviser's code of ethics adopted and implemented pursuant to Rule

204A-1 that is in effect, or at any time within the past five years was in effect;

A record of any violation of the code of ethics, and of any action taken as a result of the

violation; and

A record of all written acknowledgments as required by Rule 204A-1(a)(5) for each person who

is currently, or within the past five years was, a supervised person of the investment adviser.

13.

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A record of each report made by an access person as required by Rule 204A-1(b), including

any information provided under paragraph (b)(3)(iii) of that rule in lieu of such reports;

A record of the names of persons who are currently, or within the past five years were, access

persons of the investment adviser; and

A record of any decision, and the reasons supporting the decision, to approve the acquisition of

securities by access persons under Rule 204A-1(c), for at least five years after the end of the

fiscal year in which the approval is granted.

An investment adviser shall not be deemed to have violated the provisions of this paragraph

(a)(13) because of his failure to record securities transactions of any advisory representative if

he establishes that he instituted adequate procedures and used reasonable diligence to obtain

promptly reports of all transactions required to be recorded.

14. A copy of each written statement and each amendment or revision thereof, given or sent to any client or

prospective client of such investment adviser in accordance with the provisions of Rule 204-3 under the

Act, and a record of the dates that each written statement, and each amendment or revision thereof, was

given, or offered to be given, to any client or prospective client who subsequently becomes a client.

15. All written acknowledgments of receipt obtained from clients pursuant to Rule 206(4)-3(a)(2)(iii)(B)

and copies of the disclosure documents delivered to clients by solicitors pursuant to Rule 206(4)-3.

16. All accounts, books, internal working papers, and any other records or documents that are necessary to

form the basis for or demonstrate the calculation of the performance or rate of return of any or all

managed accounts or securities recommendations in any notice, circular, advertisement, newspaper

article, investment letter, bulletin or other communication that the investment adviser circulates or

distributes, directly or indirectly, to 10 or more persons (other than persons connected with such

investment adviser); provided, however, that, with respect to the performance of managed accounts, the

retention of all account statements, if they reflect all debits, credits, and other transactions in a client's

account for the period of the statement, and all worksheets necessary to demonstrate the calculation of

the performance or rate of return of all managed accounts shall be deemed to satisfy the requirements of

this paragraph.

17.

A copy of the investment adviser's policies and procedures formulated pursuant to Rule 206(4)-

7(a) of this chapter that are in effect, or at any time within the past five years were in effect;

Any records documenting the investment adviser's annual review of those policies and

procedures conducted pursuant to Rule 206(4)-7(b) of this chapter;

A copy of any internal control report obtained or received pursuant to Rule 206(4)-2(a)(6)(ii).

18.

Books and records that pertain to Rule 275.206(4)-5 containing a list or other record of:

1. The names, titles and business and residence addresses of all covered associates of the

investment adviser;

2. All government entities to which the investment adviser provides or has provided

investment advisory services, or which are or were investors in any covered

investment pool to which the investment adviser provides or has provided investment

advisory services, as applicable, in the past five years, but not prior to September 13,

2010;

3. All direct or indirect contributions made by the investment adviser or any of its

covered associates to an official of a government entity, or direct or indirect payments

to a political party of a State or political subdivision thereof, or to a political action

committee; and

4. The name and business address of each regulated person to whom the investment

adviser provides or agrees to provide, directly or indirectly, payment to solicit a

government entity for investment advisory services on its behalf, in accordance with

Rule 275.206(4)-5(a)(2).

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Records relating to the contributions and payments referred to in paragraph (a)(18)(i)(C) of this

section must be listed in chronological order and indicate:

The name and title of each contributor;

The name and title (including any city/county/State or other political subdivision) of

each recipient of a contribution or payment;

The amount and date of each contribution or payment; and

Whether any such contribution was the subject of the exception for certain returned

contributions pursuant to Rule 275.206(4)-5(b)(2).

An investment adviser is only required to make and keep current the records referred to in

paragraphs (a)(18)(i)(A) and (C) of this section if it provides investment advisory services to a

government entity or a government entity is an investor in any covered investment pool to

which the investment adviser provides investment advisory services.

For purposes of this section, the terms "contribution," "covered associate," "covered investment

pool," "government entity," "official," "payment," "regulated person," and "solicit" have the

same meanings as set forth in Rule 275.206(4)-5.

b) If an investment adviser subject to paragraph (a) of this section has custody or possession of securities or funds

of any client, the records required to be made and kept under paragraph (a) of this section shall include:

1. A journal or other record showing all purchases, sales, receipts and deliveries of securities (including

certificate numbers) for such accounts and all other debits and credits to such accounts.

2. A separate ledger account for each such client showing all purchases, sales, receipts and deliveries of

securities, the date and price of each purchase and sale, and all debits and credits.

3. Copies of confirmations of all transactions effected by or for the account of any such client.

4. A record for each security in which any such client has a position, which record shall show the name of

each such client having any interest in such security, the amount or interest of each such client, and the

location of each such security.

5. A memorandum describing the basis upon which you have determined that the presumption that any

related person is not operationally independent under Rule 206(4)-2(d)(5) has been overcome.

c)

1. Every investment adviser subject to paragraph (a) of this section who renders any investment supervisory

or management service to any client shall, with respect to the portfolio being supervised or managed and

to the extent that the information is reasonably available to or obtainable by the investment adviser, make

and keep true, accurate and current:

Records showing separately for each such client the securities purchased and sold, and the date,

amount and price of each such purchase and sale.

For each security in which any such client has a current position, information from which the

investment adviser can promptly furnish the name of each such client, and the current amount

or interest of such client.

2. Every investment adviser subject to paragraph (a) of this section that exercises voting authority with

respect to client securities shall, with respect to those clients, make and retain the following:

Copies of all policies and procedures required by Rule 206(4)-6.

A copy of each proxy statement that the investment adviser receives regarding client securities.

An investment adviser may satisfy this requirement by relying on a third party to make and

retain, on the investment adviser's behalf, a copy of a proxy statement (provided that the adviser

has obtained an undertaking from the third party to provide a copy of the proxy statement

promptly upon request) or may rely on obtaining a copy of a proxy statement from the

Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.

A record of each vote cast by the investment adviser on behalf of a client. An investment adviser

may satisfy this requirement by relying on a third party to make and retain, on the investment

adviser's behalf, a record of the vote cast (provided that the adviser has obtained an undertaking

from the third party to provide a copy of the record promptly upon request).

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A copy of any document created by the adviser that was material to making a decision how to

vote proxies on behalf of a client or that memorializes the basis for that decision.

A copy of each written client request for information on how the adviser voted proxies on behalf

of the client, and a copy of any written response by the investment adviser to any (written or

oral) client request for information on how the adviser voted proxies on behalf of the requesting

client.

d) Any books or records required by this section may be maintained by the investment adviser in such manner that

the identity of any client to whom such investment adviser renders investment supervisory services is indicated

by numerical or alphabetical code or some similar designation.

e)

1. All books and records required to be made under the provisions of paragraphs (a) to (c)(1)(i), inclusive,

and (c)(2) of this rule (except for books and records required to be made under the provisions of

paragraphs (a)(11), (a)(12)(i), (a)(12)(iii), (a)(13)(ii), (a)(13)(iii), (a)(16), and (a)(17)(i) of this section),

shall be maintained and preserved in an easily accessible place for a period of not less than five years

from the end of the fiscal year during which the last entry was made on such record, the first two years

in an appropriate office of the investment adviser.

2. Partnership articles and any amendments thereto, articles of incorporation, charters, minute books, and

stock certificate books of the investment adviser and of any predecessor, shall be maintained in the

principal office of the investment adviser and preserved until at least three years after termination of the

enterprise.

3.

Books and records required to be made under the provisions of paragraphs (a)(11) and (a)(16)

of this rule shall be maintained and preserved in an easily accessible place for a period of not

less than five years, the first two years in an appropriate office of the investment adviser, from

the end of the fiscal year during which the investment adviser last published or otherwise

disseminated, directly or indirectly, the notice, circular, advertisement, newspaper article,

investment letter, bulletin or other communication.

Transition rule. If you are an investment adviser to a private fund as that term is defined in Rule

203(b)(3)-1, and you were exempt from registration under section 203(b)(3) of the Act prior to

February 10, 2005, paragraph (e)(3)(i) of this section does not require you to maintain or

preserve books and records that would otherwise be required to be maintained or preserved

under the provisions of paragraph (a)(16) of this section to the extent those books and records

pertain to the performance or rate of return of such private fund or other account you advise for

any period ended prior to February 10, 2005, provided that you were not registered with the

Commission as an investment adviser during such period, and provided further that you

continue to preserve any books and records in your possession that pertain to the performance

or rate of return of such private fund or other account for such period.

f) An investment adviser subject to paragraph (a) of this section, before ceasing to conduct or discontinuing business

as an investment adviser shall arrange for and be responsible for the preservation of the books and records required

to be maintained and preserved under this section for the remainder of the period specified in this section, and

shall notify the Commission in writing, at its principal office, Washington, D.C. 20549, of the exact address where

such books and records will be maintained during such period.

g) Micrographic and electronic storage permitted.

1. General. The records required to be maintained and preserved pursuant to this part may be maintained

and preserved for the required time by an investment adviser on:

Micrographic media, including microfilm, microfiche, or any similar medium; or

Electronic storage media, including any digital storage medium or system that meets the terms

of this section.

2. General requirements. The investment adviser must:

Arrange and index the records in a way that permits easy location, access, and retrieval of any

particular record;

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Provide promptly any of the following that the Commission (by its examiners or other

representatives) may request:

A legible, true, and complete copy of the record in the medium and format in which it

is stored;

A legible, true, and complete printout of the record; and

Means to access, view, and print the records; and

Separately store, for the time required for preservation of the original record, a duplicate copy

of the record on any medium allowed by this section.

3. Special requirements for electronic storage media. In the case of records on electronic storage media, the

investment adviser must establish and maintain procedures:

To maintain and preserve the records, so as to reasonably safeguard them from loss, alteration,

or destruction;

To limit access to the records to properly authorized personnel and the Commission (including

its examiners and other representatives); and

To reasonably ensure that any reproduction of a non-electronic original record on electronic

storage media is complete, true, and legible when retrieved.

h)

1. Any book or other record made, kept, maintained and preserved in compliance with Rules 240.17a-3 and

240.17a-4 of this chapter under the Securities Exchange Act of 1934, or with rules adopted by the

Municipal Securities Rulemaking Board, which is substantially the same as the book or other record

required to be made, kept, maintained and preserved under this section, shall be deemed to be made,

kept, maintained and preserved in compliance with this section.

