IA Policies and Procedures Manual - invpro.com · IA Policies and Procedures Manual Revision as of...

IA Policies and Procedures ManualRevision as of 10/08/2007

Investment Professionals, Inc.

16414 San Pedro Avenue, Suite 150

San Antonio, TX 78232

Table of Contents 2 REGISTRATION, LICENSING, AND SUPERVISORY STRUCTURE............................................1/77

2.1 Registration, Licensing................................................................................................................2/77 2.2 IARD Maintenance......................................................................................................................2/77......................................................................................................................................................2/77 2.3 Supervisory Structure..................................................................................................................3/77 2.4 Procedures for Compliance with Registration and Licensing.....................................................4/77

3 BOOKS AND RECORDS REQUIREMENTS.......................................................................................7/77 3.1 Required Records.........................................................................................................................7/77

3.1.1 Advertising File..................................................................................................................7/77 3.1.2 Annual Offer of Form ADV Part II (Disclosure Brochure)...............................................7/77 3.1.3 Annual Review...................................................................................................................7/77 3.1.4 Associated Persons Personal Transactions Records...........................................................8/77 3.1.5 Financial Records...............................................................................................................8/77 3.1.6 Lists by Type of Client/Investor or Account......................................................................8/77 3.1.7 Order Tickets......................................................................................................................9/77 3.1.8 Organizational Documents.................................................................................................9/77 3.1.9 Performance Advertising Supporting Documentation.......................................................9/77 3.1.10 Policies and Procedures....................................................................................................9/77 3.1.11 Powers of Attorney...........................................................................................................9/77 3.1.12 Proxy Records................................................................................................................10/77 3.1.13 Solicitor Disclosure Document......................................................................................10/77 3.1.14 Transaction Records.......................................................................................................10/77 3.1.15 Written Agreements.......................................................................................................10/77 3.1.16 Written Communications...............................................................................................10/77

3.2 Custodial Advisers Records.......................................................................................................11/77 3.3 Additional Records....................................................................................................................11/77

3.3.1 Allocation Procedures, Trading Practices........................................................................11/77 3.3.2 Best Execution File..........................................................................................................11/77 3.3.3 Complaint File..................................................................................................................11/77 3.3.4 Disaster Recovery............................................................................................................11/77 3.3.5 Client/Investor Lists.........................................................................................................12/77 3.3.6 Organizational Chart........................................................................................................12/77 3.3.7 Privacy Policy..................................................................................................................12/77 3.3.8 Regulatory Inspections.....................................................................................................12/77 3.3.9 Trade Errors......................................................................................................................13/77

3.4 Books and Records Retention....................................................................................................13/77 3.4.1 Electronic Maintenance of Records.................................................................................13/77

3.5 Procedures for Compliance with Record-Keeping Policies......................................................13/77

4 CODE OF ETHICS AND CONDUCT..................................................................................................15/77 4.1 General.......................................................................................................................................15/77

4.1.1 Basic Principles................................................................................................................15/77 4.1.2 Chief Compliance Officer................................................................................................15/77 4.1.3 Security.............................................................................................................................15/77 4.1.4 Covered Accounts............................................................................................................16/77 4.1.5 Beneficial Ownership.......................................................................................................16/77 4.1.6 Personal Account Trading and Investment Policy...........................................................16/77 4.1.7 Service as a Director........................................................................................................17/77

IA Policies and Procedures Manual

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Table of Contents 4 CODE OF ETHICS AND CONDUCT

4.1.8 Gifts..................................................................................................................................17/77 4.1.9 Duties of Confidentiality..................................................................................................17/77 4.1.10 General Ethical Conduct:...............................................................................................17/77

4.2 Insider Trading...........................................................................................................................18/77 4.2.1 Policy Statement on Insider Trading................................................................................18/77 4.2.2 Who Is An Insider?..........................................................................................................19/77 4.2.3 What Is Material Information?.........................................................................................19/77 4.2.4 What Is Nonpublic Information?......................................................................................20/77 4.2.5 Types of Liability.............................................................................................................20/77

4.3 Penalties for Insider Trading......................................................................................................20/77 4.4 Procedures for Compliance with Code of Ethics.......................................................................21/77

5 ANTI-MONEY LAUNDERING ............................................................................................................24/77 5.1 Definition...................................................................................................................................25/77 5.2 Due Diligence............................................................................................................................25/77 5.3 AML Compliance Officer..........................................................................................................25/77 5.4 Associated Person Awareness and Training..............................................................................26/77 5.5 Client/Investor Identification Program......................................................................................26/77

5.5.1 ID Verification.................................................................................................................27/77 5.5.2 Documentary Verification................................................................................................27/77 5.5.3 Non-Documentary Verification........................................................................................28/77 5.5.4 Reliance on A Third Party for Identity Verification........................................................28/77 5.5.5 Special Situations.............................................................................................................28/77 5.5.6 Clients/Investors Who Refuse to Provide Information....................................................29/77 5.5.7 Government List Comparison..........................................................................................29/77 5.5.8 FinCEN Requests Under PATRIOT Act Section 314.....................................................30/77

5.6 Acceptable Types of Clients/Investors......................................................................................30/77 5.6.1 Individual Clients/Investors.............................................................................................30/77 5.6.2 Confidential Accounts......................................................................................................31/77 5.6.3 Corporations, Partnerships and Comparable Legal Entities.............................................31/77 5.6.4 Domestic Operating or Commercial Entities...................................................................31/77 5.6.5 Domestic Trusts................................................................................................................31/77 5.6.6 Electronic or Internet Accounts........................................................................................31/77 5.6.7 Foreign Operating Commercial Entities..........................................................................32/77 5.6.8 Intermediary Accounts (Other Hedge Funds, Investment Funds, Institutional

Accounts)............................................................................................................................32/77 5.6.9 Non-Resident Alien Accounts..........................................................................................32/77 5.6.10 Offshore Trusts...............................................................................................................32/77 5.6.11 Omnibus Accounts.........................................................................................................32/77 5.6.12 Foreign Nationals...........................................................................................................32/77

5.7 Prohibited Clients/Investors.......................................................................................................33/77 5.8 Suspicious Transactions and Activity........................................................................................33/77

5.8.1 Suspicious Activity at Initial Investment.........................................................................33/77 5.8.2 Transactions.....................................................................................................................34/77 5.8.3 Reporting Suspicious Initial Investment Activity............................................................34/77

5.9 Suspicious Activity Related to Transactions.............................................................................35/77 5.10 Procedures for Compliance With Anti-Money Laundering Policies.......................................36/77


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Table of Contents 6 BUSINESS CONTINUITY .....................................................................................................................37/77

6.1 Content of Plan..........................................................................................................................37/77 6.2 Employee Training....................................................................................................................38/77 6.3 Procedures for Compliance with Business Continuity Planning...............................................39/77

7 RISK MANAGEMENT AND INTERNAL CONTROLS...................................................................40/77 7.1 Market Risk...............................................................................................................................40/77

7.1.1 Credit Risk........................................................................................................................40/77 7.1.2 Liquidity Risk...................................................................................................................41/77 7.1.3 Operational Risk...............................................................................................................41/77 7.1.4 SEC Risk Management Interview....................................................................................41/77

7.2 Procedures for Compliance with Risk Management and Internal Controls..............................42/77

8 US REGULATORY FILINGS...............................................................................................................43/77 8.1 Federal Reserve Filings.............................................................................................................43/77 8.2 Securities and Exchange Commission ("SEC") Filings............................................................44/77 8.3 Registered and Unregistered Institutional Investment Managers..............................................45/77 8.4 Material Associated Persons of Registered Broker-Dealers......................................................45/77 8.5 Investment Adviser Registration Under the Advisers Act.........................................................46/77 8.6 Procedures for Compliance with Regulatory Filing Requirements...........................................46/77

9 NEW ISSUES...........................................................................................................................................47/77 9.1 Procedures for Compliance with New Issues............................................................................47/77

10 GIFTS AND ENTERTAINMENT .......................................................................................................48/77 10.1 Procedures for Gifts and Entertainment...................................................................................48/77

11 TRADING...............................................................................................................................................49/77 11.1 Aggregation of Orders.............................................................................................................49/77 11.2 Best Execution.........................................................................................................................50/77 11.3 Trade Errors.............................................................................................................................50/77 11.4 Agency Cross Transactions.....................................................................................................51/77 11.5 Procedures for Compliance With Trading Policies.................................................................51/77

12 PROTECTION OF NONPUBLIC CUSTOMER DATA...................................................................53/77 12.1 Regulation S-P.........................................................................................................................53/77

12.1.1 Affiliate..........................................................................................................................53/77 12.1.2 Clear and Conspicuous...................................................................................................53/77 12.1.3 Consumer.......................................................................................................................53/77 12.1.4 Continuing Relationship.................................................................................................54/77 12.1.5 Customer........................................................................................................................54/77 12.1.6 Customer Relationship...................................................................................................54/77 12.1.7 Nonpublic Personal Information....................................................................................54/77 12.1.8 Personally Identifiable Financial Information................................................................54/77 12.1.9 Publicly Available Information......................................................................................55/77

12.2 Consumers & Customers.........................................................................................................55/77 12.3 Notification Requirement........................................................................................................55/77

12.3.1 Initial Notice...................................................................................................................56/77


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Table of Contents 12 PROTECTION OF NONPUBLIC CUSTOMER DATA

12.3.2 Annual Notice................................................................................................................56/77 12.3.3 Content of Notice...........................................................................................................56/77 12.3.4 Privacy Policies..............................................................................................................57/77 12.3.5 Customer Information....................................................................................................57/77 12.3.6 California Residents.......................................................................................................57/77

12.4 Procedures for Compliance with Regulation S-P....................................................................57/77

13 PUBLIC COMMUNICATIONS ..........................................................................................................59/77 13.1 Advertisements........................................................................................................................59/77

13.1.1 Investment Counsel........................................................................................................59/77 13.1.2 "RIA"..............................................................................................................................59/77 13.1.3 Testimonials...................................................................................................................59/77 13.1.4 Past Recommendations..................................................................................................60/77 13.1.5 Performance Data...........................................................................................................60/77 13.1.6 Actual Performance........................................................................................................61/77 13.1.7 Model Performance........................................................................................................61/77 13.1.8 Gross vs. Net Performance Data....................................................................................62/77 13.1.9 Retention of Performance Documentation.....................................................................62/77 13.1.10 Requests for Proposal...................................................................................................62/77 13.1.11 Prohibited Advertisements...........................................................................................63/77

13.2 Correspondence.......................................................................................................................63/77 13.2.1 Electronic Communications...........................................................................................64/77 13.2.2 Retention........................................................................................................................64/77

13.3 Procedures for Compliance with Public Communications Requirements...............................64/77

14 THE FIDUCIARY STANDARD..........................................................................................................66/77 14.1 Antifraud Provisions................................................................................................................66/77 14.2 Fiduciary Duties.......................................................................................................................66/77 14.3 Procedures for Compliance with Fiduciary Requirements......................................................67/77

15 PRICING POLICIES (NAV)................................................................................................................68/77 15.1 Procedures for Compliance with Pricing Policies...................................................................69/77

16 REGULATORY AND INTERNAL INSPECTIONS.........................................................................70/77 16.1 Regulatory Inspections Background........................................................................................70/77 16.2 Scope of the Regulatory Inspection.........................................................................................70/77 16.3 Regulatory Exam Topics.........................................................................................................71/77 16.4 Internal Inspection...................................................................................................................71/77 16.5 Procedures for Compliance with Inspection Requirements.....................................................72/77

17 PROXY VOTING..................................................................................................................................73/77 17.1 Procedures for Compliance with Proxy Voting Requirements................................................73/77


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2 REGISTRATION, LICENSING, AND SUPERVISORYSTRUCTURE

The Investment Advisers Act of 1940 ("the Advisers Act") defines an "investment adviser" in Section202(1)(11) generally to include any person (including a natural person or an entity) who meets the "prongs"listed below:

(1) for compensation

(2) is engaged in the business

(3) of providing advice to others or issuing reports or analyses regarding securities

Detail regarding these elements of the investment adviser definition are addressed by the SEC in InvestmentAdvisers Act Release No 1092 ("Release 1092"). Release 1092 was developed jointly by the SEC and theNorth American Securities Administrators Association ("NASAA"). NASAA is an organization of statesecurities regulators. Release 1092 addresses the applicability of the Advisers Act to investment adviserscommonly known as "financial planners." Release 1092 also clarifies numerous aspects of the definition ofinvestment adviser as applies generally to all advisers.

Section 203A of the Advisers Act provides a mandatory exemption from registration under the Advisers Actfor any investment adviser that is regulated or required to be regulated in the state in which it maintains itsprincipal office and place of business and which has assets under management of less that $25 million. Theexemption does not apply to an investment adviser that serves as investment adviser to a registeredinvestment company. Because the exemption is mandatory, an investment adviser that qualifies is prohibitedfrom registration under the Advisers Act. Section 203A-1 effectively provides for a $5 million 'window'such that an investment adviser otherwise qualifying for the exemption may elect to register with the SECunder the Advisers Act when its assets reach $25 million but is not required to register with the SEC until itsassets reach $30 million. In determining the level of assets under management, an investment adviser shouldconsider portfolios for which it provides continuous and regular supervisory or management services amongother factors such as discretionary authority or ongoing management responsibilities.

Certain investment advisers with less than $25 million under management are permitted to register with theSEC under the Advisers Act. These include Advisers to registered investment companies, Advisers withtheir principal office in a state that does not have an Investment Adviser statute, foreign Advisers doingbusiness in the US, nationally recognized statistical rating organizations, pension consultants to plans with atleast $50 million in assets, Advisers in a control or affiliation with another SEC registered investmentadviser, Advisers offering investment advice exclusively through the internet, newly registering Advisersthat have a reasonable expectation that their assets will reach $25 million within a 120-day period followingthe effective date of their registration, and Advisers that would be otherwise required to register in 30 ormore states.

Starting on February 1, 2006, hedge fund managers that have at least 15 "clients," as defined underInvestment Advisers Act Rule 203(b)(3)-2, must file a Form ADV thereby becoming a federally-coveredSEC registered investment adviser. In accordance with these rules and guidance, the Adviser has achievedeffective registration.

2 REGISTRATION, LICENSING, AND SUPERVISORY STRUCTURE 1/77

2.1 Registration, Licensing

To affect its registration, Investment Professionals, Inc. (The Adviser) has filed an

application (FORM ADV Part 1) through the Investment Advisers Registration Depository ("IARD"). The

information submitted in Part 1includes information about the investment adviser's education, business, the persons who own the Adviserand disclosure regarding any sanctions for violating securities or other laws. The Adviser has also completedForm ADV Part II and all relevant schedules. The information in Part II is geared primarily toward theAdviser's clients/investors, and provides the basis for the disclosures made to clients/investors under Rule204-3 of the Advisers Act. Part II contains information relating to the business practices, fees, investmentstrategies and conflicts of interest the Adviser may have with its clients/investors. Part II is not submitted tothe SEC but is deemed to be filed so long as a copy is maintained in the Adviser's files. This record issubject to review by the SEC. Part II is required to be updated annually, within 90 days of the Adviser'sfiscal year end, and whenever it becomes materially inaccurate. Some states may require the form to beprovided to the state.

2.2 IARD Maintenance

Any Adviser registered with the SEC or state(s) is required to maintain current registration data throughentitlement on the Registration Depository ("IARD"). Entitlement to the system is obtained through specificdocumentation submitted to the FINRA as administrator of the system. Such documentation is found atwww.finra.org or by contacting the IARD help desk at 240-386-4848.

Under state and SEC regulations, the Adviser is required to file an Annual Updating Amendment throughIARD within 90 days following the end of the Adviser's fiscal year.

The Adviser is required to keep the information in its Form ADV current. Failure to maintain an updatedForm ADV may result in disciplinary, administrative, injunctive or even criminal action against the Adviserby the SEC and/or by the state(s). Making a misleading claim in Form ADV could be the basis for a client orinvestor claim of fraud under state law.

The Adviser must file an amendment to its Form ADV Part 1 electronically through the IARD according tothe following requirements:

Promptly for any changes to Items 1, 3, 9 or 11 of Part 1A• Promptly for any change to Items 1, 2 (A through F), or 2I of Part 1B• Promptly for any materials changes to Items 4, 8 or 10 of Part 1A• Within 90 days of the end of the Adviser's fiscal year end (Annual Updating Amendment)• If the Adviser is required to provide an audited balance sheet with Schedule G, within 90 days of theclose of the Adviser's fiscal year (some states may have additional or differing requirements)

•

Amendments to the wrap fee brochure (Schedule H) may be made by "stickering" provided anysupplemental information is dated and affixed to the brochure in a manner that can be readily understood bya client/investor or potential client/investor. IA Policies and Procedures Manual


http://www.finra.org

The Part II and associated schedules form a written disclosure statement that provides information aboutbusiness practices, fees, and conflicts of interest the Adviser may have with its clients/investors. Until anelectronic facility is provided by the SEC through IARD, the Adviser must maintain its Form ADV Part II inpaper format and provide a copy to all of its clients/investors.

Record of providing Form ADV Part II shall include a record of the date(s) that the form was provided toany client/investor or prospective client/investor who subsequently becomes a client/investor of the Adviser.Rule 204-3 imposes requirements for the delivery of Form ADV Part II and relevant schedules (1) at least 48hours prior to entering into the advisory relationship, or (2) at the time of entering into a contract with theAdviser, provided the client/investor can terminate the contract without penalty within 5 business days afterentering the contract.

At least once annually, Rule 204-3 requires that the Adviser must advise each of its clients/investors that acurrent Form ADV Part II and applicable Schedules are available for review. The firm shall maintain arecord of the clients/investors to whom the form is offered, the date and form of the offer (by representativesample copy), and of those accepting the offer. For those clients/investors requesting a copy of the offeredForm ADV Part II, the Adviser shall also maintain evidence that such copy was provided.

2.3 Supervisory Structure

In accordance with Rule 206(4)-7 of the Investment Advisers Act of 1940 (hereinafter "Advisers Act"),other SEC regulations, and applicable state regulations requiring supervision of specific firm activities, theAdviser has established a supervisory structure that includes the designation of personnel in key positionsand a description of those positions. In a separate file maintained by the Adviser, it has identified andmaintains current a list of key personnel, their duties and supervisory obligations, as applicable.

In accordance with Rule 206(4)-7 of the Advisers Act, the Adviser must designate one employed individualto act as its Chief Compliance Officer, whose duty it shall be to administer the Adviser's compliance policiesand procedures. The Chief Compliance Officer shall have full responsibility and authority to develop andenforce all appropriate compliance related policies and procedures for the Adviser. The Adviser identifies itsChief Compliance Officer ("CCO") in its organizational chart and through the IARD system as required.

The Adviser's officers include but are not limited to principals such as the Founder, Managing Member, orothers and a Chief Compliance Officer. These individuals are ultimately responsible for the Adviser'ssupervisory system, including its implementation, maintenance and ongoing appraisals as more fullydescribed in the Procedures section below. The Adviser's principal officers may or may not supervise otherofficers and/or managers as well as other employees of the Adviser. The Adviser's Chief Compliance Officeris responsible for development and enforcement of the Adviser's compliance program, unless specificallyexempted in the Procedures section below.

The Adviser is cautioned that the approach to licensing of its individual associated persons (including thosein supervisory roles) differs from state to state. Many states impose requirements for the Adviser's associatedpersons to meet certain licensing requirements depending upon the nature and/or scope of services theyoffer. Section 203A(b)(1) of the Advisers Act prohibits a state from applying its registration and licensinglaws to a federally-covered investment adviser and its supervised or associated persons. Nonetheless, a statecan impose registration, licensing or other qualification requirements on an associated person (sometimesknown as an 'investment adviser representative') if the individual has a place of business in the state. Theserequirements may include filing a Form U-4, taking and passing Series 65 or 66 or achieving otherproficiency exams. When they apply, compliance with these requirements may generally be reportedthrough disclosures on the IARD system.



Rule 203A-3(a) of the Advisers Act defines an "investment adviser representative" as a supervised person ofthe investment adviser who has more than five clients/investors who are natural persons and more than tenpercent of whose clients/investors are natural persons. Notwithstanding this, a supervised person is not aninvestment adviser representative if the supervised person does not on a regular basis solicit, meet with, orotherwise communicate with clients/investors of the investment adviser or provides only impersonalinvestment advice.

2.4 Procedures for Compliance with Registration and Licensing

A. General.

This Supervisory Procedures Manual (the "Manual") has been prepared for the Company(ies) and is intended tosummarize the legal issues involved and to establish rules and procedures applicable to all personsassociated with the Company, and as such this Manual does not purport to be exhaustive and address allcompliance issues that might arise as the result of the investment advisory and securities-related activities ofthe Company.

B. Compliance Manual.

This Manual is intended to comply with various provisions of applicable federal securities laws, includingrules and regulations promulgated by the Securities and Exchange Commission (the "SEC"), and to theextent applicable, the provisions of various state jurisdictions that the Company is subject to. Additionally,Company places the highest priority on maintaining its reputation for integrity and professionalism in themarketplace. That reputation is an integral asset to our business. The confidence and trust placed in us byour investors is something we should value and endeavor to protect at all times. This Manual implementsprocedures to achieve all of these goals.

Employees should be aware that the laws in this area are constantly changing. As a result, this Manual willbe reviewed periodically to evaluate its adequacy and the effectiveness of its implementation, in light of theoccurrence of compliance matters during the previous year, development of the Company's businessactivities, and changes in applicable regulatory requirements.

Employees with questions not answered by this Manual should contact Alana Sanderson, the ChiefCompliance Officer (the "CCO") of Company(ies).

C. Investment Adviser As A Fiduciary.

The Company has adopted the procedures set forth in this Manual to ensure that the Company and itsemployees fulfill its fiduciary obligations to its investors. Every employee is responsible for understandingand complying with the rules and procedures set forth in this Manual. Each employee shall at least annuallysign a written statement in the form of the Employee Supervisory Procedures and Insider Procedures



Acknowledgment Form (attached hereto) acknowledging his or her receipt and understanding of andagreement to abide by, the policies described in this Manual.

D. The Company.

Company is a registered investment adviser under the federal Investment Advisers Act of 1940 (the"Advisers Act"). Section 206 of the Advisers Act makes it unlawful for the Company to engage infraudulent, deceptive or manipulative conduct. In addition to these specific prohibitions, the Supreme Courtof the United States has held that Section 206 imposes a fiduciary duty on investment advisers.

As a fiduciary, the Company owes its investors more than honesty and good faith alone. The Company hasan affirmative duty to act solely in the best interests of its investors and to make full and fair disclosure of allmaterial facts, particularly where the Company's interests may conflict with those of its investors.

Pursuant to this duty, the Company must at all times act in its investors' best interests, and the Company'sconduct will be measured against a higher standard of conduct than that used for mere commercialtransactions. Among the specific obligations that the Securities and Exchange Commission (the "SEC") hasindicated flow from an adviser's fiduciary duty are:

A duty to have a reasonable, independent basis for its investment advice;

A duty to obtain best execution for investors' securities transactions where the adviser is in a position todirect brokerage transactions;

A duty to ensure that its investment advice is suitable to the investor's objectives, needs and circumstances;

A duty to refrain from effecting personal securities transactions inconsistent with investor interests; and

A duty to be loyal to investors.

E. The Company's Employees.

Each of the Company's employees owes the same fiduciary responsibilities to the Company's investors (eachan "Investor") as set forth above. This Manual is designed to set forth rules of conduct to be followed byemployees to ensure that they adhere to these fiduciary responsibilities and to enable the Chief ComplianceOfficer to monitor employee activities so that the Company best meets its fiduciary responsibilities. Everyemployee who participates in or has responsibility in connection with the Company's advisory activities willbe provided a copy of this Manual. Additionally, this Manual is intended to be revised or supplemented fromtime to time and it is the responsibility of the holder to see that his/her copy is up-to-date by inserting newmaterial as instructed. For purposes of this Manual, the term "associated person" or "employee" includes all



persons associated with the firm, including principals, officers and managers of the Company. Everyemployee is responsible for understanding and complying with the rules and procedures set forth in thisManual.

FAILURE TO COMPLY WITH THE RULES AND REQUIREMENTS SET FORTH IN THISMANUAL, CONSTITUTES A BREACH OF AN EMPLOYEE'S OBLIGATION TO CONDUCTHIMSELF IN ACCORDANCE WITH THE COMPANY'S POLICIES AND PROCEDURES, ANDIN CERTAIN CASES MAY RESULT IN A VIOLATION OF LAW. APPROPRIATE REMEDIALACTION BY THE COMPANY MAY INCLUDE CENSURE, FINE, RESTRICTION ONACTIVITIES, OR SUSPENSION OR TERMINATION OF EMPLOYMENT.



3 BOOKS AND RECORDS REQUIREMENTS

Rule 204-2 of the Advisers Act imposes the requirement for the Adviser to maintain certain books andrecords for certain specified periods of time.

3.1 Required Records

Pursuant to the Advisers Act at Rule 204-2, the following records are required to be maintained andpreserved in an easily accessible place for a period of not less than 5 years from the end of the fiscal yearduring which the last entry was made on the document. For the first 2 years, the record must be maintainedon the premises of the Adviser. This retention requirement applies to the records noted below EXCEPT thatorganizational records must be retained for at least three years following the date on which the Adviserterminates its registration.

3.1.1 Advertising File

The Adviser must retain a copy of each notice, circular, advertisement, newspaper article, investment letter,bulletin or other communication that an investment adviser circulates or distributes, directly or indirectly, to10 or more persons (other than persons connected with the Adviser). If such notice, circular, advertisement,newspaper article, investment letter, bulletin or other communication recommends the purchase or sale of aspecific security and does not state the reasons for such recommendation, a memorandum by the Adviserincluding information to support the recommendation must be included in the file.

3.1.2 Annual Offer of Form ADV Part II (Disclosure Brochure)

The Adviser must offer a current form of its disclosure brochure no less than annually to all clients/investorsof the Adviser. The Adviser must document and maintain a record of the offer. The Adviser must also retaina sample version of the Form ADV Part II as evidence of timely amendment and distribution. The file shallinclude the following:

List of each individual or other party to whom the offer or an updated Form ADV Part II wasprovided

•

Copy of the form of the offer (letter or other means of distribution)• Form ADV Part II in effect at the time of the offer• Any individual or other party that responds to the request• List of evidence that any individual or other party who responded to the offer was provided with thecurrent form, as requested

•

3.1.3 Annual Review

The Adviser is required by Rule 204-2(a)17(ii) to maintain any record(s) that document the review of itswritten policies and procedures performed in connection with Rule 206(4)-7(a).

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3.1.4 Associated Persons Personal Transactions Records

Rule 204-2(a)(12)(i) requires that the Adviser retain a record of every transaction in a securities in which theAdviser or any associated person (or investment advisory representative) has or acquires any direct orindirect beneficial ownership, unless the transaction is not subject to the Adviser's or the associated person'scontrol, or if the transaction is in securities that are direct obligations of the Government of the US, bankers'acceptances, CDs, commercial paper and high quality short term debt instruments including repurchaseagreements, or shares issued by registered open-end investment companies. For purposes of this rule, theterm "associated person" shall mean any partner, officer or director of the investment adviser; any employeewho makes any recommendation, who participates in the determination of which recommendation shall bemade, or whose functions or duties relate to the determination of which recommendation shall be made; anyemployee who, in connection with his duties, obtains any information concerning which securities are beingrecommended prior to the effective dissemination of such recommendations or of the informationconcerning such recommendations; and any of the following persons who obtain information concerningsecurities recommendations being made by such investment adviser prior to the effective dissemination ofsuch recommendations or of the information concerning such recommendations: (1) any person in a controlrelationship to the investment adviser, (2) any affiliated person of such controlling person and (3) anyaffiliated person of such affiliated person.

In addition to those associated persons included in the definition above, the Adviser may at its solediscretion require that other employees, consultants, or others provide evidence of their personal trading toensure that appropriate controls are in place at all times.

3.1.5 Financial Records

Records of the Adviser's financial condition, and evidence of current and accurate accountings, are requiredby Rule 204-2. Included in this requirement are the following:

Journal, or journals, that lists all cash receipts and disbursement records, and any other records oforiginal entry used to create the journal entries

•

General and auxiliary ledgers (or other comparable records) reflecting asset, liability, reserve,capital, income and expense accounts

•

All check books, bank statements, canceled checks and evidence of current reconciliations• All bills or statements relating to the business of the Adviser, and evidence of payment, which mightinclude copies of checks received or other statements demonstrating payment of invoices

•

Current financial statements, including trial balances and net capital computations, balance sheets,income and expense statements and internal audit working papers relating to the business of theAdviser

•

3.1.6 Lists by Type of Client/Investor or Account

The Adviser must maintain a list of all accounts in which the Adviser is vested with discretionary authority.



3.1.7 Order Tickets

A ticket or memorandum of each order placed by the Adviser for the purchase or sale of a security, or anyinstruction received by the Adviser from the client/investor concerning the purchase, sale, receipt or deliveryof a particular security, and of any modification or cancellation of any such order or instruction, must beretained and must include the following information:

Terms and conditions of the order, instruction, modification or cancellation• Person connected with the Adviser who recommended the transaction• Person who placed the order• Account for which the order was entered• Date• Bank, broker or dealer by or through whom the order was executed• Whether or not the order was discretionary•

3.1.8 Organizational Documents

The Adviser must maintain current and complete Articles of Incorporation, charters, minute books,partnership records, stock certificate books and other reports as evidence of its viability as an entity, asrequired by state or other jurisdictions. As mentioned in the introduction, different from other records notedin this section, these records must be preserved for at least three years after the cessation of the Adviser'soperations.

3.1.9 Performance Advertising Supporting Documentation

If the Adviser distributes performance advertising (or reporting that includes Performance of any managedaccounts/fund(s) and such report is sent directly or indirectly to 10 or more persons), it must retain allaccounts, books, internal working papers, and any other records or documents that are necessary to form thebasis for or demonstrate the calculation of the performance or rate of return of any or all managed accountsor securities recommendations.

3.1.10 Policies and Procedures

Rule 204-2 requires that the Adviser retain a copy of the Adviser's policies and procedures formulatedpursuant to Rule 206(4)-7 that are currently in effect or which were in effect within the most recent 5 yearperiod.

3.1.11 Powers of Attorney

The Adviser is required to maintain all powers of attorney, including any documents that evidence thegranting of discretionary powers to the Adviser.



3.1.12 Proxy Records

If the Adviser votes proxies in connection with Rule 206(4)-6, it must retain:

Copies of its policies and procedures for proxy voting• Copy of each proxy statement that it receives regarding client/investor securities (it may rely on athird party providing the agreement between the Adviser and third party specifies responsibility forrecord-keeping)

•

Record of each vote cast by the Adviser on behalf of a client/investor/account/fund• Copy of any supporting documentation created by the Adviser that was material to making a votingdecision

•

Copy of each client/investor request for information on how the Adviser voted proxies including theAdviser's response

•

3.1.13 Solicitor Disclosure Document

All written acknowledgements of receipt of disclosure documents provided in connection with Rule206(4)-3, and copies of the solicitor disclosure document that was provided, must be retained.

3.1.14 Transaction Records

If the Adviser provides any investment supervisory or management service to any client/investor, it mustretain a record showing separately for each client/investor the securities purchased and sold, and the date,amount and price of each such transaction; as well as by-security information for each client/investor suchthat the Adviser can promptly furnish the name of each client/investor with an interest in the security and theamount of that interest.

3.1.15 Written Agreements

Copies of any and all written agreements (advisory agreements, subscription agreements, etc) in use withclients/investors must be maintained, including all powers of attorney. Side letters may be deemed to be partof this requirement, as are any written agreement entered into by the Adviser with any client/investor orotherwise relating to its business. Accordingly all side letters and other written agreements shall be retainedamong the Adviser's central records.

It is advisable that the Adviser maintains a representative sample of each such agreement, and a list of theclients/investors of the firm subject to each type of agreement. The executed agreements may be retained inseparate client/investor files.

3.1.16 Written Communications

Originals of all written communications received and copies of all written communications sent by theAdviser relating to its advisory business must be retained by the Adviser. Note that the rule has been deemedto include electronic communications, including email and instant messages, and also includes internalcommunications (those sent among associated personnel of the Adviser). Unsolicited market letters andother similar communications of general public distribution not prepared by or for the Adviser are not



required under this category.

3.2 Custodial Advisers Records

Advisers with custody or possession of securities must retain the following:

Journal or other record showing all purchases, sales, receipts and deliveries of securities (includingcertificate numbers) for custodial accounts

•

Record of all debits and credits for custodial accounts• Separate ledger account for each custodial client/investor showing all purchases, sales receipts anddeliveries of securities, the date and price of each purchase and sale, and all debits and credits

•

Copies of confirmations of all transactions made in custodial accounts• By-security record including the name of the client/investor/fund with an interest in such security,the amount or interest of each client/investor/fund and the location of each such security

•

3.3 Additional Records

Although not enumerated in specific regulations, certain files and records may be requested by a regulatoryexaminer at the time of an audit. While not an exhaustive or all-inclusive list, the Adviser may elect tomaintain any or all of these additional types of records.

3.3.1 Allocation Procedures, Trading Practices

Advisers shall maintain a file that contains allocation procedures and other trading practices, relevantrepresentative order forms, and related documentation as evidence of its consistency in making pre-tradeallocations of client/investor orders.

3.3.2 Best Execution File

Regulatory examiners will request that the Adviser demonstrate its efforts to seek best execution in makingclient/investor transactions. A central file is recommended and includes evidence of periodic review oftransactions.

3.3.3 Complaint File

The Adviser should maintain a central record of any and all written or verbal client/investor complaints,including the method or status of resolution, any settlement or litigation related to the complaint, and currentdisposition of the matter.

3.3.4 Disaster Recovery

Records of the Adviser's efforts to monitor and maintain systems in a manner that would enable itscontinuous operation in the event of an unforeseen disaster or other interruption in business shall bemaintained and available for review. The file should include evidence of distribution of the Adviser's



policies to appropriate parties, including RAs and clients/investors. At minimum, the plan should includemeans for recovery of the Adviser's critical systems; restoration or recovery of any permanent record of thefirm, such as its organizational documents, employee files and financial records; primary contactinformation; location and status of back-ups; alternative venue for employees and other systems; andprocedures or access codes that might enable the Adviser and its clients/investors to regain effectiveoperations.

3.3.5 Client/Investor Lists

Upon regulatory examination, the Adviser may be required to produce lists of its clients/investors thatcontain:

Client/Investor Name• State of Residence of Client/Investor• Whether the client/investor is related to the Adviser (includes spouse, dependent, same household,or any client/investor subject to the direct or indirect control of the Adviser)

•

Type of Account (Fund or Funds in which the client/investor is invested)• Account establishment date• Opening balance of account• Current balance of account (as of most recent quarter end)• Account redemption date, Balance at the time of redemption, reason for redemption• Clients/investors subject to Power of Attorney• Clients/investors paying performance fees• Whether the account is subject to ERISA• Custodian for the account•

3.3.6 Organizational Chart

The Adviser's organizational chart, or supervisory chain of command, should be current and complete at alltimes. The chart should include a reporting structure for each associated person that identifies the primaryand secondary supervisors.

3.3.7 Privacy Policy

Regulation S-P and the Federal Trade Commission Privacy of Consumer Financial Information; Final Rulerequires that Advisers maintain a privacy policy to ensure that nonpublic client/investor data be subject toadequate controls and security. In connection with this Regulation, the Adviser is required to distribute aprivacy statement at the time of initial investment, and no less than annually thereafter to clients/investors.Details regarding the Adviser's privacy policy are provided in a later section of this manual. The PrivacyPolicy file should contain evidence of the statement's annual distribution to clients/investors.

3.3.8 Regulatory Inspections

Documentation related to any regulatory inspection, including documentation of steps taken to remedyfindings, shall be maintained.



3.3.9 Trade Errors

Evidence of the Adviser's resolution of trade errors shall be maintained in a log and/or file kept among thecentral records. The record shall include the manner in which the error was resolved, the client/investor andtransaction(s) effected by the error, and evidence that a supervisor of the Adviser was aware of the error andits resolution.

3.4 Books and Records Retention

All records of the Adviser (except as noted below) must be retained for 5 years in an easily accessible place.The records must remain on the Adviser's premises for at least 2 years. Additionally, the following must beretained for 3 years beyond the life of the entity:

Copies of the original documents filed with the SEC or state securities commission(s)• Registration letters received from all regulatory agencies• Organizational Records• Annual filings (Schedule I)• Withdrawal notification (Form ADV-W)•

3.4.1 Electronic Maintenance of Records

Rule 204-2(g) establishes special requirements of Advisers using electronic media for retention of records.SEC Release IA 1945, for May, 2001, provides further guidance for such retention methods.

In general, the following requirements apply when electronic media is used for retention:

The Adviser is required to maintain an index of the records in a way that permits easy location,access and retrieval of any particular record.

•

The Adviser shall promptly provide a legible, true, and complete copy of the record in the mediumand format in which it is stored, as well as the means to view such record. For instance, if stored onCD ROM, the record must be protected from alteration, and any software required to produce a copyof, or to read the record, must be available on the disk. Additionally, the Adviser must ensure thatelectronic records are subject to an appropriate degree of security, including provisions to preventviewing or access of unauthorized parties. The Adviser must ensure that the SEC or other regulatoryexaminer is granted access to view the records.

•

3.5 Procedures for Compliance with Record-Keeping Policies

The CCO is responsible for assuring that the Adviser has established policies to ensure that its records aremaintained in a secure central location in a manner that is consistent with applicable SEC and/or Staterequirements.

Periodically, but no less than annually, the Adviser conducts an internal review to ensure that records aremaintained in a manner that is compliant with SEC and/or State regulations, and that ensures documents are



retained for an appropriate period of time.



4 CODE OF ETHICS AND CONDUCT

As an investment adviser, the Adviser is a fiduciary. It owes its clients/investors the highest duty of loyaltyand relies on each employee to avoid conduct that is or may be inconsistent with that duty. It is alsoimportant for employees to avoid actions that, while they may not actually involve a conflict of interest or anabuse of a client/investor's trust, may have the appearance of impropriety. Because the Adviser may serve asgeneral partner, investment manager and/or investment adviser to a number of investment partnerships,investment funds and other types of separate accounts (collectively throughout "clients/investors") theAdviser has adopted a code of ethics setting forth policies and procedures, including the imposition ofrestrictions on itself and employees, to the extent reasonably necessary to prevent certain violations ofapplicable law. This Code of Ethics and Conduct (the "Code") is intended to set forth those policies andprocedures and to state the Adviser's broader policies regarding its duty of loyalty to clients/investors.

4.1 General

Rule 204A-1 requires Advisers to establish, maintain and enforce a written code of ethics.

4.1.1 Basic Principles

This Code is based on a few basic principles that should pervade all investment related activities of allemployees, personal as well as professional: (1) the interests of the Adviser's clients/investors come beforethe Adviser's or any employee's interests; (2) each employee's professional activities and personalinvestment activities must be consistent with this Code and avoid any actual or potential conflict betweenthe interests of clients/investors and those of the Adviser or the employee; and (3) those activities must beconducted in a way that avoids any abuse of an employee's position of trust with and responsibility to theAdviser and its clients/investors, including taking inappropriate advantage of that position.

The Employee understands and agrees that any and all activities of the Employee during the term of thisAgreement shall in all respects comply with applicable federal and state securities laws, and other laws,rules and regulations, any applicable laws of foreign jurisdictions, and the firm policies and procedures thathave been adopted (or that may in the future be adopted) by the Employer (the "Firm Policies"), as each maybe amended from time to time, including without limitation those prohibiting insider trading and frontrunning of client/investor accounts.

4.1.2 Chief Compliance Officer

Many of the specific procedures, standards, and restrictions described in this Code involve consultation withthe Chief Compliance Officer ("CCO"). The CCO will be designated by a senior principal of the Adviser.

4.1.3 Security

For purposes of this Code, the term "security" includes not only stocks, but also options, rights, warrants,futures contracts, convertible securities or other securities that are related to securities in which the Adviser'sclients/investors may invest or as to which the Adviser may make recommendations (sometimes alsoreferred to as "related securities").

4 CODE OF ETHICS AND CONDUCT 15/77

4.1.4 Covered Accounts

Many of the procedures, standards and restrictions in this Code govern activities in "Covered Accounts."Covered Accounts consist of:

Securities accounts of which the Adviser is a beneficial owner, provided that (except where theCCO otherwise specifies) investment partnerships or other funds of which the Adviser or anyaffiliated entity is the general partner, investment adviser or investment manager or from which theAdviser or such affiliated entity receives fees based on capital gains are generally not consideredCovered Accounts, despite the fact that the Adviser or employees may be considered to have anindirect beneficial ownership interest in them

1.