2. A record made and kept pursuant to any provision of paragraph (a) of this section, which contains all the

information required under any other provision of paragraph (a) of this section, need not be maintained

in duplicate in order to meet the requirements of the other provision of paragraph (a) of this section.

i) As used in this section the term "discretionary power" shall not include discretion as to the price at which or the

time when a transaction is or is to be effected, if, before the order is given by the investment adviser, the client

has directed or approved the purchase or sale of a definite amount of the particular security.

j)

1. Except as provided in paragraph (j)(3) of this section, each non-resident investment adviser registered

or applying for registration pursuant to section 203 of the Act shall keep, maintain and preserve, at a

place within the United States designated in a notice from him as provided in paragraph (j)(2) of this

section true, correct, complete and current copies of books and records which he is required to make,

keep current, maintain or preserve pursuant to any provisions of any rule or regulation of the Commission

adopted under the Act.

2. Except as provided in paragraph (j)(3) of this section, each nonresident investment adviser subject to this

paragraph (j) shall furnish to the Commission a written notice specifying the address of the place within

the United States where the copies of the books and records required to be kept and preserved by him

pursuant to paragraph (j)(1) of this section are located. Each non-resident investment adviser registered

or applying for registration when this paragraph becomes effective shall file such notice within 30 days

after such rule becomes effective. Each non-resident investment adviser who files an application for

registration after this paragraph becomes effective shall file such notice with such application for

registration.

3. Notwithstanding the provisions of paragraphs (j)(1) and (2) of this section, a non-resident investment

adviser need not keep or preserve within the United States copies of the books and records referred to in

said paragraphs (j)(1) and (2), if:

Such non-resident investment adviser files with the Commission, at the time or within the

period provided by paragraph (j)(2) of this section, a written undertaking, in form acceptable to

the Commission and signed by a duly authorized person, to furnish to the Commission, upon

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demand, at its principal office in Washington, D.C., or at any Regional Office of the

Commission designated in such demand, true, correct, complete and current copies of any or

all of the books and records which he is required to make, keep current, maintain or preserve

pursuant to any provision of any rule or regulation of the Commission adopted under the Act,

or any part of such books and records which may be specified in such demand. Such undertaking

shall be in substantially the following form:

The undersigned hereby undertakes to furnish at its own expense to the Securities and

Exchange Commission at its principal office in Washington, D.C. or at any Regional Office

of said Commission specified in a demand for copies of books and records made by or on

behalf of said Commission, true, correct, complete and current copies of any or all, or any

part, of the books and records which the undersigned is required to make, keep current or

preserve pursuant to any provision of any rule or regulation of the Securities and Exchange

Commission under the Investment Advisers Act of 1940. This undertaking shall be

suspended during any period when the undersigned is making, keeping current, and

preserving copies of all of said books and records at a place within the United States in

compliance with Rule 204-2(j) under the Investment Advisers Act of 1940. This

undertaking shall be binding upon the undersigned and the heirs, successors and assigns of

the undersigned, and the written irrevocable consents and powers of attorney of the

undersigned, its general partners and managing agents filed with the Securities and

Exchange Commission shall extend to and cover any action to enforce same.

and

Such non-resident investment adviser furnishes to the Commission, at his own expense 14 days

after written demand therefor forwarded to him by registered mail at his last address of record

filed with the Commission and signed by the Secretary of the Commission or such person as

the Commission may authorize to act in its behalf, true, correct, complete and current copies of

any or all books and records which such investment adviser is required to make, keep current

or preserve pursuant to any provision of any rule or regulation of the Commission adopted

under the Act, or any part of such books and records which may be specified in said written

demand. Such copies shall be furnished to the Commission at its principal office in Washington,

D.C., or at any Regional Office of the Commission which may be specified in said written

demand.

4. For purposes of this rule the term non-resident investment adviser shall have the meaning set out in Rule

0-2(d)(3) under the Act. [Editor's note: There is no paragraph (d) to Rule 0-2. The term non-resident is

defined in Rule 0-2(b)(2).]

k) Every investment adviser that registers under section 203 of the Act after July 8, 1997 shall be required to preserve

in accordance with this section the books and records the investment adviser had been required to maintain by the

State in which the investment adviser had its principal office and place of business prior to registering with the

Commission.

l) Records of private funds. If an investment adviser subject to paragraph (a) of this section advises a private fund

(as defined in Rule 203(b)(3)-1,) and the adviser or any related person (as defined in Form ADV (17 CFR 279.1))

of the adviser acts as the private fund’s general partner, managing member, or in a comparable capacity, the books

and records of the private fund are records of the adviser for purposes of section 204 of the Act.

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Appendix 4. Paulson Investment Company, LLC

Code of Ethics Acknowledgment

I have (i) received a copy of Paulson Investment Company, LLC’s Code of Ethics; (ii) read and

understood all provisions of the Code; (iii) complied with all requirements of the Code; and (iv)

submitted all holdings and transaction reports as required by the Code.

SIGNATURE DATE

____________________________________

Name of Employee: Printed


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Appendix 5. PIC Officers/Employees Data Sheet

FORM COMPLETED BY:

Instructions: please complete one copy of this form for each principal and employee. You may use the back of

the sheet and/or attach additional sheets if necessary.

1. Have you, by any form of transaction, acquired any direct or indirect beneficial ownership, for yourself

or any member of your immediate household, 5% or more of any public corporation?

2. Please list the names of all of the corporations in which you or any member of your immediate

household have a 5% or more direct or indirect beneficial ownership?

3. Have you, by any form of transaction acquired, any direct or indirect beneficial ownership, for yourself

or any member of your immediate household, in any public or private partnerships?

4. Please list the names of all of the partnerships in which you or any member of your immediate

household have a direct or indirect beneficial ownership? Also, please state if these partnerships are public or

private.

5. Are you or any member of your immediate household a general partner in any partnership?

6. Please list the partnerships in which you or any member of your immediate household is a general

partner.

7. Are you an officer or director of any corporation other than your adviser employer?

8. Do you currently have check writing authority or full power of attorney for any accounts other than

your own?

9. Do you or any member of your immediate household have a direct or indirect beneficial ownership in

a joint venture? If so, please list the joint ventures.

10. Are you a trustee for any trust? If so, please list the names of all the trusts in which you are a trustee

and also the names of the beneficiaries of the trusts.

11. Are you an officer of any foundation? If so, please list the foundations and your position.

12. Please list the names and approximate date of purchase of all corporate securities bought by you that

are currently in bankruptcy.

13. Are you a shareholder and an officer or director in any corporation that is currently in bankruptcy?


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Appendix 6. Disaster Recovery and Business Continuity Plan

Paulson Investment Company, LLC

Business Continuity Plan (“BCP”)

I. Emergency Contact Person

Our firm’s two emergency contact persons are:

Byron Crowe, Chief Executive Officer

Telephone: (312) 940-8320 (work); (312) 543-3097 (mobile)

Email: [email protected]

Basil Christakos, Chief Compliance Officer

Telephone: (646) 553-3684 (work); (201) 456-1662 (mobile)

Email: [email protected]

These names will be updated in the event of a material change, and our Executive Representative will review them

within 17 days of the end of each calendar year.

Rule: FINRA Rule 4370

II. Firm Policy This policy should be given to all employees and independent contractors.

Our firm’s policy is to respond to a Significant Business Disruption (“SBD”) by safeguarding employees’ lives and

firm property, making a financial and operational assessment, quickly recovering and resuming operations, protecting

all of the firm’s books and records, and allowing our customers to transact business. In the event that we determine

we are unable to continue our business, we will assure customers prompt access to their funds and securities.

A. Significant Business Disruptions (“SBDs”) Our plan anticipates two kinds of SBDs, internal and external. Internal SBDs affect only our firm’s ability to

communicate and do business, such as a fire in our building. External SBDs prevent the operation of the securities

markets or a number of firms, such as a terrorist attack, a city flood, or a wide-scale, regional disruption. Our response

to an external SBD relies more heavily on other organizations and systems, especially on the capabilities of our

clearing firm.

B. Approval and Execution Authority Byron K. Crowe, CEO, a registered principal, is responsible for approving the plan and for conducting the required

annual review. Byron K. Crowe, CEO has the authority to execute this BCP.

C. Plan Location and Access

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Our firm will maintain copies of its BCP plan and the annual reviews, and the changes that have been made to it for

inspection. We have given FINRA District Office 3B a copy of our plan. An electronic copy of our plan is located

on Paulson_dc in the Compliance shared folder and in our e-mail server archived by Smarsh Inc.

III. Business Description Our firm conducts business in equity, fixed income, derivative securities, and investment banking. Our firm is an

introducing firm and does not perform any type of clearing function for itself or others. Furthermore, we do not hold

customer funds or securities. We accept, enter and execute orders. All transactions are sent to our clearing firm,

which compares them, allocates them, clears and settles them. Our clearing firm also maintains our customers’

accounts, can grant customers access to them, and delivers funds and securities. Our firm services retail and

institutional customers.

Our clearing firm is:

RBC Correspondent Services

60 South 6th Street

Minneapolis, MN 55402

Phone: (612) 607-8903

Web Site: http://www.rbccorrespondentservices.com

Our contact person at that clearing firm is:

Dustin Simonson

RBC Correspondent Services

60 South 6th Street

Minneapolis, MN 55402

E-mail: [email protected]

Our clearing firm has given us a group number to use in the event that the contact person listed above is not available.

That number is: (612) 371-2862.

IV. Office Locations

Our firm has offices in the following locations:

1. Office Location Portland, Oregon

Portland Office

1001 SW Fifth St. Suite 1460

Portland, OR 97204

(503) 243-6000

Our employees may travel to that office by means of foot, car, train, bus or taxi. We engage in order taking

and entry at this location

2. Office Location New York City, New York

New York Office

40 Wall Street 23rd Floor

New York, New York 10005

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3. Office Location Novato, CA

San Francisco Office

3 Hamilton Landing, Suite 260

Novato, CA 94949

(415)761-2075



4. Office Location Chicago, IL

Chicago Office

566 W. Adams St. Suite 750

Chicago, IL 60661

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V. Alternative Physical Location(s) of Employees In the event of an SBD, our staff will operate electronically away from affected offices. Through our clearing firm

platform and technology solutions, our staff can process transactions electronically including execution of customer

orders and instructions regarding the transmission of funds to and from our clearing firm.