Each securities account registered in an employee's name and each account or transaction in whichan employee has any direct or indirect "beneficial ownership interest" (other than accounts ofinvestment limited partnerships or other investment funds not specifically identified by the CCO as"Covered Accounts")

2.

4.1.5 Beneficial Ownership

The concept of "beneficial ownership" of securities is broad. It includes not only securities a person ownsdirectly, and not only securities owned by others specifically for his or her benefit, but also (i) securities heldby his or her spouse, minor children and relatives who live full time in his or her home, and (ii) securitiesheld by another person if by reason of any contract, understanding, relationship, agreement or otherarrangement the employee obtains benefits substantially equivalent to ownership.

Note: This broad definition of "beneficial ownership" does not necessarily apply for purposes of othersecurities laws or for purposes of estate or income tax reporting or liability. An employee may declare thatthe reporting or recording of any securities transaction should not be construed as an admission that he orshe has any direct or indirect beneficial ownership in the security for other purposes.

4.1.6 Personal Account Trading and Investment Policy

It is the Adviser's policy to impose specific requirements related to each covered person's personal tradingand investment activity.

The Adviser's policy is to consider the effects of various types of trading, including short term trading andtrading in new issues as a potential conflict of interest. Similarly, the Adviser may impose specificrequirements related to investments in private placements.

Approval may be refused for any proposed trade by an employee that:

Involves a security that is being or has been purchased or sold by the Adviser on behalf of anyclient/investor account or is being considered for purchase or sale

1.

Is otherwise prohibited under any internal policies of the Adviser (such as the Adviser's Policy andProcedures to Detect and Prevent Insider Trading)

2.

Breaches the employee's fiduciary duty to any client/investor3.



Is otherwise inconsistent with applicable law, including the Advisers Act and the EmployeeRetirement Income Security Act of 1974, as amended

4.

Creates an appearance of impropriety5.

The Procedures section shall address the Adviser's specific procedures for these types of investments andtrading.

4.1.7 Service as a Director

No employee may serve as a director of a publicly-held company without prior approval by the CCO (or asenior principal, if the CCO is the proposed board member) based upon a determination that service as adirector would not be adverse to the interests of any client/investor. In the limited instances in which suchservice is authorized, employees serving as directors will be isolated from other employees who are involvedin making decisions as to the securities of that company through procedures determined by the CCO to beappropriate in the circumstances. These practices may also constitute illegal "insider trading." Some of thespecific trading rules described below are also intended, in part, to prevent front running and scalping. If anaccount is managed by an investment adviser, other than the Adviser, to which full investment discretion hasbeen granted, these rules will not apply for so long as the employee(s) who has (have) a beneficialownership interest in the account do not have or exercise any discretion. Such accounts will remain subjectto the reporting requirements set forth in the next section of this Code.

4.1.8 Gifts

The receipt or giving of any gift of more than nominal value ($100/year) from any person or entity that doesbusiness with or on behalf of any client/investor is prohibited, except as otherwise permitted by the CCO.

4.1.9 Duties of Confidentiality

All information relating to clients/investors' portfolios and activities and to proposed recommendations isstrictly confidential. Consideration of a particular purchase or sale for a client/investor account may not bedisclosed, except to authorized persons.

4.1.10 General Ethical Conduct:

The following are potentially compromising situations that must be avoided:

Causing the Adviser, acting as principal for its own account or for any account in which the Adviseror any person associated with the Adviser (within the meaning of the Investment Advisers Act) tosell any security to or purchase any security from a client/investor in violation of any applicable law,rule or regulation of a governmental agency

•

Communicating any information regarding the Adviser, the Adviser's investment products or anyclient/investor to prospective clients/investors, journalists, or regulatory authorities that is notaccurate, untrue or omitting to state a material fact necessary in order to make the statements theAdviser has made to such person

•

Engaging in any act, practice, or course of business that is fraudulent, deceptive, or manipulative,particularly with respect to a client/investor or prospective client/investor

•

Engaging in any conduct that is not in the best interest of the Adviser or might appear to be•



improperEngaging in any financial transaction with any of the Adviser's vendors, clients/investors oremployees, including but not limited to: providing any rebate, directly or indirectly, to any person orentity that has received compensation from the Adviser; accepting, directly or indirectly, from anyperson or entity, other than the Adviser, compensation of any nature such as a bonus, commission,fee, gratuity or other consideration in connection with any transaction on behalf of the Adviser;beneficially owning any security of, or have, directly or indirectly, any financial interest in, anyother organization engaged in securities, financial or related business, except for beneficialownership of not more than one percent (1%) of the outstanding securities of any business that ispublicly owned

•

Engaging in any form of harassment• Improperly using or authorizing the use of any inventions, programs, technology or knowledge thatare the proprietary information of the Adviser

•

Investing or holding outside interest or directorship in clients/investors, vendors, customers orcompeting companies, including financial speculations, where such investment or directorship mightinfluence in any manner a decision or course of action of the Adviser. In the limited instances inwhich service as a director is authorized by the Adviser, employees serving as directors will beisolated from other employees who are involved in making decisions as to the securities of thatcompany through procedures determined by the Adviser to be appropriate according to thecircumstances

•

Making any unlawful agreement with vendors, existing or potential investment targets or otherorganizations.

•

Making any untrue statement of a material fact or omitting to state to any person a material factnecessary in order to make the statements the Adviser has made to such person materially complete

•

Participation in civic or professional organizations that might involve divulging confidentialinformation of the company.

•

Unlawfully discussing trading practices, pricing, clients/investors, research, strategies, processes ormarkets with competing companies or their employees

•

Using any device, scheme or artifice to defraud, or engaging in any act, practice, or course ofconduct that operates or would operate as a fraud or deceit upon, any client/investor or prospectiveclient/investor or any party to any securities transaction in which the Adviser or any of itsclients/investors is a participant

•

4.2 Insider Trading

The Adviser has adopted the following policies and procedures to detect and prevent the misuse of material,nonpublic information by employees of the Adviser.

4.2.1 Policy Statement on Insider Trading

The Adviser forbids any officer, director or employee from trading, either personally or on behalf of others,on material nonpublic information or communicating material nonpublic information to others in violationof the law. This conduct is frequently referred to as "insider trading." The Adviser's policy applies to everyofficer, director and employee and extends to activities within and outside their duties at the Adviser. Eachofficer, director and employee must read this policy statement and acknowledge his or her understanding ofit. Any questions regarding the Adviser's policy and procedures should be referred to the CCO.



The term "insider trading" is not defined in the federal securities laws, but generally is used to refer to theuse of material nonpublic information to trade in securities (whether or not one is an "insider") or tocommunications of material nonpublic information to others.

While the law concerning insider trading is not static, it is generally understood that the law prohibits thefollowing:

Trading by an insider while in possession of material nonpublic information• Trading by a non-insider, while in possession of material nonpublic information, where theinformation either was disclosed to the non-insider in violation of an insider's duty to keep itconfidential or was misappropriated

•

Communicating material nonpublic information to others in violation of one's duty to keep suchinformation confidential

•

4.2.2 Who Is An Insider?

The concept of an "insider" is broad. It includes officers, directors and employees of a company. In addition,a person can be a "temporary insider" if he or she enters into a special confidential relationship in theconduct of a company's affairs and as a result is given access to information solely for the company'spurposes. A temporary insider can include certain "outsiders" such as, among others, a company's attorneys,accountants, consultants, bank lending officers, and the employees of such organizations. According to theUnited States Supreme Court, before such an "outsider" may be considered a "temporary insider", thecompany's relationship with the outsider must be such that the company reasonably expects him or her tokeep the disclosed nonpublic information confidential.

4.2.3 What Is Material Information?

While covered persons are prohibited from trading on inside information, trading on inside information isnot a basis for liability unless the information is "material." Information generally is material if there is asubstantial likelihood that a reasonable client/investor would consider it important in making his or herinvestment decisions, or if public dissemination of the information is reasonably certain to have a substantialeffect on the price of a company's securities. Information that should be presumed to be material includes,but is not limited to: dividend changes; earnings estimates; changes in previously released earningsestimates; significant merger or acquisition proposals or agreements; commencement of or developments inmajor litigation; liquidation problems; and extraordinary management developments.

Questions one might ask in determining whether information is material include:

Is this information that a client/investor would consider important in making his or her investmentdecisions? Is this information that would substantially affect the market price of the securities ifgenerally disclosed?

•

Is the information nonpublic? To whom has this information been provided? Has the informationbeen effectively communicated to the marketplace by being published in a recognized nationaldistribution agency or publication such as Reuters, The Wall Street Journal or other such widelycirculated publications?

•



Caution must be exercised however, because material information does not necessarily have to relate to acompany's business. The Supreme Court of the United States has broadly interpreted materiality in somecases, and has asserted criminal liability associated with inappropriate disclosures.

4.2.4 What Is Nonpublic Information?

Information is nonpublic until it has been effectively communicated to the market place. One must be able topoint to some fact to show that the information is generally public. For example, information found in areport filed with the Securities and Exchange Commission, or appearing in Dow Jones, Reuters EconomicServices, The Wall Street Journal or other publications of general circulation would be considered public.

4.2.5 Types of Liability

Actions by the US courts, including the Supreme Court have resulted in findings that assert liability tofiduciaries in the context of trading on material nonpublic information. In some cases it has been found thata non-insider can enter into a confidential relationship with the company through which they gaininformation or they can acquire a fiduciary duty to the company's shareholders as "tippees" if they are awareor should have been aware that they have been given confidential information by an insider who has violatedhis fiduciary duty to the company's shareholders. This is a circumstance into which an associate of theAdviser may fall.

In the "tippee" situation, a breach of duty occurs only if the insider personally benefits, directly or indirectly,from the disclosure. It is important to note that the benefit does not have to be monetary; it can be a gift, andcan even be a 'reputational' benefit that will translate into future earnings. Another basis for insider tradingliability is the "misappropriation" theory, where trading occurs on material nonpublic information that wasstolen or misappropriated from any other person. This theory can be used to apply liability to individuals notpreviously thought to be encompassed under the fiduciary duty theory.

4.3 Penalties for Insider Trading

Penalties for trading on or communicating material nonpublic information are severe, both for individualsinvolved in the trading (or tipping) and their employers. A person can be subject to some or all of thepenalties below even if he or she does not personally benefit from the violation. Penalties include:

Civil injunctions• Damages in a civil suit as much as three times the amount of actual damages suffered by otherbuyers or sellers

•

Disgorgement of profits• Jail sentences• Fines for the person who committed the violation of up to three times the profit gained or lossavoided, whether or not the person actually benefited, and

•

Fines for the employer or other controlling person of up to the greater of $1,000,000 or three timesthe amount of the profit gained or loss avoided

•

Prohibition from employment in the securities industry•

In addition, any violation of this policy statement can be expected to result in serious disciplinary measuresby the Adviser, including dismissal of the persons involved.



4.4 Procedures for Compliance with Code of Ethics

The CCO shall determine which employees are covered by the Adviser's Code of Ethics.

The CCO has determined that all employees are covered by the Adviser's Code of Ethics. In the followingprocedures all such persons shall be referred to as "covered persons."

The CCO shall assume responsibility for maintaining, in an accessible place, the following materials:

Copy of this Code of Ethics1. Record of any violation of these procedures for the most recent five years, and a detailed synopsis ofthe actions taken in response

2.

Copy of each transaction report submitted by each officer, director and employee of the Adviser forthe most recent five years

3.

List of all persons who are or have been required to file transaction reports.4.

In an effort to prevent insider trading, through his/her own efforts or as delegated to qualified coveredpersons under his/her supervision, the CCO will do the following:

Answer questions and document responses regarding the Adviser's policy and procedures1. Provide, on a regular basis (no less than annually), an educational program to familiarize coveredpersons with the Adviser's policy and procedures

2.

Require each employee to acknowledge his or her receipt and compliance with this policy andprocedures regarding insider trading on an annual basis, and retain acknowledgements among theAdviser's central compliance records

3.

Resolve issues of whether information received by an employee of the Adviser is material andnonpublic and document findings

4.

Review on a regular basis and update as necessary the Adviser's policy and procedures anddocument any resulting amendments or revisions

5.

When it is determined that an employee of the Adviser has material nonpublic information,implement measures to prevent dissemination of such information and if necessary, restrict coveredpersons from trading in the securities

6.

In an effort to detect insider trading, through his/her own efforts or as delegated to qualified covered personsunder his/her supervision, the CCO will perform the following actions:

Review the trading activity reports filed by each officer, director, and employee of the Adviser,documenting findings by initialing and dating the forms or reports reviewed

1.

Review the duplicate confirmations and statements and related documentation of personal andrelated accounts maintained by officers, directors and covered persons versus the activity in thefund(s) advised by the Adviser

2.



Require officers, directors and covered persons to submit periodic reports of personal tradingactivity, and to attest to the completeness of each individual's disclosure of outside accounts at thetime of hiring and at least annually thereafter

3.

To determine whether the Adviser's covered persons have complied with the rules described above (and todetect possible insider trading), the CCO will have access to and will review transactions effected inCovered Accounts within 30 days after the end of each month, and will review duplicate trade confirmationsprovided pursuant to those rules within 10 days after their receipt. The CCO will compare transactions inCovered Accounts with transactions in client accounts for transactions or trading patterns that suggestviolations of this Policy or potential front running, scalping, or other practices that constitute or could appearto involve abuses of covered persons' positions. Annually each covered person must certify that he or shehas read and understands this Code, that he or she recognizes that this Code applies to him or her, and thathe or she has complied with all of the rules and requirements of this Code that apply to him or her. The CCOis charged with responsibility for collection, review, and retention of the certifications submitted by coveredpersons.

Although covered persons are not prohibited under this policy from trading securities for their own accountsat the same time that they are involved in trading on behalf of the Adviser, they must do so only in fullcompliance with this Policy and their fiduciary obligations. At all times, the interests of the Adviser's clientswill prevail over the covered person's interest. No trades or trading strategies used by a covered person mayconflict with the Adviser's strategies or the markets in which the Adviser is trading. The Adviser's coveredpersons may not use the Adviser's proprietary trading strategies to develop or implement new strategies thatmay otherwise disadvantage the Adviser or its clients. Personal account trading must be done on the coveredperson's own without placing undue burden on the Adviser's time. No transactions should be undertaken thatare beyond the financial resources of the covered person.

No Covered person may purchase or sell any non-exempt security for any Covered Account without firstobtaining prior approval from the CCO (in the case of the CCO's own personal request to purchase or sell anon-exempt security, a firm Principal shall render prior approval). For purposes of this Policy, the term"exempt securities" means securities that are direct obligations of the Government of the US or other foreignsovereignties, indices, mutual funds, exchange-traded funds and securities traded in accounts over which anemployee does not exercise any investment discretion. It is the covered person's obligation to ensure thatpre-clearance requests are provided to the CCO. The CCO may take any and all steps it deems appropriate inrendering or denying approval for the proposed trade. In the event that the CCO is not accessible, allpre-clearance requests will be forwarded directly to a firm Principal. NO action may be taken until approvalis attained. Pre-clearance authorization for a transaction is only valid for the day on which the approval isgranted. If the transaction is not completed that day, the covered person must have the proposed transactionapproved again. This requirement applies to transactions involving open market orders and limit or othertypes of orders.

No employee may purchase and subsequently sell a security within any thirty (30) day period, unless suchtransaction is approved in writing by the CCO. Each determination will be made on a case by case basis.The CCO shall have the sole authority to grant or withhold permission to execute the trade.

No employee may purchase new publicly offered issues of any securities ("New Issue Securities") for anyCovered Account in the public offering of those securities without the prior written consent of the CCO.



Each covered person must, at the onset of employment and immediately following subsequent eventsinvolving the acquisition of securities (marriage, inheritance, etc.), disclose to the CCO the identities,amounts, and locations of all securities he/she owns. On an annual basis, each employee will be required toconfirm the location of all Covered Accounts. In all cases, duplicate statements and trade confirmationsmust be sent directly to the CCO from the custodian. All statements of holdings, duplicate tradeconfirmations, duplicate account statements, and monthly and quarterly reports will generally be held inconfidence by the CCO. However, the CCO may provide access to any of those materials to other membersof the Adviser's management in order to resolve questions regarding compliance with this Policy andregarding potential purchases or sales for client accounts, and the Adviser may provide regulatoryauthorities with access to those materials where required to do so under applicable laws, regulations, ororders of such authorities.

To prevent the misappropriation, stealing or conversion of customer funds, the Adviser will implement oneor more of the following procedures:

• Verify changes of address with the customer by requesting such changes in writing from the customer or byverifying the change through a telephone call or email to the customer.

Require supervisory review of changes of address or customer account information to ensure thatemployees do not independently change customers' addresses and account information.

•

Ensure associated persons do not have the ability to alter account statements on-line.• Closely analyze customers' use of any address other than their home address. Use of P.O. boxes, "in careof" addresses, and other than home addresses are prohibited, or verified by telephone and in writingdirectly with the customer by a supervisor or firm compliance employee. Duplicate confirmations andaccount statements are sent to the customer's home address, whenever possible.

•

All transfers, withdrawals, or wires from the customer's account require the customer's writtenauthorization and must receive supervisory approval.

•

Periodically and systematically review (through the use of exception reports or other means) forindications of problems, such as: (1) number of customers with non-home mailing addresses; (2) anycustomer account that shows the same address as an associated person; (3) multiple changes of address bya customer or among customers of an associated person; (4) use of the same address for multiplecustomers; and (5) correspondence returned as undeliverable by the post office. The CCO or designee willcontact the associated person and/or the customer directly to follow up on and investigate unusualactivity.

•

If possible, provide customers with access to their account statements on a secure firm website so thatcustomers can easily verify activity in their accounts.

•

The use of personal electronic devices (personal computers, blackberries) to conduct firm business isprohibited unless the use of personal electronic devices is pre-approved and the devices can be linked withthe firm's system to allow for supervisory review.

•

Require each associated person who has knowledge of misappropriation, stealing or conversion ofcustomer funds to promptly report the situation to the CCO.

•



5 ANTI-MONEY LAUNDERING

In response to the September 11, 2001 attacks on America, On October 26, 2001, President Bush signed intolaw the USA PATRIOT Act. Title III of the USA PATRIOT Act, entitled the "International MoneyLaundering Abatement and Anti-Terrorist Financing Act of 2001" (the Act), requires all "financialinstitutions" to establish an anti-money laundering program by April 24, 2002. In particular Section 352 ofthe USA PATRIOT Act states that each financial institution must establish an anti-money launderingprogram that includes at a minimum:

Development of internal policies, procedures and controls• Designation of a compliance officer ("AML CO")• Ongoing employee training program• Independent audit function to test its programs•

Although compliance with the Act is not yet mandated for SEC-covered investment advisers or for Stateregistered advisers, the Adviser has determined that it will voluntarily comply. In compliance with existingregulations, the Adviser has:

Established and implemented policies and procedures that can be reasonably expected to detect andcause the reporting of transactions that raise a suspicion of money laundering

•

Established and implemented policies, procedures and internal controls reasonably designed toachieve compliance with the Bank Secrecy Act and regulations thereunder

•

Designated an individual or individuals responsible for implementing and monitoring the day-to-dayoperations and internal controls of the program

•

Provided and will continue to provide ongoing training for appropriate personnel• Provided for independent compliance testing by Adviser personnel or a qualified outside party on aregular schedule but no less than annually

•

Senior Management is committed to the goals of the USA PATRIOT ACT. Further, anti-money launderingcompliance is the responsibility of every associated person, and any associated person that detects activitythat seems to be suspicious is instructed to report such activity to the AML CO. The responsibility ofassociated persons to participate in the AML Compliance Program is reinforced through training, no lessfrequently than annually, and through ongoing oversight performed by or at the instruction of the AML CO.

The Adviser will periodically update its AML Policies and Procedures to conform to regulatory changes andfirm growth. The Adviser will continue to seek guidance from the Department of Treasury, SEC and othersregarding effective AML Policies and Procedures.

5 ANTI-MONEY LAUNDERING 24/77

5.1 Definition

Money laundering is engaging in acts designed to conceal or disguise the true origins of criminally derivedproceeds so that the unlawful proceeds appear to have been derived from legitimate origins or to constitutelegitimate assets. Generally, money laundering occurs in three stages. Cash first enters the financial systemat the "placement" stage, where the cash generated from criminal activities is converted into monetaryinstruments, such as money orders or traveler's checks, or deposited into accounts at financial institutions. Atthe "layering" stage, the funds are transferred or moved into other accounts or other financial institutions tofurther separate the money from its criminal origin. At the "integration" stage, the funds are reintroducedinto the economy and used to purchase legitimate assets or to fund other criminal activities or legitimatebusinesses. Terrorist financing may not involve the proceeds of criminal conduct, but rather an attempt toconceal the origin or intended use of the funds, which will later be used for criminal purposes.

In addition, money laundering may include (1) willfully ignoring ("willful blindness") the source of aclient/investor's assets or the nature of client/investor transactions; and/or (2) failing to report suspectedmoney laundering activities and failing to maintain required records of transactions in order to hide andtransfer assets, money launderers require the intentional or unintentional assistance of an associated personor a financial institution.

The Adviser has adopted the following policies and procedures, to be adhered to by every associated personof the Adviser, in response to the USA PATRIOT ACT.

5.2 Due Diligence

The Adviser and its senior management are firmly committed to the Act. It is the Adviser's policy to prohibitand actively prevent money laundering and any activity that facilitates money laundering of the funding ofterrorist or criminal activities. Accordingly, the Adviser requires a corresponding commitment by itsassociated personnel, irrespective of job duty or assignment. The Adviser requires every associated person todiligently protect the Adviser from money launderer's exploitation. The Adviser and its associated personscould be subject to civil, criminal and disciplinary action, and harm to their reputation.

The purpose of the Adviser's AML policies and procedures is to:

Uphold the law1. Protect the Adviser and its associated persons from persons who would misuse the Adviser facilitiesand resources

2.

Safeguard the Adviser and its associated persons from the appearance of impropriety and from theviolation of anti-money laundering laws

3.

Maintain the Adviser's high level of service to clients/investors and counter-parties withoutdisruption or inconvenience

4.

5.3 AML Compliance Officer

The Adviser hereby assigns an individual, noted at the end of this chapter, as the Adviser's AMLCompliance Officer (" AML CO "). The AML CO will implement the Adviser's AML Policies andProcedures. The AML CO must ensure appropriate firm personnel attend periodic AML training. Firm



personnel should contact the AML CO if they have any questions regarding the Adviser's AML Policies andProcedures or how to implement them. The AML CO will ensure the accuracy of third party reports onwhich the Adviser relies in complying with these policies and procedures. The AML CO will ensure thatSuspicious Activity Reports (SAR-SFs) are filed when necessary. The Adviser will provide the appropriateregulator with AML Compliance Officer's contact information, including name, title, mailing address, emailaddress, telephone number and facsimile number provided an electronic facility is available for suchnotification.

Because the relationship between the Adviser and its clearing firm (or any custodian) may divideresponsibilities related to AML, or may overlap causing complication or confusion regarding its AMLPolicies and Procedures implementation, the Adviser and its clearing firm or custodian(s) remain in ongoingcommunication and understanding regarding the responsibilities of each entity. In most cases, the Adviser isin the best position to know its client/investor, and understands that it is responsible for reviewinganti-money laundering.

The AML CO is responsible for knowing about and procuring any and all available reports that may beutilized in connection with these procedures.

5.4 Associated Person Awareness and Training

The Adviser requires existing associated persons to periodically acknowledge receipt of these procedures, asdeemed appropriate by the AML CO. The Adviser shall establish a training program to include periodictraining related to AML.

5.5 Client/Investor Identification Program

The Adviser has implemented a Client/Investor Identification Program ("CIP") to ensure that the Adviserand its associated persons can form a reasonable belief that they know the true identity of each individualaccepted as a client/investor. Further the CIP shall ensure that the Adviser and its associated persons knowthe identity of individuals underlying any entity that is accepted as a client/investor. Underlying the CIP isthe policy that requires that the AML CO be involved in the acceptance of each and every newclient/investor.

The Adviser will verify the identity of each of the following:

New clients/investors and persons to whom any client/investor grants investment authority• Existing clients/investors for whom the Adviser has not previously checked the identity, and thosegranted investment authority subsequent to any initial investment

•

Any clients/investors whose identity the AML CO deems should be verified•

Prior to opening an account, associated persons must obtain from the client/investor the following:

Client/Investor's name• Date of birth, for an individual•



An address, which will be: (1) for an individual, a residential or business street address; (2) for anindividual who does not have a residential or business street address, an Army Post Office (APO) orFleet Post Office (FPO) box number, or the residential or business street address of next of kin oranother contact individual; or (3) for a person other than an individual (such as a corporation,partnership, or trust), a principal place of business, local office, or other physical location

•

An identification number, which will be: (1) for a U.S. person, a taxpayer identification number or(2) for a non-U.S. person, one or more of the following: (a) a taxpayer identification number; (b) apassport number and country of issuance; (c) an alien identification card number; or (4) the numberand country of issuance of any other government-issued document evidencing nationality orresidence and bearing a photograph or similar safeguard

•

5.5.1 ID Verification

The Adviser will determine what and how much identification it will require a client/investor to providebased on the Adviser's perceived client/investor risk. The Adviser will determine the client/investor's riskusing the following factors, among others at the discretion of the AML CO:

Types of identifying information available about the client/investor and or parties associated withthe client/investor

•

Input by qualified third parties, such as the custodian, fund Administrator, or other suchcounter-party

•

The Adviser will verify the client/investor's identity within a reasonable time before it opens theclient/investor's account. The Adviser will use documentary, non-documentary, or a combination of bothmethods to verify client/investor's identities.

5.5.2 Documentary Verification

The Adviser will use the following documents and others based on client/investor's perceived risk to verifythe client/investor's identity:

For an individual, an unexpired government-issued identification evidencing nationality or residenceand bearing a photograph or similar safeguard, such as a driver's license or passport

•

For a person other than an individual (such as a corporation, partnership, or trust), documentsshowing the existence of the entity, such as certified articles of incorporation, a government-issuedbusiness license, a partnership agreement, or a trust instrument

•

In certain instances, the Adviser's subscription or other account opening documents may require theclient/investor to: (1) represent and covenant that all evidence of identity provided is genuine and all relatedinformation furnished is accurate; (2) agree to provide any information deemed necessary by the Adviser inits sole discretion to comply with its anti-money laundering responsibilities and policies; and (3) in the caseof a Direct Client/Investor, represent that it is investing solely as principal and not for the benefit of anythird parties.



5.5.3 Non-Documentary Verification

The Adviser will use the following non-documentary methods and others based on the perceived risk toverify client/investor's identity:

Contacting the client/investor• Independently verifying the client/investor's identity through the comparison of informationprovided by the client/investor with information obtained from a consumer reporting agency, publicdatabase, or other source

•

Checking references with other financial institutions• Obtaining a financial statement•

The Adviser will use this information to determine whether there is a logical consistency between theclient/investor's identifying information, such as name, street address, zip code, telephone number, date ofbirth, and Social Security Number.

5.5.4 Reliance on A Third Party for Identity Verification

The Adviser may, under the following circumstances, rely on the performance by another financialinstitution (including an affiliate) of some or all of the elements of our fund clients/investors identificationprogram with respect to any fund client/investor that is opening an account or has established an account orsimilar business relationship with the other financial institution to provide or engage in services, dealings, orother financial transactions:

When such reliance is reasonable under the circumstances• When the other financial institution is subject to a rule implementing the anti-money launderingcompliance program requirements of 31 U.S.C. 5318(h), and is regulated by a Federal functionalregulator

•

When the other financial institution has entered into a contract with the Adviser requiring it tocertify annually to us that it has implemented its anti-money laundering program, and that it willperform (or its agent will perform) specified requirements of the fund clients/investors identificationprogram

•

5.5.5 Special Situations

If a client/investor or potential client/investor is unable to present an unexpired government-issuedidentification document that bears a photograph or similar safeguard, the Adviser will attempt to use otherdocumentary and non-documentary methods to verify the person's identity.

If the Adviser is unfamiliar with the documents the client/investor presents the Adviser will verify theauthenticity of the document and/or use other methods to verify the person's identity.

If the Adviser opens a client/investor account without obtaining the required documents the Adviser willdiscontinue transacting business for the client/investor until the Adviser obtains identifying information.



If the Adviser opens the client/investor account without the client/investor appearing in person the Adviserwill use documentary and non-documentary verification methods as stated above.

If the client/investor's circumstances increase the risk that the Adviser will not be able to verify theclient/investor's identity, the Adviser will attempt to verify the person's identity with documentary methodsand if the Adviser is unable to verify the person's identity, the Adviser will use non-documentary methods ornot open the account.

Until the Adviser verifies the client/investor's identity the Adviser will determine whether each transaction isappropriate without client/investor identity verification. If the Adviser fails to verify the client/investor'sidentity it will close the client/investor's account and not reopen the account until it positively identifies theclient/investor. If the Adviser suspects that clients/investors are not who they purport to be, the Adviser willnot open accounts on those clients/investors' behalf, and the Adviser will file a suspicious activity report inaccordance with the SAR section of these policies and procedures.

5.5.6 Clients/Investors Who Refuse to Provide Information

If a potential or existing client/investor either refuses to provide the information described above whenrequested, or appears to have intentionally provided misleading information, the Adviser will not transactbusiness for the client/investor and, after considering the risks involved, the Adviser will consider closingany existing account. In either case, the AML CO will be notified so that a determination can be maderegarding reporting the situation to FinCEN (i.e., file a Form SAR-SF). The AML CO shall be the finaldeterminant of the client's/investor's status.

5.5.7 Government List Comparison

The Adviser will verify within a reasonable time after the client/investor opens an account, or earlier ifFederal law, regulation, and/or directive requires, that the client/investor does not appear on any list ofknown or suspected terrorist or terrorist organization. The Adviser will follow all Federal directives issuedin connection with such lists.

On an ongoing basis, the Adviser will check the OFAC list to ensure, before transacting any business withthem, that potential clients/investors and existing clients/investors are not prohibited persons or entities andare not from embargoed countries or regions.

From time to time, the Adviser may receive notice that a Federal government agency has issued a list ofknown or suspected terrorists. Within a reasonable period of time after an account is opened (or earlier, ifrequired by another Federal law or regulation or Federal directive issued in connection with an applicablelist), the Adviser will determine whether a client/investor appears on any such list of known or suspectedterrorists or terrorist organizations issued by any Federal government agency and designated as such byTreasury in consultation with the Federal functional regulators. The Adviser will follow all Federaldirectives issued in connection with such lists.

The Adviser will continue to comply with Treasury's Office of Foreign Asset Control rules prohibitingtransactions with certain foreign countries or their nationals.



5.5.8 FinCEN Requests Under PATRIOT Act Section 314

Under Treasury's final regulations (published in the Federal Register on September 26, 2002), the Adviserresponds to a Financial Crimes Enforcement Network (FinCEN) request about accounts or transactions byimmediately searching our records, at our head office or at one of our branches operating in the UnitedStates, to determine whether we maintain or have maintained any account for, or have engaged in anytransaction with, each individual, entity, or organization named in FinCEN's request. Upon receiving aninformation request, the AML CO will designate one person to be the point of contact regarding the requestand to receive similar requests in the future. Unless otherwise stated in FinCEN's request, we are required tosearch current accounts, accounts maintained by a named suspect during the preceding 12 months, andtransactions conducted by or on behalf of or with a named subject during the preceding six months. If theAdviser finds a match, the Adviser will report it to FinCEN by completing FinCEN's subject informationform. This form can be sent to FinCEN by electronic mail at [email protected], or by facsimiletransmission to 703-905-3660. If the search parameters differ from those mentioned above (for example, ifFinCEN requests longer periods of time or limits the search to a geographic location), the Adviser will limitits search accordingly.

If the Adviser searches its records and does not uncover a matching account or transaction, then the Adviserwill not reply to a 314(a) request.

The Adviser will not disclose the fact that FinCEN has requested or obtained information, except to theextent necessary to comply with the information request. The Adviser will maintain procedures to protectthe security and confidentiality of requests from FinCEN, such as those established to satisfy therequirements of Section 501 of the Gramm-Leach-Bliley Act.

The Adviser will direct any questions it has about the request to the requesting Federal law enforcementagency as designated in the 314(a) request.

Unless otherwise stated in the information request, the Adviser will not be required to treat the informationrequest as continuing in nature, and the Adviser will not be required to treat the request as a list for purposesof the fund clients/investors identification and verification requirements. The Adviser will not useinformation provided to FinCEN for any purpose other than (1) to report to FinCEN as required underSection 314 of the PATRIOT Act; (2) to determine whether to establish or maintain an account, or to engagein a transaction; or (3) to assist the firm in complying with any requirement of Section 314 of the PATRIOTAct.

5.6 Acceptable Types of Clients/Investors

Generally the Adviser will accept the following types of clients/investors, subject to the final review andacceptance of the AML CO.

5.6.1 Individual Clients/Investors

At minimum, the Adviser will obtain the client/investor's:

Name and address• Date of birth• Investment experience and objectives•



mailto:[email protected]

Social Security Number• Occupation, employer's address, and annual income• Names of all persons authorized to trade on the account•

5.6.2 Confidential Accounts

Upon client/investor request, the Adviser will keep the clients/investor's identity confidential. The Adviserwill maintain the clients/investor's identity records accessible to limited personnel including but not limitedto the AML CO.

5.6.3 Corporations, Partnerships and Comparable Legal Entities

In order to confirm the identity of a legal entity, the Adviser will obtain satisfactory evidence of the entity'sname and address and its authority to make the contemplated investment. Where the client/investor is neithera publicly traded company listed on a major, regulated exchange (or a subsidiary or a pension fund of such acompany) nor a regulated institution organized in a FATF-Compliant Jurisdiction the Adviser may wish togain additional comfort regarding the client/investor's identity by obtaining certain of the following, asappropriate under the circumstances:

Evidence that the client/investor has been duly organized in its jurisdiction of organization• If the Adviser believes it would be reasonable to rely upon a certification from the client/investor, acertification ("AML Certificate") from the client/investor that it has implemented and complies withanti-money laundering policies, procedures and controls that, for example, seek to ensure that noneof its directors, officers or equity holders are prohibited clients/investors, as set forth in a certificateor other list

•

5.6.4 Domestic Operating or Commercial Entities

For all commercial entities, the Adviser will verify the business identity and verify that the person investinghas authority to transact business with the Adviser.

5.6.5 Domestic Trusts

For all domestic trusts, the Adviser will identify the principal owner of the trust and confirm that theindividual establishing the investment has authority to transact business on behalf of the trust. At thediscretion of the AML CO, the Adviser may accept evidence of the trustee's authority to make thecontemplated investment in the form of either an AML Certificate from the trustee or the identities ofbeneficiaries, the provider of funds (e.g., settlor(s)), those who have control over funds (e.g., trustee(s)) andany persons who have the power to remove trustees.

5.6.6 Electronic or Internet Accounts

The Adviser will not accept any account opening documents submitted electronically, and does not open oraccept internet accounts.



5.6.7 Foreign Operating Commercial Entities

In determining whether the Adviser will open a foreign operating commercial entity account the Adviserwill consider the client/investor's country of incorporation and primary business location jurisdiction. TheAdviser will not open an account for a foreign shell bank without a domestic affiliated institution. Uponwritten notice from the US Treasury that one of the Adviser's clients/investors is a foreign bank or foreignoperating commercial entity that has not responded to the US Treasury's request for information, the Adviserwill terminate the account within ten (10) days.

5.6.8 Intermediary Accounts (Other Hedge Funds, Investment Funds,Institutional Accounts)

Establishing intermediary accounts may require the Adviser to obtain more or less information beforeestablishing the investment. The Adviser may request more information when it cannot determine theclient/investor's investment objective. The Adviser may request less information if the client/investor isdeemed to be a sophisticated client/investor. The AML CO will determine, on a case-by-case basis, howmuch information the Adviser will require from these clients/investors when establishing accounts. TheAML CO may consider the following factors:

If the institution/intermediary has a long term relationship with the Adviser• Public reputation of the institution/intermediary• Whether the institution is from a jurisdiction generally characterized as an offshore banking orsecrecy haven, non-cooperative country, or of other suspicious nature

•

5.6.9 Non-Resident Alien Accounts

In addition to resident requirements, the Adviser should obtain from non-resident alien clients/investors, acurrent passport number or other valid government ID number, and any necessary US tax forms.

5.6.10 Offshore Trusts

Before opening offshore trust accounts, the Adviser will determine the ultimate beneficiary of the account.The AML CO will further determine if the Adviser requires additional client/investor information.

5.6.11 Omnibus Accounts

For omnibus accounts and sub-accounts established by financial intermediaries, the AML CO must verifythe identity of the accountholder. The AML CO does not need to verify the identities of any beneficialowners since they are not considered to be clients/investors of the Adviser.

5.6.12 Foreign Nationals

When opening an account for a foreign national, the Adviser will require the client/investor to complete aForeign Accounts Consent to Service of Process form similar to the attached example and check theappropriate box of the state of residence or the primary state where the client/investor (if a corporation or



other business organization) is doing business. By completing this form, a foreign national client/investorbecomes subject to the laws of the United States.

5.7 Prohibited Clients/Investors

The Adviser will not accept an investment from or on behalf of the following:

Any client/investor (a "Listed Client/Investor") whose name appears on the List of SpeciallyDesignated Nationals and Blocked Persons maintained by the U.S. Office of Foreign Assets Control("OFAC") or such other lists of prohibited persons and entities as may be mandated by applicablelaw or regulation

•

Foreign Shell Bank (with respect to clients/investors that are Foreign Banks, the Adviser may wishto consider obtaining a representation that the bank either (1) has a Physical Presence; or (2) doesnot have a physical presence, but is a regulated affiliate.)

•

Senior Foreign Political Figure, any member of a Senior Foreign Political Figure's ImmediateFamily, and any Close Associate of a Senior Foreign Political Figure

•

Any client/investor resident in, or organized or chartered under the laws of, a Non-CooperativeJurisdiction

•

Any client/investor resident in, or organized or chartered under the laws of, a jurisdiction that hasbeen designated by the Secretary of the Treasury under Section 311 or 312 of the USA PATRIOTAct as warranting special measures due to money laundering concerns

•

Any client/investor who gives the Adviser reason to believe that its investment funds originate from,or are routed through, an account maintained at an "offshore bank", or a bank organized or charteredunder the laws of a non-cooperative jurisdiction

•

Any client/investor who gives the Adviser reason to believe that the source of its investment fundsmay not be legitimate

•

5.8 Suspicious Transactions and Activity

The Adviser will monitor its account activity to identify patterns of unusual size, volume, pattern or type oftransactions, geographic factors such as whether jurisdictions designated as "non-cooperative" are involved,or any "red flags." The Adviser will review transactions, including trading and wire transfers, in the contextof other account activity to determine if a transaction lacks financial sense or is suspicious because it is anunusual transaction or strategy for that client/investor. The AML CO is responsible for monitoring,documenting, and reporting this activity to the appropriate authorities. The Adviser will submit SuspiciousActivity Reports (SARs) for suspicious client/investor activity when opening accounts and when transactingbusiness.