Rule: FINRA Rule 4370(c)(6)

VI. Customers’ Access to Funds and Securities Our firm does not maintain custody of customers’ funds or securities, which are maintained at our clearing firm, RBC

Correspondent Services. In the event of an internal or external SBD, if telephone service is available, our registered

persons will take customer orders or instructions and contact our clearing firm on their behalf, and if our Web access

is available, our firm will post on our web site that customers may access their funds and securities by contacting us

at 503-243-6000, by going to our web site at http://www.paulsoninvestment.com or by emailing us

[email protected]. The firm will make this information available to customers through its disclosure

policy.

If SIPC determines that we are unable to meet our obligations to our customers or if our liabilities exceed our assets

in violation of Securities Exchange Act Rule 15c3-1, SIPC may seek to appoint a trustee to disburse our assets to

customers. We will assist SIPC and the trustee by providing our books and records identifying customer accounts

subject to SIPC regulation.

Rules: FINRA Rule 4370(a); Securities Exchange Act Rule 15c3-1: 15 U.S.C. 78eee (2003)

VII. Data Back-Up and Recovery (Hard Copy and Electronic) Our firm maintains its primary hard copy books and records and its electronic records at 1001 SW Fifth St., Suite

1460, Portland, OR 97204. Lorraine Maxfield, VP Corporate Finance, is responsible for the maintenance of these

books and records. Our firm maintains the following document types and forms which may be transmitted to our

clearing firm, but is not required to be transmitted to our clearing firm:

New Account Forms

Trust Agreements

Articles of Conversion

Currently, a large majority of the systems that we utilize to function as a company are hosted environments which

provide for business continuity. With that in mind the hosting providers continuity plans become a large a part of the

response to this question. However, internally there are procedures in place to provide local continuity to include a

large UPS power supply which will provide protection for the server and network equipment. Disk to Disk backups

are run to provide offsite storage of all customer data which is stored locally. The disk device is rotated offsite

weekly. A raid configuration is in place to provide for local hardware failure as well as multiple power supplies within

the server. The server that has been put in place is patched automatically for hardware patches, software patches,

security patches, and updates. The antivirus product is configured to constantly update and the version control on

firewall is closely monitored and upgraded as needed. In the event of an internal or external SBD that causes the loss

of our paper records, we will physically recover them from our back-up site. If our primary site is inoperable, we will

continue operations from our back-up site or an alternate location. For the loss of electronic records, we will either

physically recover the storage media or electronically recover data from our back-up site, or, if our primary site is

inoperable, continue operations from our back-up site or an alternate location.

http://www.paulsoninvestment.com/


94


VIII. Financial and Operational Assessments

A. Operational Risk Operational risk includes the firm’s ability to maintain communications with customers and to retrieve key activity

records through its mission critical systems.

In the event of an SBD, we will immediately identify what means will permit us to communicate with our customers,

employees, critical business constituents, critical banks, critical counter-parties, and regulators. Although the effects

of an SBD will determine the means of alternative communication, the communications options we will employ will

include our web site, telephone voice mail, secure e-mail, etc. In addition, we will retrieve our key activity records as

described in the section above, Data Back-Up and Recovery (Hard Copy and Electronic).

Rules: FINRA Rules 4370(c)(3) & 4370(f)(2)

B. Financial and Credit Risk In the event of an SBD, we will determine the value and liquidity of our investments and other assets to evaluate our

ability to continue to fund our operations and remain in capital compliance. We will contact our clearing firm, critical

banks, and investors to apprise them of our financial status. If we determine that we may be unable to meet our

obligations to those counter-parties or otherwise continue to fund our operations, we will request additional financing

from our bank or other credit sources to fulfill our obligations to our customers and clients. If we cannot remedy a

capital deficiency, we will file appropriate notices with our regulators and immediately take appropriate steps,

including the protection of customer assets, and the closing of our operations.

Rules: FINRA Rules 4370(c)(3), 4370(c)(8) & 4370(f)(2)

IX. Mission Critical Systems Our firm’s “mission critical systems” are those that ensure prompt and accurate processing of securities transactions,

including order taking, and entry of securities transactions, the maintenance of customer accounts, access to customer

accounts, and the delivery of funds and securities.

We have primary responsibility for establishing and maintaining our business relationships with our customers and

have sole responsibility for our mission critical functions of order taking and entry. Our clearing firm provides,

through contract, the execution, comparison, allocation, clearance and settlement of securities transactions, the

maintenance of customer accounts, access to customer accounts, and the delivery of funds and securities.

Our clearing firm contract provides that our clearing firm will maintain a business continuity plan and the capacity to

execute that plan. Our clearing firm represents that it will advise us of any material changes to its plan that might

affect our ability to maintain our business and presented us with an executive summary of its plan, which is attached.

In the event our clearing firm executes its plan, it represents that it will notify us of such execution and provides us

equal access to services as its other customers. If we reasonably determine that our clearing firm has not or cannot

put its plan in place quickly enough to meet our needs, or is otherwise unable to provide access to such services, our

clearing firm represents that it will assist us in seeking services from an alternative source.


95

Our clearing firm represents that it backs up our records at a remote site. Our clearing firm represents that it operates

a back-up operating facility in a geographically separate area with the capability to conduct the same volume of

business as its primary site. Our clearing firm has also confirmed the effectiveness of its back-up arrangements to

recover from a wide scale disruption by testing, and it has confirmed that it tests its back-up arrangements four times

a year.

Recovery-time objectives provide concrete goals to plan for and test against. They are not, however, hard and fast

deadlines that must be met in every emergency situation, and various external factors surrounding a disruption, such

as time of day, scope of disruption, and status of critical infrastructure – particularly telecommunications – can affect

actual recovery times. Recovery refers to the restoration of clearing and settlement activities after a wide-scale

disruption; resumption refers to the capacity to accept and process new transactions and payments after a wide-scale

disruption. Our clearing firm has the following SBD recovery time and resumption objectives: recovery time period

of less than four hours; and resumption time of less than four hours.

A. Our Firm’s Mission Critical Systems

1. Order Taking

Currently, our firm receives orders from customers via telephone or by in person visits by the customer. During an

SBD, either internal or external, we will continue to take orders through any of these methods that are available and

reliable, and in addition, as communications permit, we will inform our customers when communications become

available to tell them what alternatives they have to send their orders to us. Customers will be informed of alternatives

by voice messages and by postings on our web site. If necessary, we will advise our customers to place orders directly

with us by calling (503) 243-6000.

2. Order Entry

Currently, our firm enters orders by recording them on paper and electronically and sending them to our clearing firm

electronically or telephonically, through their BetaLink order entry system. Alternatively, we place customer orders

through Instinet. We have contacted Instinet and were told that under their BCP’s, we can expect order entry and

execution services immediately.

In the event of an internal SBD, we will enter and send records to our clearing firm by the fastest alternative means

available, which include email, US Mail, Overnight Courier, and facsimile. In the event of an external SBD, we will

maintain the order in electronic or paper format, and deliver the order to the clearing firm by the fastest means available

when it resumes operations. In addition, during an internal SBD, we may need to refer our customers to deal directly

with our clearing firm for order entry.

3. Order Execution

We currently execute orders by review and release. In the event of an internal SBD, we would release all orders to

RBC Correspondent Services for execution. In the event of an external SBD, we would release all orders to RBC

Correspondent Services for execution.

4. Other Services Currently Provided to Customers

We currently do not supply any other mission critical services to customers.

Rules: FINRA Rules 4370(c) & 4370(f)(1)

X. Alternate Communications between the Firm and Customers,

Employees, and Regulators


96

A. Customers We now communicate with our customers using the telephone, e-mail, our web site, facsimile, US mail, and in person

visits at our firm or at the other location. In the event of an SBD, we will assess which means of communication are

still available to us, and use the means closest in speed and form (written or oral) to the means that we have used in

the past to communicate with the other party. For example, if we have communicated with a party by e-mail but the

Internet is unavailable, we will call them on the telephone and follow up where a record is needed with paper copy in

US mail.


B. Employees and Affiliates We now communicate with our employees and affiliates using the telephone, e-mail, and in person. In the event of

an SBD, we will assess which means of communication are still available to us, and use the means closest in speed

and form (written or oral) to the means that we have used in the past to communicate with the other party. We will

also employ a call tree so that senior management can reach all employees quickly during an SBD. The call tree

includes all staff home and office phone numbers.

The person to invoke use of the call tree is: Byron K. Crowe, CEO

Caller Call Recipients

Byron Crowe Basil Christakos, Keith Beck, Alex Winks

Sales Department Personnel, Branch Offices

Trading Department Personnel

Syndicate Department Personnel

Operations Department Personnel

IT Department Personnel

Accounting Department Personnel

Chicago Office Support Personnel

Investment Banking Personnel


C. Regulators We are currently members of FINRA. We communicate with our regulator using the telephone, e-mail, facsimile, US

mail, and in person. In the event of an SBD, we will assess which means of communication are still available to us,

and us the means closest in speed and form (written or oral) to the means that we have used in the past to communicate

with the other party.


XI. Critical Business Constituents, Banks, and Counter-Parties

A. Business Constituents We have contacted our critical business constituents (businesses with which we have an ongoing commercial

relationship in support of our operating activities, such as vendors providing us critical services), and determined the


97

extent to which we can continue our business relationship with them in light of the internal or external SBD. We will

quickly establish alternative arrangements if a business constituent can no longer provide the needed goods or services

when we need them because of a SBD to them or our firm.


B. Banks We have contacted our banks and lenders to determine if they can continue to provide the financing that we will need

in light of the internal or external SBD. The bank maintaining our operating account is:

First Republic Bank

Attn: Lindsey S. Burmeister

111 Pine St., Ninth Floor

San Francisco, CA 94111

(415) 296-5856

If our banks and other lenders are unable to provide the financing, we will seek alternative financing immediately

from alternative sources.


C. Counter-Parties We have contacted our critical counter-parties, such as other broker-dealers or institutional customers, to determine if

we will be able to carry out our transactions with them in light of the internal or external SBD. Where the transactions

cannot be completed, we will work with our clearing firm or contact those counter-parties directly to make alternative

arrangements to complete those transactions as soon as possible.