5.8.1 Suspicious Activity at Initial Investment

At initial investment associated persons should report the following and any other suspicious activities to theAML CO:

Client/Investor has a suspicious background or originates from a suspicious area•



Client/Investor exhibits reluctance to provide pertinent information related to source of investmentfunds, business background or other information

•

Client/Investor expresses objections to the Adviser's compliance procedures, restrictions, disclosuresor other practices

•

Client/Investor appears to be acting as an agent for an undisclosed principal, but declines or isreluctant, without legitimate commercial reasons, to provide information or is otherwise evasiveregarding that person or entity

•

Client/Investor is from, or has accounts in, a country identified as a non-cooperative country orterritory by the FATF

•

Client/Investor cannot describe in reasonable terms the nature of his/her business or investmentexperience

•

Client/Investor cannot adequately document appropriate authority for the account• Client/Investor wishes to engage in investments that are inconsistent with the client/investor'sapparent investment strategy

•

Client/Investor (or a person publicly associated with the client/investor) is the subject of newsreports indicating possible criminal, civil or regulatory violations

•

5.8.2 Transactions

If the associated person observes the following or other suspicious client/investor activities they shouldreport the client/investor's activities to the AML CO:

Large cash transactions (in excess of $10,000)• Transactions that may be structured to fall just below reporting thresholds• Wire transfers, journals or cash transactions that have no apparent investment purpose especially ifconducted among countries considered to be tax or bank secrecy havens

•

Account activity is limited to cash and cash equivalents• Significant deposit earmarked for investment with subsequent or sudden request for withdrawal• Multiple accounts for the same individual with no apparent reason for separate accounts• Customer activity limited to investments often utilized in connection with fraudulent schemes andmoney laundering, such as "Reg. S" stocks, bearer bonds, penny stocks and others

•

Deposit of bearer bonds with immediate subsequent request for liquidation• Investment activity not impacted by any apparent consideration of risk, return or other performance• Sudden change in activity, especially wire activity, in an account previously not active• A deposit is made for the purpose of purchasing a long-term investment but is withdrawn or theinvestment is liquidated within a short term

•

Deposits and withdrawals to the account appear to be well beyond the financial means, income orresources of the client/investor

•

5.8.3 Reporting Suspicious Initial Investment Activity

If any associated person detects suspicious client/investor activity the associated person will immediatelynotify the AML CO. Such report shall be made whether or not an account is opened, or a transaction isconsummated. Following the initial report, the AML CO, at his/her discretion, will take one of the followingactions:



Notify the Adviser's general counsel or other legal representative• File a Suspicious Activity Report or "SAR" (such filing is to remain confidential, and the Advisermay not disclose the filing to any person involved in the transaction or with the account)

•

Contact state and/or federal authorities, as required• Other action the AML CO deems appropriate•

The Adviser will contact Federal Law Enforcement immediately if it determines that: (1) a client/investor ison the OFAC list; (2) a client/investor's legal or beneficial account owner is listed on the OFAC list; or (3) aclient/investor attempts to bribe, coerce, unduly influence, or take any other inappropriate action to open anaccount or proceed with a suspicious or unlawful activity or transaction.

The AML CO will record each reported instance in the Adviser's Suspicious Activity log.

The AML CO will investigate all reported suspicious activities. To the best of his/her ability the AML COwill freeze the account of any client/investor during the investigation to prevent further activity (such as awire or redemption) in the account. The AML CO will utilize Form SAR-SF to report any applicableactivity. The AML CO shall maintain confidentiality with respect to each and every reported incident ofsuspicious activity.

5.9 Suspicious Activity Related to Transactions

The AML CO will file form SAR-SF for any attempted or conducted account activity where the Adviserknows, suspects, or has reason to suspect one or more of the following:

The transaction involves funds derived from illegal activity or is intended or conducted in order tohide or disguise funds or assets derived from illegal activity as part of a plan to violate or evadefederal law or regulation or to avoid any transaction reporting requirement under federal law orregulation.

•

The transaction is designed, whether through structuring or otherwise, to evade the requirements ofthe Bank Secrecy Act regulations.

•

The transaction has no business or apparent lawful purpose or is not the sort in which theclient/investor would normally be expected to engage, and the Adviser knows, after examining thebackground, the possible purpose of the transaction and other facts, of no reasonable explanation forthe transaction.

•

The transaction involves the use of the Adviser to facilitate criminal activity.•

The AML CO will file form SAR-SF and notify law enforcement of all transactions that raise an identifiablesuspicion of criminal, terrorist, or corrupt activities. In high-risk situations, the Adviser will notify thegovernment immediately and file the SAR with FinCEN.

The AML CO will file a SAR within 30 days of the date of the initial detection of the facts that constitute abasis for filing the SAR. If the Adviser cannot identify any suspect on the date of initial detection, theAdviser may delay filing the SAR for an additional 30 days pending identification of a suspect.



The AML CO will retain copies of any SAR filed and the original or business record equivalent of anysupporting documentation for five years from the date of filing the SAR. The AML CO will maintainsupporting documentation and make such information available to FinCEN, any other appropriate lawenforcement agencies, or federal or state securities regulators, upon request.

The AML CO will not notify any person involved in the transaction that the transaction has been reported,except as permitted by the BSA regulations.

5.10 Procedures for Compliance With Anti-Money LaunderingPolicies

The AML CO for the Adviser is [Name of Individual].

The AML CO shall be responsible for implementation of the AML program, including its CIP and employeetraining.

No less than annually, the AML CO will instruct an independent third party to perform a test of itsAnti-Money Laundering Program, including but not limited to reviewing AML files and logs, blotters, otherfiles and logs, and other records as the Adviser deems appropriate. The AML CO will maintain a writtensummary of the test in an AML independent test file.

The AML CO will supervise the retention of CIP records of all client/investor identity and verificationinformation. For each document the Adviser uses to verify client/investor identity the AML CO willmaintain a record of either the documentary or non-documentary evidence used to verify the individual's ID.



6 BUSINESS CONTINUITY

In a publication released by the SEC (SEC 34-498445) the regulator commented that "...a critical 'lessonlearned' from the events of September 11, 2001 is the need for more rigorous business continuity planning inthe financial sector to address problems of wider geographic scope and longer duration than those previouslyaddressed."

The publication went on to describe the methods by which the events of September 11 2001 made clear thepossibility of a large scale regional disaster, and the effect to which this new reality affected businessplanning and risk management. Because of the importance of the US financial markets, the broad consensusin the financial community was that business continuity planning would be required to adapt to plan forevents of wider scope and, in general to become more robust and resilient. In 2001, The NationalAssociation of Securities Dealers (NASD) surveyed its industry membership to evaluate:

Existence and/or content of Business Continuity Plans• Data back-up procedures• Location of books and records• Effect of September 11 on its members' ability to conduct business•

Similarly, the SEC added a review of business continuity plans and risk management to its regularexamination program, requiring Advisers to produce written plans for business continuity and/or to describethe methods in place for controlling risk, and for securing the ongoing operation of their business in the faceof an otherwise unanticipated interruption or disaster.

In February 2004, with its approval of SEC Rule 206(4)-7, the SEC requires Advisers to create and maintainwritten terms for business continuity as part of overall supervisory systems. Since that time, regulatoryinspections of Advisers have included review of the continuity plans.

6.1 Content of Plan

A Business Continuity Plan ("BCP") is a comprehensive document outlining the Adviser's procedures forrecovering from an event that interferes with operations, such as natural disasters and other emergencies.Recent events have brought the importance of creating and maintaining business continuity plans to light.Regulators now believe that Advisers should be required to create and maintain a BCP, ensuringpreparedness for any future business disruptions.

The Adviser has separately developed a disaster recovery and business continuity plan to meet itsresponsibilities to clients/investors, staff, business associates and others who may be affected by a disruptionin the Adviser's business. A member of senior management, who is also a principal of the firm, mustapprove the plan. It must also be updated at least annually or as soon as possible in the event of a materialchange in operations, structure, business and/or location(s).

Although a detailed copy of the BCP is retained under separate cover, general guidelines for the policy areprovided below:

Include terms and conditions for major risk areas, including credit risk, market risk, liquidity riskand other related risks

•

6 BUSINESS CONTINUITY 37/77

A back up system for recovery of data (both hard copy and electronic data) as protection againstmarket and other risk

•

Plan for rapid recovery of mission critical systems including means of testing the system• Review of financial and operational assessments including contingency planning for financial risk• Plans for alternate communications for use between employees and the Adviser, as well as betweenclients/investors and the Adviser

•

Identification of and instructions regarding an alternative physical location of employees• Instructions for required and other communications with regulators and regulatory reporting• Identification of and risk assessment related to primary business constituents, banks and othercounter parties

•

How the Adviser will assure clients/investors prompt access to their funds and securities in the eventthe Adviser determines that it is unable to continue its business

•

To add value to the plan the SEC recommends that the Adviser also consider developing and publicizingalternate communication plans for clients/investors, service providers, and regulators to use if/when regularchannels are not working. The alternate communications plan should assign personnel to communicate withregulators, government agencies, and mission critical vendors, providing for the type of information to beshared.

Communication planning should identify alternate modes of communication, such as pagers, cellular phonesor email. Periodically the Adviser and its associated persons should exchange emergency telephonenumbers, email address(es), and physical address(es) to facilitate communication during an unanticipatedinterruption in the Adviser's business. The list should provide all alternatives, since one or moretelecommunications systems could be unavailable.

An Adviser's capability to conduct business is tested, and ultimately determined, by its own financial andoperation assessments.

6.2 Employee Training

Employee training and preparation are crucial parts of maintaining the BCP. Key personnel must beinvolved in development of both the BCP and maintenance strategies. To be effective, this preparation mustencompass industry standards, along with specific training for the individual business. As an outcome oftraining addressing emergency preparedness, employees should be able to answer the following questions:

Who is the immediate contact for each division or unit?• What events trigger implementation of all or parts of the BCP?• Who is responsible for implementing the BCP for each division or unit and for the organization as awhole?

•

Where they should report if normal means of communication are unavailable?• What to do if key persons become unavailable?•

A comprehensive BCP should also outline employee responsibilities, to both clients/investors as well as tothe business following a disaster. In order to anticipate staffing needs in the absence of key personnel,employees must also be cross trained regularly and in non emergency conditions.

Posting on websites, or well known bulletin boards, and using telephone banks are ways to distribute



information during a disaster. Reporting or calling locations can also serve the dual purpose of accountingfor missing personnel. Business continuity training should be scheduled and updated consistently to reflectchanges to the BCP.

6.3 Procedures for Compliance with Business ContinuityPlanning

The CCO shall ensure that the Adviser maintains a BCP under separate cover.

The CCO shall conduct training or shall ensure that training is conducted such that the Adviser's employeesare informed of components of the BCP relevant to their job function. A record of the training shall beretained among the central compliance files.

Each employee shall be required to provide emergency contact information to the Adviser. Upon materialchange, each associated person shall notify the CCO of changes in emergency contact information. No lessthan annually, the CCO shall re-evaluate the efficacy of the plan, and shall amend the plan according tohis/her findings. To the extent that testing is performed, the CCO shall retain evidence of the test results andsubsequent corrective action.



7 RISK MANAGEMENT AND INTERNAL CONTROLS

The SEC's approach to evaluating the risk management and internal control systems used by funds andAdvisers has become increasingly structured. Among the SEC's goal has become focusing its exams onareas of real risk to clients/investors. Consistent with this approach, the SEC requires that operatingmanagers and compliance staff of an Adviser obtain an understanding of the Adviser's control procedures inthe most critical or strategic areas.

To the extent it is possible, the Adviser seeks to quantify and manage risk in line with its fiduciaryresponsibility to fund clients/investors.

One of the roles of the risk monitoring function is to identify the factors affecting the risk and return of theclient/investor's or fund's investments, both within individual portfolios and across the entire range ofactivities of the Adviser.

While it is important to note that the various risks faced by the Adviser are interrelated, the Adviser's policyis to seek to address risk in four primary categories:

Market Risk• Credit Risk• Liquidity Risk• Operational Risk•

7.1 Market Risk

Market Risk is the risk of loss for a portfolio and its subcomponents based on market conditions.

Factors that are commonly incorporated in a market risk model might include:

Confidence level (the probability that the change in the value of the portfolio would exceed theVAR)

•

Time horizon or holding period (the period of time that would be necessary for the portfolio to beliquidated or neutralized),

•

Variance-covariance data (which reflects the volatility of the individual market factors and thecorrelation between pairs of factors)

•

Monitoring market risk is typically accomplished through VAR (calculations based on typical market days),scenario analyses (calculations based on severe market conditions), and back testing.

7.1.1 Credit Risk

Credit risk results from the Adviser's dealings with third parties, including the settlement of securities andderivatives transactions, repurchase agreements, collateral arrangements, and margin accounts among otherdealings.

7 RISK MANAGEMENT AND INTERNAL CONTROLS 40/77

The Adviser can assess its credit risk through monitoring of concentrations of credit risk with particularcounterparties, including how the funds managed by the Adviser would suffer if the counterparty were todefault.

7.1.2 Liquidity Risk

Investment strategies that include illiquid investments, degrees of leverage and which are subject to otherrisks including market risk and credit risk are subject to liquidity risk.

The Adviser may face liquidity risk when the portfolio suffers an unanticipated loss, when positions must beliquidated in a manner inconsistent with the customary investment strategy, when market conditionsadversely and unexpectedly impact the portfolio and other such circumstances.

The Adviser may monitor its liquidity risk through a number of means including tracking its cash positionand understanding at all times its borrowing capacity. Liquidity might be monitored through the Adviser'sexperience and judgment as to liquidity levels that are adequate given the risk of loss and/or the likelihoodof client/investor redemptions. Additionally, the Adviser's lines of communication with its credit providerscan be considered in determining liquidity risk. Other measures such as negotiated haircuts, the speed atwhich prime brokers can dictate an increase in margin rates and two-way collateral agreements, whereappropriate, may be contemplated to further reduce the likelihood of running out of liquidity if applicable.

7.1.3 Operational Risk

The Adviser faces operational risk on a day-to-day basis through human error on the part of its employees(data entry errors, fraud, reconciliation errors, among others), through its system (technical failures,systematic errors in valuation or risk measurement models, others) and through the activities of third partiesthat provide services to the Adviser.

7.1.4 SEC Risk Management Interview

To determine risk exposure on a firm by firm basis, the SEC commonly interviews principals and/or requiresa written narrative addressing common risk areas.

The interview/request list includes such areas as:

Consistency of portfolio management decisions with clients/investors' mandates• Order placement practices consistent with seeking best execution and disclosures made toclients/investors and funds' boards

•

Allocation of block and IPO trades• Personal trading of access persons consistent with the Advisers' code of ethics• Accurate securities pricing and net-asset values• Regular reconciliation of custodian records with fund and Adviser records• Controls over information• An independent custodian provides clients/investors with information about activity in theiraccounts

•

Calculations and presentations of performance• Accurate reconciliations of shareholder transactions• Internal Risk Assessment•



Preparing in advance to address these topics may be useful in facilitating a regulatory examination.

7.2 Procedures for Compliance with Risk Management andInternal Controls

The CCO is charged with responsibility for assessment of the primary areas of the Adviser's risk. Followingan assessment of the risk areas, the CCO shall devise and implement internal controls.

To monitor its Market Risk, the CCO may utilize one or more of the following measures:

Variance/Covariance• Historical Volatility• Monte Carlo Simulation•

The CCO will periodically review reports of these measures, and may require that data is provided by othersfor use in the process. For instance, the CCO uses reports provided by the Portfolio Manager ("PM") toevaluate and quantify the effectiveness of the measures. At least once annually, the CCO shall require thePM to apply back-testing over a certain period of time to demonstrate the effectiveness of the measureversus other conditions including actual market results.

To monitor its credit risk, the CCO shall maintain periodically updated records of its arrangements withthird parties providing credit to the Adviser. The types of records the CCO will maintain may includefinancial statements, annual or other periodic reports, or the contract in place between the Adviser and thethird party related to situations in which credit might be at risk.

To monitor its liquidity risk, the CCO shall periodically review records that demonstrate its cash position, itborrowing capacity, and its need for liquidity (such as historical draw downs).

To address its operational risk the CCO shall perform periodic random spot checks of its electronic systemsand shall maintain a single consolidated data set including the contingency plans for responding to failures.Additionally the CCO shall ensure that each third party service provider has adequately demonstratedoperational soundness by conducting due diligence at the onset of the relationship and periodic monitoringon an ongoing basis.



8 US REGULATORY FILINGS

The Adviser may be required to make certain regulatory filings on an ongoing basis. US regulatory filingsthat the Adviser may be required to file in the United States, organized by particular regulatory agency,depending on either their trading activity or their status as a regulated entity are listed and described below.The list below specifically excludes tax filings as well as filings that may be required of registeredbroker/dealers.

The filings made to particular regulators by the Adviser depends on the type and volume of trading in whichit engages, its business model and the jurisdictions in which it operates, and these requirements may changefrom time to time based on various triggering events. For example, the size of the positions held may triggercertain regulatory filings. In addition, the Adviser may also be subject to regulatory reporting and filingrequirements in the foreign jurisdictions in which it conducts its business; however, this document does notaddress these types of filings.

8.1 Federal Reserve Filings

Federal Reserve Filings include Treasury Securities Position and Foreign Exchange Transaction Reportingand Treasury International Capital Forms.

Positions of size in specific Treasury security issues that exceed the large position threshold specified by theU.S. Treasury Department (minimum $2 billion) are reported on this form. Reports are filed in response tonotices issued by the U.S. Department of the Treasury if such threshold is met. Reports are filed with theFederal Reserve Bank of New York and are not public.

This form captures a report of weekly, consolidated data on the foreign exchange contracts and positions ofmajor market participants. Reports are to be filed throughout the calendar year by each foreign exchangemarket participant that had more than $50 billion equivalent in foreign exchange contracts on the lastbusiness day of any calendar quarter during the previous year. The report is filed with the appropriateFederal Reserve Bank acting as agent for the U.S. Department of the Treasury and is confidential.

Form FC-2 is a report of monthly, consolidated data on the foreign exchange contracts and foreign currencydenominated assets and liabilities of major market participants. Form FC-2 must be filed throughout thecalendar year by each foreign exchange market participant that had more than $50 billion equivalent inforeign exchange contracts on the last business day of any calendar quarter during the previous year. Thereport is filed with the appropriate Federal Reserve Bank acting as agent for the U.S. Department of theTreasury and is confidential.

Form FC-3 is a report of quarterly, consolidated data on the foreign exchange contracts and foreign currencydenominated assets and liabilities of major market participants. Form FC-3 must be filed throughout thecalendar year by each foreign exchange market participant that had more than $5 billion equivalent inforeign exchange contracts on the last business day of any calendar quarter during the previous year andwhich does not file Form FC-2. The report is filed with the appropriate Federal Reserve Bank acting asagent for the U.S. Department of the Treasury and is confidential.

Treasury security reports filed must be filed as necessary for participants in Treasury Auctions. For anycustomer (fund) who is awarded a par amount of $500 million or more in U.S. government securities in aTreasury auction, confirmations must be provided. The confirmation must include the customer's (fund's)reportable net long position, if any. The confirmation is filed with the Federal Reserve Bank to which the bid

8 US REGULATORY FILINGS 43/77

was submitted and is not public.

Forms CQ-1 and CQ-2 are forms filed by U.S. persons who have claims on, or financial liabilities to,foreigners, have balances on deposit with foreign banks (in the U.S. or abroad) or otherwise engage intransactions in securities or other financial assets with foreigners.

Forms CQ-1 ("Financial Liabilities to, and Claims on, Foreigner Residents") and CQ-2 ("CommercialLiabilities to, and Claims on, Foreigner Residents") are quarterly reports, which collect data on financial andcommercial liabilities to, and claims on, unaffiliated foreigners held by non-banking enterprises in theUnited States, which must be filed when the consolidated total of such liabilities is $25 million or moreduring that period. The forms are filed with the Federal Reserve Bank of New York and are nonpublicexcept for aggregate information.

Form S is a form that is to be filed by any U.S. person who purchases or sells $2 million or more oflong-term marketable domestic and foreign securities in a month in direct transactions with foreign persons.The form is filed with the Federal Reserve Bank of New York and is nonpublic except as to aggregateinformation.

8.2 Securities and Exchange Commission ("SEC") Filings

SEC filings include those related to the sale of securities by an issuer exempt from registration under Reg. Dor 4(6) and ownership of equity securities publicly traded in the United States.

Form D is the notice of sale that is filed after securities, such as interests in a private hedge fund, are sold inreliance on a Regulation D private placement exemption or a Section 4(6) exemption from the registrationprovisions of the 1933 Act. The form is filed with the SEC and relevant states and is publicly available.

Form 144 is required to be filed as notice of the proposed sale of restricted securities or securities held by anaffiliate of the issuer in reliance on Rule 144 when the amount to be sold during any three month periodexceeds 500 shares or units or has an aggregate sales price in excess of $10,000. The form is filed with theSEC and the principal national securities exchange, if any, on which such security is traded and is publiclyavailable.

Schedule 13D is a disclosure report that is required to be filed for any investor who is consideredbeneficially to own more than 5% of a class of equity securities publicly traded in the U.S. The reportidentifies the source and amount of the funds used for the acquisition and the purpose of the acquisition.This reporting requirement is triggered by direct or indirect acquisition of more than 5% of beneficialownership of a class of equity securities publicly traded in the United States. Amendments must be filedpromptly for material ownership changes. Some clients/investors may instead report on short-form Schedule13G if they are eligible. Schedule 13D is filed with the SEC and is publicly available.