Rules: FINRA Rules 4370(a) & 4370(c)(7)

XII. Regulatory Reporting Our firm is subject to regulations by: SEC, FINRA, and all fifty states. We now file reports with our regulators using

paper copies in US mail, and electronically using facsimile, e-mail, and the Internet. In the event of an SBD, we will

check with the SEC, FINRA, and other regulators to determine which means of filing are still available to us, and us

the means closest in speed and form (written or oral) to our previous filing method. In the event that we cannot contact

our regulators, we will continue to file required reports using the communication means available to us. Our Regulator

contact information is:

1. Financial Industry Regulatory Authority (FINRA)

FINRA District 3B

Michael Lewis, Director

Two Union Square

601 Union Street, Suite 1616

Seattle, WA 98101

Phone: (206) 624-0790

Fax: (206) 623-2518

2. Securities & Exchange Commission


98

Securities & Exchange Commission

San Francisco, CA District Office

Marc J. Fagel, Regional Director

44 Montgomery Street, Suite 2600

San Francisco, CA 94104

Phone: (415) 705-2500

3. Alabama

Securities Commission

Joseph P. Borg, Director

401 Adams Avenue, Suite 280

Montgomery, AL 36130-4700

Phone: (334) 242-2984

Fax: (334) 242-0240

P.O. Box 304700

Montgomery, AL 36130-4700

4. Alaska

Department of Commerce, Community and Economic Development

Division of Banking and Securities

Kevin Anselm, Director

150 Third Street, Room 217

P.O. Box 110807

Juneau, AK 99811-0807

Phone: (907) 465-2521

Fax: (907) 465-2549

5. Arizona

Corporation Commission

Securities Division

Matthew J. Neubert, Director

1300 West Washington Street, Third Floor

Phoenix, AZ 85007

Phone: (602) 542-4242

Fax: (602) 388-1335

6. Arkansas

Securities Department

Edmond Waters, Securities Commissioner

201 East Markham, Room 300

Little Rock, AR 72201-1692

Phone: (501) 324-9260

Fax: (501) 324-9268

7. California

Department of Business Oversight

Jan Lynn Owen, Commissioner


99

1515 K Street, Suite 200

Sacramento, CA 95814-4052

Phone: (866) 275-2677

Fax: (916) 322-1559

8. Colorado

Division of Securities

Gerald Rome, Securities Commissioner

1560 Broadway, Suite 900

Denver, CO 80202

Phone: (303) 894-2320

Fax: (303) 861-2126

9. Connecticut

Department of Banking

Eric Wilder, Director of Securities

260 Constitution Plaza

Hartford, CT 06103-1800

Phone: (860) 240-8230

Fax: (860) 240-8295

10. Delaware

Department of Justice

Investor Protection Unit

Owen Lefkon, Investor Protection Director

Carvel State Office Building

820 North French Street, Fifth Floor

Wilmington, DE 19801

Phone: (302) 577-8424

Fax: (302) 577-6987

11. District of Columbia

Department of Insurance, Securities and Banking

Securities Bureau

Theodore A. Miles, Associate Commissioner, Securities

810 First Street, NE, Suite 701

Washington, DC 20002

Phone: (202) 442-7800

Fax: (202) 354-1092

12. Florida

Office of Financial Regulation

Pam Epting, Director, Division of Securities

200 East Gaines Street

Tallahassee, FL 32399-0372

Phone: (850) 410-9500

Fax: (850) 410-9748

13. Georgia


100

Office of the Secretary of State


Noula Zaharis, Securities Division Director

Two Martin Luther King, Jr. Drive SE

802 West Tower

Atlanta, GA 30334

Phone: (404) 654-6023

Fax: (404) 657-8410

14. Hawaii

Department of Commerce & Consumer Affairs

Division of Business Regulation

Ty Nohara, Commissioner of Securities

335 Merchant Street, Room 203

Honolulu, HI 96813

Phone: (808) 586-2744

Fax: (808) 586-2733

15. Idaho

Department of Finance

Jim Burns, Acting Securities Bureau Chief

800 Park Boulevard, Suite 200

Boise, ID 83712

Phone: (208) 332-8004

Fax: (208) 332-8099

16. Illinois


Securities Department

Tanya Solov, Director of Securities

69 West Washington Street, Suite 1220

Chicago, IL 60602

Phone: (312) 793-3384

Fax: (312) 793-1202

17. Indiana


Securities Division

Alex Glass, Securities Commissioner

302 West Washington, Room E-111

Indianapolis, IN 46204

Phone: (317) 232-6681

Fax: (317) 233-3675

18. Iowa

Insurance Division

Securities Bureau

Rosanne Mead, Securities Administrator


101

601 Locust, 4th Floor

Des Moines, IA 50309

Phone: (515) 281-5705

Fax: (515) 281-3059

19. Kansas

Office of the Securities Commissioner

Joshua Ney, Securities Commissioner

109 SW 9th Street, Suite 600

Topeka, KS 66612

Phone: (785) 296-3307

Fax: (785) 296-6872


102

20. Kentucky

Department of Financial Institutions

Shonita Bossier, Director, Division of Securities

1025 Capital Center Drive, Suite 200

Frankfort, KY 40601

Phone: (502) 573-3390

Fax: (502) 573-2182

21. Louisiana


Office of Financial Institutions

Rhonda Reeves, Deputy Securities Commissioner

8660 United Plaza Blvd., Second Floor

Baton Rouge, LA 70809-7024

Phone: (225) 925-4512

22 Maine

Department of Professional & Financial Regulation

Judith M. Shaw, Securities Administrator

121 State House Station

Augusta, ME 04333-0121

Phone: (207) 624-8551

Fax: (207) 624-8590

23. Maryland

Office of the Attorney General


Melanie Senter Lubin, Securities Commissioner

200 Saint Paul Place

Baltimore, MD 21202-2020

Phone: (410) 576-6360

Fax: (410) 576-6532

24. Massachusetts

Securities Division

Bryan Lantagne, Director

One Ashburton Place, Room 1701

Boston, MA 02108

Phone: (617) 727-3548

Fax: (617) 248-0177

25. Michigan

Department of Licensing and Regulatory Affairs Corporation

Securities and Commercial Licensing Bureau

Julia Dale, ActingBureau Director

2501 Woodlake Circle

Okemos, MI 48864

PO 30018


103

Lansing, MI 48909

Phone: (517) 241-9202

Fax: (517) 241-3356

26. Minnesota

Department of Commerce

Mike Rothman, Commissioner

85 East 7th Place, Suite 500

Saint Paul, MN 55101

Phone: (651) 539-1638

Fax: (651) 296-4328

27. Mississippi


Securities Division

Cheryn Netz, Asst. Secretary of State

125 South Congress Street

PO Box 136

Jackson, MS 39201

Phone: (601) 359-1334

Fax: (601) 359-9070

28. Missouri


Andrew Hartnett, Securities Commissioner

600 West Main Street

Jefferson City, MO 65101

Phone: (573) 751-4136

Fax: (573) 526-3124

29. Montana

Commissioner of Securities & Insurance

Montana State Auditor’s Office

Lynne Egan, Deputy Securities Commissioner

840 Helena Avenue

Helena, MT 59601

Phone: (406) 444-2040

Fax: (406) 444-5558

30. Nebraska

Nebraska Department of Banking & Finance

Bureau of Securities

Jack E. Herstein, Assistant Director

1520 K St. Suite 300

Lincoln, NE 68508


104

Phone: (402) 471-3445

31. Nevada

Secretary of State

Securities Division

Diana Foley, Securities Administrator

555 East Washington Avenue, Suite 5200

Las Vegas, NV 89101

Phone: (702) 486-2440

Fax: (702) 486-2452

32. New Hampshire

Bureau of Securities Regulation

Department of State

Barry Glennon, Director of Securities Regulation

107 North Main Street, #204

Concord, NH 03301-4989

Phone: (603) 271-1463

Fax: (603) 271-7933

33. New Jersey

Department of Law & Public Safety

Bureau of Securities

Laura Posner, Bureau Chief

153 Halsey Street, 6th Floor

Newark, NJ 07102

Phone: (973) 504-3600

Fax: (973) 504-3601

34. New Mexico

Regulation & Licensing Department

Securities Division

Alexis Lotero, Director of Securities

2550 Cerrillos Road

Santa Fe, NM 87505

Phone: (505) 476-4580

Fax: (505) 984-0617

35. New York


Investor Protection Bureau

Chad Johnson, Bureau Chief

120 Broadway, 23rd Floor

New York, NY 10271

Phone: (212) 416-8222

Fax: (212) 416-8816

36. North Carolina


105

Department of the Secretary of State

Securities Division

Kevin Harrington, Deputy Securities Administrator

2 S. Salisbury Street

Raleigh, NC 27601

Phone: (919) 733-3924

Fax: (919) 807-2183

37. North Dakota


Karen Tyler, Commissioner

600 East Boulevard

State Capital, 5th Floor

Bismarck, ND 58505-0510

Phone: (701) 328-2910

Fax: (701) 328-2946

38. Ohio


Andrea Seidt, Commissioner

77 South High Street, 22nd Floor

Columbus, OH 43215-6131

Phone: (614) 644-7381

Fax: (614) 466-3316

39. Oklahoma

Securities Commissioner

Irving Faught, Administrator

204 N. Robinson, Suite 400

Oklahoma City, OK 73102-7001

Phone: (405) 280-7700

Fax: (405) 280-7742

40. Oregon

Department of Consumer & Business Services

Division of Finance & Corp. Securities

David Tatman, Division Administrator

350 Winter Street, NE Room 410

Salem, OR 97301-3881

Phone: (503) 378-4140

Fax: (503) 947-7862

41. Pennsylvania

Pennsylvania Department of Banking and Securities

Victoria A Reider, Executive Deputy Secretary

Eastgate Office Building


106

17 North 2nd Street, Suite 1300

Harrisburg, PA 17101-2290

Phone: (717) 787-2665

Fax: (717) 783-5125

42. Puerto Rico

Commissioner of Financial Institutions

Demaris Mendoza-Roman, Securities Administrator

Fernandez Juncos Station

P.O. Box 11855

San Juan, PR 00910-3855

Phone: (787) 723-3131

Fax: (787) 723-4225

43. Rhode Island

Department of Business Regulation

Maria D’Alessando, Associate Director & Superintendent of Securities

1511 Pontiac Avenue

John O. Pastore Complex Bldg. 69-1

Cranston, RI 02920-4407

Phone: (401) 462-9527

Fax: (401) 462-9645

44. South Carolina


Securities Division

T. Stephen Lynch, Deputy Securities Commissioner

Rembert C. Dennis Office Building, Suite 501

1000 Assembly Street

PO Box 11549

Columbia, SC 29211-1549

Phone: (803) 734-9916

Fax: (803) 734-3677

45. South Dakota


Michael Youngberg, Director

124 South Euclid St., Suite 104

Pierre, SD 57501-3185

Phone: (605) 773-4823

Fax: (605) 773-5953

46. Tennessee

Department of Commerce & Insurance

Securities Division

Frank Borger-Gilligan, Assistant Commissioner for Securities

Day Crockett Tower, Suite 680

500 James Robertson Parkway

Nashville, TN 37243-0575


107

Phone: (615) 741-2947

Fax: (615) 532-8375

47. Texas

State Securities Board

John Morgan, Securities Commissioner

208 East 10th Street, 5th Floor

PO Box 13167

Austin, TX 78701

Phone: (512) 305-8300

Fax: (512) 305-8310

48. U.S. Virgin Islands

Division of Banking and Insurance

18 Kongens Gade

Saint Thomas, VI 00802

Deverita Sturdivant, Chief of Securities Regulation

Phone: (340) 774-7166

49. Utah

Department of Commerce

Securities Division

Keith Woodwell, Director

160 East 300 South, 2nd Floor

PO Box 146760

Salt Lake City, UT 84111-6760

Phone: (801) 530-6600

Fax: (801) 530-6980

50. Vermont

Department of Financial Regulations

Michael Pieciak, Deputy Commissioner of Securities

89 Main Street, 3rd Floor

Montpelier, VT 05620-3101

Phone: (802) 828-3420

Fax: (802) 828-2896

51. Virginia

State Corporation Commission

Division of Securities & Retail Franchising

Ronald W. Thomas, Director

1300 East Main Street, 9th Floor

PO Box 1197

Richmond, VA 23218

Phone: (804) 371-9051

Fax: (804) 371-9911


108

52. Washington


Securities Division

William Beatty, Director of Securities

150 Israel Road, SW

PO Box 9033

Tumwater, WA 98507-9033

Phone: (360) 902-8760

Fax: (360) 902-0524

53. West Virginia

Office of the State Auditor

Securities Division

Lisa Hopkins, Senior Deputy Commissioner of Securities

Building 1 Room W-100

Charleston, WV 25305-0230

Phone: (304) 558-2257

Fax: (304) 558-4211

54. Wisconsin



Patricia D. Struck, Administrator

201 W. Washington Avenue, Suite 300

PO Box 1768

Madison, WI 53701-1768

Phone: (608) 266-1064

Fax: (608) 264-7979

55. Wyoming

Secretary of State

Compliance Division

Kelly Janes, Division Director

State Capitol Building

200 W. 24th Street

Cheyenne, WY 82002-0020

Phone: (307) 777-7370

Fax: (307) 777-7640


XIII. Disclosure of Business Continuity Plan We disclose in writing a summary of our BCP to customers at account opening, and annually. We also post the

summary on our web site and will mail it to customers upon request. Our summary addresses the possibility of a

future SBD and how we plan to respond to events of varying scope. In addressing the events of varying scope, our

summary (1) provides specific scenarios of varying severity (e.g., a firm-only business disruption, a disruption to a

single building, a disruption to a business district, a city-wide business disruption, and a regional disruption); (2) states

whether we plan to continue business during that scenario and, if so, our planned recovery time; and (3) provides


109

general information on our intended response. Our summary discloses the existence of back-up facilities and

arrangements.

Rule: FINRA Rule 4370(e)

XIV. Updates and Annual Review The firm’s Chief Executive Officer or his designee will update and approve this plan whenever we have a material

change to our operations, structure, business or location or to those of our clearing firm. In addition, our Chief

Compliance Officer or his designee will review and approve this BCP annually, in the last 2 months of each year, to

modify it for any changes in our operations, structure, business, or location or those of our clearing firm.

Rule: FINRA Rule 4370(b)


110

Appendix 7. Clover No-Action Letter

SEC Staff No-Action Letter, Clover Capital Management, Inc.

Pub. Avail. October 28, 1986

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

October 28, 1986

RESPONSE OF THE OFFICE OF CHIEF COUNSEL

DIVISION OF INVESTMENT MANAGEMENT

Our Ref. No. 86-264-CC

Clover Capital Management, Inc.

File No. 801-27041

Your letter of June 3, 1986, requests our assurance that we would not recommend any enforcement action to the

Commission under Rule 206(4)-1(a)(5) of the Investment Advisers Act of 1940 ("Act") if Clover Capital

Management, Inc. ("Clover"), a registered investment adviser, uses investment results derived from a "model"

portfolio in advertisements (hereinafter "model results"). As described more fully in your letter, the model portfolio

was established by Clover on January 1, 1985, and consists of the same securities that Clover recommended to

clients during that time period. As your letter notes, Clover's investment approach incorporates the philosophy that

all of its clients should invest in the same securities, with variances in specific client objectives being addressed via

the asset allocation process (i.e., the relative weighting of stocks, bonds, and cash equivalents in each account).

Thus, while the model results do not correspond directly to the results achieved by any actual client account, Clover

has managed the model portfolio with the same investment philosophy it uses for client accounts. Because of the

significant degree of interest in this issue, and in the related issue of advisers using actual investment results of client

accounts under management in advertisements (hereinafter "actual results"), we wish to take this opportunity to set

forth the staff's views on these issues.

Section 206 of the Act prohibits certain transactions by any investment adviser, whether registered or exempt from

registration pursuant to Section 203(b) of the Act. Under paragraph (4) of Section 206, the Commission has

authority to adopt rules defining acts, practices, and courses of business that are fraudulent, deceptive, or

manipulative. Pursuant to this authority, the Commission adopted Rule 206(4)-1, which defines the use of certain

specific types of advertisements1 by advisers as fraudulent, deceptive, or manipulative.2 Although the rule does not

specifically prohibit an adviser from using model or actual results, or prescribe the manner of advertising these

results, paragraph (5) of the rule makes it a fraudulent, deceptive, or manipulative act for any investment adviser to

distribute, directly or indirectly, any advertisement that contains any untrue statement of a material fact or that is

otherwise false or misleading.3 Accordingly, the applicable legal standard governing the advertising of model or

actual results is that contained in paragraph (5) of the rule, i.e., whether the particular advertisement is false or

misleading.4

The staff no longer takes the position, as it did a number of years ago, that the use of model or actual results in an

advertisement is per se fraudulent under Section 206(4) and the rules thereunder, particularly Rule 206(4)-1(a)(5).5

Rather, this determination is one of fact, and we believe the use of model or actual results in an advertisement would

be false or misleading under Rule 206(4)-1(a)(5) if it implies, or a reader would infer from it, something about the

adviser's competence or about future investment results that would not be true had the advertisement included all

material facts.6 Any adviser using such an advertisement must ensure that the advertisement discloses all material

facts concerning the model or actual results so as to avoid these unwarranted implications or inferences.7 Because of

http://www.sec.gov/divisions/investment/noaction/clovercapital102886.htm#P18_2211








111

the factual nature of the determination, the staff, as a matter of policy, does not review any specific advertisements.8

Therefore, we express no opinion regarding your proposed advertisements.

In order to assist advisers who advertise model or actual results, we wish to take this opportunity to set forth certain

advertising practices the staff believes are inappropriate under Rule 206(4)-1(a)(5). The list is not intended to

address all advertising practices prohibited by Rule 206(4)-1(a)(5) and does not create a "safe harbor" that may be

relied upon by an adviser as an exclusive list of the factors that must be considered in determining the type of

disclosure necessary when advertising model or actual results. Items (1)-(6) below apply to both model and actual

results; Items (7)-(10) apply to model results; and Item (11) applies to actual results.

In the staff's view, Rule 206(4)-1(a)(5) prohibits an advertisement that:

Model and Actual Results

(1) Fails to disclose the effect of material market or economic conditions on the results portrayed (e.g., an

advertisement stating that the accounts of the adviser's clients appreciated in the value 25% without disclosing that

the market generally appreciated 40% during the same period);9

(2) Includes model or actual results that do not reflect the deduction of advisory fees, brokerage or other

commissions, and any other expenses that a client would have paid or actually paid;

(3) Fails to disclose whether and to what extent the results portrayed reflect the reinvestment of dividends and other

earnings;

(4) Suggests or makes claims about the potential for profit without also disclosing the possibility of loss;10

(5) Compares model or actual results to an index without disclosing all material facts relevant to the comparison

(e.g. an advertisement that compares model results to an index without disclosing that the volatility of the index is

materially different from that of the model portfolio);11

(6) Fails to disclose any material conditions, objectives, or investment strategies used to obtain the results portrayed

(e.g., the model portfolio contains equity stocks that are managed with a view towards capital appreciation);

(7) Fails to disclose prominently the limitations inherent in model results,12 particularly the fact that such results do

not represent actual trading and that they may not reflect the impact that material economic and market factors might

have had on the adviser's decision-making if the adviser were actually managing clients' money;

(8) Fails to disclose, if applicable, that the conditions, objectives, or investment strategies of the model portfolio

changed materially during the time period portrayed in the advertisement and, if so, the effect of any such change on

the results portrayed;

(9) Fails to disclose, if applicable, that any of the securities contained in, or the investment strategies followed with

respect to, the model portfolio do not relate, or only partially relate, to the type of advisory services currently offered

by the adviser (e.g., the model includes some types of securities that the adviser no longer recommends for its

clients);13

(10) Fails to disclose, if applicable, that the adviser's clients had investment results materially different from the

results portrayed in the model;








112

Actual Results

(11) Fails to disclose prominently, if applicable, that the results portrayed relate only to a select group of the

adviser's clients, the basis on which the selection was made, and the effect of this practice on the results portrayed, if

material.14

We wish to emphasize that: (1) it is the responsibility of every adviser using model or actual results to ensure that

the advertisement is not false or misleading; (2) the list set forth above of advertising practices the staff believes are

prohibited by Rule 206(4)-1(a)(5) is not intended to be all-inclusive or to provide a safe harbor; and (3) the staff, as

a matter of policy, will not review specific advertisements.

As we agreed, this response will be made public immediately.

Thomas P. Lemke

Chief Counsel

1 Rule 206(4)-1(b) generally defines an "advertisement" to include any communication addressed to more than one

person that offers any investment advisory service with regard to securities.