Schedule 13G is the short-form disclosure report for any passive investor who would otherwise have to file aSchedule 13D but who owns less than 20% of the subject securities (or is in certain U.S.-regulatedinvestment businesses) and has not been purchased for the purpose of influencing control. This reportingrequirement is triggered by direct or indirect acquisition of beneficial ownership of more than 5% of a classof equity securities publicly traded in the U.S. Amendments must be filed annually if there are any changes,and either monthly (for U.S.-regulated investment businesses) or promptly (for other passiveclients/investors) if ownership changes by more than 5% of the class. The report is filed with the SEC and ispublicly available.

Every director, officer or owner of more than 10% of a class of equity securities of a domestic publiccompany must file a statement of ownership as follows:



Form 3 - Initial Filing (triggered by acquisition of more than 10% of the equity securities of a domesticpublic company, the reporting person becoming a director or officer, or the equity securities becomingpublicly traded, as applicable)

Form 4 - Changes to the Initial Filing (triggered by any open market purchase, sale, or an exercise of optionsof those securities reported under Form 3)

Form 5 - Annual Statement of Beneficial Ownership (required annually for those insiders who have hadexempt transactions and have not reported them previously on a Form 4)

8.3 Registered and Unregistered Institutional InvestmentManagers

Form 13F is a quarterly position report that must be filed by registered and unregistered institutionalinvestment managers (i.e., any person, other than a natural person, investing in or buying and sellingsecurities for its own account, and any person exercising investment discretion with respect to the account ofany other person) with investment discretion over $100 million or more in equity securities publicly tradedin the U.S. Form 13 F Reports contain position information about the discretionarily managed equitysecurities. The requirement to file applies to any institutional investment who holds equity securities havingan aggregate fair market value of at least $100 million on the last trading day of a calendar year. Forqualifying managers, the report is required as of the end of that year and for each of the next three quarters.The reports are filed with the SEC and are publicly available.

8.4 Material Associated Persons of Registered Broker-Dealers

Material Associated Persons (MAP) reports, filed by Form 17-H are required to be filed by registeredbroker-dealers, but also applies to some hedge fund managers to they extent that related persons areaffiliated with broker-dealers. Some Hedge Fund Managers are affiliated with registered broker-dealers.MAPs generally include material affiliates and parents and may therefore include an affiliated Hedge FundManager or the related hedge fund.

The form filing requirement includes the following:

Organizational chart of the broker-dealer1. Risk management policies of the broker-dealer2. Material legal proceedings3. Additional financial information including aggregate positions, borrowing and off-balance sheet riskfor each MAP

4.

This report is filed with the SEC quarterly and cumulatively at year end and is not public. There are also avariety of filings with the SEC and the securities self-regulatory organizations that must be made byregistered broker-dealers and their employees who are associated persons. These requirements are notcovered in this manual.



8.5 Investment Adviser Registration Under the Advisers Act

Effective as of February 1, 2006, hedge fund managers that have at least 15 "clients," as defined underInvestment Advisers Act Rule 203(b)(3)-2, must file a Form ADV. This Form is divided into two parts. Theinformation submitted in Part I is filed electronically with the National Association of Securities DealersInvestment Adviser Registration Depository ("IARD") and includes information about the investmentadviser's education, business, the persons who own the adviser and whether they have been sanctioned forviolating securities or other laws. The information in Part II is geared primarily toward the adviser's clients.Part II contains information relating to the business practices, fees, investment strategies and conflicts ofinterest the investment adviser may have with its clients. Part II is not submitted to the SEC but is deemed tobe filed so long as a copy is maintained in the adviser's files and is subject to review by the SEC. Part II isrequired to be updated annually, within 90 days of the adviser's fiscal year end, and whenever it becomesmaterially inaccurate.

8.6 Procedures for Compliance with Regulatory FilingRequirements

The CCO shall determine which of the regulatory filings must be made by the Adviser, and shall assign datacollection and reporting duties accordingly to ensure timely filings are made.

The CCO shall compile a list of applicable regulatory filings, including the date(s) on which such filings arerequired. At least annually, the list shall be reviewed. Evidence of the review shall include the initials anddate of the CCO.



9 NEW ISSUES

Restrictions on trading new issues are set forth by the SEC in Regulation M and by the NASD in Rule 2790.While most investment advisers are not also broker-dealers, the NASD rules may apply to activitiesconducted by the Adviser directly or indirectly, and therefore will be briefly discussed in this chapter.

New issues are defined by NASD Rule 2790 (the 'rule") as any initial public offering of an equity security,as defined in Section 3(a)(11) of the Securities Exchange Act of 1934, made pursuant to a registrationstatement or offering circular. The rule does not apply several types of offerings including secondaryofferings or offerings of convertible or preferred securities.

In late 1996, the SEC passed Regulation M which generally prohibits participants in the distribution of anoffering (such as underwriters, broker-dealers, and others) or any other affiliate from purchasing or biddingcertain securities during an initial offering. This condition of Regulation M would affect the Adviser if itsclients or affiliates include broker-dealer(s) and if it elected to purchase securities for these or other clientsduring or immediately before such offerings.

The Regulation also prohibits covering a short sale with securities obtained in a public offering if the saleoccurred within 5 business days before the pricing of the public offering. The SEC has enforced compliancewith this condition of the Regulation over investment advisers in its jurisdiction.

Because contingent liability may inure to the Adviser, the Adviser should be cognizant of the terms andconditions of Regulation M and of prevailing NASD regulations related to new issues that may affect or beaffected by its clients and/or affiliates.

9.1 Procedures for Compliance with New Issues

The CCO is responsible for reviewing the recording of trades in new issues on a daily basis. Evidence of thereview will be made by the CCO's initials on reports reviewed.

The CCO will oversee trading in new issues to ensure that each is properly and separately allocated to a newissues account(s) at the custodian. To ensure compliance, each new issue transaction shall be speciallydesignated as such on the Adviser's trade blotter or order ticket. Further attribution of the shares shall besupervised by the CCO.

In order to properly account for new issues, the following procedures must be performed:

Any purchase of security in a public offering that is deemed to be a new issue must be allocated tothe new issue account(s) (where applicable) on trade date.

•

Any purchase of a new issue must be indicated as such on the daily trade sheets.• At the end of the day on trade date (on which a new issue security was purchased) or as soon aspractical, if the security is still owned and will continue to be owned, the trader shall execute twoseparate transactions, a sell of such shares held in the new issue account(s) and simultaneouslyexecute a buy of the same amount of shares.

•

The sell order will be booked to the new issue account(s) and the buy order booked to the regularaccounts.

•

9 NEW ISSUES 47/77

10 GIFTS AND ENTERTAINMENT

For purposes of the following policies on receipt of gifts and sending gifts, a gift of nominal value shall bedefined as cash, cash equivalent, physical item, service or event tickets with a value not to exceed $100.00.Any gifts given or received by the Adviser or any of its associated person are considered in aggregatewhether or not they were conferred by the same or different people at the Adviser or the other (recipient)firm or party.

For purposes of the Adviser's policies regarding Entertainment, an entertainment event shall include anyconference, meal or sponsored outing.

No associated person or member of an associated person's immediate family may receive any gift of morethan nominal value from any person or entity including clients and their service providers, vendors andcompetitors. Gifts of nominal value are subject to disclosure requirements as outlined in the ProceduresSection below.

No associated person or member of an associated person's immediate family may send any gift of more thannominal value to any person or entity including clients and their service providers, vendors and competitors.Procedures for gifts of nominal value are outlined in the Procedures Section below.

Associated persons are generally permitted attend an approved event provided that the purpose of themeeting is to discuss the Adviser's business, and provided that the associated person AND the vendor,service provider or client paying for the event must be in attendance.

Similarly, associated persons may invite clients to an event provided that the purpose of the meeting is todiscuss the Adviser's business, and the event has been approved by a responsible principal.

10.1 Procedures for Gifts and Entertainment

The CCO is the principal charged with responsibility for the Adviser's Gift and Entertainment policies.

To monitor compliance, the CCO shall require that associated persons report gifts given and received withina timely manner, deemed to be [5] business days prior to giving or after receiving the gift.

To monitor compliance, the CCO shall require that associated persons report events attended and/or hostedwithin a timely manner, deemed to be [5] business days prior to extending an invitation or upon receipt of aninvitation to attend an event.

As evidence of compliance, the CCO shall record gifts given and received on a log, retained among thecentral compliance files of the Adviser.

As evidence of compliance, the CCO shall record events attended/sponsored on a log, retained among thecentral compliance files of the Adviser.

10 GIFTS AND ENTERTAINMENT 48/77

11 TRADING

The Adviser's trading policies include allocation procedures, best execution guidelines, resolution of tradeerrors, treatment of soft dollars and other issues.

The Adviser's trading practices must be fair and equitable to customers, and must be subject to an allocationsystem that is reasonable and which does not favor one class of client/investor over another.

Order executions must be periodically tested to ensure that the firm has met its obligation to seek bestexecution.

11.1 Aggregation of Orders

A no-action letter provided in the matter of SMC Capital in 1995 established the acceptable parameters foraggregation of orders under specific circumstances. In the SMC Capital, Inc. No-Action letter, the SECindicated that aggregation of client orders would not violate the anti-fraud provisions of Section 206 of theAdvisers Act provided the Adviser in question fully disclosed its allocation practices in Form ADV andseparately to existing clients. Notwithstanding this, the Adviser remains subject to its established policies,which require that no advisory account is favored over any other account.

Specifically, the Adviser may not favor certain performance-based or other client accounts with "hot issues"or allocate profitable trades at each day's end so as to disproportionately favor certain clients withoutappropriate disclosure. Certain managed accounts or funds may have investment restrictions that are morerestrictive than those of other accounts managed by the Adviser. As a result, certain managed accounts maynot participate in all trades.

The Adviser will endeavor to make all investment allocations in a manner that it considers to be the mostequitable to all accounts. The allocation ratio used for those trades excludes the capital, from thedenominator, of the accounts not participating in the trades. The Adviser will endeavor to make allinvestment allocations in a manner that it considers to be the most equitable to all accounts.

Allocation procedures should be fair and equitable to all client/investor types with no account(s) beingfavored or disfavored over any other account(s).

Aggregation, or "bunched" orders, must be transacted under the following circumstances:

The Adviser must ensure that its authority for each account included in the aggregated order allowsfor aggregation.

•

The Adviser must ensure that adequate and full disclosure of its allocation and bunching practiceshas been made prior to the transaction.

•

All clients/investors, accounts or funds participating in the aggregated order shall receive an averageshare price with all other transaction costs shared on a pro-rata basis.

•

Aggregate transactions must not be executed unless the intended and resultant aggregation isconsistent with its duty to seek best execution and any terms found in the Adviser's writtenagreements.

•

Aggregated orders filled in their entirety shall be allocated among clients/investors, accounts orfunds in accordance with an allocation statement created prior to the execution of the transaction(s);partially filled orders shall be allocated pro-rata based on the allocation statement.

•

11 TRADING 49/77

Client/Investor funds held collectively for the purpose of completing the transaction may not be heldin this commingled manner for any longer than is practical to settle the transaction.

•

Each client/investor, account or fund that participates in an aggregated order will participate at theaverage share price for all the Adviser's transactions in that security on a given business day, withtransaction costs shared pro-rata based on each client/investor's, account's or fund's participation inthe transaction.

•

Investments resulting from any aggregated order must be consistent with the specific investmentobjective(s) of each client/investor, account or fund as detailed in any written agreements.

•

No additional compensation shall result from the proposed allocation.• No client/investor, account or fund will be favored over any other client/investor, account or fund asa result of the allocation.

•

Pre-allocation statement(s) specifying the participating client/investor accounts and the proposedmethod to allocate the order among the clients/investors, accounts or funds are required prior to anyallocated order. Should the actual allocation differ from the allocation statement, such trade mayonly be settled with the approval of the CCO or another appropriately qualified and authorizedprincipal of the Adviser.

•

11.2 Best Execution

The Adviser has an obligation to seek best execution of clients/investors' transactions under thecircumstances of the particular transaction. Accordingly, the Adviser must execute securities transactions forclients/investors in such a manner that the clients/investors' total cost or proceeds in each transaction is themost favorable under the circumstances.

In making its determination on a transaction by transaction basis, the Adviser should consider the full rangeand quality of a broker's services in placing its orders including, among other things, the executioncapability, commission rate, financial responsibility, value of research, availability of hard-to-borrowsecurities and general responsiveness to the Adviser.

It is important to note that best execution is not always the lowest possible price. Other factors used to assessexecution quality may include:

Character of the market (e.g. price, volatility, relative liquidity, and pressure on availablecommunications)

•

Number of primary markets checked• Occasion and accessibility of the broker/dealer to primary markets• Size and type of transaction•

11.3 Trade Errors

The Adviser's handling of trade errors must be conducted in a manner that does not disadvantage the client,irrespective of the cause of the error. The following procedures apply to all trade errors resolved by theAdviser:


11 TRADING 50/77

The Adviser must ensure that if the resolution of the error results in an agency cross transaction, allappropriate disclosures and consents must be made, consistent with the Adviser's obligations underRule 206(3)2 of the Adviser's Act.

•

The client/investor must not be disadvantaged as a result of the Adviser's error.• In no event shall an employee of the Adviser resolve a trade error without the approval of a seniorprincipal or other supervisor.

•

Soft dollars may not be used to pay for resolving the Adviser's trade errors.•

11.4 Agency Cross Transactions

The SEC imposes specific regulations for transactions in which the Adviser (or any entity it controls or isunder common control of) acts as broker on both sides of a transaction ("agency cross transaction").

Under SEC Rule 206(3)-2 an agency cross may only be performed if the Adviser meets the followingrequirements:

The Adviser makes disclosure that it will act as broker for, receive commissions from, and have apotentially conflicting division of loyalties and responsibilities regarding both parties to any suchtransaction.

•

After making such disclosure, the Adviser has in place an executed contract with the client/investorspecifically authorizing the Adviser to effect agency cross transactions (special conditions apply ifthe purchase represents participation in a distribution or if a sale is related to a tender offer).

•

The Adviser provides an annual (or more frequent) written disclosure statement identifying the totalnumber of cross transactions since the last such statement.

•

The Adviser includes a prominent disclosure statement with each other written disclosure regardingagency cross transactions that the consent may be revoked at any time by written notice to theAdviser.

•

No such agency cross transaction may be entered into in which the Adviser and any other Adviserunder common control with or controlled by the Adviser represents both sides of the transaction.

•

In addition to the above, in respect to agency cross transactions as for all transactions recommendedby, engaged in or otherwise authorized by the Adviser, the Adviser must always act in the bestinterests of the client/fund/fund investor.

•

11.5 Procedures for Compliance With Trading Policies

The CCO is the individual charged with responsibility for implementation, monitoring and retention ofdocumentation related to the Adviser's trading policies.

The CCO shall determine the allocation strategies for trades placed by the Adviser according to a cyclehe/she deems to be appropriate, but in all cases the allocation ratio shall be determined prior to any bulktrade being made.

The CCO shall ensure that any individual with the authority to place a trade in an account managed or


11 TRADING 51/77

supervised by the Adviser shall be provided with the allocation ratio for the transaction.

In [most, all, some] cases, trades placed by the Adviser shall be allocated according to the following:

Securities being acquired are allocated by the size of assets of each account.• Securities being sold are allocated based on the total size of each account's position in that security.• The price of the securities allocated shall be at the average share price for all transactions of theaccounts in that security on a given day, with all transaction costs shared on a pro rata basis.

•

The CCO shall ensure that a description of the Adviser's allocation procedures are disclosed in its FormADV.

Orders ultimately allocated on a basis inconsistent with the allocation statement may be settled provided theCCO or an appropriately qualified and authorized individual approved the explanation for the revisedre-allocation in writing within [1 hour] of the opening of trading on [the day following the trade date];

The CCO is charged with oversight of the Adviser's efforts to achieve best execution. From time to time, theCCO may require principals of the Adviser and other qualified persons to participate in the review. Includedamong the documents and information reviewed in this regard may be:

Reports of executions posted publicly by clearing firms and other entities through which the Adviserroutes orders

•

Time and sales data reviewed from a reliable resource, such as Bloomberg, or NASDAQ Trader• Internal reviews and reports• Cost appraisals related to the Adviser's custodial, clearing and settlement relationships, and any andall other information deemed appropriate by the CCO

•

Documentation of the Adviser's appraisal of its execution quality, including the nature and scope of thereview, shall be reviewed and documented no less than quarterly. Evidence of the review may include thereviewer's initials and/or date of review on the documents reviewed.

To ensure compliance with the Adviser's trade error policies, the CCO will conduct or will instruct anotherqualified party to conduct a review of trade errors. The review shall include a review of 'broken' or 'dk'trades and may be based on records generated internally as well as those available through independent thirdparties such as the Adviser's custodian(s).


11 TRADING 52/77

12 PROTECTION OF NONPUBLIC CUSTOMER DATA

Federal, state and other governmental regulations require Advisers to protect nonpublic customer data.

12.1 Regulation S-P

The Securities and Exchange Commission passed Regulation S-P in June of 2000, implementing privacyrules among affiliated and non-affiliated financial institutions, in response to the Gramm-Leach-Bliley Act("GLB"), which passed in November of 1999. GLB eliminates the restrictions on banking, securities andinsurance activities being conducted under one roof. GLB also addresses privacy concerns throughprovisions for sharing information among various entities, as advocated by consumer privacy groups.Included in GLB's Title V are complex privacy rules that require financial institutions (including investmentadvisers) to adopt policies and procedures and provide consumers and clients/investors with various noticesregarding the steps the firms will take to protect nonpublic client/investor information.

Since the passage of Regulation S-P, states and other government agencies have enacted laws andregulations governing the protection of client/investor nonpublic data.

The Adviser is required to adhere to the privacy laws and regulations in each and every state in which it hasclients/investors. Regulation S-P is binding on all federally-covered investment advisers. Regulations of theFederal Trade Commission (similar to Regulation S-P) and other state laws are applicable to state coveredinvestment advisers and govern the sharing of client/investor information. (The recently enacted CaliforniaFinancial Information Privacy Act governs client/investor information sharing and applies to investmentadvisers with Californian clients/investors.) Every investment adviser must therefore develop and implementa "privacy policy" in order to control the management and disclosure of client/investor information.

12.1.1 Affiliate

An Affiliate is any company that controls, is controlled by, or is under common control with the Adviser.

12.1.2 Clear and Conspicuous

Clear and conspicuous means that a privacy policy notice must be designed to call attention to theinformation contained in the notice, and that the notice must be reasonably understandable. This means thatthe typeface and size must be large enough to be easily read, and of such a design that will illustrate thesignificance of the disclosure.

12.1.3 Consumer

A consumer is an individual who obtains financial products or services that are to be used primarily forpersonal, family, or household purposes. The legal representative(s) of the consumer are included in thedefinition. Financial products and services include the investments themselves and those evaluations oranalyses that led to the investment.

Consumers are not any of the following persons:

12 PROTECTION OF NONPUBLIC CUSTOMER DATA 53/77

Individuals who provide only a name, address, or other general contact information for the purposeof obtaining information, such as a response request

•

Individuals who have accounts with the Adviser solely for the purpose of executing a transaction,such as those accounts cleared through the Adviser by an introducing broker-dealer or contractedbroker-dealer

•

Individuals who have accounts or engage in transactions with the Adviser solely due to agent orservice contracts

•

Other individuals who are not directly defined as consumers of the Adviser•

12.1.4 Continuing Relationship

A continuing relationship is one in which there is an ongoing association with the Adviser. This will include:

an individual who has an account with an introducing broker that clears through a clearing firm on afully disclosed basis;

•

an individual who is the recorded owner of securities;• any individual with whom the Adviser has had one transaction but with whom the Adviser expectsto develop an ongoing relationship, and future, subsequent transactions;

•

any individual who has contracted with the Adviser for continuous and ongoing investment services,or investment supervisory services.

•

A continuing relationship is not established in cases where there is a stand-alone transaction that is notexpected to result in future transactions.

12.1.5 Customer

A customer is an individual or consumer who has a "customer relationship" with the Adviser.

12.1.6 Customer Relationship

A customer relationship is a continuing relationship between the individual and the Adviser in which theAdviser provides a financial or investment product or service that is to be used primarily for personal, familyor household purposes.

12.1.7 Nonpublic Personal Information

Nonpublic personal information is essentially that information obtained or collected by the Adviser that ispersonally identifiable financial information. The definition includes lists, groups, or other categories thathave been created or derived on the basis of individual or household nonpublic information. For instance, alist of names derived from specific account numbers is nonpublic personal information.

12.1.8 Personally Identifiable Financial Information

Personally identifiable financial information is that information provided to the Adviser by the individualthat results in a transaction with the consumer that results in the provision of any service to the consumer,



and/or is obtained by the Adviser through the use of account applications, client/investor profiles orquestionnaires, or through other means.

12.1.9 Publicly Available Information

Publicly Available Information is that which the Adviser may reasonably believe is available to the generalpublic (1) legally through federal, state, or local governments; or (2) broadly through public media such asphone books, web listings, or newspapers.

12.2 Consumers & Customers

Regulation S-P draws distinctions between customers and consumers, requiring different levels of protectionto each. Entities covered by the regulation must provide customers with notice about the entity's privacypolicies, and must give consumers a method to opt out of any sharing practices by giving reasonable notice.

Under the Regulation, a consumer is an individual who obtains financial products or services to be usedprimarily for personal purposes. Products and services can include evaluations of information, in addition tothe product or service itself. By contrast, a customer is a consumer with a continuing relationship with theentity to obtain the services of a consumer. Therefore, all customers are also consumers.

12.3 Notification Requirement

Company considers the confidentiality, integrity and security of investor information and records absolutelyessential to maintain trust and superior service. To the extent Company collects certain nonpublic personalinformation about the current and prospective investors, such shall not be disclosed to any unauthorizedindividual or entity, except as permitted by law.

All business activities associated with privacy and security related matters shall be reviewed and approvedby the CCO or his designee. To the end, the CCO, or his designee, shall be responsible to ensure the securityand confidentiality of customer information and records, protect against anticipated threats to its integrityand unauthorized access.

In order to establish, implement and monitor these privacy policies, the CCO, or his designee, shall:

(a). Maintain current policies and procedures to protect investor records and information;

(b). Deliver initial, and annually thereafter, privacy notices to all existing and new customers;

(c). Provide all existing and new customers an opportunity to opt-out and cease the sharing of nonpublicpersonal information, if applicable;

(d). Protect the collection, storage and transmission of all nonpublic personal information; and



(e). Educate employees about privacy policy and procedures.

Privacy Notice.

Company will disclose details of any information sharing arrangements. Specifically, Company shalldisclose: the categories of nonpublic personal information that it may collect; the categories of nonpublicpersonal information it may disclose; the categories of affiliates and nonaffiliated third parties to whom itdiscloses nonpublic personal information other than service providers and third parties that aid in fulfillingthe service requested by a consumer; Company's policies with respect to sharing information about formercustomers; the categories of any information disclosed under agreements with third party service providersand joint marketers and the categories of third parties providing the services, if any; a consumer's right to optout of the disclosure of nonpublic personal information to nonaffiliated third parties; and Company's policiesand practices with respect to protecting the confidentiality, security, and integrity of nonpublic personalinformation. The notices shall be delivered to all current and prospective investors initially, every investor atthe inception of the account and each year thereafter. Thereafter, all investors will be provided a notice whenand if information is going to be shared and then be given an opportunity to opt out of that sharingarrangement.

12.3.1 Initial Notice

The initial notice must be clear and conspicuous in the manner in which it presents the Adviser's privacypolicy.

For customers, initial notice must be provided at or before the point when a customer relationship isestablished. Conditions exist to allow notice within a reasonable time frame for such instances as an accounttransfer or telephone order, when the notice requirements may interfere with the transaction itself.

Initial notice to consumers is only required if the entity intends to share nonpublic information with anon-affiliated third party. An abbreviated form of the privacy policy may be created and distributed for usewith consumers.

12.3.2 Annual Notice

During each 12 month period in which an ongoing client/investor relationship exists, an investment advisermust provide a subsequent notice of the Adviser's privacy policy to all customers. If there is a change in theprivacy policy, notice must be given to all customers whose information may be affected by the change.

12.3.3 Content of Notice

Privacy policy notices must contain specific information, including:

Types of nonpublic information collected by the entity, including the names of forms on which theinformation is collected

•

Categories of nonpublic information shared by the entity, including the same for former customers• Categories of affiliated and non-affiliated third parties to whom information is disclosed/shared bythe entity

•



Separate disclosure is required for any servicing or joint marketing agreements, including thecategories of information and of the third parties involved

•

Notice of opt out rights available to customers, which must adhere to the regulation's standard of"reasonable" and/or any state regulation regarding the sharing of information

•

General disclosures regarding the policies of the entity to protect and secure confidentialinformation

•

Disclosure regarding shared information among affiliated parties as defined by the SEC and/or thestate(s) in which the Adviser is registered

•

Statement(s) regarding allowed third party sharing relationships, such as those conducted under thetransactional exemption or others

•

12.3.4 Privacy Policies

12.3.5 Customer Information

12.3.6 California Residents

12.4 Procedures for Compliance with Regulation S-P

With regard to internal security procedures, Company shall restrict access to investor's personal and accountinformation to those employees who need to know that information to service the account(s). Company shallmaintain physical, electronic and procedural safeguards to protect nonpublic personal information. Thesepolicies and procedures described in this section shall be adhered to regardless of termination or inactivity incustomer's account(s). All supervised persons and associated persons shall acknowledge their understandingof these procedures by executing the Privacy Policy Acknowledgement for Associated Persons (attachedhereto).

The Company has implemented the following measures to ensure the protection and confidentiality ofcustomer information.

(a). Access to areas that customer records are maintained shall be restricted to only employees who needaccess to such and to investors when accompanied by an employee.

(b). To the extent practicable, the Company will limit access to its offices where confidential informationcould be observed or overheard by individuals that do not need to know such information;

(c). To the extent practicable, the Company will limit access to its offices and areas where customer fundsand securities are received and disbursed and where mail is received and distributed. The access shall belimited to the employees that are engaged in these activities and to their immediate supervisors. If possible,these areas shall be locked with access limited to the above referenced people who shall be issued keys orelectronic passes;

(d). Company personnel will be instructed to exercise care to avoid placing documents containing



confidential information in areas where they may be read by unauthorized persons and store such documentsin secure locations (i.e. locked files) when they are not in use;

(e). Investor records, and any other records that may contain non-public financial information, shall be keptin drawers and file cabinets in a secure area. They shall only be removed when needed to service theinvestor's account, and shall be kept in secured areas each evening. The keys shall be maintained by theCCO or his designee.

(f). Company personnel are prohibited from discussing confidential information in public places such aselevators, hallways, restrooms, or at social gatherings.

(g). The Company shall require all nonaffiliated organizations that come into contact with non-publicconfidential information (lawyers, accountants, printers, etc.) to conform to its privacy standards and willobligate them to keep the provided information confidential and used as requested.

(h). When documents containing non-public financial information are to be disposed of, they shall bedestroyed by shredding or some other secure manner which can prevent readable copies from being used.

(i). All employees, including non-registered personnel, shall be apprised of these procedures when initiallyhired, and at the annual compliance meeting.

(j). Should the Company suspect that an incident of identity theft has occurred or if it is notified by acustomer that they suspect an identity theft, the CCO or his designee shall commence an investigation anddetermine if an identity theft may have occurred. If the investigation determines that one may have occurred,the CCO shall notify the appropriate law enforcement agencies. (This includes the local Sheriff, the FBI, andSecret Service. The FTC serves as a clearinghouse for complaints against credit reporting agencies andcredit grantors, referrals, and resources for assistance for victims of identity theft. They should be notified ifthe suspected victim requests this type of assistance. Refer to "Title 18 USC 1028" and to "Identity Theftand Assumption Deterrence Act of 1998".)



13 PUBLIC COMMUNICATIONS

The Adviser's communications with the public, which include its advertisements, its website,correspondence (both electronic and written) including internal communications are subject to SEC andState Regulations that require each such communication to be fair, reasonable and balanced. The regulationssubject the communications to record-keeping requirements.

Regular and ongoing oversight of the Adviser's communications with the public is a fundamental componentof its compliance program.

13.1 Advertisements

The SEC defines "advertisement" in Investment Advisers Act Release No. 1083 as any writtencommunication addressed to more than one individual or any notice or announcement in any publication orby other means (such as radio, web/internet, cable or television) that offers any analysis, report, orpublications regarding securities; or any graph, chart, formula or other device for making investment orinvestment advisory decisions.

All advertisements developed by or for the Adviser or its promoters, including third parties if applicableshall be consistent with the provisions of Rule 206(4) of the Investment Advisers Act of 1940, applicablestate standards, and other rules. These rules require that no associated person of the Adviser shall publish,circulate, distribute, or otherwise use any advertisement that is incomplete, false, or misleading.

While the definition requires that the material must include an offer of services of some nature, the SEC hasbroadly interpreted the definition to include the Adviser's brochure, websites, any form letter, chat roomparticipation, materials used to maintain existing client/investor relationships, materials intended to solicitnew clients/investors, the Adviser's "pitch book" and other such materials.

13.1.1 Investment Counsel

It is the Adviser's policy not to refer to itself as an "investment counsel" or use the term to describe itsbusiness unless the "principal" business of the Adviser is rendering investment advice and a substantial partof the Adviser's business consists of rendering "investment supervisory services" as defined on Form ADV.

13.1.2 "RIA"

In rendering effective licensure for a registered investment adviser and/or its registered agents, the SEC doesnot approve or endorse the firm. Therefore, while an Adviser may represent that it is "registered," the SECprohibits the use of the term "RIA" on stationery, business cards, or in advertising, as it may imply to theinvestment community that the individual or firm has achieved approval, endorsement, or other credential.The Adviser may use "registered investment adviser" provided the words are spelled out.

13.1.3 Testimonials

A "testimonial" includes, but is not limited to, a summary of a specific case situation, real or fictional, whichmay create an inference that all clients/investors of the Adviser typically experience favorable results.Client/Investor surveys conducted by third party service providers are considered by the SEC to be

13 PUBLIC COMMUNICATIONS 59/77

testimonials, but may be used in an advertisement as long as they are consistent with regulatoryrequirements. These regulatory requirements include, but are not limited to requirements that results mustrepresent a valid sample, represent unbiased analysis, and do not favor positive or negative results.

In addition, representative client/investor lists may be testimonials and may only be used if the followingconditions are met:

Criteria for determining which clients/investors are included in the list are not based onperformance.

•

A statement or statements disclosing the criteria used for determining which clients/investors areused in the list.

•

The list includes a disclaimer stating that it is not known whether the clients/investors listed approveor disapprove of the Adviser or the advisory services.

•

13.1.4 Past Recommendations

The Adviser is prohibited under Rule 206(4)-1 from 'cherry picking', which is generally thought to be theuse of any promotional materials that refer to any past profitable recommendations absent specific disclosureregarding all recommendations made by the Adviser. Over time, findings by the SEC have provided forrequirements that any such promotion of past profitable recommendation must include a list of ALLrecommendations made by the Adviser in the past year. The requirement applies equally to direct andindirect references to past recommendations, but does not apply to advertisements that discuss investmentsor strategies that were not profitable.

Any advertisement that includes past recommendations must include at minimum the name of the security,the date and type of transaction (whether it was a buy or sell recommendation), the market price at the timeof the recommendation and the terms of the order (market, limit, etc.). The advertisement must also includea statement that it should not be assumed that recommendations made in the future will be profitable orwill equal the performance of the listed securities. This statement must be made with adequate prominence.For instance, the font size of the disclosure should equal or exceed the smallest font in use in other font typeon the page.

13.1.5 Performance Data

Performance data in marketing materials is highly scrutinized by the SEC because clients/investors andpotential clients/investors are likely to consider the Adviser's performance an important factor in selecting anAdviser. The SEC has established guidelines for certain types of language and other restrictions regardingwhat may and may not be included in performance data used for the purpose of marketing the services of aninvestment adviser.

Investment advisers are not required by law to disclose performance data. If they do, however, thisinformation must be presented fairly. An advertisement would be prohibited if it implies, or if a reader couldinfer from it, a conclusion as to an Adviser's competence that would not be reached if all material facts hadbeen disclosed. Performance advertisements must disclose all material facts so as to avoid unwarrantedimplications or inferences.



13.1.6 Actual Performance

In the case of the use of actual performance results, the following omissions or practices may be consideredmisleading:

Any representation that model, hypothetical, or back-tested performance is actual performance is notallowed.

•

Assets held with other than the Advisers primary or approved custodian should not be included inthe asset base for performance reporting purposes.

•

Assets that are managed at different approved custodians may be included in the Adviser'sperformance reports; however, it should be made clear to the client/investor that assets are beingheld with different custodians due to unique fees and charges that may apply, among othervariations.

•

Illiquid assets such as limited partnerships and non-variable annuities should not be included in theasset base for performance reporting purposes. The Adviser should take care to justify the liquidityof any asset included in its performance base.

•

Inaccurately reporting the size of the Adviser's asset base is considered to be misleading, as it maylead a client/investor to the wrong conclusion regarding the Adviser.

•

Investment advisers, who present their performance results in compliance with the PerformancePresentation Standards of the Association of Investment Management and Research ("AIMRStandards"), must ensure that any claim of "AIMR COMPLIANCE" can be verified through factualdocumentary evidence.

•

Predecessor returns, such as those an Adviser may have generated under prior employment or otherprior organization, may not be used in a misleading manner.

•

13.1.7 Model Performance

In the case of the use of model performance results, the following omissions or practices may be consideredmisleading:

Failing to disclose material changes in the conditions, objectives, or investment strategies of themodel portfolio during the performance period covered in the report

•

Failing to report any effect of changes in the conditions, objectives or strategies on the currentportfolio

•

Failing to disclose any variation in actual performance versus that reported in the modelperformance

•

Any other failure that would cause the model to be an inaccurate portrayal of the Adviser's currentlyoffered or managed portfolio

•



13.1.8 Gross vs. Net Performance Data

The use of gross performance data in presentations and advertising is prohibited except in one-on-onepresentations to wealthy individuals, pension funds and other institutions. One-on-one presentations are notclearly defined by the SEC but some guidance is provided through No-Action letters issued by the SEC. Inparticular, provided the presentation is private and confidential, it can be permitted that more than oneprospective client/investor, consultant or other individuals are present. Furthermore, the presentation shouldbe made in such a forum that it is reasonable to expect that attendees will have an opportunity to questionthe Adviser about the nature, scope and affect of fees on the overall cost structure to the investment, style, orstrategy being proposed. Additional information regarding the SEC's position on the use of grossperformance in one-on-one presentations can be found in a No-Action letter issued to the InvestmentCompany Institute ("ICI") in the late 1980's and in No-Action relief provided to the Securities IndustryAssociation in a letter dated 1989. For instance, in the ICI No-Action letter, the SEC established theparameters for the use of gross performance as requiring that four specific conditions are met:

Disclosure that the performance figures do not reflect the deduction of investment advisory fees1. Disclosure that the client/investor's return will be reduced by the advisory fees and any otherexpenses it may incur in the management of its advisory account

2.

Disclosure to describe where further information regarding fees may be found, such as in Part II ofthe Adviser's Form ADV and/or in the fund offering documents

3.

A representative example (e.g., a table, chart, graph, or narrative), which shows the effect aninvestment advisory fee, compounded over a period of years, could have on the total value of aclient/investor's portfolio

4.

Other than in one-on-one presentations conforming to the SEC's No-Action letters, the use of grossperformance in advertising is deemed to be misleading. Therefore, in all other instances, performance mustbe shown net of fees.

13.1.9 Retention of Performance Documentation

Under Rule 204(2) of the Investment Advisers Act of 1940, the Adviser must retain all performanceadvertisements and all supporting documents and information used to form the basis for that performanceinformation for a period of at least five (5) years from the end of the fiscal year in which the material waslast used or distributed, the first two (2) years in an easily accessible location. The Adviser is cautioned thatthe record of supporting documentation must include records of ALL materials for the entire reportingperiod included in any distributed report or advertisement. For instance, if the Adviser distributes itsperformance for a decade or more, ALL supporting documentation for the entire period is subject to theretention requirement.

13.1.10 Requests for Proposal

Requests for Proposal are questionnaires distributed generally by large institutions or other money managersas part of their due diligence in selecting investment advisers. These questionnaires are not advertising, asthey are completed in connection with a single request for information for a specific investment.Nonetheless, they are commonly requested for review by regulators in connection with a regulatoryexamination. Therefore, the Adviser shall address all responsive content within the questionnaire according



to the standards of accuracy, fairness, balance and performance reporting applied to advertising materials.

13.1.11 Prohibited Advertisements

It is the Adviser's duty to ensure that its advertising is fair, balanced, and accurate. Certain types ofadvertising are prohibited:

Materials including the acronym "RIA," including but not limited to brochures, stationery orbusiness cards

•

Materials including statement(s) to the effect that any report, analysis or other service will befurnished without a charge unless such report or other service is actually furnished without charge orobligation

•

Testimonial(s) of any kind concerning the investment adviser, or any advice, analysis, report orother services rendered by the Adviser

•

Statement(s) of material fact that are false or misleading• Direct or indirect specific past profitable recommendations absent appropriate disclosure statementand a list of all recommendations made in the most recent year

•

Statement(s) that any graph, chart, formula or other device being offered can be used in and of itselfby a client/investor to determine what securities should be bought and sold, or that such a devicewill assist any person in making decisions concerning specific securities transactions

•

13.2 Correspondence

Rule 206(4)-7 requires the Adviser to have in place written policies and procedures reasonably designed toprevent violations of the Act and other rules. It is reasonable to expect that written policies and proceduresso designed would include the Adviser's internal and external business related communications. Further,upon regulatory examination, representatives of regulatory agencies are likely to request to review copies ofcommunications by client, by associated person, and/or by date for example. The regulators will expect thatthe Adviser's communications are subject to adequate control by a principal of the Adviser such thatindividual associated persons are not able to communicate inappropriately with existing or prospectiveclients/investors.

In its enforcement of procedures related to its communications with the public, the Adviser might considerone or more of the following:

Prohibiting or restricting the use of any stationery, email or server other than that under the controland subject to the review of the CCO for business related communications

•

Prohibiting or restricting the use of instant messaging or electronic communications from any meansthat might prevent the oversight of the CCO

•

Prominent disclosure of the name of the Adviser on stationery or in electronic 'tag lines' includingcontact information for the primary office of the Adviser

•

Subjecting any or all communications to the prior and/or timely review of the CCO or his/herdesignee

•

Recording the review of written and electronic communications to include: monitoring content (todetect potential misleading or fraudulent communications, violations of the Adviser's internal

•



policies and procedures, etc), reviewing the state of the recipient (to detect potential license and/orregistration violations), among numerous other types of reviews

13.2.1 Electronic Communications

SEC officials have stated that they interpret certain regulations as requiring investment advisers to reviewtheir electronic communications for investment advisory matters.

Electronic communications, including those among the general investing public and other internal businessrelated communications that fall under Rule 204-2 of the Investment Advisers Act of 1940, require reviewand retention as for any other type of written communication. Non-business related communications may bedestroyed if done on a regular and routine basis pursuant to an established policy of the Adviser that isadequately designed to prevent the unauthorized destruction of business communications.

13.2.2 Retention

SEC Rule 204(2) requires that Advisers retain originals of all written communications received and copiesof all written communications sent by the Adviser relating to (1) any recommendation made or proposed tobe made and any advice given or proposed to be given; (2) any receipt, disbursement or delivery of funds orsecurities; or (3) 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 similarcommunications of general public distribution not prepared by or for the investment adviser, and (b) that ifthe 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 berequired to keep a record of the names and addresses of the persons to whom it was sent; except that if suchnotice, circular or advertisement is distributed to persons named on any list, the investment adviser shallretain with the copy of such notice, circular or advertisement a memorandum describing the list and thesource thereof.

The above referenced advertising and communications along with supporting documentation for the samemust be maintained for a period of at least five (5) years, the first two (2) years in an easily accessiblelocation.

13.3 Procedures for Compliance with Public CommunicationsRequirements

The CCO is charged with responsibility for implementation, ongoing monitoring and retention of theAdviser's communications with the public.

To monitor the Adviser's written communications, the CCO requires that all communications be provided[in advance OR in a timely manner]. At his/her discretion, the CCO may implement an electronicsurveillance system designed internally or provided by a third party to assist in the process of review andretention of the Adviser's communications.