2 For example, Rule 206(4)-1 prohibits an adviser from using advertisements that include testimonials (paragraph

(a)) or that refer to past specific recommendations unless certain information is provided (paragraph (b)). The staff is

currently reviewing Rule 206(4)-1 to determine whether it needs to be revised or updated. See Investment Advisers

Act Rel. No. 1033 (Aug. 6, 1986).

3 As a general matter, whether any advertisement is false or misleading will depend on the particular facts and

circumstances surrounding its use, including (1) the form as well as the content of the advertisement, (2) the

implications or inferences arising out of the advertisement in its total context, and (3) the sophistication of the

prospective client. See, e.g., Covato/ Lipsitz, Inc. (pub. avail. Oct. 23, 1981)("Covato"); Edward F. O'Keefe (pub.

avail. Apr. 13, 1978)("O'Keefe"); Anametrics Investment Management (pub. avail. May 5, 1977)("Anametrics").

4 Of course, if an advertisement containing model or actual results also includes any of the specific advertising

practices addressed by paragraphs (a)(1)-(a)(4) of the Rule 206(4)-1, the advertisement would have to comply with

the requirements of these paragraphs.

5 See, e.g., A. R. Schmeidler & Co. (pub. avail. June 1, 1976); Schield Stock Services, Inc. (pub. avail. Feb. 26,

1972).

6 See, e.g., Anametrics, Covato, and O'Keefe, supra noted 3.

7 Id.

8 See, e.g., Anametrics, supra note 3.

9 Id.

10 See F. Eberstadt & Co., Inc. (pub. avail. July 2, 1978).

11 See, e.g., Anametrics, supra note 3; Multinational Investments, Inc. (pub. avail. Sept. 17, 1977).

12 With respect to model results, the staff recognizes that advisers may wish to advertise model results derived from

model portfolios that differ in form and structure from that presented by your letter. We believe that to the extent it

is more difficult to verify or objectively test the criteria underlying the model portfolio in question, the disclosure

obligation of the adviser would correspondingly increase.

13 See, e.g., Covato, supra note 3.

14 See, e.g., O'Keefe, supra note 3.

















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5 Tobey Village Office Park

Pittsford, New York 14531

(716) 385-6000

June 3, 1986

Mr. Thomas P. Lemke, Chief Counsel

Division of Investment Management

Securities & Exchange Commission

450 5th Street N.W.

Washington, D.C. 20549

Dear Mr. Lemke:

Clover Capital Management, Inc. is an investment counseling firm registered with the S.E.C. under the Investment

Advisers Act of 1940. I have enclosed a copy of a letter we recently received from Mr. Frank Morrison of the

S.E.C.'s New York City office informing us that our use of a Model Portfolio for tracking the firm's investment

record violates Rule 206 (4)-1(a)(5). In a subsequent telephone conversation with Mr. Dolan, an associate of Mr.

Morrison's, we were made aware that your office has the authority to rule on such matters on a case-by-case basis

and to issue "No Action Letters," where warranted. Please consider our case based on the following information:

1. Clover Capital Management, Inc. is an investment management firm founded in October, 1984 by Michael E.

Jones, CFA and Geoffrey Rosenberger, CFA. We had several very successful years experience as investment

analysts and portfolio managers at the firm of Manning and Napier Advisors, Inc.. In starting our new firm, we were

faced with the dilemma of providing prospective clients with an understanding of our prior and current investment

results and style of management. In dealing with this problem, we aspired to maintain the highest possible ethical

standards. Thus, we have not represented our previous firm's record as our own or as an indication of Clover Capital

Management's ability. We have choosen to forego discussion of our specific results on clients prior to forming

Clover Capital. However, as you know, the issue of demonstrating the firm's competence and style of management

is important in presenting our service to prospective clients. Our problem is to find a way to show what we are doing

in our research and management effort at Clover Capital Management, Inc., without violating client confidentiality

and without misrepresenting our performance to the public.

One approach to this problem involves presenting the performance achieved among our account base. However, the

securities markets have been quite volatile in the past 18 months and our client based has grown consistently each

month. As a result, a portfolio that started in January, 1985 has different results than one we began in September,

1985. To take an arithmetic average of each client's actual results and present that as the firm's track record would be

misleading due to the significant standard deviation from client to client based on date of entry to our firm's

management.

On the other hand, to just pick one or two client portfolios would be equally misleading because of differences in the

timing of cash flows, specific client objectives and other considerations which may be unique to a small sample of

accounts. We recognized at the outset that this would be the case. We also recognized this presentation of results

would not satisfy questions on portfolio construction and investment style with respect to diversification, portfolio

beta, asset allocation and related items. The raw results would also be impossible to verify without violating client

confidentiality.

The most accurate, verifiable reflection of our true investment product, in light of these circumstances, was to

establish a Model Portfolio as of January 1, 1985, which we would manage exactly as we would a tax-exempt client

portfolio with no restrictions as to income and without any cash flow into or out of the fund.


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2. The securities purchased and sold in the Model Portfolio are also purchased and sold in our client accounts under

management at the time of the transaction. It is important to note that our investment approach incorporates the

philosophy that all of our clients should own the same stock selections, with variances in specific client objectives

being addressed via the asset allocation process (the relative weightings of stocks, bonds and cash equivalents in

each account). For example, when we make a decision to invest in a common stock, we also decide what percentage

of each client's assets we wish to commit to that particular equity. Differences in client objectives are reflected in the

weightings placed for each account. Most of our accounts are tax exempt retirement funds with conservative

objectives and therefore receive similar weightings. However some clients have differing objectives due to current

income requirements, moral considerations, tax considerations, "equities only" restrictions, and other factors which

may alter the weightings in specific investments. The Model Portfolio weightings are determined according to it's

stated hypothetical structure as a conservative pension fund.

3. We have taken extensive steps to insure that the reporting format is an objective one. The independent accounting

firm of Davie, Kaplan & Braverman was hired to audit our efforts in this effort. To place a purchase or sale

transaction, we call Davie, Kaplan & Braverman prior to the 9:30 a.m. market opening. All transactions are assumed

to occur at the prior day's closing price as listed in the Wall Street Journal, which Davie Kaplan & Braverman can

easily verify. Commissions are charged against each transaction based on a 35% discount from the Cowen & Co.

commission schedule, which is roughly the same commission expense level we incur in our client accounts.

Investment management fees are also charged against the portfolio in line with our standard client fee schedule.

4. In addition to monitoring the purchase and sale transactions in the Model Portfolio, Davie, Kaplan & Braverman

also accounts for the dividend and interest income, commission charges and investment management fee

reimbursement in the portfolio. The quarterly investment performance reports are also compiled and issued by Davie

Kaplan & Braverman, not by Clover Capital Management, Inc. There is a measure of independence and objectivity

to our Model Portfolio Report and its calculations which may be lacking in the investment performance figures

reported by other investment management firms.

5. We feel it is important that prospective clients see how the investment returns being presented to them were

achieved. Use of the Model Portfolio allows people to see what stocks we hold and what the recent transaction

activity in the account has been. They can develop a feel for our investment style that would otherwise be difficult to

achieve prior to entering into a relationship with our firm.

6. The only reference the report makes to investment results is on an absolute return basis. The report only records a

percentage increase in asset value. It makes no comparisons to any stock or bond market indexes. We believe that,

for the above reasons, our Model Portfolio report provides an excellent proxy for our investment approach and track

record. However, we also understand the Commission's concern about the potential for misunderstanding of the

Model's purpose on the part of the public. Therefore, we are willing to incorporate the following statement (or a

similar version which you may prefer) into our report:

"The Clover Capital Management, Inc. Model Portfolio represents a fictional account which Clover Capital

Management, Inc. ("CCM") attempts to manage in a manner similar to that of a tax-exempt client fund with no need

for special portfolio considerations. The investment objective for this portfolio over a four year time period is to

exceed, by at least 3%, the compound annual rate of return available on a Treasury Note with a four year maturity

and at the same time to limit volatility in such a way as to avoid the incurrance of a negative return during any

calendar year.

It is CCM's intention to own the same securities in each client portfolio with similar objectives. Securities

transactions will not be undertaken in the Model Portfolio until at least half the existing accounts under management

have completed the contemplated transaction. However, circumstances such as market fluctuations may exist which

may prevent an individual CCM client from owning one or more of the specific securities held in the Model

Portfolio.


115

Since the account is fictional, there can be no assurance that a CCM client would have achieved similar rates of

return over the same time frame. In addition, since the time period in question is a historical one, there can be no

assurance that future results achieved by the firm's clients will in any way resemble those represented by the Model

Portfolio."

We believe that use of the Model Portfolio is the most valid approximation we can provide a prospective client as to

what our investment activity has been since January 1, 1985. While no form of investment performance

measurement is entirely without fault, of all those available to us this approach is the one which provides the least

amount of bias. We therefore respectfully request that you confirm that you will not recommend enforcement action

if we continue to use the Model Portfolio in the manner stated in this letter and with the explanatory and disclaimer

language found in the enclosed Model Portfolio copy.

Your assistance in this matter is most appreciated. If you have any questions, please call either me or Michael E.

Jones, at 716-385-6090.

Sincerely,


by Geoffrey Rosenberger, President

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116

Appendix 8. ICI Letter

SEC staff no-action letter, Investment Company Institute

Pub. Avail. September 23, 1988

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

RESPONSE OF THE OFFICE OF CHIEF COUNSEL

DIVISION OF INVESTMENT MANAGEMENT

Our File No. 88-330-CC

Investment Company Institute

File No. 132-3

Your letter of May 3, 1988 requests our assurance that we will not recommend any enforcement action to the

Commission under Rule 206(4)-1(a)(5) under the Investment Advisers Act of 1940 ("Advisers Act") if an

investment adviser provides prospective clients, in a one-on-one presentation, with performance results for advisory

accounts on a "gross basis" (i.e., without deducting advisory fees or other expenses paid by clients) rather than on a

"net basis" as required by Clover Capital Management, Inc. (pub. avail. Oct. 28, 1986) ("Clover") and Investment

Company Institute (pub. avail. Aug. 18, 1987) ("ICI"). Specifically, you state that the performance results would be

presented to the prospective client through a communication or presentation that is of a private and confidential

nature and that is not made to the public through any print, electronic or other medium. You ask that we take the

same position with respect to the provision by advisers of performance information to consultants to advisory

clients.1

In Clover, we stated that the applicable legal standard governing the advertising of performance results is that

contained in paragraph (5) of Rule 206(4)-1.2 As a general matter, whether any advertisement is false or misleading

will depend on the particular facts and circumstances surrounding its use including: (1) the form as well as the

content of the advertisement, (2) the implications or inferences arising out of the advertisement in its total context,

and (3) the sophistication of the prospective client. See Anametrics Investment Management (pub. avail. May 5,

1977). In Clover and ICI we expressed the view that if performance results are presented on a gross basis an average

investor would infer something about the adviser's competence or about future results that would not be true had the

performance results been presented on a net basis.3 This is because the presentation of gross results does not show

the impact of fees on performance or the compounded effect on performance of not deducting the fees.

Your letter states that advisers often make one-on-one presentations to certain prospective clients, e.g., wealthy

individuals, pension funds, diversities and other institutions, who have sufficient assets to justify the cost of the

presentation. We understand that written performance materials are used in these presentations.4 You argue that

permitting the use of materials presenting performance results on a gross basis is justifiable in these circumstances

because each client has the opportunity to discuss with the adviser the types of fees that the client might pay.5

We will not recommend any enforcement action to the Commission if an investment adviser provides prospective

clients performance results for advisory accounts on a gross basis in a one-on-one presentation as described in your

letter. This position is expressly conditioned upon the adviser providing at the same time to each client in writing:

(1) disclosure that the performance figured do not reflect the deduction of investment advisory fees;

(2) disclosure that the client's return will be reduced by the advisory fees and any other expenses it may incur in the

management of its investment advisory account;

(3) disclosure that the investment advisory fees are described in Part II of the adviser's Form ADV; and

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117

(4) a representative example (e.g., a cable, chart, graph, or narrative), which shows the effect an investment advisory fee,

compounded over a period of years, could have on the total value of a client's portfolio.

We also would not recommend any enforcement action to the Commission if an investment adviser provides gross

performance data to consultants as long as the adviser instructs the consultant to give the performance data to

prospective clients of the adviser only on a one-on-one basis and the consultant provides the disclosure in (1) to (4)

above.

Finally, because this response is based upon your representations and is expressly conditioned upon an adviser or

consultant providing the information set forth above, any different representations or conditions may require a

different conclusion. Further, this response only expresses the Division's position on enforcement action and does

not purport to express any legal conclusions on the questions presented.

A. Thomas Smith III

Attorney

1 You state that one of the primary functions of consultants is to actively monitor investment performance of

advisers for clients although the services provided may vary from consultant to consultant. Although you have not

asked our views about the status of these consultants under the Advisers Act, we wish to point out that the staff takes

the position that a person providing advice to a client as to the selection or retention of an investment manager or

managers by, for example, monitoring and evaluating the performance of the investment manager, may be advising

others within the meaning of section 202(a)(11) under the Advisers Act. See footnote 6 and accompanying text of

Investment Advisers Act Rel. No. 1092 (Oct. 8, 1987).

2 Rule 206(4)-1(a)(5) provides that it is a fraudulent, deceptive, or manipulative act for any investment adviser to

distribute, directly or indirectly, any advertisement that contains any untrue statement of a material fact or that is

otherwise false or misleading.

3 In the Matter of Bond Timing Services, Inc. and Vilis Pasts (Investment Advisers Act Rel. No. 920, July 23, 1984)

where the Commission found that an adviser, among other things, willfully violated section 206(4) of, and rule

206(4)-1(a)(5) under, the Advisers Act by distributing advertisements of annualized returns which omitted from the

circulation costs relating to advisory fees.

4 As here relevant, paragraph (b) of the generally defines an advertisement to include any notice, circular, letter or

other written communication addressed to more than one person that offers any investment advisory service

regarding securities. While the one-on-one presentation may vary from client to client, the performance information

materials generally do not.

5 In this regard, we understand that a client's ability to negotiate fees with an adviser is directly related to the amount

of client assets subject to the adviser's management. To the extent that a client is in a position to bargain with the

adviser over the fees that will be paid, information about the impact of fees and expenses associated with the

performance results achieved by other clients of the adviser would not be as material to this client.

INVESTMENT COMPANY INSTITUTE

May 3, 1988

Mary Podesta, Esq.

Chief Counsel

Division of Investment Management

Securities and Exchange Commission







118

450 Fifth Street, N.W.

Washington, D.C. 20549

Re: Advertising of Performance Data by Advisers

Dear Ms. Podesta:

Thank you and your staff for taking the time to meet with us on February 4, 1988 concerning the Clover Capital

(publicly available October 28, 1986) prohibition against an investment adviser advertising performance data

without the deduction of investment advisory fees.

Pursuant to our discussion, we hereby request assurance from the Division of Investment Management (Division)

that it will not recommend enforcement action against Institute investment adviser members and associate members

which advertise investment adviser performance results without a deduction of the investment advisory fee that a

client would have paid or actually paid, through any communication or presentation made by an adviser to a

prospective client that is of a private and confidential nature and that is not made to the public through any print,

electronic or other medium, provided certain disclosures, more fully discussed below, are made.

The Institute also requests assurance from the Division that it will not recommend enforcement action against

Institute members and associate members which provide performance information without a deduction of the

investment advisory fee to consultants to investment advisory clients or prospective clients, provided certain

disclosures are made.

I. Background

On October 28, 1986, the Division made public its response to the Clover Capital no-action request. That response

included a statement that Rule 206(4)-1(a)(5) prohibits an advertisement that includes model or actual results that do

not reflect the deduction of advisory fees, brokerage or other commissions, and any other expenses that a client

would have paid or actually paid. Many Institute investment adviser members and associate members became

concerned about this prohibition because advisers historically have shown their figures on a gross basis without the

deduction of advisory fees. As a result, the Investment Company Institute submitted a request that the Division no

recommend enforcement action if performance figures for actual accounts are provided to clients and others without

reducing the figures by the amount of the investment advisory fee, provided there is adequate disclosure that the

figures presented are not reduced by the amount of the advisory fee that a client might incur and of the types of fees

that a client might actually incur. The Division rejected the Institute's request in a response that became public on

August 24, 1987; however, the Division did state that adviser performance figures may be presented without

reflecting custodian fees paid to a bank or other organization for safekeeping client funds and securities.

Also, on August 24, 1987, the Institute and others filed a Formal Petition for Rulemaking Regarding Advertising of

Investment Adviser Performance Information (the petition is dated August 18, 1987). The petition was filed so that

the public, including investment advisory organizations, investment advisory clients and consultants to such clients,

might be afforded the opportunity to comment on a rule proposal that might prohibit an investment adviser from

advertising actual investment results without a deduction of advisory fees that a client would have paid or actually

paid.

II. Discussion

The Institute still believes that advertisements of gross performance data should be permitted without reducing

performance figures by the amount of the investment advisory fee, provided adequate disclosure is made that the

figures presented are not reduced by the amount of the advisory fee that a client might actually incur and of the types


119

of fees that a client might actually incur. However, if the Division cannot agree with our position, then certain

exemptions from the prohibition in Clover Capital should be granted.

A. No-Action Request Concerning Restricted or Private Communications

Because individual presentations by an investment adviser are made to prospective clients that have sufficient assets

to justify such an individualized presentation (it would be too costly for an adviser to make an individualized

presentation to all of the persons who might be reached through an impersonal communication, such as an

advertisement or seminar) and because in a one-on-one presentation, the prospective client has ample opportunity to

discuss with the adviser the types of fees that it might pay, the Clover Capital prohibition should not apply to

communications of a private nature, specifically, to a one-on-one presentation made by an adviser to a potential

client.6 Therefore, we request assurance from the Division that it would not recommend enforcement action if

Institute adviser members and associate members provide to prospective clients gross performance data through any

communication or presentation that is of a private and confidential nature and that is not made to the public through

any print, electronic or other medium, as long as the adviser discloses (a) that the performance figures do not reflect

the deduction of investment advisory fees, (b) that the client's return will be reduced by the advisory fees and any

other expenses it may incur in the management of its investment advisory account, (c) that the investment advisory

fees are described in Part II of the adviser's Form ADV, and (d) a representative example (e.g., table, chart, graph or

narrative), which shows the effect an investment advisory fee, compounded over a period of years, could have on the

total value of a client's portfolio.

B. No-Action Request Concerning Delivery of Performance Data by Advisers to Consultants

Many investors, including individuals, pension funds, universities and other institutions use the services of third-

party investment management consultants. These consultants provide investors an array of services, including

recommendations of appropriate investment advisers and continuous performance monitoring. Thus, the investor

becomes a client of both the investment management consultant and the investment adviser.

One of the primary functions a consultant provides to clients is the active monitoring of investment performance by

advisers. Many consultants simply collect performance data from advisers, compare results, and advise their clients

accordingly.7 To the extent that consultants merely provide their clients with performance information supplied by

an adviser, the consultant is acting as a conduit or intermediary.

Some consultants interview an investment adviser and collect information from the adviser concerning investment

management style, performance data and a brief description of the investment advisory firm. Such consultants then

create a data base of the various managers' performance results it monitors and sell it to stockbrokers and others who

select investment managers for their customers.

The Institute's no-action request herein does not include relief related to the activities of consultants as described in

this footnote, since such consultants do not simply act as a clearinghouse for data developed by advisers, but

actually create the performance data which is provided to their clients.

We request the Division's assurance that an adviser may provide gross performance data to consultants as long as the

adviser instructs the consultant to give such performance data to prospective clients of the adviser only on a one-on-

one basis and the consultant discloses (a) that the performance figures do not reflect the deduction of investment

advisory fees, (b) that the client's return will be reduced by the advisory fees and any other expenses it may incur in

the management of its investment advisory account, (c) that the investment advisory fees are described in Part II of

the adviser's Form ADV, and (d) a representative example (e.g., table, chart, graph or narrative), which shows the

effect an investment advisory fee, compounded over a period of years, could have on the total value of a client's

portfolio.




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III. Conclusion

We believe that the arrangements described above will insure that the ultimate user of performance information, the

prospective client, will receive performance data only on a one-on-one as is from either an adviser or consultant with

appropriate disclosures.

We understand that the Division anticipates developing amendments to Rule 206(4)-1 under the Investment

Advisers Act of 1940. However, recognizing the industry's need for immediate relief, we recommend that, until such

rule amendments are adopted, our no-action request be considered by the Division to provide for exemptions from

the Clover Capital prohibition, as outlined above.