To ensure compliance with Rule 206(4), the Adviser has charged the CCO with the responsibility andauthority to review and approve any and all forms of advertisements in advance of their use. This mandate is



to include the firm's marketing materials, its 'pitch book', slide presentations, responses to Requests forProposal, responses to third party questionnaires, and any and all other materials used in presentationswhether to one individual or to multiple parties. Evidence of the review and approval will be retained amongthe central files.

To assist in monitoring compliance with these procedures, the CCO will perform or will instruct anotherindividual to perform a periodic review of the separate files and records maintained by individuals whopromote investment in the accounts or funds managed by the Adviser, such that assurances may be attained(or exceptions identified) that materials used in the promotions have been approved in advance.

In regard to the review of communications, the Adviser has implemented a system of review that requiresthe following:

All incoming written (paper) communications shall be centrally opened, copied and provided to theCCO for review.

•

Outgoing written (paper) communications shall be provided to the CCO for review in a timelymanner (deemed to be within [10] business days of the date of the communication).

•

Periodically, associated persons with access to incoming and outgoing paper communications shallbe trained regarding the procedures for opening and processing the Adviser's communications.

•



14 THE FIDUCIARY STANDARD

The Advisers Act laid the groundwork for regulation of investment advisers and helped codify the fiduciaryrelationship investment advisers have with their advisory clients/investors. This initial groundwork has beenrefined over the years. In 1960, the Advisers Act was amended to add a books and records requirement andan antifraud provision. 1970 saw some further amendments, which gave the SEC greater enforcementpowers. By 1997, the National Securities Markets Improvements Act ("NSMIA") became effective. Beforethat time, regulation of investment advisers took place at both the federal and state level. NSMIA dividedregulation of investment advisers between the SEC and the states thereby ending dual regulation.

14.1 Antifraud Provisions

Section 206 of the Advisers Act contains an antifraud provision. In Securities and Exchange Commission v.Capital Gains Research Bureau, Inc. the Court recognized in applying the antifraud provision that afiduciary relationship exists between an investment adviser and their client/investor.

Whereas registered representatives have transaction-based responsibilities to their customers, investmentadvisers have relationship type responsibilities to their clients/investors. This standard becomes importantacross the Adviser's activities imposing fiduciary standards on each client/investor relationship and evenbeyond the nature of each individual transaction.

The CCO, other principals and associated persons are all extensions of the Adviser. As such, all theseindividuals must act in the best interests of the Adviser and its clients/investors. Failure to do so canpersonally subject the individuals associated with the Adviser to enforcement action(s).

14.2 Fiduciary Duties

In general, the fiduciary duty owed by the Adviser to its clients/investors will guide employees, officers anddirectors in avoiding conflicts of interest, providing full and fair disclosure of services and fees, seeking bestexecution, and a number of other areas.

In clarifying the nature of fiduciary responsibilities, Section 206 states that it is unlawful for any investmentadviser, using the mails or any means or instrumentality of interstate commerce, to carry out any of thefollowing:

Employ any device, scheme, or artifice to defraud a client/investor or prospective client/investor1. Engage in any transaction, practice, or course of business which defrauds or deceives aclient/investor or prospective client/investor

2.

Knowingly sell any security to or purchase any security from a client/investor when acting asprincipal for his or her own account, or knowingly to effect a purchase or sale of a security for aclient/investor's account when also acting as broker for the person on the other side of thetransaction, without disclosing to the client/investor in writing before the completion of thetransaction the capacity in which the Adviser is acting and obtaining the client/investor's consent tothe transaction

3.

Engage in fraudulent, deceptive or manipulative practices4.

14 THE FIDUCIARY STANDARD 66/77

Section 206 of the Advisers Act sets forth some specific areas of concern, such as advertising (performancereporting, use of testimonials, other) and custody, along with prohibitions and/or applicable guidelines.

14.3 Procedures for Compliance with Fiduciary Requirements

The CCO is the individual charged with monitoring the Adviser's performance of services in the context ofits fiduciary duties.

The CCO shall take steps designed to ensure that associated persons perform their job duties andresponsibilities within the context of its fiduciary responsibility. Among these, each associated person willbe required to complete an annual attestation of compliance. Record of the completion shall be maintainedamong the Adviser's central compliance files.

The CCO shall conduct or shall instruct a qualified party to conduct an annual fiduciary review. The resultsof the review shall be documented and retained among the Adviser's central compliance files. Findings ofsignificance shall be reported to other senior managers.


14 THE FIDUCIARY STANDARD 67/77

15 PRICING POLICIES (NAV)

Pricing policies utilized in determining the net asset value (NAV) of the Fund(s) assets and liabilities are tobe determined as follows:

Freely marketable securities listed or admitted to trading on any U.S. or foreign stock exchange or the U.S.NASDAQ National Market System or comparable foreign market system (the "NMS") shall be valued (1) atthe last reported sale price of the security on the primary such stock exchange or the NMS, as the case maybe, on the date of determination, or in case there shall have been no sale of such security on such date, then(2) at the mean between the representative "bid" and "asked" price for such security on such exchange or theNMS at the close of business on the date of determination, or if no such "bid" and "asked" price is reportedon such date, then (3) at the last reported sale or such mean between "bid" and "asked" price within thefive-day period preceding such date; or, if neither such last sale price nor "bid" and "asked" prices arereported during such period, then (4) at such price as the Administrator deems to be fair market value.

Freely marketable securities traded over-the-counter or another dealer market shall be valued (1) at the "lastsale" price as reported by the National Association of Securities Dealers Automated Quotation System("NASDAQ") or other primary U.S. or foreign quotation system as of the date of determination or, if nosuch price is reported for such date, then (2) at the mean between the representative "bid" and "asked" priceat the close of business on the date of determination, as reported on NASDAQ or such other system (or, ifnot so reported, then as reported by a recognized quotation service); or, if no such "bid" and "asked" price isreported on such date, then (3) at the "last sale" or mean between the representative "bid" and "asked" priceso reported within the five-day period preceding such date; or, if neither such "last sale" price nor such "bid"and "asked" prices are reported during such period, then (4) at such price as the Administrator deems to befair market value.

All securities not freely marketable ("Restricted Securities") shall be valued at the cost thereof to the Fund,unless in any case the Administrator, in consultation with the Fund's Board of Directors and Adviser,determines that the value thereof is more accurately reflected by an alternative means of valuation (whichcould result in either a mark-up or mark-down of the securities in question).

Dividends declared but not yet received, and rights in respect of securities that are quoted ex-dividend orex-rights, shall be included at the fair value thereof, less any applicable taxes thereon, as determined by theAdministrator that may, but need not, be the fair market value so determined on the day the particularsecurities are first quoted ex-dividend or ex-rights.

Short-term money market instruments and bank deposits shall be valued at cost (together with accrued andunpaid interest) or market, depending on the type of investment, as the Administrator shall deemappropriate.

The value of any other Fund assets (or the value of the assets previously mentioned in situations not coveredthereby, or in the event of any other happening determined by the Administrator in its discretion to makeanother method of valuation advisable) shall be their fair value, determined in such manner as may beselected from time to time by the Administrator in its discretion.

All liabilities of the Fund, including appropriate accruals for the Management Fee and the Incentive Fee, theAdministrator's fees and other expenses, and any reserve or reserves deemed appropriate by theAdministrator, upon advice of the Adviser, for any contingent liabilities, shall be treated as liabilities of theFund and subtracted from total assets to determine Net Assets.

15 PRICING POLICIES (NAV) 68/77

15.1 Procedures for Compliance with Pricing Policies

The CCO shall be ultimately responsible for verification of the Fund's NAV, but may rely on qualified thirdparties, such as the fund Administrator(s) in rendering his/her determination of fairness.

The CCO shall promptly notify [SENIOR MANAGER, FOUNDER, OTHER] in the event any discrepancyis noted, and/or if any discretion is applied in pricing of any security that would otherwise violate thepolicies above.

Record of any internal communications, calculations or other pricing determination within or outside theAdviser's policies shall be retained among the Adviser's central compliance files.


15 PRICING POLICIES (NAV) 69/77

16 REGULATORY AND INTERNAL INSPECTIONS

Registered investment advisers are subject to the ongoing scrutiny of regulatory agencies, including thestates and or the SEC, depending upon the registration status of the entity, and are also likely to be affectedby "cause" (client/investor complaint or other investigation examinations). Regulatory examinations may beannounced or unannounced.

SEC Rule 206(4)-7, effective February 2004, requires that Advisers conduct an annual review of theirpolicies and procedures to ensure their effective implementation.

16.1 Regulatory Inspections Background

The SEC's examination program was first established under the Securities Exchange Act of 1934, after thestock market crash of 1929 revealed alarming misconduct in the investments industry. The Exchange Act of1934 created a federal regulatory system for securities exchanges and over-the-counter markets, andauthorized the SEC to examine those markets. The powers granted to the SEC enabled it to conductexaminations in the public interest and for the protection of clients/investors whenever it was deemedappropriate, as often as it deemed appropriate, on a regular cycle, or otherwise. This purpose underlies all ofthe SEC's examination authority.

In 1940, the examination authority of the SEC was broadened to cover investment companies and theiraffiliates when Congress enacted the Investment Company Act of 1940. The Investment Company Actauthorized the SEC to mandate that investment companies keep records relating to their financial statements.It also authorized the SEC to conduct examinations and to require investment companies, their affiliates andauditors to provide copies or extracts of these records. Over the course of the next seventeen years, the SECbegan to establish an active examination program for investment companies, ultimately leading to theformation of a cyclical examination program. The program was designed to cover a representative samplingof Advisers, with a review of the field results conducted in the regional offices.

In 1960, Congress amended the Investment Advisers Act, authorizing the SEC to require investmentadvisers to keep specific books and records and to conduct examinations of Advisers. By 1963, the SEC wasconducting 219 yearly inspections of investment advisers.

The current inspection program began to evolve with the formation of the OCIE in 1995. In 1998, followingthe effectiveness of the National Securities Markets Improvement Act "(NSMIA") a five-year inspectionprogram was announced to include a five-year cycle for examination of most Advisers, with only thoseAdvisers deemed to require special attention being examined more frequently. Accordingly, over thesubsequent years, the SEC succeeded in inspecting more than 8,000 Advisers no less than once every 5years.

16.2 Scope of the Regulatory Inspection

At the onset of an examination, the regulatory representative should present identification to verify thejurisdiction that the individual represents. Questions regarding the legitimacy of the individual should bedirected to the state or regional office to which the individual reports. Verification of the identification isimportant to ensure that nonpublic client/investor data will not be revealed to or shared with unqualifiedpersons.

16 REGULATORY AND INTERNAL INSPECTIONS 70/77

The regulatory examination typically begins with an opening interview. At times, the interview questions areprovided in advance of the examination.

The duration of the regulatory examination can be as long as several weeks, but more commonly severaldays. The examination itself may conclude over time, with follow-up work conducted off-premises andthrough the mails, or telephonic exchanges of information.

16.3 Regulatory Exam Topics

The regulatory exam will likely open with an interview to discuss the primary business systems of theAdviser, and its internal controls. In each of these areas, the examiner will inquire about the Adviser'scompliance and control policies and procedures, and will evaluate their implementation and effectiveness.The Adviser should be prepared to discuss several topics (with supporting documentation ready at hand) thatmay include:

Consistency of portfolio management decisions with clients/investors' mandates• Order placement practices consistent with seeking best execution and disclosures made toclients/investors and funds' boards

•

Allocation of block and IPO trades• Personal trading of access persons consistent with the firm's code of ethics• Accurate securities pricing and net-asset values• Regular reconciliation of custodian records with fund and Adviser records• Controls over information• Calculations and presentations of performance• Accurate reconciliations of shareholder transactions•

The SEC examiners typically provide a checklist of documentation that the Adviser is required to produce.

16.4 Internal Inspection

The Adviser's annual review of its policies and procedures should consider, at minimum, any compliancematters that arose throughout the year, any changes in the business of the Adviser or its affiliates, and anyregulatory updates or changes that may affect the Adviser's operations, administration, compliance or otherbusiness division. More frequent interim reviews are encouraged, but are not required.

To carry out its responsibility, the Adviser is committed to conducting an annual inspection designed toevaluate the efficacy of its supervisory system, and to test its internal controls. The inspection shall beconducted by an individual or individuals who are independent of the general supervisory system, such thatan unbiased result may be expected. The Adviser may at its sole discretion employ an independent thirdparty to conduct the review.

The inspection shall cover the primary business areas of the firm, including but not limited to:

Sales practices• Billing practices• Trading practices• General compliance and record-keeping•



Review of the Written Supervisory Procedures and supervisory system• Associated persons• Risk management and internal controls• New business areas• Compliance matters faced in the prior year• Disciplinary matters faced in the prior year• Regulatory issues, trends or other matters relevant to the Adviser's business•

A report of the annual review shall be retained among the Adviser's central files and records.

16.5 Procedures for Compliance with Inspection Requirements

To meet the Adviser's requirements under Rule 206(4)-7 the CCO will conduct an annual review that willinclude, at minimum, a review of its written procedures, a review of new business areas, consideration ofnew regulations and regulatory trends, and appraisal of compliance matters that have occurred over the pastyear. The CCO may at his/her sole discretion employ an independent third party to conduct the review.

A written record shall be maintained to record the annual review, and shall include a summary of the topicsreviewed as well as plans or proposals for any relevant corrective action. The CCO shall document andoversee all corrective actions. Upon completion, the CCO shall present a report of the annual review to thesenior principal(s) for sign off and final evaluation.

The CCO shall be or shall designate the employee responsible for coordinating all activities during aregulatory examination such that the examiners are provided with documentation they request in areasonable and acceptable time frame.



17 PROXY VOTING

17.1 Procedures for Compliance with Proxy VotingRequirements

B. Proxy Voting Procedures.

Company notes the January 31, 2003 Securities and Exchange Commission ("SEC") releases adoptingvarious rules, including, among others, Rules 204-2(c)(2) and 206(4)-6 under the Investment Adviser Act of1940 and Rule 30b1-4 under the Investment Company Act of 1940. These procedures have been adopted inlight of those releases. It is the intent of the Company that its procedures be consistent with those of itsinvestors to avoid unnecessary expenses.

Policy and Guidelines.

The Company will vote proxies for all accounts for which it has voting authority in accordance with investorinstructions and in manner in which the Company believes to be in the best interests of its investors. TheCompany recognizes that in many instances the interests of corporate management may not be consistentwith what the Company views to be in the best interests of its investors. Therefore, in the absence of writtenvoting instructions from investor, the Company has adopted the following voting guidelines:

(a). Confidential Voting and Shareholder Actions.

The Company believes that the proxy voting systems should provide access to bothmanagement and shareholders. As such, the Company would tend to vote in favor ofshareholder resolutions requesting that corporations adopt policies that comprise bothconfidential voting and the use of independent inspectors of elections.

The Company would also generally oppose any measures that would restrict the right ofshareholders to act by written consent or to call a special meeting of the shareholders.

(b). Poison Pills and Golden Parachutes.

The Company believes that the shareholders of a corporation should have the right to voteupon decisions in which there is a real or potential conflict between the interests ofshareholders and those of management.

Thus, the Company will vote in favor of shareholder proposals requesting that a corporation

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submit a "poison pill" for shareholder ratification. We will examine, on a case-by-casebasis, shareholder proposals to redeem a "poison pill" and management proposals to ratify a"poison pill". The Company will also vote in favor of proposals that "golden parachute"proposals be submitted for shareholder approval.

(c). Election of Directors.

The Company believes that one of the primary rights of a shareholder is the right to vote forthe election of directors. We feel that all members of the board of directors should stand forelection each year, and will, therefore, vote against a classified or "staggered" board.

(d). Voting Rights.

The Company believes that each shareholder should have equal voting rights. The Companywill vote against dual class voting and other unequal voting structures.

(e). Fair Price Amendments.

The Company believes that "fair price amendments" can protect shareholders from coerciveand discriminatory tender offers. The Company will generally vote in favor of fair priceprovisions and in favor of other measures which we feel will protect shareholders fromcoercive takeover bids which do not provide for fair and equal treatment of all shareholders.

(f). Target Share Payments.

The Company believes that shareholders should have the right to vote on the placement ofblocks of a corporation's stock in the hands of persons friendly to management.

The Company will vote in favor of shareholder proposals which request that corporationsfirst obtain shareholder authorization before issuing any significant amount of voting stock(whether common or preferred), rights, warrants or securities convertible into voting stockto any person or group. We believe that shareholders should have the right to vote onplacements that could enable management of a corporation to defeat a tender offer that maybe in the best interests of shareholders.

(g). Tender Offers.

The Company will consider tender offers on a case-by-case basis.

Conflicts.

The Company recognizes that proxy proposals may present a conflict between the interests of investors andthose of the Company or certain of its affiliates. Therefore, the Company has adopted the following conflict



procedures:

(a). Identifying Conflicts.

The person assigned responsibility for voting proxies shall, when reviewing proxymaterials, identify conflicts of interest including, for example:

(i). when the Company (or its affiliate) is or is seeking to manage a pension plan, administer employeebenefit plans, or provide brokerage, underwriting, insurance or banking services to a company whosemanagement is soliciting proxies or;

(ii). has business or personal relationships with participants in proxy contests, corporate directors orcandidates for directorships.

(b). Data for Identifying Conflicts.

The person assigned responsibility for voting proxies shall advise Company management of companiessoliciting proxies, and management shall advise if there are any known conflicts - including, in particular,the conflicts listed as example in the preceding paragraph.

(c). Disclose Conflicts.

If a conflict is identified, the person assigned to vote proxies shall notify Company management as soon aspossible so that a voting decision may be made, voting on the proxy proposal in a timely manner.

(d). Voting Decisions in Conflict Situations.

If the matter to be voted on is covered by Part A of these procedures, the proxy shall be voted in accordancewith Part A. If the matter is not specifically addressed by Part A and there is a conflict, management of theCompany shall contact the investor or investor's designated representative for voting instructions.

(e). Record of Voting Instructions.

Company management shall record and the person responsible for voting proxies shall maintain recordsreflecting investor voting instructions on matters where there are conflicts.

Voting Records.

The Company recognizes obligations to maintain records as required by Rule 204-2(c)(2) under the AdvisersAct [and, if applicable, Rule 30b1-4 under the Investment Company Act of 1940]. Therefore, the Companyhas adopted the following record keeping procedure:



(a). Person Responsible.

The person assigned responsibility for voting proxies or, if that person is an outside service provider, theperson in the Company's legal or compliance department responsible for maintaining compliance recordsshall prepare and maintain the files/records required by these procedures.

(b). Policies and Procedures.

A copy of all proxy voting procedures adopted by the Company shall be maintained in an appropriatelylabeled file for the term required by regulatory authorities.

(c). Proxy Statements.

A record of all proxy statements with respect to securities held in investor portfolios with respect to whichthe Company has agreed to vote proxies shall be maintained.

(d). Proxy Voting Record.

The person responsible for voting proxies shall maintain a record detailing for each investor the informationfor each matter relating to a portfolio security considered at any shareholder meeting with respect to whichthe investor is entitled to vote.

(e). Memoranda.

The Company shall maintain a copy of documents created by Company (or the adviser) personnel that werematerial to the voting decision.

(f). Request for Data.

A copy of each written investor request for the Company's voting record on behalf of the investor and a copyof each written response - including a copy of a formatted voting record, shall be maintained. The reportshall be mailed within three days of receipt of a request.

Disclosure of Policies and Procedures for Voting Proxies.

The Company recognizes that it is required by Rule 206(4)-6 under the Investment Advisers Act of 1940 todisclosure to investors its proxy voting policies and procedures and, upon request, furnish a copy of thepolicies and procedures to the requesting investor. Therefore, the Company has adopted the followingprocedures:

(a). Disclosure in Schedule F to Form ADV.



A brief description of these procedures shall be included in Schedule F to the Company'sForm ADV as an additional service.

(b). Delivery of Procedures upon Contract.

If an investor engages the Company to vote proxies in connection with or related to meetings ofshareholders of issuers represented in the investor's portfolio, the investor (a) shall be provided a copy ofthese procedures, (b) shall be asked if it wishes to provide written proxy voting instructions, and (c) shallsign and acknowledgement with respect to receipt of the procedures and provision of voting instructions.



IA Policies and Procedures Manual - invpro.com · IA Policies and Procedures Manual Revision as of...

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