* * *

We greatly appreciate your meeting with us and giving consideration to our no-action request. If you have any

questions or comments, please do not hesitate to contact me.

Sincerely,

Robert L. Bunnen, Jr.

Assistant General Counsel

6 The types of client presentations typically made by a large investment adviser are on a one-on-one basis to

institutional clients. The Institute also conducted a survey of approximately ten to fifteen percent of our small and

medium-sized investment adviser members concerning their advertising behavior and techniques. The results of that

survey indicate that our small and medium-sized investment adviser members communicate with prospective clients

primarily, if not exclusively, through one-on-one presentations. In fact, not one of the members we contacted states

that it has advertised in any newspaper, magazine or trade journal.

7 Other consultants calculate performance by advisers using certain documents required to be filed with the SEC

(Such as Form 13F filings) and other sources. Still others monitor performance through a combination of data

provided by the adviser and information provided by the adviser's and consultant's client.

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121

Appendix 9. Summaries of Clover No-Action Letter and ICI Institute Letter

The SEC Advertising Rule does not contain any express prohibition concerning the use of performance in

investment adviser advertisements. Instead, performance, whether based on actual results or trading in a “model”

portfolio, is subject to that Rule’s general prohibition against advertisements that are “false or misleading,” and the

SEC staff interpretations under the prohibition. Under this test, the determination of whether the use of performance

results is false or misleading turns on whether “it implies, or a reader would infer from it, something about the

adviser’s competence or about future investment results that would not be true had the advertisement included all

material facts.” Performance advertisements must disclose all material facts to avoid any unwarranted implications

or inferences.

Clover No Action Letter – General Performance Presentation Guidelines1

In Clover Capital Management, Inc. (available October 28, 1986), one of the most important SEC no-action letters

in the advertising area, the SEC staff attempted to present a comprehensive set of guidelines for advertising actual

and model performance results.

MODEL AND ACTUAL PERFORMANCE RESULTS

Clover indicates that the following practices would be misleading in connection with the use of model or actual

performance results:

Failing to disclose the effect of material market or economic conditions on the results portrayed (e.g., an

advertisement stating that the accounts of the investment adviser’s clients appreciated in value 25% without

disclosing that the market generally appreciated 40% during the same period);

Failing, except under certain circumstances (discussed below), to reflect the deduction of investment

advisory fees, brokerage or other commissions, and any other expenses that a client would have paid

or actually paid (the so-called “net of fees requirement”);

Failing to disclose whether and to what extent the results portrayed reflect the reinvestment of dividends

and other earnings;

Suggesting or making claims about the potential for profit without also disclosing the possibility of loss;

Comparing results to an index without disclosing all material factors relevant to the comparison (e.g., an

advertisement that compares model results to an index without disclosing that the volatility of the index is

materially different from that of the model portfolio); and

Failing to disclose any material conditions, objectives, or investment strategies used to obtain the

performance advertised.7

MODEL PERFORMANCE RESULTS

Clover also indicates that the following practices would be misleading in connection with the use of model


Failing to disclose prominently the limitations inherent in model results;

Failing to disclose, if applicable, material changes in the conditions, objectives, or investment strategies of

the model portfolio during the period portrayed and the effect of those changes;

Failing to disclose, if applicable, that some of the securities or strategies reflected in the model portfolio do

not relate, or relate only partially, to the services currently offered by the investment adviser; and

Failing to disclose, if applicable, that the investment adviser’s clients actually had investment results that

were materially different from those portrayed in the model.

1 Adapted from “SEC Regulation of Performance Advertising by Investment Advisers” by Jennifer L. Klass as part

of the National Regulatory Services Basic Training for Investment Advisers, October 2002.


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ACTUAL PERFORMANCE RESULTS

Finally, Clover indicates that the following practices would be misleading in connection with the use of actual


Failing to disclose, if applicable, that the results portrayed relate only to a select group of the investment

adviser’s clients, the basis on which the selection was made, and the effect of this practice on the results

portrayed, if material.

ICI Institute Letter – “One on One” Exception to the Net of Fees Requirement2

In a letter to the Investment Company Institute (available September 23, 1988) the SEC staff relaxed its position

regarding the presentation of performance net of investment advisory fees. Specifically, the SEC staff stated that it

would not recommend enforcement action if an investment adviser uses gross performance results in one-on-one

presentations to wealthy prospective clients and consultants, provided that the investment adviser furnishes the

following information in writing at the time of the presentation:

Disclosure that the performance figures do not reflect the deduction of investment advisory fees;

Disclosure that the client’s return will be reduced by the investment advisory fees and any other expenses

the client may incur in the management of its investment advisory account;

Disclosure that the investment advisory fees are described in Part II of the investment adviser’s Form

ADV; and

A representative example (in the form of a table, chart, graph, or narrative) which shows the effect that an

investment advisory fee, compounded over a period of years, could have on the total value of a client’s

portfolio.

For purposes of the 1988 ICI letter, wealthy prospective clients include wealthy individuals, pension funds,

universities and other institutions that have sufficient assets to justify the investment adviser incurring the costs of a

one-on-one presentation. As to what constitutes a one-on-one presentation, ICI-II seems to permit a presentation to

be made to more than one individual. To be “one-on-one,” a presentation must be of a “private and confidential

nature” and made in a setting that affords each prospective client with “the opportunity to discuss with the adviser

the types of fees that the client might pay.”

Note that for situations that are not “One on One” the SEC staff separately stated in Association for Investment

Management and Research (available December 18, 1996) that an investment adviser may distribute advertisements

containing performance figures both gross and net of fees so long as both sets of figures are presented in an

equally prominent manner. In addition, the advertisements must contain sufficient disclosure to ensure that

the performance figures are not misleading. For example, the disclosure accompanying performance figures

shown gross of fees should specifically state that the figures do not reflect the payment of investment advisory fees

and other expenses

2 Adapted from “SEC Regulation of Performance Advertising by Investment Advisers” by Jennifer L. Klass as part

of the National Regulatory Services Basic Training for Investment Advisers, October 2002.


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Appendix 10. Paulson Investment Company, LLC

Political Contribution Request Form

Policy

It is PIC’s policy to permit the firm, and its covered associates, to make political contributions to elected officials,

candidates and others, consistent with internal policies and regulatory requirements.

PIC recognizes that it is never appropriate to make or solicit political contributions, or provide gifts or

entertainment, for the purpose of improperly influencing the actions of public officials. Accordingly, our firm’s

policy is to restrict certain political contributions made to government officials and candidates of state and state

political subdivisions who can influence or have authority over hiring an investment adviser.

PIC’s practice is to restrict, monitor and require prior approval of any political contribution to current or prospective

government officials. The firm also maintains appropriate records for all political contributions made by the firm

and/or its covered associates.

This form has been created to help PIC comply with their own political contributions policy and SEC Rule 206(4)-5.

Are you a Covered Associate? Y N

A Covered Associate of an investment adviser is any general partner, managing

member or executive officer, or an individual with a similar status or function; or, any employee who

solicits a government entity for the investment adviser, or directly or indirectly supervises such an

employee.

Name: _______________________________________________________________________

Title: _____________________________________________ Date: _____________________

Street Address: ________________________________________________________________

City/State: ______________________________________ County: _____________________

Recipient of Contribution: __________________________________ Amount: __________

Recipient’s Title Held or Sought: _________________________________________________

Government Entity: ____________________________________________________________


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Answer either Question 1 or 2, not both.

1. If at the time of this contribution, you are entitled to vote for the

individual to whom you are contributing money, is the aggregate of

your contributions less than or equal to $350 for this election cycle? Y N

2. If at the time of this contribution, you are not entitled to vote for the

individual to whom you are contributing money, is the aggregate of

your contributions less than or equal to $150 for this election cycle? Y N

3. Have you contributed to this campaign/individual since March 15, 2012? Y N

Total amount contributed since March 15, 2012: _______________________

Compliance Review

This request is:

[ ] Approved

[ ] Denied

Date:_____________________


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Appendix 11. Privacy Policy

(Privacy Policy provided to Clients)

PAULSON INVESTMENT COMPANY, LLC

PRIVACY NOTICE (Regulation S-P)

Why? Financial companies choose how they share your personal information. Federal law gives consumers the right

to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect

your personal information. Please read this notice carefully to understand what we do.

What? The types of personal information we collect and share depend on the product or service you have with us. This

information can include:

Social Security number and income

Assets and investment experience; and

Account balance and transaction history

When you are no longer our customer, we continue to share your information as described in this notice.

How? All financial companies need to share customers’ personal information to run their everyday

business. In the section below, we list the reasons financial companies can share their

customers’ personal information; the reasons Paulson chooses to share; and

whether you can limit this sharing.

Does

Reasons we can share your personal information share?

Can you limit this sharing?

For our everyday business purposes— such as to

process your transactions, maintain your account(s),

respond to court orders and legal investigations, or

report to credit bureaus

Yes No

For our marketing purposes— to offer our

products and services to you Yes No

For joint marketing with other fi nancial companies Yes No

. Rev

FACTS

WHAT DOES

DO WITH YOUR PERSONAL INFORMATION?


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For our affiliates’ everyday business purposes—

information about your transactions and experiences Yes No

For our affiliates’ everyday business purposes—

information about your creditworthiness No We don’t share

For our affiliates and Fnonaffiliates to market to you No We don’t share

Questions? Call 855-653-3444 or go to http://www.paulsoninvestment.com/legal

Who we are

Who is providing this notice? Paulson

What we do

How does protect my personal

information? To protect your personal information from unauthorized access and use,

we use security measures that comply with federal law. These measures

include computer safeguards and secured fi les and buildings.

How does collect my personal

information? We collect your personal information, for example, when you

Open an account or seek advice about your investment

Buy or sell securities or make deposits or withdrawals

Enter into an investment advisory contract

Why can’t I limit all sharing? Federal law gives you the right to limit only

sharing for affiliates’ everyday business purposes—

information about your creditworthiness

affiliates from using your information to market to you

sharing for non-affiliates to market to you

State laws and individual companies may give you additional rights to limit

sharing.

Definitions

Affiliates Companies related by common ownership or control. They can be financial and

nonfinancial companies.

Paulson may share information about you with Paulson affiliates

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Nonaffiliates Companies not related by common ownership or control. They can be financial

and nonfinancial companies.

Paulson does not share with non-affiliates to market to you

Joint marketing A formal agreement between nonaffiliated financial companies that

together market financial products or services to you.

Our joint marketing partners include financial services companies.

Other important information